levels. On some products, therefore, the effective discrimination against
Hong Kong and in favour of her close competitors could be as much as 80%.
The effect of these large margins of uiscrimination on the competitive
position of Hong Kong's exports would be very serious. Her competitors in a
number of cases already have lower costs than Hong Kong and a proven ability
to expand their manufacturing capacity at a rapid rate. In such circumstances,
Hong Kong would only be able to continue to compete in large sectors of the
American market at the expense of drastic cuts in both wages and the level
of profits.
4. The position described above would be further aggravated by investment
shifts.
Foreign investment, particularly from the U.S. and Japan, but also
from the United Kingdom and the Federal Republic of Germany, would rapidly shift
into competitor countries who would be receiving preferences and who export the
same products as Hong Kong. Hong Kong's investment from internal sources
would also be hit in two ways.
reduce the funds available for investment.
First, the lower margins of profit would
L
Second, Hong Kong industrialists
with subsidiaries in, especially, Taiwan and Singapore, would expand their
operations in these countries at the expense of their activities in Hong Kong;
and the tendency for other Hong Kong interests to establish subsidiaries in
those places would grow. The adverse effect on economic activity in Hong Kong
could therefore be cumulative.
M
Under
5. An additional consequence of the very much fiercer competition from other
countries in the U.S. market would probably be to shift a proportion of Hong
Kong exports away from the United States and towards European markets.
present conditions this would especially be the case in the United Kingdom
because Hong Kong would continue, for the most part, to benefit there from
Juty free entry with no quantitative limitation. But efforts to divert "sales,
frustrated in the United States, to the present Community of Six would also
increase, even if such exports did not qualify for preference in the Community.
This is because
(a) Hong Kɔng has better established business and trading links with Europe
than have her competitors in South East Asia;
(b) her competitors will, in any "bass, be busy taking advantage of preferences
in the American market where they have better business connections, and
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