CONFIDENTIAL
HONG KONG TELNO 660 TO FCO
-5-
AND THAT GROWING EXPORTS ARE CIRCUMVENTING THE RESTRAINT ON CABINET
TOWELS. WE ARGUE THAT OUR SHIPMENTS OF THIS ITEM ARE LEGITIMATE
AND WITHIN THE TERMS OF THE BILATERAL AGREEMENT. THEY, WITH SOME
HEAT, CALL THIS A LEGALISTIC ARGUMENT.
3. PROVIDED WE CAN REACH A COMPROMISE ON THIS ISSUE WE UNDERLINE
NEXT WORD MAY BE ABLE TO REACH AGREEMENT ON THE COTTON TEXTILE
ITEMS BUT ON A WORSE BASIS FOR US THAN IF THERE HAD BEEN AN
OVERALL PACKAGE INCLUDING NON-COTTONS. NEVERTHELESS WE FEEL IT
WOULD BE WISE TO TRY TO REACH AN AGREEMENT ON THIS UNSATISFACTORY
BASIS BECAUSE IF MATTERS LATER REACH A PASS WHERE THE SURCHARGE IS
IMPOSED ON M.M.F. THE CANADIANS WILL TRY TO DO SO ON THE BASIS OF
THEIR OWN CUSTOMS CLASSIFICATION WHICH DEFINES M.M.F. AS 5% OR
MORE M.M.F. (94% OR LESS OF COTTON). THIS WOULD CATCH A CONSID-
ERABLE PROPORTION OF OUR COTTON EXPORTS TO CANADA WHICH, FOR CTA
PURPOSES, ARE DEFINED AS OVER 50% COTTON. IF WE HAVE REACHED A
COTTON AGREEMENT, ON THE OTHER HAND, WE CAN ARGUE THAT THE SURCHARGE
SHOULD NOT APPLY TO EXPORTS DEBITED TO QUOTA UNDER THIS AGREEMENT. 4. IN PRIVATE CONVERSATION HOWARTH HAS TOLD JONES, WHO IS
LEADING FOR HONG KONG, THAT IF NO AGREEMENT IS REACHED BETWEEN THE
U.K. AND CANADIAN GOVERNMENTS OVER M.M.F. THE CANADIANS WOULD
HAVE THE CHOICE BETWEEN THE FOLLOWING COURSES OF ACTION 1-
1) IMPOSE THE SURCHARGE ON THE ITEMS AFFECTED (AS DEFINED IN THEIR
CUSTOMS TARIFF).
2) WITHDRAW M.F.N. TREATMENT FROM HONG KONG ON THESE ITEMS (AND
TAKE THE RISK OF RETALIATION).
3) RAISE THE TARIFF AGAINST HONG KONG AND INVOKE ARTICLE XIX (HE
CLAIMED THEY COULD GET ROUND THE REQUIREMENT ON NON-DISCRIMINATION
BY CLAIMING THAT PRICES WERE RELEVANT).
4). DO NOTHING AND LET THE TRADE RUN ON.
/5. HE
CONFIDENTIAL