CONFIDENTIAL
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XCC(71)73
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The Financial Secretary continued that members of the Hong Kong industry were well aware of this background and felt strongly that Hong Kong's dependent relationship with the United Kingdom should count for something. If the Hong Kong Government was being asked to accept that Lancashire faced a new and unexpected situation, HMG must also recognise that the decision it had taken at such a late stage to reintro- duce quotas and proceed with the imposition of the tariff created a new sit- uation for the Hong Kong industry. At the very least the Hong Kong Govern- ment had to be in a position to say that HMG had agreed to early consult- ations with a view to working out ways and means whereby the impact of this double form of protection, by the price mechanism and restricted access rights, could be ameliorated. The Financial Secretary concluded by saying that this must be backed up by a clear understanding between both sides as to the specific possibilities to be explored later on.
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In reply, the Minister said that he understood the import- ance of the Hong Kong Government being able to reassure the Hong Kong industry and that he would consider very carefully any suggestions the Hong Kong side might put to his officials,
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Following on from this meeting, the Financial Secretary than held a first meeting with officials of the Foreign and Commonwealth Office and the Department of Trade and Industry under the Chairmanship of the Under Secretary in charge of the Textiles and Chemicals Division of the Department of Trade and Industry (Mr Ridley). The Financial Secretary reiterated the point he had made to Mr Grant, namely, that, as the Hong Kong industry had had every reason to believe that quotas were coming off, it had taken its commercial decisions in the light of this fact. The Depart- ment of Trade and Industry officials defended HMG's decision by saying that the original statement announcing the tariff proposals, which envisaged also the removal of quotas, had never assumed that the tariff by itself would necessarily be a satisfactory method of protection. When the announcement had been made, HMG's position had been reserved if overall imports in- creased after the removal of quotas and this was accompanied by concen- tration on particular sectors. In that event, quotas were to be reimposed on the sectors concerned. Before taking their recent decision, Ministers had considered removing quotas and, following the formula in the original announcement, reimposing quotas where necessary on individual items. However, Ministers had felt, in the situation which appeared to be developing, that this would lead to a series of hurried quota controls, whereas a decision to continue with the existing general quota system would provide both ex- porting countries and Lancashire with a clear idea of what was likely to happen in 1972. Ministers had also considered the possibility of globalising quotas which would have involved doing away with the country quotas, in- cluding that reserved to Hong Kong, and throwing the permitted level of trade open to all-comers with the quotas allocated to importers. It had been argued that action of this sort would enable account to be taken of shifts in the pattern of trade, Ministers had, however, discarded this suggestion because they wished to preserve the position of traditional suppliers such as Hong Kong, having regard particularly to eventual harmonisation with the EEC's import regime on cotton textiles after Britain had joined the Com- munity.
CONFIDENTIAL