SECRET
2
6. It seems probable too that HK's exports would become more vulnerable to protectionist measures. In the UK they are restricted, formally or informally, only in the long standing case of textiles. Other UK industries do at times seek to have imports from HK restricted but their attempts are half-hearted since they doubtless believe that UK Ministers would be very unlikely to consent. Removal of the existing UK/HK links would undoubtedly be seen by our industries as an encouragement to try again. Our Community partners might well also be less inclined to treat goods from HK with any degree of sympathy, particularly if HK were offering a less attractive market for their exports (HK has often been sceptical of the benefits she has derived from the link to the UK as in our acceptance of GATT on her behalf: but though proof is impossible it does seem likely, to put it at its lowest, that there have been benefits to her in the risks
as seen by others who would have acted against her trade more readily). Against this view it might be claimed that those wishing to restrict imports from HK would find it difficult to do so because China could choose to show HK goods no longer separately distinguishable from those of the rest of China. However, industries and customs authorities would still have (eg through shipping documents) a good idea of the origin of "Chinese" goods. The presumably clear distinction between HK and Chinese goods which there would be under option (b) could only be of advantage to HK: the Chinese know -- and know that others do also that their goods are often of poorer quality and those of HK increasingly seen as moving into higher market brackets.
7. UK Trade Interests
Our exports to HK have grown strongly
in recent years, from £362mns in 1978 to £331mns in the first 5 months of 1982. The adverse effect of (a) on our trade would be clear enough. Much of our export growth has been in infrastructure projects which would be the first to be cut back as the level of economic activity reacted adversely to the implications of option (a)、 HK accounts roughly for 1% of our exports. China is a much less valuable market and our trade with her shrunk considerably in the last 18-24 months under the impact of the Chinese read justment policy.
-3-