8. Likewise the Hong Kong Government has said that, even in the context of the current policy, if the U.K. Government considers that it has as good a case against Hong Kong on any non-cotton item taken alone as those in respect of which Hong Kong has conceded voluntary restraint to other countries, the Hong Kong Government would be willing to consult. But I would add that, on the statistical evidence you produce, there would not appear to be a case of serious inuury caused by imports from Hong Kong on any non-cotton item on its own and divorced from cotton.
9. I now turn to the approach you seem to be adopting. As I said in my earlier letter, it appears to be entirely different from the Hong Kong approach described above and I am afraid I must repeat that i carries disturbing implications. It comes out best in your third paragraph where you again talk of the U.K. being justified "in invoking restrictions under Article XIX of the GATT" in a one market situation for e.g. cotton and MMF trousers. I will not repeat all I said earlier on this but I will say that, if this is the line which HMG really intends to follow, then it would cast considerable doubt on their motives, both in proposing the removal of the existing cotton quotas when the tariff on Commonwealth cotton textiles is imposed in 1972, as well as in compaigning for the winding-up of the LTA at that point of time. I say this because it could be inferred from your remarks that both the existing U.K. cotton quotas and the LTA are con- sidered to be an encumbrance to the U.K., in that they stand in the way of her invoking Article XIX to restrict imports of particular products, such as trousers or shirts, both of cotton and non-cottons.
As you have now repeated your Article XIX threat in writing I think I am entitled to ask whether this is in fact HMG's policy or whether it does no more than express your own views on what that policy should be.
10. I turn now to the latter part of your letter where you consider the statistical case against Hong Kong on some items where you claim that the U.K. would be entitled to request restraint. First trousers. Here I can only repeat that the greater part of the increase in imports of trousers, both in general and from Hong Kong alone, consists of cotton trousers. Even in the first half of 1969 imports of cotton trousers overall were about 10 - 11 times higher than imports of MMP, while from Hong Kong the ratio was about 12:1. If imports of cotton trousers have been rising from Hong Kong this has been within the quota arrangement, including its categorisation provisions and allowable swing. The reason for this rise must therefore be that the trousers' market is strong and profitable. It is noticeable, for instance, that, despite the significant increase in imports, U.K. production has still been rising. I agree also that imports of MMF trousers have also been going up, both overall and from Hong Kong. But even so, in the first half of 1969 they only came to 762,000 pairs from Hong Kong compared with 9.8 million cotton trousers. There therefore appears to be no case against Hong Kong on MMP trousers alone such as e.g. Hong Kong conceded to Canada which is a very big market for Hong Kong MMP trousers (probably not far short of 4 million pairs this year).
/11.
CONFIDENTIAL