CONFIDENTIAL
4. It was against this background that Mr Haddon-Cave wished to discuss first the political and economic impact of the decision, and secondly, the essential need for the quota arrangement to be modified.
5. (a) The political impact
TEXTAB regarded as sinister the fact that they had not been informed of the imminence of HMG's decision, despite assurances that the Hong Kong Government itself had received only a few hours' notice. They were also suspicious of the purpose of the December visit by Hong Kong officials because they had not been invited to participate, but Mr Haddon-Cave had since explained to them that it was not a negotiating mission. Finally they considered that the Hong Kong Government had not reacted robustly enough to the change in policy, and that HMG had taken advantage both of the dependent status of the Colony and of its non-GATT relationship with the UK. The Government had managed to stave off further discussions of the political aspect by saying that it hoped 1972 would see a new respect for the integrity of the world trade situation in accordance with GATT rules; the settlement of the international monetary crisis gave them some hope that retreat into commercial policy decisions as a solution to financial crises would now end, but the Hong Kong Government still felt that Hong Kong had a right to expect to be consulted before restrictive action was taken. The UK's action in December was not entirely legitimate from this point of view; indeed, it closely approximated in Hong Kong's eyes to the "enforced bilateralism brought about by the US action in September 1971.
(b) The economic impact
The Hong Kong Government was seeking amelioration of HMG's decision both in the short-term and in the long-term. Short-tern amelioration in the form of "hardship" yardage to cover (1) orders in excess of quota rights and (2) orders placed with non-quota holders in expectation of the ending of quota restrictions was considered a justifiable request in view of HMG's many statements about its textile policy between July 1969 and December 1971. However, paragraph 11 of the Secretary of State's telegram 109 asked governments of supplying countries to regard all orders placed before 8 December 1971 which were confirmed by irrevocable letters of credit as a first charge against existing quotas; this request presented difficulties for the Hong Kong administrators because Hong Kong exporters did not operate on an irrevocable letter basis, but on a DA/DP* basis. It followed that as far as Hong Kong was concerned confirmed orders would need to be dealt with by a once-for-all allocation of "hardship" yardage.
6. In the December talks Mr Haddon-Cave had "guesstimated" this yardage at between 25 and 30m sq. yds. Since then Commerce and Industry Department had received evidence (unsolicited) of some 28 cases of written orders which could not be accommodated within quota, of which 23 had been verified by inspectors from the Department. These orders covered
* Documents in advance
Documents on production
a system of extending credit to UK importers over a three-month period.
PENTI