C.
The Alternative of Article XIX action
6.
Industries Division propose that situations of serious injury to domestic industry should be handled under Article XIX of the GATT. They consider that the difficulties of so proceeding (e.g. the requirement to act on a non-discriminatory basis) would check the "creeping bilateralism" they fear.
7. C.R.E. Division, Hong Kong and ourselves consider that Article XIX would be no obstacle to action by importing countries and that, if it were widely resorted to, Hong Kong's trade interests would be seriously and unnecessarily damaged. Although attempts have been made to define injury in the GATT, it is in fact the importing country which decides what injury
has been caused. There is some doubt whether the non- discriminatory application of Article XIX measures would be required or enforced. If Hong Kong have to refuse restraints to Sweden in reasonable cases, the Swedes will feel impelled to take unilateral action to restrain imports in view of their restraint arrangements with other countries; and such action would lead to import levels much lower than could be negotiated.
8. If such action was challenged in GATT on Hong Kong's behalf there would not be a clear-cut ruling in Hong Kong's favour and the door would have been opened for other importing countries to treat Hong Kong in a similar way. There would be little sympathy or consideration shown for Hong Kong in GATT. She would be without the means of effective retaliation (Swedish exports to Hong Kong are one-fifth of Hong Kong's exports to Sweden) and, short of retaliation by ourselves on Hong Kong's behalf, there would be no way of bringing pressure to bear on
the Swedes.
9. If indeed Hong Kong's policy of conceding voluntary restraints is in conflict with Britain's trading interests, and since the proposed alternative must result in damage to Hong Kong's trading interests, the issues are of sufficient importance to be put to Ministers for decision in the light of H.M.G's general responsibilities for the good administration and well-being of the Colony.