TNAG-2242-FCO40-3223-Most-favoured-nation-status-for-China-impact-on-Hong-Kong-1991 — Page 5

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CONFIDENTIAL

4.

China is even less popular in Congress than last year for the following reasons:

human rights: despite the release of Fang Lizhi and

lifting of martial law last year, the Chinese record remains

badly tarnished; the trials of dissidents and exports of

prison-made goods to the US have kept the issue alive;

arms proliferation: especially missile sales to

Pakistan, but also elsewhere; leading to ban on sales of US

satellite components; also concerns about nuclear help to

Algiers;

-

intellectual property rights infringements: special 301

action announced by Carla Hills on 26 April;

-

growing Chinese trade surplus: US's third largest

bilateral deficit, c$11 billion.

5.

The possibility of Congress being able to overturn a Presidential veto seems much stronger this year. The

President's decision to receive the Dalai Lama and the Super

301 action by the USTR may be designed to demonstrate the

Administration's toughness with Peking in order to help MFN extensions. Washington has reported that the President would probably be able to sustain a veto but that the Administration may be tempted to look at possible deals in

order to avoid a veto fight, particularly in the run up to

an election year.

6. Hong Kong would be gravely damaged by curtailment of MFN

for China. Over 40,000 jobs could be lost, GDP growth could

be curtailed by up to one third and over 40% or US $4.6

billion worth of Hong Kong's re-exports from China to the US

would be lost.

DUNAFS/2

CONFIDENTIAL