CONFIDENTIAL
II
SECOND SESSION: TUESDAY 11 JANUARY 1972 10.30 a.m.
(MILLBANK TOWER)
II THE UK PROPOSAL AND HONG KONG'S REACTION TO IT
A
The UK had two proposals for re-structuring the quota arrangement which we hoped would meet some of Hong Kong's points without causing an unacceptable increase in either the total level of imports or in certain particularly sensitive areas, and which would avoid aggravating the pressure from other restricted suppliers.
(i) TRANSFER OF YARDAGE INTO GROUP IV
We could agree to roll together Groups IV and V in the present arrangement, which would add approximately 24m. sq. yds. to the Group IV total. But gloves, at present included within Group V, would need to be made into a new category, with a ceiling of 2.5m sq. yds., because of their sensitivity.
(ii) SIMPLIFICATION OF CATEGORIES IN GROUP IV
We suggested a merger of the three separate categories for:
Male coats and trousers Female trousers
and raincoats and anoraks
(present category 16)
present category 17, present category 20)
This would give a measure of extra flexibility. We could also agree to the deletion of category 15 (handkerchiefs) which Hong Kong did not use to any great extent.
2. Hong Kong considered these proposals to be inadequate and continued to press their arguments for an improvement in the swing arrangements.
(i) Retention of the present quota pattern coupled with the introduction of the tariff meant they were "locked in" to fabrics a not inconsiderable yardage which they might not be able to use, because they faced severe competition from lower-cost suppliers. situation might be tolerable if they were permitted to move (not necessarily immediately) into higher-priced goods in the made-up sector.
This
(ii) The present arrangement was unbalanced because its flexibility provisions had been agreed in a situation which took no account of the impact of a tariff on Hong Kong's exports. When HMG decided to introduce the tariff in exchange for the abolition of quota restrictions, we must have foreseen that Hong Kong would move increasingly into garments and made ups in a situation of free access. How could the recent
developments in the level of unemployment, and the possibility of an expansion of trade in non-cottons adding further to Lancashire's problems (both of which Mir Haddon-Cave considered as peripheral arguments) have substantially affected this analysis of the position?
3. Mr Ridley said he was surprised that Hong Kong did not expect to take up its fabrics quotas in 1972, particularly in view of the so-calle "hardship" problem where orders could not be accommodated within quota. He accepted that some fabrics (such as corduroy) were enjoying a fashion boom leading to strong world-wide demand, but he had to emphasise that
COME
TIAL