Item 2 FUTURE OF HONG KONG'S TEXTILE AGREEMENTS
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Hong Kong officials are mainly concerned with their forthcoming negotiation with the ERC Commission over a new agreement covering the enlarged Community. They have proposed interim arrangements, of which the Commission is as yet only aware of the outline, to cover the period from the beginning of 1974 until the prospective negotiation is completed. They have in effect proposed that for the present, arrangements should continue generally on the same basis as in 1973 but with Hong Kong 'incorporating some of the minimum improvements' foreseen by the M.TA (eg growth rates). While the interim arrangement is being planned as if it were to last for the whole of 1974, it is understood that any improvements in quota levels etc negotiated during the course of this year will be available to Hong Kong for use before the year is out.
Only two points arise over the proposed interim arrangements as far as we are concerned:
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We would not accept that they should be taken as allowing 100 per cent carry-over of the 1973 quotas to give en effective maximum quota period from October 1972 to December 1974. Exceptionally and reluctantly we agreed to 100 per cent carry-over from 1973 to 30 June 1974 but are not willing again toextend the terminal date without some modification of the arrangement. We understand that Hong Kong are now prepared effectively to regard 1974 as a separate quota year, thus limiting the carry-over provision to 10 per cent of the 1973 quota levels. This would be acceptable to us.
Hong Kong have suggested that they might arbitrarily increase their growth rates for exports to Community countries which have proved particularly restrictive in the past and should now allow relatively greater access to their markets. Our advice is against Hong Kong doing this. The quota levels are so low that the additional volume of trade at stake is small. Hong Kong will in any case obtain the benefits of any negotiated improvement in access later in the year, and arbitrary action would be more likely to stand in the way of a satisfactory negotiation with the Commission than facilitate it.
The shape of the new agreement which the Community wants to seek is only now beginning to emerge. There is strong pressure, especially from France, for a "blanket" set of agreements covering sensiti ve products from the group of Far Eastern exporting countries. The coverage tends to look like the lowest common multiple of existing Community restraints but we are looking critically to see whether we can eliminate or at least phase-out restraints on some products.
It will be
up to Hong Kong to question the justification of restraints (which we have no doubt that they will do). A number of Community countries tend to think of justification in terms of actual or threatened rate of growth of imports rather than in terms of absolute levels, import penetration, and domestic economic implications.
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