TNAG-2918-FCO40-4193-The-internationalisation-issue--Hong-Kong-Department-paper---1993 — Page 28

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has made. The purpose of increasing the pressure would be to

influence the way the Chinese behaved, or at the very least to

make sure that they realised that they would pay a high price in

international terms higher than they would want to pay if

they damaged Hong Kong. Real constraints on Chinese behaviour will arise only when they see that their policies towards Hong

Kong will, if continued, affect their own economic reform programme or position in the world. The most powerful of the available tools are therefore US policies towards China,

especially MFN, and GATT re-accession.

13. On MFN, it seems unlikely that President Clinton will be willing to maintain the Bush policy of unconditional renewal

although he and the key players in Congress may be willing to settle for renewal in 1993, but setting out conditions which

would have to be met before further renewal in 1994. Our policy

is conditioned by the vital importance for Hong Kong of US/China trade (70% of which flows through Hong Kong). Estimates of the

damage which would be done to Hong Kong if MFN status were

removed indicate that it could cost Hong Kong 60,000 jobs and a

halving of GNP growth. We have therefore made it clear that we are against any linkage between MFN renewal and China's treatment

of Hong Kong. The best outcome for us would be to keep the threat of withdrawal hanging over China, but to avoid stringent

conditions (for instance linking MFN to human rights) likely to

lead to the withdrawal of MFN because the Chinese could or would

not meet them. It will be tricky to achieve this. We may need

to consider lobbying in due course for conditions whose implementation was delayed pending bilateral US/China

negotiations, and/or token conditions which did not hurt Hong

Kong.

14.

On GATT, the working party formed in 1986 is in the initial stages of preparing a protocol setting out terms of Chinese adherence to GATT. Negotiations could be completed by as early

internat.NAT

JEB

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