CONFIDENTIAL
70/6/1.
idea of preferences was net Hong Kong's in the first place; we have always believed in free multilateral trade en a non-discriminatory basis and continue to do st. Hong Kong should net therefore be seen as waiting expectantly to grab the pickings if a scheme comes into force. e are not out to seek substantial gains from preferences in products which Hong Kong can already export in considerable quantities over existing tariffs. But on the other hand neither are we anxious to face substantial lrsses as a result of our competitors receiving significant advantages from preferences which might be denied to Hong Kong. And some of our competitors in some products are now more competitive than Hong Kong. I then go on to add that it woull be monstrous to exclude ilon Kong entirely from a scheme while leaving in ountries who have a higher national income per head or are equally or more competitive ♦r already receive special advantages from their linkage to regional roupings of developed countries. In this connection I have drawn up a "Black List" of countries who logically, if these criteria were applied, should be exoluded with Hong Kong. If they were applied it would still leave in more than 75 countries in the "Group of 77" (who are now more like 90), including India and Pakistan because of their low income per head and great economic difficulties. I enclose this list for your amusement. have not shown it to anyone except on a tentative basis te hemmis and all, but I think it is worth keeping in reserve and might even come in useful for argument with the Stans party if used carefully. The point is that a reduction of the list of beneficiary countries to those who are without question "less developed" would not only, in my view, make more sense of a preferences scheme but would probably also permit the donor countries to give more generous terms with deeper cuts, fewer exceptions and a smaller number of duty quotas. To that extent, and because of the removal of the richer and/or more competitive countries, it should also a peal to the reater majority of the devel-ping countries.
9.
I
This is, however, a field where there is a lot of political fire to burn fingers and it will have to be approached very circumspectly, if at all. I doubt whether any developed country would have the temerity to propose a pruning of the list in this fairly drastic way, although several of them would probably be quite willing to exclude a very small list, including Hong Kong. This, however, would not suit ong Kong's book.
Conclusions
10.
The conclusion from the above is that the game is still not yet decided but that we remain under pressure. For the moment Hong Kong must still continue to play a waiting game in the hope that we will be able in the end to at least earn an honourable draw. But in case things do go wrong I consider that we should start thinking about fallback positions so that we are not caught off guard and can put reasonable and sensible propositions to HMG if the time
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CONFIDENTIAL