0003230
G.F. 323
CONFIDENTIAL
3
liberalised trade unless and until a case of market disruption or an actual threat thereof was made and agreed. Ernst replied that, in the present situation of the Community, the only possible outcome of an Article 4 negotiation would be the abolition of existing bilateral quota arrangements with individual Member States and their replacement by one agreement containing restraint limits for all categories at present restricted by one or more Member States. In the case of Hong Kong this meant that because the existing Benelux agreement covered all cotton textiles other than yarn, so also must any eventual Hong Kong/E. E.C. Article 4 agreement. Within this
overall limitation it would have to be considered which of the 34 categories should be given specific ceilings.
7.
Dorward said that there was no logic in insistence on the extension of restraint across the board to all Hong Kong exports of cotton textiles to the Community merely because they were presently restrained to the Benelux. The overwhelming share of such exports went, to Germany, where the current restraint agreement provided for a very much narrower 'coverage. Ernst said that it was necessary to recognise that if the Community was to be able to switch over gradually to maximum liberalisation and free movement of cotton textiles between Member States, in the first instance maximum coverage was essential. He said that this would be fully in accordance with the provisions of G.A.T.T. Article XXIV. The averaging of the tariffs provided a fair analogy. Dorward challenged this, saying that the provisions of Article XXIV required that on the formation of a Customs Union the tariffs and other barriers to trade should not on the whole be more restrictive than they were in the constituent countries prior to its formation. What was being proposed, however, was not a averaging but a unification at the greatest area of coverage. Ernst said that nevertheless 100% coverage was a firm Community position and if Hong Kong rejected a negotiation on this basis, the Community would move on to an Article 2 basis, unilaterally.
8.
There followed a brief and unfruitful argument on Article 2 in which Jones pointed out that this Article had been designed to cover restrictions maintained contrary to the G.A.T.T. prior to the drawing up of the L.T.A.; it could not be used to cover new restrictions. Unless the Community intended cynically to disregard its obligations under the hupothetically extended C.T.A., the imposition of "Article 2 import restraints" could only be done illegally. Emst, as is his custom, dismissed this as legalistic arguing and countered that as there were import restrictions in one Member State (i.e. France) they could be extended to the Community. But he then softened his line somewhat, although he said it would be very difficult to change from a basis of total coverage. Dorward said that, for Hong Kong's part, such a proposition would be totally unacceptable unless due regard was paid to the provisions of the C.T.A.
9.
Turning to actual figures, Ernst said that his authority was based upon the statistics for actual Hong Kong exports to the E.E.C. in 1969 which had been provided by the Hong Kong side at the previous round of discussions. That is to say, on a base figure of 11,986 metric tons. Jones pointed out that, while this figure was accurate, it was not an appropriate base for the calculation of a possible 1971 restraint level because :
(a) it referred to actual performance within restraint
limits plus liberalised trade, rather than agreed export limits plus liberalised trade; as it happened there had been substantial shortfalls against restraint limits in the year; and
(b) it was
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CONFIDENTIAL