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6.
He then handed over a graph, drawn entirely from Australian figures, which showed that, during a period in which Australian production had increased by 10%,
(a)
the trend of total imports had declined;
(b)
imports from Hong Kong were obtaining a declining share of the declining import market;
(c)
in recent months the import market had revived while imports from Hong Kong continued to fall;
(a)
inports from Japan had been rising against the trend over the last two years and had recently increased sharply.
Furthermore, the low Hong Kong price quoted by the Australians was nothing new. The Australian figures indicated that Hong Kong prices had varied little over the last three years.
7.
The Australians based their case on a threat of market disruption, but Hong Kong could not accept such a case when not one of the normal indicators (as in annox C to the C.T.A.) pointed in the right direction. To do so would place the Hong Kong Government in an untenable position vis-à-vis domestic industry and would establish a very damaging precedent in the context of the C.T.A. We could not therefore accede to the Australian request despite the threat of alternative action (which, as we did not say, we did not take very seriously); in this case the principle was more important than the trade (1.3 m. sq. yds. worth HK$2.4 m. in 1967).
8.
We therefore suggested that the consultations should be adjourned, sine die, to be reconvened at Australian request if and when evidence was available to indicate that a switch in purchasing to Hong Kong was in fact threatening serious damage to Australian producers.
9.
Mr. Callaghan repeated that in Australian opinion a threat of disruption existed, but he saw the force of the Hong Kong argument. He conceded that if he made it known to the five Australian garment manufacturers that a substantial switch in purchasing to Hong Kong would almost certainly provide firm backing for another Article 3 request this would provide a strong deterrent. The Hong Kong side undertook to inform the Hong Kong industry of this also and also offered to institute an Export Authorisation Scheme which would enable the Australian Government to watch the forward development of the trade. Mr. Callaghan welcomed this proposal, with some reservations.
10.
A draft Memorandum of Understanding (Enclosure 1) was accordingly initialled by Mossrs. Callaghan and Jordan ad referendum both Governments.
11. that:
(a)
In summary, the Memorandum of Understanding records
no restraint should at present be applied by Hong Kong on exports to Australia of cotton drills, denims, dungarees and jeans (falling within paragraph 55.09.49 in the First Schedule to the Australian Customs Tariff);
/(b) both Governments ...
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