243. Memorandum From Guy F. Erb of the National Security Council Staff to the President’s Assistant for National Security Affairs (Brzezinski)1
SUBJECT
- China as a Developing Country
Les Denend informed me that you wish to see China designated as a developing country in the current Trade Agreement negotiations.
While we can agree to language defining China as a developing country, we are in a dilemma when it comes to giving that term substantive content. In one sense, acceptance of the Chinese request would merely recognize China’s self-designation as a developing country in North/South institutions. In another, it challenges us to provide tangible benefits to China while its very size, world stature, and politics make it difficult for us to do so.
In the context of the Trade Agreement negotiations China apparently wants to be eligible for the U.S. generalized system of tariff preferences (GSP). The tariff preference system is a fragile trade policy instrument, continually under attack from labor and industrial interests that feel injured by the benefits that the system confers upon developing countries. Even the potential eligibility of China for GSP benefits would make it more vulnerable on Capitol Hill. The GSP is an important North/South symbol. A reduction or suspension of the GSP would have a high international cost.
As an internationally recognized developing country China could benefit from the special and differential treatment for LDCs embodied in the MTN codes. Chinese adherence to some of the codes would be necessary, however, and that might be difficult for the PRC.
China’s potential membership in the World Bank and other international financial institutions is a third issue. PRC membership would involve removal of the Republic of China from these institutions. McNamara and the Treasury are concerned that Chinese membership [Page 877] would further diminish support on Capitol Hill for the World Bank and other multilateral institutions.
I conclude that special trade and aid measures for the benefit of China are so sensitive domestically that we should not accept language in the trade agreement negotiations that does more than recognize China’s wish to be called a developing country.
Our present approach reflects the concerns of several agencies that extending tariff preferences to China would jeopardize the whole GSP. The delegation will accept language defining China as a developing country but will not accept any commitment that would imply that we had taken a decision at this time to grant China tariff preferences.
Nick Platt believes that China is a developing country and that our policy toward it must take that fact into account.2 The approach described in the memo, however, is acceptable provided that it keeps our options open on the issue.3 It makes tactical sense to avoid a major battle within the executive branch and with Congress and give priority to achieving a trade agreement and MFN treatment for the PRC. MFN will be much more significant for PRC modernization than GSP. At some future point, however, we will need to face the truth that our relationship with Beijing is not just an East-West problem, but North-South as well. The Japanese, as usual, are ahead of us on this and thinking seriously, for example, of large developmental loans to China.
Jim Cochrane concurs.4
- Source: Carter Library, National Security Affairs, Brzezinski Material, Country File, Box 9, China (PRC): 4–5/79. Confidential. Sent for information. Sent through Owen, who attached a covering note that reads, “Zbig—Treating China as a developing country in the World Bank could do serious—perhaps fatal—damage to that institution. Its future hangs by a thread in the Congress; adding China to the countries the IBRD has to aid would powerfully multiply its enemies. I’m not clear how this affects the issue you’re grappling with, but I wanted to be sure you had it clearly in mind.” (Ibid.)↩
- Platt initialed above his name, indicating that he concurred with this characterization of his views.↩
- Brzezinski circled this sentence and wrote, “It is meant to keep our options open. Does it? ZB. 5/9/79.” Erb and Platt wrote a response in a May 9 memorandum: “You asked whether the approach we are following with regard to China’s designation as a developing country and its eligibility for U.S. tariff preferences keeps our options open. We feel that it does. Hormats, with whom Guy has discussed this matter several times, agrees. Note that to become a GSP beneficiary country, under the terms of the Trade Act of 1974, a Communist country has to receive MFN treatment from the United States and be a contracting party to the General Agreement on Tariffs and Trade and a member of the International Monetary Fund.” A stamped note indicates that Brzezinski saw this memorandum. (Carter Library, National Security Affairs, Brzezinski Material, Country File, Box 9, China (PRC): 4–5/79)↩
- Cochrane initialed above his name, indicating his concurrence.↩