CONFIDENTIAL
4. DORWARD EXPLAINED IN DETAIL HONG KONG'S RELIANCE ON FOREIGN
TRADE, AND DESCRIBED JAPAN'S OWN INCREASING TRADE AND INVESTMENT
STAKE IN THE COUNTRY. HE STRESSED THE IMPORTANCE OF ECONOMIC AND
POLITICAL STABILITY IN HONG KONG FOR HER NEIGHBOURS, DISCRIMINATORY
TREATMENT UNDER THE PREFERNCE SCHEME MIGHT JEOPARDISE THIS. ON IMPLEMENTATION OF THE SCHEME, HE SAID THAT THERE WERE MANY
POINTS WORTH STUDYING IN THE EEC'S PROPOSALS. THESE WERE NOT
GENERALLY HARMFUL TO HONG KONG'S INTERESTS.
5. THE JAPANESE SAID THAT THE ADVANTAGES UNDER THE JAPANESE.
SCHEME TO HONG KONG'S COMPETITORS WERE LESS THAN MIGHT SEEM.
SILK AND SILK FABRICS AND PLYWOOD WERE NOT INCLUDED IN THE SCHEME,
AND THE JAPANESE CUT-OFF PROCEDURE WAS AUTOMATIC, WHEREAS THAT
OF THE EEC FOR NON-SENSITIVE ITEMS WAS OPEN ENDED. FOR TEXTILES,
TARIFFS WOULD BE MERELY REDUCED, NOT ABOLISHED, IN MOST
CATEGORIES. ONE OF JAPAN'S MAIN CONCERNS OF COURSE WAS THE.
POSITION OF DOMESTIC INDUSTRY. IN THE CASE OF TEXTILES, IF HONG
KONG WERE INCLUDED, THE DUTY FREE QUOTA WOULD INCREASE SUBSTAN-
TIALLY AND THE IMPACT ON DOMESTIC INDUSTRY WOULD BE CONSIDERABLE.
WE COMMENTED THAT THE EFFECT OF HONG KONG'S INCLUSION SHOULD
NOT BE EXAGGERATED. THE JAPANESE SIDE HAD CONFIRMED THAT 1968
WAS THE BASE YEAR FOR THAT SCHEME, AND AT THAT TIME HONG KONG'S
EXPORTS HAD BEEN LIMITED IN RANGE, AND TEXTILES HAD NOT MADE
HEADWAY UNTIL 1969 AND 1970. ACROSS THE BOARD THERE WAS EXCESSIVE
FEAR OF THE THREAT OF HONG KONG COMPETITION. THE JAPANESE
STRESSED THE SENSITIVITY OF THE TEXTILES INDUSTRY AT THE PRESENT
TIME.
6. DORWARD SAID THE AUSTRALIAN PRECEDENT MIGHT BE HELPFUL. THE
AUTHORITIES THERE LOOKED AT THE POSITION OF BENEFICIARIES REGULARLY
TO SEE WHETHER TRADE HAD BEEN DIVERTED AS A RESULT OF EXCLUSION FROM THE PREFERENCE SCHEME AND WHETHER THERE WAS A SUBSEQUENT CASE
FOR INCLUSION. THE JAPANESE SAID THAT DIET APPROVAL WAS ONLY
-2- CONFIDENTIAL
/NEEDED