CONFIDENTIAL
H
there were limits to the amount of imports which a declining market could take on. Against a background of rising unemployment, the prospect of a very high incursion of cotton textile imports of all kinds, which could seriously disrupt our own market, and which could set a pattern for the future, frankly could not be entertained. Although HMG agreed that Lancashire ought to be able to withstand this sort of competition, we had to acknowledge that this was not the case; and although we were sympathetic towards Hong Kong's requests for better transfer arrangements, the extra pressure on the UK's making-up industry and the total consequences of acceding to similar requests from all our other suppliers obliged us regretfully to refuse. At least Hong Kong's traditional share of the fabric market would be maintained, because the other low-cost suppliers whom Hong Kong feared would be held down to their much lower quota levels.
4.
A short discussion followed about UK importers' complaints that Hong Kong exporters were re-negotiating their prices for contracts placed before the announcement on 8 December 1971. In Mr Ridley's view, this did not square with Hong Kong's plea for "hardship" yardage: the inference we drew from these allocations was that yardage was available if UK importers were prepared to pay higher prices. Mr Haddon-Cave explained that news of HMG's decision had led to a scramble for contracts immediately exporters became aware of the importance of utilising their quota rights because of the penalty system. They were determined to secure their position with the Hong Kong Government whether this was a one-year extension of the arrangement or not, in view of their experience with the USA (when during 7 to 8 years of comprehensive restraint, they had been badly undersold in quota rights). In addition, yardage which in a quota-free situation they had arranged to sell to local garment manufacturers now had to be diverted to the export market with a consequent loss of profitability all round.
5. Miss Lowne said that UK importers had urged HMG to take over the administration of Hong Kong's quota arrangement to prevent what they felt was an unfair move by Hong Kong exporters. They too faced loss of profitability if prices were re-negotiated at this stage. But we agreed that Governments could not interfere in what were essentially private commercial arrangements; importers and exporters would have to reach their own agreements in the matter, although legal opinion in both Hong Kong and the UK seemed to indicate that the "force majeure" argument would not carry much weight.
6.
The discrepancy between the UK's assessment of forward orders placed in Hong Kong and Hong Kong exporters' claims for extra yardage was explained by the fact that ILC's were not widely used in the Hong Kong trade. It was agreed that Hong Kong's offer to present their exporters' returns for examination by the UK side should be accepted, and a working party was set up for this purpose.
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The Working Party to examine Hong Kong's claim for hardship would meet at 10.30 a.m. on Wednesday 12 January and would present its findings during the afternoon session. The following members were co-opted:
UK Side
Miss CH Welch ст Mr D Bentliff T Mr A Divers
Hong Kong Side
Mr T Y Poon Mr P Kiang
Valters CT