4.
-2-
We cannot accept that carryover and anticipation
are one-sided concessions granted to the benefit of the exporting country. They are part and parcel of a negotiated settlement. Both provisions have the effect of altering the periods in which quotas may be used to take account of market demands, and as a consequence provide equal benefit to importing and exporting country alike.
It is true that with unlimited carryover an exporting country could export the whole of two years' quota at one moment, but, as the evidence from the days when our agreements included unlimited carryover shows, in the real world this does not happen.
5.
We note what you say regarding demand in the UK but doubt that Hong Kong's failure to satisfy that demand can be attributed to the causes you adduce. It is true that there are shortages of raw materials but such shortages are worldwide. If the "exceptionally strong UK demand" is being met by other suppliers, it only goes to show what we have been saying all along, that Hong Kong's competitive edge is constantly being eroded in favour of those who are not only cheaper than we are but who next year will be able to supply those cheaper goods at duty free prices. This has been recognised by HMG, since next year you will be seeking to remove this discrimination against Hong Kong in the EEC.
6.
On the other hand, I am sure you will appreciate the likely consequences which would follow if Hong Kong accepted a separate six-month restraint period. The trade would be bound to compare this with the undivided 18-month period in respect of the Six and it would revive the bad feeling recently expressed by the trade over the GPS issue. In other words, to attempt any change now has the making of another plitical problem.
7.
In the second place, there would be the very real possibility of quota holders being forced to utilise their quotas, at any cost, before the year is over. As you probably know, the quotas made available under all our restraint arrangements are allocated to individual companies on the understanding that they will use them. If they do not use them, they are penalised in the following year. There is thus an incentive for each quota holder to maximise his quota utilisation and the sum total of these incentives results in the maximisation of quota utilisation by Hong Kong as a whole. This is of course why we have these rules, because it is the Government's duty to see that the best possible use is made of the total export opportunities available. If we were at this late stage to change the arrangements so that all 1973 yardage had to be used by 31.12.73 (our present figure is 82 million square yards rather than the 90 million when you wrote), the result would be massive shipments between now and the end of this year and real disruption, both in terms of quantity and in terms of price, of the UK market. That this possibility is a real one is evidenced by the events of 1965 when late in that year Hong Kong was informed there would be no carryover into 1966, and again in 1971, when the continuation of quotas, originally to be abandoned, was announced.
18.