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the abolition of quotas, would be particularly dumaging because It would reduce her profit margins as well as the quantity which she would be able to cell in the United Kingdom market. Hong Kong, although che sould strongly object to a tariff, would probably not suffer much trade damage because the abolition of quota restrictions would enable her to trade up into garments. Hor position as a de endent territory raises a special political problem;
c) the introduction of a tariff should not, as we see it, necessarily lead to a lower level of imports from developing countries in 1975, as compared with the imports they would be likely to supply if quotes more retained. Moreover the teriff system should improve the position of developing countries in relation to that of developed countries. However, developing countries of the Commonwealth vould undoubtedly assume that a tariff would lend to a reduction in their exporto and this would cause us considerable difficulty in UNCHAD and to a legser degree in the GATT (by reason of Fart IV). We have so far been able to plain in both institutions that our policy is much more liberal than that of other developed countries. In our judgment certain Commonwealth developing countries, such as alta and Singapore, might be able to increase their trade with us because the dis- advantage of a tariff would be more than oflset by the removal of the quotas. Hong Kong would be able to offset any loss in the value of her trade in yarn and cloth by increased exports of garments;
a) because of the Commonwealth Treference Regulations Hong Kong at present has an incentivo to buy raw cotton, yarn and cloth from Commonwealth sources of supply, particularly India, Pakistan and East Africa. The adoption of the tariff solution may mean that Hong Kong exporters no longer think it worth while to claim the small pargin of preference on cotton textiles available to them. This is true of Hong Kong exports to us of products made from, or containing, man-made fibros. Consequently the incentive to buy raw materials from Commonwealth sources of supply in order to claim preference in the U.. market would disappear. It is difficult to judge whether this would make any significant difference to the Commonwealth suppliere in question. the whole, we do not think it would because they are already competitive with other suppliers to Hong Kong.
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