should make as rapid progress as possible to a greater degree of multi-shift working together with an associated higher wage structure. Cost studies have shown that the capital investment in modern textile mills is such that they are only viable if operated on multi-shift systems. One third of three million spindles and a quarter of the 60,000 looms currently running are still operating on single-shifts.
EFFECTS OF RETENTION OF QUOTAS
9. Retention of quotas will not reduce the volume of inports into the United Kingdom cut will only prevent a substantial rise during 1972. The pressure on Lancashire to modernise from existing competition will therefore remain although the imposition of the tariff on imports from the Commonwealth Preference Area may go some way to reducing price differences. Imports will continue to account for up to 50 per cent of our consumption of cotton textiles, a figure which is far higher than that for any other major industrialised country. Provided no retaliatory action is taken against our exports or overseas assets, there are not expected to be any marked balance of payments factors.
REACTIONS
a) from overseas suppliers
10.
We shall not be in breach of the letter either of the GATT or of the Long Term Arrangement on Cotton Textiles. If there is any reference to Article XXXVII of the GATT the answer is that while this requires developed countries to refrain to the fullest extent possible from introducing new barriers to the trade of developing countries, it provides an escape clause when compelling reasons make this impossible. We shall be offending against the spirit of both the GATT and the LTA and it will be difficult to ONFIDENTIAL defend ourselves against the charge of erecting new barriers to
the trade of developing countries. We said many times that quota restrictions would be ended at the end of 1971. Our major Commonwealth suppliers will have to face both tariff and quota barriers when they were assured that one was being exchanged for
ONFIDENTIAL
the other.
By keeping the present quota system we have done our best to preserve the interests of our traditional suppliers.
Some may even do better than in a quota-free market. In any event, we continue to believe that efficient producers will be able to sell profitably in the UK over the new tariff and the restrictions now being retained will still permit a level of cotton textile imports proportionately far higher than that allowed in other major industrial countries, all of whom have long since applied both quota and tariff protection. This is evidence of our continued liberal policy towards trade in these products.
Major supplying countrics were all given advance warning last week of Our intention to retain quotas. Discussions were held earlier this week with representatives of the Hong Kong Government. We expect to receive reactions from other countries between now and the end of this year and replies from those who we are asking to continue to administer quotas.
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