НКК 6/548/8
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Sir Arthur Galsworthy
You are aware that H.M.G. is reconsidering its policy towards the UK cotton industry in the light of the recommendations of the Textile Council's Report. The chief proposal of the Textile Council is that existing quantitative restrictions should be withdrawn and replaced in the case of Commonwealth supplies by a tariff at the rate of 85% of the existing MFN rate.
2. On 30 June a Board of Trade paper on this subject (PC0(69)10), to the general effect that the Board were disposed to accept this proposal, was considered by the Cabinet Official Committee on Commercial Policy.
3. We were able, I am glad to say, to give Hong Kong some warning that these discussions were in the offing (our telegram No. 401) and to suggest a number of points which we thought they should examine in this context. Just in time for the meeting we had the Governor's observations (Hong Kong telegram No. 511) but as you will see he described these as no more than his very tentative assessment, in the absence of con- sultation with the industry, of the likely effect on Hong Kong's exports if this measure were to be imposed.
4. The Board of Trade paper is lacking in balance and was criticised on this score in Monday's meeting. Our representatives on the Official Committee, with some support I understand from ODM, emphasised the Commonwealth and other international objections to the proposed course; and some of the Hong Kong_argu- ments were used. As a result the Board of Trade are preparing a redraft which should reflect both sides of the case more fairly.
5. This new paper will be going to the Commercial Policy Committee at ministerial level next week, with considerable impetus behind it from the President of the Board of Trade. I understand that the recommenda- tion will still be that the Textile Council's proposal should be accepted, but other departments will be free to put in their own papers if they wish. The President's objective is a public statement before the Summer Recess that H.M.G. has decided to adopt the Textile Council's proposal and will open "negotiations" with Commonwealth Governments with a view to its implemen- tation. In the case of only a few Commonwealth countries do the preferences to be withdrawn depend on contractual obligations (e.g. India, Canada) and would the word "negotiations" be an appropriate description of the exchanges envisaged.
For most of them including Hong Kong) "discussions" would be a more appropriate term.
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