0003230
G.F. 323
CONFIDENTIAL
4
16. Turning to the Heads of Agreement, Mr. Stewart could see nothing in them to preclude H.N.G.'s taking action to deal with a situation of market disruption. He pointed out that the C.T.A. recognised the rights and obligations of both importing and exporting countries and that the Heads of Agreement were in the spirit of the C.T.A. In the context of market disruption, Article 3 of the C.T.A. was relevant.. Mr. Jordan replied that this was not so in the present case as the Heads of Agreement put Hong Kong and Britain onto a bilateralf basis. He also pointed out that Hong Kong's most recent Article 4 agreement with the Benelux specifically ruled out the possibility of Article 3 action being taken by the importing country.
17.
Mr. Stewart asked whether Hong Kong accepted that the market had been disrupted. Mr. Jordan replied that the issue was not quite so simple; the British request had to be considered within the framework of the Heads of Agreement. Mr. Stewart said that in his view the clause in the Heads of Agreement which provided for the maintenance of category ceilings although export performance fell short of the limits was simply included to make it quite explicit that there would be no automatic reduction in category limits for categories that did not qualify for the 5% category growth. But this did not mean that when market disruption occurred suitable adjustments to the limits should not be made in order to take account of the situation. Mr. Jordan found difficulty in under- standing this point of view as one of the basic advantages of a long- term agreement was certainty for the trade. If this could not be fairly well guaranteed and adjustments to category levels avoided, there was little point in an exporting country entering into a restraint agreement covering a number of years. Nonetheless, despite the fact that the British request was unprecedented, he was fully prepared to discuss further the British case provided more detailed information could be made available. If a situation of market disruption did exist (and he did not necessarily accept this), the next basic question to be answered was which supplier or suppliers were causing it.
18.
Mr. Stewart, agreeing to develop his argument, said he would like to point out that if Britain had insisted on such rigid categorisation as the U.S.A., the present problem would never have arisen. While H.M.G. had no wish to stifle Hong Kong's legitimate trade, he had to..point out that imports from Portugal of wide sheeting and sheets were already under specific limitation and for this reason Hong Kong had benefitted substantially during the first half of 1968. H. .G. had hoped that the restrictions imposed on Portugal in 1967 would remedy the situation, but it had not happened. In the circumstances, the B.O.T. now had to approach both India and Hong Kong to see what assistance they might be able to offer.
19.
Mr. Carter interjected that, in view of the differing inter- pretations the two sides placed on Section E of the Heads of Agreement, he felt the best course would be for the issue of market disruption to be examined in detail at the outset.
20.
Referring to the statistics provided by the P.0.T. (see enclosure), Mr. Jordan enquired whether these related solely to cotton sheets and sheeting. Mr. Stewart replied that the figures definitely referred to woven sheeting and sheets, although statistics for certain blended fabrics might have been included. He confirmed, however, that kritted nylon sheeting and sheets, which were becoming increasingly popular in Britain, had not been included. He suggested that in view of the swing to knitted nylon sheeting and sheets, which had taken up 6% of the British market for sheeting in 1965 and approximately 19% of the market in the first quarter of 1968, Hong Kong might find it advantageous to move out of the sheeting and sheets categories into other fabrics for which export opportunities were brighter.
/21.
CONFIDENTIAL
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