CONFIDENTIAL
WHILE IT IS THE VIEW OF THE HONG KONG GOVERNMENT THAT THE PRESET
STATE OF THE HONG KONG FOOTWEAR INDUSTRY DERIVES FROM INTERNAL
WEAKNESSES AND THE REDUCTION IN COMMONWEALTH PREFERENCE IN THE UNITED KINGDOM MARKET (CP WILL CEASE TO EXIST BY 1 JULY 1977) AND CANNOT BE DIRECTLY ATTRIBUTED TO THE DISCRIMINATORY MEASURES MAINTAINED AGAINST IT IN THE COMMUNITY'S GSP, THE HONG KONG GOVERNMENT BELIVES THAT THE INTRODUCTION AND CONTINUATION OF
THIS DISCRIMINATION IS A CONTRIBUTING FACTOR TO THE INDUSTRY'S
DECLINE.
AS FOR EXPORTS OF HONG KONG TEXTILES TO THE COMMUNITY, THE.....
COVERNMENT WILL HAVE ALREADY NOTED THAT EXCEPT IN A SMALL NUMBER
OF ITEMS HONG KONG'S TEXTILE EXPORTS TO THE COMMUNITY HAVE DECLINED
IN THE PAST TWO YEARS, THE HONG KONG GOVERNMENT BELIEVES THAT THIS
IS DUE IN PART TO THE EXCLUSION OF HONG KONG TEXTILES FROM THE
COMMISSION'S SCHEME AND IN PART DUE TO RISING PRODUCTION COSTS.
THE DISCRIMINATION HAS CAUSED BUYERS INCREASINGLY TO DIVERT
THEIR ORDERS AWAY FROM HONG KONG TO SUPPLIERS IN COUNTRIES WHICH ARE
BENEFICIARIES UNDER THE SCHEME. ALTHOUGH THE TARIFF QUOTA AND
BUTIOR SYSTEMS LIMIT THE EXTENT TO WHICH IMPORTS FROM EACH BENEFI- CIARY WILL BE ADMITTED FREE OF DUTY, NONETHELESS WHEN ORDER ARE
PLACED IN A BENEFICIARY COUNTRY THERE EXISTS FOR THE IMPORTER
THE POSSIBILITY THAT THE GOODS WILL BE ADMITTED FREE OF DUTY,
WHEN ORDERS ARE PLACED IN HONG KONG, THIS POSSIBILITY DOES NOT EXIST AND, INDEED, IS REPLACED BY THE CERTAINTY THAT THE FULL DUTY WILL HAVE TO BE PAID ON ALL CONSIGNMENTS. THE EFFECT OF THIS HAS BEEN TO
DIVERT ORDERS AWAY FROM HONG KONG AS NEW TRADE CONTACTS IN OTHER
BENEFICIARY COUNTRIES ARE ESTABLISHED, AND AT A TIME WHEN HONG KONG'S
COMPETITIVE POSITION IN TEXTILES IS ALREADY BEING STEADILY ERODED THROUGH RISING UNIT COSTS. THAT THIS IS SO IS BORN OUT BY UNDER-UTILISATION OF EXISTING EXPORT RESTRAINT QUOTAS AND DECLIN- ING VOLUME OF EXPORTS IN MOST TEXTILE ITEMS THAT ARE NOT SUBJECT TO
QUANTITATIVE LIMITATION.
IN VIEW OF THIS DOWNWARD TREND, IT IS SUGGESTED THAT THE SPECIAL SAFEGUARDS WHICH ALREADY APPLY TO TEXTILES UNDER THE COMM- UNITY'S SCHEME WOULD BE SUFFICIENT TO CONTAIN ANY EXTRAORDINARY
MOVEMENT IN TEXTILE EXPORTS FROM HONG KONG,
2
CONFIDENTIAL
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