Courtaulds have spent some £20m improving existing spinning mills since 1965 and are currently planning to spend a further £15m to bring some 20 mills up to modern standards. These new developments will not be completed before the end of 1976. Heanwhile, however, productivity in the UK spinning sector generally has improved and the leading producers are confident that, given the reasonably stable conditions in the home market which is necessary to underpin their investments, they could be fully competitive, by the end of the transitional period being sought, with yarn from the more efficient mills in low cost
sources. Ministers could expect to come under considerable political pressure from Lancashire if the industry case for a breathing space were to be rejected.
COMMUNITY CONSIDERATION'S
It is most unlikely that we could escape our obligation to end quotas without a considerable struggle. Derogations from the EFC's common liberalisation list under Regulation 1025/have previously only been given rarely and on a temporary basis. We might well have to proceed on the basis of seeking extension of our yarn quotas a year at a time.
CONCLUSION AND RECOMENDATIONS
The balance of the arguments between acceptance and rejection of the industry's request is a fine one. Its acceptance is recommended on the
grounds that:
(a) Acceptance of the industry's proposals will maintain confidence through a difficult period in which we expect demand for DK spun yarn to decline and a number of other major adjustments have to be made as a consequence of joining the Community. (b) The industry will be encouraged to carry through the plans for
new projects and extensive re-equipment which it now has on hand.
(c) Although we would be seeking a new departure in the way in
which the EEC administers its common liberalisation procedures, this is not in itself a barrier to making the attempt.
Ministers are, therefore, recommended to authorise officials to seek the Community's agreement to us retaining our present system of cotton yarn quotas (with the usual provisions for growth in the quotas) until
31 December 1976. In the event of us being unable to secure cover for the full three years, at least in the first instance, we should be authorised to seek a derogation from our liberalisation obligation a year at a time.