TNAG-2913-FCO40-4188-International-support-from-the-USA-regarding-the-future-of-H-1993 — Page 17

CONFIDENTIAL

SIR JOHN COLES VISIT TO WASHINGTON 19 APRIL

BACKGROUND

ADMINISTRATION ATTITUDES

1.

The new Administration have taken a supportive, and reasonably well-judged, line in public on our policy. Attached is an extract from their Report to Congress required under the McConnell Bill. Secretary Christopher, testifying on 30 March on the Hill, spoke in support of the Governor's reforms and spoke of the great value that Hong Kong provided China as a window on the world.

MFN

2. 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, who exercised his right of veto on an MFN conditionality bill sponsored by Congresswoman Pelosi.

3.

Revoking MFN would severely damage Hong Kong's economy as over 70% of Chinese exports to the US pass through Hong Kong. It would 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, Mr Clinton was very critical of President Bush's policy on China. There is expectation, particularly within Congress, that he will be prepared to use MFN as a lever on China, but there is also considerable pressure from domestic business interests not to cancel China's MFN status. US Secretary of State signalled recently that the Administration wished 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.

We understand the Administration's current thinking is that MFN would be renewed in June 1993, possibly by Executive Order, setting broad conditions for renewal thereafter. When the Secretary of State visited Washington in March he secured agreement from the US Secretary of State that we would be consulted when the question of conditionality came up for discussion.

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JEB

CONFIDENTIAL