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Mr. Heath has
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I attach the revised version of the draft despatch which FCO wish to send to the Governor.
2.
The main question for the Board of Trade is whether we can be satisfied with what is now proposed by way of consultation over negotia- tion of restraint arrangements by Hong Kong outside the fields of
(a) cotton textiles
(b) textiles
What is proposed is in fact only that Hong Kong will inform IF1G "about prospective and current negotiations on commodities matters," (paragraphı 9 of the draft) and this is followed by the statement that HMG will not normally expect to intervene. My understanding of the upshot of the meeting which I attended at the FCO on 2nd September was that the des- patch would be accompanied by some more confidential communication to the Governor, making it clear that we did require him to consult us in the full sense before, for example, negotiating with the Americans on non-cotton textiles. This is apparently not now intended.
3. It is intended that the change should be made without publicity, but the Governor will inform his Textile Advisory Council and Executive Council. I do not see how this escapes the difficulty that if the Textile Advisory Council should then strongly press the Governor to negotiate with the United States (pointing to the fact that he is now required only to inform HMG), the Governor will be able to argue that we are putting him in an impossible position if we do not in fact let him so negotiate. If the Governor, on the other hand, when explaining the new arrangement tells the Textile Advisory Council that HMG are still keeping their reserve powers and discloses that these would be invoked if Hong Kong negotiates with the US without consultation, the Council would have reason to think that there was nothing new in the arrange- ment. In short it would seem to me that the despatch if sent as it stands might buy some immediate improvement of relations with the Governor, but at the risk of increased trouble later - unless we are really prepared now to give the Governor a free hand to negotiate with the US and anyone else both on non-cotton textiles and things outside the textiles field. (The despatch as now drafted makes no distinction between non-cotton textiles and things outside the textiles field altogether. It would perhaps be better to make it clear to the Governor that rather difficult considerations may arise in the latter case).
4. It could be argued that since the Americans show no eagerness or even readiness to negotiate with Hong Kong on non-cotton textiles, especially on the lines of the roll-in of cotton and non-cotton to which Hong Kong aspires, and which would be damaging to us, no great risk is involvod. It can also be said that transfers of authority to negotiate, and similar administrative changes, are better put through and explained as necessary to third parties at a moment when things are fairly quiet, rather than in the heat of some urgent controversy.
5. I recall Sir E. Melville's advice that any attempt to spell out on paper our relationship with the Governor would be better avoided. That is water under the bridge now, but it suggests that our main objection should be to achieve a practical understanding with the Governor which will prevent our having to pull on the reins in the middle of difficult situations with third parties.
6. My recommendation would be that simply to hold up the despatch