า
CODE 18-77
Mr Thompson (HKGD K25)
HONG KONG
-
MFA
рас
দ
RESTRICTED
Reference
HKK will
RELER
201*1978
DESK OFFR INDEX
P
en
112
Migures agreed in the
1. The calculations of the effect of the MFA on Hong Kong's economy have been completed for the Group | products. These have changed from the products which were said to be in Group 1 in November (now they include only discontinuous synthetic fabrics, though knitted blouses are counted as a Group 1 product and the EEC has insisted on a tighter definition of trousers).
2.
Economic Consequences
The value of Group 1 exports to the EEC allowed in 1978 is HK$2890 m, a drop of HK$503 m (in 1976 prices) from the estimate of Hong Kong's 1976 exports (compiled using published figures of goods leaving Hong Kong between January 1 and December 31). My earlier estimate of the consequences of Tran's 'initial proposal' was based on a drop of HK$509 m from 1976 to 1978. The difference between the two is so insignificant as to leave our estimate of the consequences unchanged - ie a reduction in output and hence of employment of 2.1% -8,100 people, which is 0.4% of the total labour force.
3.
१
A drop of around HK$50 m was regarded as the worst that could happen provided Hong Kong signed an agreement - that the actual agree- ment is not higher shows that Tran was not bluffing when he said his offer to Hong Kong would get worse if they delayed.
In fact,
he reduced the offered quotas in woven shirts, Jerseys and pullovers and cotton fabrics, and roped in cotton yarns as a Group 1 product, while increasing the offer in trousers and (substantially) in
blouses.
4.
The growth rates agreed from 1978 to 1982 are miserable, averaging out at 1.45% per year for the four years. They are low for cotton
Λ textiles (0.5% pa and 0.25% pa).
5. Immediate effects
Judging by available statistics it seems that actual performance in 1977 (until August) was below the equivalent 1978 quota rates in all Group 1 products except cotton yarns, where exports were 6% higher than the pro-rata 1978 quota rate would allow. However, these things can be affected seasonally so it is worth mentioning that for cotton fabrics and jerseys 1978 quotas might have been lower than actual 1977 exports (even though the trade figures until August do not show this). It seems likely that the quotas for synthetic fabrics, trousers and knitted shirts simply will not bind in 1978 unless Euorpean demand picks up a lot.
6. I conclude that the economic consequences of signing the MFA
are small and have probably already been pre-empted by the slump in European demand. In the longer run the quotas will bind and fast growth will be impossible in these markets. Hong Kong will have to diversify its product markets more, and in this the government (or a semi-official organisation) could well help industry to locate specific markets.
SS 10/76
18 January 1978
Mark Hull
M Hull Economists Dept RESTRICTED
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