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problem, one relating to the rather narrow issue of market disruption and the other concerned with broader political considerations which were more difficult to evaluate.' He said that the Hong Kong industry and the general public were most conscious that Hong Kong, being a dependent territory, enjoyed a special relationship with Britain and should receive preferential treatment. It should not be forgotten and the Hong Kong industry did not forget that Hong Kong was the first supplier voluntarily to restrain exports of cotton textiles to Britain as bng ago as 1959. Despite the advantage this then gave to unrestricted suppliers, Hong Kong had been prepared to help Lancashire. This spirit of goodwill had been seriously undermined by the 1965 "no-carryover" episode, by the harsh nature of the present request and by other requests running counter to the Heads of Agreement.
74.
As to the request itself, he was concerned that it had been made without reference to the Heads of Agreement which Hong Kong regarded as the only point of reference for any consultations. He remained unconvinced by the British claim that a situation of market disruption caused by imports from Hong Kong existed, and added that the decline in British production might be due as much to a change in demand to knitted nylon sheets as to an increase in imports generally of woven sheeting. Assuming, for argument's sake, that market disruption existed and Hong Kong was responsible, he would certainly not accept average performance over the three years 1964-66 as the basis for the calculation of new restraint limits. Hong Kong
Also, the could never concede restraint in such circumstances. performance period had to relate to the date of the formal request for restraint. He did not accept Mr. Ord-Johnstone's letter of October 1967 as a formal request. As E.A. returns were sent to the B.O.T. every fortnight, H.M.G. could have requested consultations much sooner if particular "basket" items were causing genuine concern. As no request for the suspension of E.A.s had been made, Hong Kong naturally assumed there were no problems. Since the B.O.T. were at all times in possession of the full facts, Mr. Stewart would understand why the prospect of any cut-back was so difficult for Hong Kong.
75.
Noting Mr. Jordan's remarks, Mr. Stewart stressed it should not be overlooked that, while acceptance of the British proposal would cause no unemployment in Hong Kong, its rejection
Mr. Jordan replied would create unemployment in Lancashire. that it was by no means certain that Hong Kong would be able to ship up to the aggregate limit if categorisation were increased and the quantities reduced.
76.
Before responding to the proposals made by Mr. Stewart at the previous morning's session, Mr. Jordan said he wished to emphasise that any changes made to the present arrangements would have to be within the framework of the Heads of Agreement and that adequate compensation would have to be made in other categories with specific limits if Hong Kong was to accede to the B.O.T.'s request.
77.
While Hong Kong understood H.M.G.'s concern over imports of wide sheeting, and the C.A.B. recognised that Hong Kong's exports in 1968 were running at an unusually high albeit legitimate level, Hong Kong, although prepared to render some assistance, could not countenance a cut-back of the magnitude proposed by the B.O.T. In the circumstances, he had been authorised to put forward the following counter-proposal (Mr. Jordan handed Mr. Stewart a paper containing the proposals):
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