CONFIDENTIAL
it may be possible to safeguard Hong Kong's position in GATT without having to take this step. But certainly the grant of full autonomy is not a step which should be taken unless absolutely necessary. The doubts that would inevitably arise about Hong Kong's constitutional status would greatly heighten the dangers and disadvantages noted in paragraph 5(b) and (c) above.
7.
Hong Kong representatives have from time to time expressed a view that over the last two years the Colony has lost a measure of authority and control in this field. This view we do not understand or feel we can accept but it may be urged as a reason for some formalisation of present arrangements. In our view the arrangements outlined in paragraphs 3 and 4 above have governed the conduct of Hong Kong's commercial relations in recent years. Until quite recently these arrangements have functioned quite satisfactorily. As we see it, difficulties have arisen in the past two years because for the first time we have been faced with a major conflict between Hong Kong and UK commercial interests for which no ready solution could be found. This centred on Hong Kong's practice, under pressure from importing countries, to enter into voluntary agreements for the restraint of its trade in non- cotton textiles which were seen in Whitehall to be inconsistent with the provisions of GATT and in conflict with UK policy objectives of avoiding the extension of quantitative restrictions outside the field of cotton textiles.
Conflict of Interests
8. It would be surprising if occasionally the trading interests of Hong Kong and the UK did not conflict, both in particular markets and in broad policy objectives. It is not surprising that conflict has occurred in the field of textiles where the UK as a major importer has very different interests to those of Hong Kong as a major exporter. This is not the place to examine the area of this particular conflict or the merits of the respective positions. Our purpose is to examine how such conflicts of interest can and should be resolved.
CONFIDENTIAL
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