CONFIDENTIAL
that the Community's room for manoeuvre is very
limited. Over 300,000 jobs have been lost in the EC
textile industry under MFA 2 (1978 to date) and of
these more than 150,000 have gone in the UK in the 18
months to end-June 1981 alone. In the last resort it
is not unprecedented for developed importing countries
to operate outside the MFA. Australia and Norway for
example have both done so but have still stayed within
the rule of the open trading system by using the normal
provisions of the GATT to restrain imports of low-cost
textiles.
5. It should be possible to avoid detailed discussion
in both Peking and Seoul. In Hong Kong interest is
likely to centre on the implications of the territory's
designation by the EC as a dominant supplier, and in
particular on cutbacks. In practice there is no
prospect of securing for Hong Kong anything other than
the most stringent treatment on growth rates and
flexibility (the ability to transfer quota entitle-
ments between years and between product categories).
And on cutbacks (the subject of greatest concern) the
EC position, as Mr Rees explained during his visit on
17-18 December 1981, is not as flexible as the UK would
ideally have wished. However the possibility of
compensation for cutbacks in the form of outward
CONFIDENTIAL
/Council