create serious political difficulties for the British Government (I laid considerable emphasis on this
point and Leary replied that this was well understood in the State Department). I then went on to say that
it would be well worth while to explore the various shades of grey. For instance, if there were products in which Hong Kong was obviously particularly competitive, and the figures showed this pretty clearly, surely the obvious way out would be te exelude Hong Kong from preference in the product in question or, perhaps better, to limit her preferential advantages to a certain ceiling. Naturally, we would expect the same to apply in the case of other developing countries who fulfilled the same criteria. I pointed out that if there were any products in which a "ceiling" were adopted along the lines the KEC were considering it would be possible to use some reasonable formula to limit any particular country. On the other hand, even if no formula were adopted it would still be possible for the U.S. Government, using reasonable criteria, preferably statistical, to make its own decisions about the exelusion of particular countries from preferences in particular products or their limitation.
5. Leary countered by saying that this might be attractive in a certain way, but that there might be political difficulties from countries who were excluded in this manner. I replied that the answer to this would be that this only affected particular products, and that it could be defended on objective grounds, Any countries who complained could be faced with other examples, particularly those concerning Hong Kong. Certainly, I could assure him that the political difficulties involved would not be as serious as those involved with H.M.O. if Hong Kong were to be completely excluded from the scheme.
6. Finally, I emphasised to Leary that both H.M.O. and the Hong Kong Government were only too willing to be reasonable in this matter. Hong Kong was certainly not to be counted among those countries who were actively seeking preferences in order to gain advantages for themselves. To be honest, she is reasonably content with things as they are. In other words, the Hong Kong Government would very well understand the situation if steps were taken to ensure that Hong Kong did not gain great advantages from any scheme. On the other hand, equally both H.M.G. and the Hong Kong Government would have strong reservations about any scheme in respect of which it was obvious that Hong Kong was going to lose in relation to her competitors. This we considered to be a reasonable stance and we hoped that the U.8. Government would agree that this was so. I added that, in the light of this, we would be only too anxious to discuss the details of Hong Kong's participation in any U.S. scheme at any time the U.8. Government might wish to de BO. We feel that this could iron out amicably quite a number of difficulties and that it could be helpful to both sides.
/7.