12.
CONFIDENTIAL
Mr Haddon-Cave agreed that the retention of Hong Kong's country quota meant retention of her traditional market share, but reiterated that introduction of the CPA tariff would reduce profitability. He . also agreed that Hong Kong had no wish to see the market fragmented by an irrational flood of imports; if HMG had fears about the principle of admitting all orders covered by ILC's, Hong Kong was willing to operate a cut-off date prior to 8 December 1971 if it was suspected that some of the orders were speculative. However, as reagrds the hardship figure of around 17m. sq. yds., he thought HMG would find it hard to sustain the argument that the market would be unable to tolerate such a quantity, because the earlier arrangement had allowed an anticipation figure of 81% per annum. If, on the other hand, HMG was less worried by additional intake than by the prospect of "bunching", Hong Kong could probably arrange an artificial phasing of imports to reduce this difficulty.
13. HMG had indicated that Hong Kong was not one of the major suppliers in the list of countries with orders in excess of quotas;
this was not surprising because she did not operate on an ILC basis.
However, Mr Haddon-Cave did not want to give the impression that the 17m. sq. yds. quoted as the immediate hardship figure could not be revised upwards if further evidence were received from exporters. Finally, he would like to reassure HMG that if sympathetic consideration were given to this problem, Hong Kong would not ask that the yardage should be counted as performance in 1972 for the purpose of alignment to EEC in 1973, even if performance under the 1972 quota was disappointing.
C
HONG KONG'S PROPOSALS FOR MODIFICATION
14. Mr Haddon-Cave then moved on to his proposals for modification of the present quota arrangements. In drawing these up, Hong Kong had borne in mind not only the amelioration of her own trade prospects but also the need, with the UK's interests in mind, to smooth the transition to the EEC's restraint arrangements for cotton textiles. That was why he was suggesting we should begin the process of alignment to the EEC immediately. Hong Kong felt that the agreement which they now had with the EEC was more rational than their arrangement with the UK, which had been geared to the concept of Commonwealth Preference.
(i) TRANSFER OF YARDAGE INTO GROUP IV FROM GROUPS II, III AND V
He suggested that the arguments for this were irrefutable because of the changing pattern of trade, the fact that HMG had "brutally and arbitrarily" reduced the competitiveness of fabrics by introduction of the tariff, and because the elimination of formal restraints on the greycloth group would bring the arrangement into alignment with the EEC's agreements. He was suggesting the elimination of the distinction between Groups III, IV and V to produce two Groups - Group I (grey and bleached cloth) and Group II (other finished cloth and made-ups) in
line with the EEC format.
MADENTI
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