}
CONFIDENTIAL
-2-
5 Although we have no firm information it appears likely that informal consultations with Congress have now started or are about to start. We should like to know what progress has been made towards resolving this problem on reverse preferences and towards meeting the very reasonable case for greater flexibility that has been urged by the Commonwealth and by the DEC. If the United States can agree to postpone until 1975 any final decision, either by the developing countries concerned whether to continue reverse preferences or by the United States whether to continue to grant preferences to these countries, we consider that a sensible solution will have been found to the immediate problem. By 1975 when Yaounde III has to come into force, it will be easier for all the countries concerned to reach decisions on where their best interests lie. We therefore very much hope that a greater degree of flexibility, along the lines mentioned to us by Mir Samuels, can be agreed upon by the Administration and accepted by Congress.
Hong Kong
6 We understand that there are still deep differences within the United States Administration as to whether Hong Kong should be admitted. While there are those in the State Department who want to see Hong Kong included, largely for reasons of political stability in the Far last, there are strong forces in the Commerce Department and elsewhere which view with great alarm any increased competition from Hong Kong and who are determined to see that Hong Kong is excluded. The political lobbies concerned with Taiwan and South Korea will ensure that Hong Kong's main competitors are in any case included in the US scheme and it is this element of unfair discrimination that mainly concerns us. The Administration also find it difficult to see how they could match the EEC's inclusion of Hong Kong since discriminatory arrangements within quota ceilings that the C have adopted to deal with Hong Kong goods are not possible within the United States scheme. In reply to our latest enquiries we have been told that a favourable solution to these problems can be expected only if Japan comes out categorically in favour of the inclusion of Hong Kong.
7 We should like to know where the Americans have got in considering this question. It would be worth emphasising yet again the importance we attach to the inclusion of Hong Kong by the United States. The United States is Hong Kong's largest market but she has to face strong competition there from other Asian developing countries, in particular Taiwan and South Korcał that are likely to be beneficiaries. The EEC have found a way to include Hong Kong and we are pressing the Japanese to follo suit. We very much hope that the United States will be willing to do no less than the EC and we would welcome an early opportunity of exploring with them what solutions in the form of safeguards can be devised for any particular problems they may have with Hong Kong goods that could benefit from their sch ne