CONFIDENT! 1.
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5.
The figures in the Aide Memoire showed a sharp decline in British production of sheeting and sheets between 1966 and 1967. This had been accompanied by a decline of 25% in the labour force engaged in making this product although there had been a slight recovery of production in the first half of 1968 (production for which totalled 25 million square yards). Weither industry nor H.M.G. could regard 1967 as a normal year and the object of the Board of Trade was to reservo to the U.K. industry the share of the market for sheets and sheeting which it had held in 1966 or at least to prevent any permanent decline in its production figures from those of that year. In answer to questions from me, Stewart was unable to say whether the units of the textile industry now producing sheeting and sheets would be able to increase their productive capacity in order to compensate for those units which had permanently closed or changed to other products during 1967.
6.
Exports from Portugal had been the most obvious cause of market disruption in 1967 and therefore H.M.G. had, with some difficulty, rouched a confidential agreement (unknown to the British industry) on 4th March 1968, under which the Portuguese industry exercised restraint in respect of shipments of sheeting and sheets to the U.K. with a cut-back from 17 million square yards in 1967 to an annual level of 10 million square yards. Stewart went on to say that the agreement contained no provision for growth, but subsequent probing by me made it clear that the agreement was in fact for one year only.
7.
Although ministerial agreement had been obtained in March for parallel approaches to Hong Kong and India, it had been hoped that the settlement with Portugal would relieve the pressure on the U.K. industry. However, the only effect had been that Hong Kong and India had both gained from the Portuguese restraint and that the import figures hud continued to rise. Stewart admitted that the picture was complicated by the rapid increase in demand for nylon shoots. I said I understood that nylon sheets had amounted to some 15% of total sheet consumption in 1967 and Stewart estimated that they might account for over 20% this year.
8.
Stewart considered that the present proposals were a more serious matter for India than for HongKong because sheeting and sheets were much more important items in India's textile trade than in Hong Kong's. The Hong Kong textile industry had shown itself capable of rapid diversification into other items when similar difficulties had been experienced in the past, but the Indian industry had not proved so adaptable. The cuts might seem heavy to Hong Kong but he assured me that the original proposals from the textile industry had been for an across the board cut in piecegoods quotas. The proposed cut backs had very nearly been extended to include canvas and duck but he was relieved that in the end they had been narrowed down to wide-width she ting and sheets only. In conclusion he emphasized that his instructions left him little room for manoeuvre. Hong Kong must face the realities of the situation which were that H.M.G. was not prepared to accept
a rebuff on this matter: this should be fully understood from the outset.
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CONFIDENTIAL
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