TNAG-2750-FCO40-3965-Most-favoured-nation-status-for-China-Hong-Kong-interests-1993 — Page 67

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SECRETARY OF STATE'S VISIT TO NEW YORK AND WASHINGTON: FRIDAY 21 MAY

BACKGROUND

MFN

1. Most Favoured Nation status (MFN) enables Chinese imports into the US to benefit from preferential tariffs. China's MFN status has to be renewed by the President on an annual basis. Since Tiananmen Square in 1989, there has been pressure in Congress to use MFN as a lever on China to improve its human rights record by placing conditions on its renewal. MFN was last renewed by President Bush on 2 June 1992.

2.

On the 22 April Senator Mitchell and Congresswoman Pelossi introduced legislation to attach conditions to MFN renewal from June 1994. The legislation calls for MFN to be suspended for products of state owned and state operated enterprises after June 1994 unless the President certifies that China has made significant progress in addressing the US's concerns about human rights, trade and weapons proliferation. The bill is very similar to the one introduced by Congresswoman Pelosi last year on which President Bush exercised his right of veto. response to the bill's introduction the White House spokesman said that the President had consistently supported the general approach of conditioning MFN, but he stopped short of publicly endorsing the bill.

3.

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Revoking MFN would severely damage Hong Kong's economy as over 70% of Chinese exports to the US pass through Hong Kong. It could cause the loss of up to 60,000 Hong Kong jobs and halve GDP growth. Conditional renewal would also be damaging as it would bring uncertainty to the markets and lead to an erosion of confidence.

4. During the election campaign President Clinton was very critical of President Bush's policy on China and it has become clear that he intends to use MFN as a lever on China. However, there is a considerable US business lobby against cancelling China's MFN status. The US Administration wishes to work with Congress to devise a strategy on MFN which would take account of their concerns about China's human rights record, arms proliferation activities and trade surplus but without isolating China. It is expected that MFN will be renewed in June 1993 but that renewal in June 1994 will depend on the Chinese meeting specific criteria in the human rights, arms proliferation and trade fields. We understand that the State Department has been working on the text of possible conditions. It is not yet clear whether the conditions will take the form of specific targets or a more general requirement to make overall progress on the issues of concern.

5. Winston Lord visited China from 10-12 May to inform the Chinese that they had not done enough to address US concerns to warrant unconditional renewal of MFN. On 19 May the

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