ii
import duty, including consignments shipped under quota in late 1971, He expressed no surprise at this, and subsequently wrote formally agreeing to our proposals for 1971. At the end of his letter, however, (copy attached) he mentioned that "In the meantime ie before the current talks on the post-1971 arrangements we must reserve our position on the administration of the 1971 quota in so far as it might be affected by the arrangements made regarding trade in cotton textiles in 1972".
it is not clear precisely what "adjustment" the Hong Kongers have in mind.
We could not accept, for example, that they should cease to exercise restraint on cargoes shipped in November and December, on the grounds that they will not arrive here until 1972. If they wish to ship the full year's quota in the first ten months of the year, in order to avoid imposition of the tariff on any of it, of course we cannot object. But they would no doubt say that this would be unsatisfactory, since manufacturers would be unable to make any exports at all in the last two months of the year, and mills must be kept in production. answer to this must be that
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if exporters chose to use up their quota in the first ten months, it is open to them to manufacture for stock in the last two months, if they wish to maintain their production
if exporters chose to spread the quota evenly over the year, the quota ceilings would not (according to the Hong Kong thesis) be unduly restrictive in the last two months because the bottom is supposed to fall out of the demand for Hong Kong goods once they become subject to the tariff
if the Hong Kong side allege that their mills must keep up a steady flow of exports, we can point out that their monthly export figures have varied widely during 1970 - from 51⁄2 million square yards in February to 393 million square yards in December (of
which 39 million square yards was shipped in the first fortnight of the month).
Despite the heavy shipments in the first half of December, in 1970 Hong Kong succeeded in shipping only 83.7 per cent of its quota, which it normally fills (see table attached).
Portugal
Mr Sellars has indicated that the Hong Kongers will press us to say what action HMG would take if imports from Portugal rose steeply after 1972.
We could make the following points in reply:
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as Hong Kong already knows, we have had two secret restraint arrange- ments with Portugal in the past. The second of these was abrogated by the Rrtuguese when the UK introduced the import deposit scheme in the autumn of 1968. Since then, however, there has been onoincrease in our imports from Portugal. We conclude that she has found more profitable markets elsewhere for any excess production.
4.