3 The changeover to a global system from a country/global arrangement posed some difficulties. It was arguable that it would be less acceptable internationally than continuation of the present controls; both efficient and inefficient suppliers, as well as Lancashire, would resist it strongly. The EEC itself appeared to be moving from national global quotas to Community-negotiated country quotas; and it did not have restrictions on yarn; alignment in 1973 would, therefore, involve a certain element of marching and counter-marching. In view of the explicit assurances given to Hong Kong that quotas would not be re-imposed, we might be forced to make concessions to her probably at the expense of India. As she was already very competitive, the impact on Lancashire would be greater and would again bring us out of line with the EEC.
4 On balance, therefore, the global quota would be more in line with the original strategy because it had less categorisation and would bring us nearer to the logic of the present policy of allowing the market to develop naturally, but the difficulties of allocating licences first against forward contracts and then on a first-come first-served basis, were formidable.
5 Continuation of the present country/global quota arrangements (paras. 28-29)
Under this it would be proposed to the developing countries that the existing restraint arrangements (including export certification) should be continued until the end of 1972. Those countries which agreed to co-operate could continue to trade as before (possibly with looser categorisation); licences equivalent to the quota of non-co-operating countries would be allocated to UK importers. It was recognised, however, that some over-licensing might be necessary to accommodate firm and irrevocable contracts. At this point the consensus of opinion moved towards the view that some form of continuation of the present system was desirable. It was acknowledged that the ideal solution would be to allow the market to develop and then decide restraint levels, but the necessity of keeping imports down and reserving the Commonwealth position was of paramount concern in view of 1973 alignment. Import monitoring would have fitted the bill; there would have been no problems of negotiability, it was consistent with the Crosland formula and with our international obligations, and when disruption occurred an immediate brake could be put on imports, though problems would arise on existing contracts. (A warning could be given that importers should not use irrevocable letters of credit: their normal insurance ought to cover the frustration of contract aspects.) However, if we anticipated using a quantitative limit either publicly or privately, and there was an immediate upsurge in imports in the first half of the year, it would be impossible in commercial terms to stop the trade completely. (Furthermore, from an international standpoint, it was difficult to assess the effect of monitoring followed by retrospective Art 3 action simply because it had not been done before.)
6 The practical option, therefore, seened to be containment under the present system or some negotiable variant of it. Tariff Division confirmed that we would have powers to contain imports unilaterally at the level of 1971 and under the same pattern in view of the impossibility of re-negotiating all the agreements by 1.1.72. This would simply mean issuing licences to importers who had been allocated global quota during 1971. If supplying countries including those with bilaterial agreements chose not to co-operate, we could still hold quotas down to 1971 levels.
7
But a problem would arise where importers had contracted substantial supplies of cloth and made-ups in preparation for 1972. The structure of the supply pattern was changing oven now: there would be little point in re-negotiating a series of agreements which would be unrelated to commercial realities. The choice would bo between a straight denunciation of forward contracts or using a certain amount of flexibility to accommodate them. Either way UK importers could lose money and the legitimate pattern of trade disrupted.
8 Turning to the negotiability of an extensions of quotas, it was agreed that