CONFIDENTIAL
8.
The Governor of Hong Kong has argued that the
Commission's proposals as put to him by Tran would have
serious consequences for Hong Kong's economy; warned that the
Hong Kong Government's programme of social reforms could be
put in jeopardy; implied that there could be unfortunate consequences
for British contractors bidding for major contracts, including
in particular that for a new power station for the China Light
and Power Company; and suggested that tough Community action could
cause the United States to renegotiate downwards the quotas
it recently agreed in a new Hong Kong/US Textile Agreement.
9.
We have a duty to protect the interests of Hong Kong and,
where these conflict with Britain's own interests, as in this case,
at least to try for reasonable treatment for Hong Kong. But
Hong Kong and General Department have reservations about the
Hong Kong Government's case, at least as it has been presented so
far,with regard to the likely effect of the proposed Community cut-
backs on the growth of Hong Kong's economy and the implementation
of social reforms. A comparatively modest increase in taxation
ought to be sufficient to ensure that these reforms can still be
carried out. We would clearly not want to lose the China Light
and Power contract. A bad textile deal with the Community, which
might be attributed in Hong Kong to British protectionism could
lead to such a swing of opinion against Britain as to undermine
the Department of Industry's current efforts to see the contract
awarded to British firms. But our main potential competitors, the
Japanese, would have a price edge anyway and I do not think we should
/be
CONFIDENTIAL