T/JC
CODE 10-77
Miss Lowne
CONFIDENTIAL
Reference. CT2172
cc Mr de Fonblanque UK REP Brussels
Mr Hazle
TRD >
FCO
Mr Goodfellow
HK10D )
Miss Elliott
CREI
Miss Welch
CRE2
Mr Hagestadt
CRE3
Mr Pownall
CT
HONGKONG NON-COTTON EXPORTS TO THE EEC
1
1 You will recall that the meeting on 22 February of the Working Group on Textile Trade Questions spent a great deal of time, in the extremely unsuitable forum of a gathering of 25-30 people grinding their different axes, redrafting the Guidelines for Negotiation which were attached to the Commission document COM(72) 1596 final of 22 December 1972. One might have expected these efforts to have led, by this time, to a revised piece of paper which could at least have helped us in developing with our colleagues the line to take at the next meeting of the Group on 16 March.
2 Although no such revised Draft or record of the meeting has appeared, we know that four matters were referred back to capitals after delegates had been asked to express preliminary views, My thoughts on these four points
follow:
a List of sensitive products. A copy of the list which we are asked to consider is attached. Partial prima facie evidence of problems is apparent in some, but perhaps not all, the items listed. Our line on 16 March should be that we have no comments on the specific items on the list, and no dogmatic views (cp the French) on whether complete four- figure tariff positions, or more detailed broken-down categories of product, or a combination, should be included on any sensitive list; we consider it important that any item to be restricted should be shown to be causing damage because of its share in the market in combination with its growth. Thus if imports have increased by 100% but the total market has grown by 500%, the case is doubtful, and conversely if the volume of imports has only increased by 10% but their share of a falling market has risen by much more than this, a case of disruption could be shown.
b Base period. At the last meeting we agreed with the Benelux, German and Danish delegates that an average of 1971-72 seemed reasonable from a number of points of view, and in effect that it was the best that could be hoped for, and that a later base period might be acceptable, especially in view of real market demand and the danger of upward pressure on prices if restrictions are too severe. We might suggest that there is some merit in using the LTA three-month roll-back formula, though in this case there could be argument about when the Community first requested negotiations, since it really has not officially done. so even now. Hongkong was probably clever in choosing calendar 1972 as the base period for its unilateral restraints on exports of six items to Germany. The negotiating mandate should certainly give the Commission some latitude on this point, if only in order to avoid the need for it to refer back to the Member States every few minutes; perhaps there should be a willingness to settle for calendar 1972 if the other elements in the agreement are right. It was on this question of the base period that French (with some Italian and oddly enough Irish support) advocated much more severe restrictions, on the grounds of their passionate belief in international equity among developing countries and their fear that Hongkong, "that small rock", had already usurped a share of the European market quite disproportionate to its size. But it may well be pointed out that the terms of the mandate under discussion are of no direct concern to the French, and I expect that they will give in.
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