236. Telegram From the Embassy in China to the Department of State1

2315. Subj: Visit of Secretary Kreps: U.S.–PRC Trade Agreement. Ref: State 97979.2

1. (C entire text)

2. In my view, Secretary Kreps’ visit to China provides an excellent opportunity to achieve progress toward the normalization of Sino-U.S. economic relations and toward expanded Chinese participation as an active member in the world economic community. At the same time, it has become increasingly obvious in recent weeks that our ability to accomplish these purposes will be undercut unless we signal clearly to the Chinese that we wish to use the visit by Secretary Kreps to achieve major progress toward the conclusion of a U.S.–PRC trade agreement extending MFN to the PRC. While I recognize that there are a variety of other factors that must be taken into account in Washington in deciding on the timing and pace of the negotiations, there is little question from my perspective in Beijing that there are distinct advantages in moving ahead now.

3. On virtually every occasion since the normalization of Sino-American relations, the Chinese have hammered home the importance they attach to MFN as a crucial step that will provide them with the ability to sustain a high level of imports from the U.S. There is no doubt in my mind that the principal motivation on the Chinese side in agreeing to a claims/assets settlement that is highly desirable from our standpoint was their desire to clear the way for acquisition of MFN status from the U.S. Moreover, in the series of negotiations on economic-related matters that have taken place in Beijing in recent weeks on issues ranging from textiles to trade facilitation, the Chinese have made unmistakably evident their reluctance to meet our concerns on issues of importance to us in the absence of a strong U.S. commitment to move ahead on the question of MFN. It is hardly coincidental that the Chinese have chosen to defer continuation of the textile talks until after the visit by Secretary Kreps, when they expect to have a more accurate reading of our intentions. Unless, therefore, we are prepared to use the opportunity provided by the Kreps visit to press for the early [Page 861] conclusion of a trade agreement, we run a major risk of vitiating the forward momentum toward normalized and expanded economic relations provided by the Deng visit to the U.S. and Secretary Blumenthal’s visit to China. Conversely, China’s obvious interest in securing MFN as rapidly as possible provides us with maximum leverage to negotiate a trade agreement containing balanced benefits for us.

4. In our latest go-around on the trade agreement, the PRC side made clear their desire to work actively toward an early agreement and willingness to exhibit flexibility on various aspects of our draft. It is too early to tell whether the still wide differences between the U.S. and Chinese positions on the trade agreement can be bridged between now and Secretary Kreps’ arrival, but I see definite advantage in accepting the Chinese proposal to continue active negotiations on the trade agreement in early May prior to the beginning of the Kreps’ visit. To make these negotiations productive, however, we must be prepared to indicate to the Chinese that we are ready to move ahead on MFN in the near term within the context of a mutually satisfactory trade agreement.

5. If this option is acceptable to Washington, I strongly recommend that we keep our negotiating team small, preferably no more than three or four members. The goal of these talks should be to ascertain whether or not there is a basis for substantial progress on trade agreement during the Kreps’ visit, with our outside goal being an agreed draft to be initialed at the close of the visit. The chief Chinese negotiator, Sun Suochang, has made it clear that he intends to continue to conduct the negotiations personally for the PRC. So far he has done so with only one staff officer and an interpreter, and we expect this pattern to continue. I see merit in sending a small, highly expert group on our side to engage in intensive negotiations in early May. If these sessions produce substantial progress, the talks can be expanded with the arrival of the party accompanying Secretary Kreps.3

  1. Source: National Archives, RG 59, Central Foreign Policy File, D790185–1085. Confidential; Immediate; Exdis.
  2. In telegram 97979 to Beijing, April 18, the Department outlined the proposed program for Kreps’s visit to the PRC. (National Archives, RG 59, Central Foreign Policy File, D790179–0460)
  3. In telegram 105716 to Beijing, April 27, the Department responded: “In expectation that PRC will sign claims/assets agreement prior to or during Secretary Kreps’ visit, we will send small negotiating team to Beijing on May 1 to begin and carry out as expeditiously as possible negotiations for trade agreement (which, of course, will include MFN). If trade agreement issues can be resolved prior to or during Secretary Kreps’ visit, she will be authorized to initial agreement, ad referendum. During discussions on trade agreement, U.S. representatives should make clear that trade agreement could not be submitted to Congress without agreement on textiles which we would expect to be concluded during next round of negotiations beginning May 21. Foregoing should be conveyed to PRC officials.” (National Archives, RG 59, Central Foreign Policy File, D790192–0645)