TNAG-2244-FCO40-3225-Most-favoured-nation-status-for-China-impact-on-Hong-Kong-1991 — Page 76

CONFIDENTIAL

FM HONG KONG

TO PRIORITY FCO

TELNO 3010

OF 260711Z SEPTEMBER 91

INFO PRIORITY WASHINGTON

CONFIDENTIAL

INFO ROUTINE PEKING, BTC HONG KONG

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160777

MDLIAN 2480/

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ASIA O

WASHINGTON TELNO 2327 AND YRTELNO 1725: US/CHINA TRADE ISSUES

SUMMARY

1. WE ARE AWARE OF THE POTENTIAL PROBLEMS. NEED TO KEEP A LOW PROFILE AT PRESENT TO AVOID MISUNDERSTANDING OF OUR MOTIVES BY THE US AND CHINA. PROPOSE TO RAISE OUR CONCERNS IN PRIVATE AND IN GENERAL TERMS WITH THE US ADMINISTRATION. FURTHER ACTION SHOULD

BE CONSIDERED IF AND WHEN PRODUCTS ARE SELECTED FOR RETALIATION.

DETAIL

2. WE ARE GRATEFUL TO WASHINGTON FOR KEEPING US INFORMED OF THE FEEDBACK FROM THEIR CONTACTS, AND FOR TAKING THE LINE IN PARA 4 OF FIRST TUR.

3. WE SHARE THE CONCERN THAT US RETALIATION COULD HAVE ADVERSE EFFECTS ON HONG KONG'S ECONOMY, GIVEN THE CLOSE ECONOMIC LINKS BETWEEN HONG KONG AND SOUTHERN CHINA, AND THE VOLUME OF CHINESE PRODUCTS RE-EXPORTED THROUGH HONG KONG TO THE US. YOU MAY WISH TO NOTE OUR FOLLOWING ASSESSMENTS OF THE RISK TO HONG KONG POSED BY US RETALIATION UNDER SPECIAL 301 (INTELLECTUAL PROPERTY) OR SECTION 301 (THE BROADER MARKET ACCESS PROBLEMS).

4. ON SPECIAL 301 ACTION COULD BE TAKEN AGAINST SOME USD400 MILLION TO USD1 BILLION OF CHINESE IMPORTS SINCE THIS SEEMS TO BE THE RANGE OF US ESTIMATES OF ITS TRADE LOSSES RESULTING FROM CHINESE PRACTICES IN THE INTELLECTUAL PROPERTY FIELD. IF ALL SUCH IMPORTS WERE RE-EXPORTED THROUGH HONG KONG, ABOUT 4 TO 10 PERCENT OF TOTAL RE-EXPORTS OF CHINESE PRODUCTS THROUGH HONG KONG TO THE US WOULD BE AFFECTED. THIS WOULD BE EQUIVALENT TO SOME 9 TO 30 PERCENT OF THE IMPACT ON HONG KONG HAD CHINA LOST MEN STATUS. BUT SINCE NOT ALL OF THE US'S IMPORTS FROM CHINA COME THROUGH HONG KONG, THE ACTUAL IMPACT IS LIKELY TO BE SOMEWHAT LESS. ANY IMPACT SHOULD ALSO BE VIEWED AGAINST THE INCREASE OF SOME 18

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