CONFIDENTIAL
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8. The EEC Commission continue to argue the merits of an offer based on preferential quotas and claim that their offer will be more generous than those of any other of the major donors. Information given in confidence by the Commission indicates that they propose to offer duty free entry to all industrial products without exception, but ceilings on duty free admission will be established equal, probably, to the previous level of imports from developing countries plus 5% of the level of imports from all other countries. In the case of sensitive items those ceilings would operate as duty quotas (with imports from any one developing country limited to 50% of the quota) but for less sensitive items they would only be enforced if there is evidence of market disruption. Goods covered by the long term cotton agreement would only be admitted duty free within the terms of that agreement. The offer on processed agricultural products will be tariff reductions for a selective list, subject to a general safe- guard provision. The proposals are still subject to approval by the member states, probably at a meeting of the Council of Ministers early in February.
9.
The Japanese have come round to support for preferences as a result of the American conversion, but have considerable doubts about the effect of the scheme. Their main fear is that their exports to the US and other developed country markets, which are mainly textiles, consumer goods and "light manufactures", may prove to be particularly vulnerable if preferences are granted to developing countries. They have recently displayed a much more constructive attitude in the discussions and have confirmed their intention of tabling their offers on 1 March. It remains to be seen how generous these offers are, but they are concerned particularly that adequate safeguard procedures should be easily available and applicable on a discriminatory basis. It is probable that their offers will exclude many of the products that are sub- ject to quantitative restrictions and will also exclude developing countries most competitive with Japan, such as Hong Kong, Taiwan and South Korea.
10. The Canadians, also reluctant converts to the general principle of preferences, have special concerns. There is no internationally agreed definition by which primary pro- ducts can be differentiated from semi-manufactures. The Canadians would like to get it accepted that non-ferrous metals up to the stage of refinery shapes and certain other "primary products" in which they have a major export interest should be excluded from the preference arrangements by all developed countries. They also seem to fear that, unless all the other donors are tied down firmly to maintaining preferences, once granted, some of them, the Americans in particular, may be inclined to resort over easily to any safeguarding escape clause in order to eliminate or to reduce the scope of the new preferential advantages. The Canadians do not believe their internal procedures would enable them to follow suit. For this reason, they advocate alone -that the preference-giving countries should accept firm obligations to maintain preferences and should be required to seek the authorisation of an international body before they can be entitled to invoke safeguards.
11. The Australians, the only country to have introduced a unilateral preference scheme, are particularly worried lest their exports of processed agricultural products should be
/jeopardised
CONFIDENTIAL