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6. Perhaps the paper could stress more firmly the view that of the two it would be more useful if we could avert the first of these threats, viz exclusion from generalized preferences. The paper points out that if both the EEC and the UK included Hong Kong within the scheme, "the US and even perhaps Japan would find it more difficult to exclude hor", but it does not underline the fact that since we and the Six together take 22% of Hong Kong's exports, whilst the USA alone takes 35%, any agreement in the European negotiations which could make an impact on American attitudes would be particularly valuable. On the other hand, a generalized preferences scheme harmonized between the UK and the EEC on the basis of the WEC offer, is unlikely to affect adversely any important British interests.
7. We have had some difficulty with paragraph 23 of the draft. Does it in fact mean that the Six are particularly anxious to extend their generalized preferences to South Korea and Taiwan, even to the extent of being prepared to include Hong Kong in the scheme in return for our inclusion of these two countries? If so, this would be a legitimate bargaining counter, though the argument that South Korea and Taiwan are poorer than Hong Kong could be used effectively against our negotiators. If not, our purpose in bringing the question of preferences for South Korea and Taiwan into the negotiations could only be to ensure that the exports of these two countries do not enjoy a relative advantage over those of Hong Kong. Since we are not an important market for South Korea and Taiwan, such a move would, to be effective, involve obtaining their exclusion from the general preferences scheme of the enlarged Community (and not only that of the UK) if Hong Kong were so excluded. I am not clear if we should be prepared to go that far. But if so, we could hope
In to obtain either the inclusion of Hong Kong or the exclusion of all three. either case we would have obtained a better bargaining position in our negotiations with the US on the inclusion of Hong Kong in their general preferences scheme. Would it not be correct to say in such a case that what we are aiming at is equal treatment for Hong Kong, South Korea and Taiwan in regard to generalized preferences?
8. Our second objective in negotiations, viz to ensure that quantitative restrictions against Hong Kong exports are not adopted by the EC in breach of GATT, is important not only per se but also because such restrictions would have to be applied automatically by the UK after entry. The paper is as pessimistic about the outcome of negotiations on this point as on generalized preferences. I have no doubt that the difficulties are stupendous. On the other hand, the paper demon- strates amply that failure to ensure fair treatment for Hong Kong's exports would result in widespread unemployment, social unrest and a political upheaval consti- tuting a threat to other Western countries as well as to Britain. The question would therefore seem to arise whether we could negotiate with the Six some combina- tion of measures such as limited preferences in the enlarged Community, equality of tariff treatment for Hong Kong and her direct competitors (Taiwan and South Korea), binding quantitative restrictions at reasonable levels, or the retention by Hong Kong of duty free entry to the UK alone (on the lines of the Morocco protocol) with or without quantitative restrictions. 1 do not know what particular combination of measures would safeguard essential British as well as Hong Kong interests or be negotiable with the Six. It is, of course, possible that a combination which would satisfy all three requirements cannot be worked out. But I would suggest that the value of the Board of Trade's excellent paper would be further enhanced if it contained an analysis on these lines with, if possible, recommendations for secondary negotiating objectives.
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19. I am