CO129-558-11 Mission of Sir F. Leith-Ross to China- proposals for a Hong Kong - China customs... 29-9-1936 - 30-12-1936 — Page 66

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(e) The non-Chinese entrepôt trade would be

definitely hindered, although the damage might be

mitigated if a part of the harbour could be set aside as

& Free port.

b 7. The economic advantages to be gained from a

Customs union consist, therefore, in the benefits in

respect of the Chinese coastal trade and Hong Kong's

The first could probably be secured

manufactures.

almost as fully by an agreement with the Chinese

Government to allow Chinese goods to retain their national

status when shipped via Hong Kong. The other is

unlikely to be obtained by any special agreement, because

shrow a

it would arouse the intense opposition of other foreign

countries, particularly the Japanese, who could probably

prevent it by the invocation of most-favoured-nation

rights, and probably equally intense opposition from

Chinese manufacturers in Shanghai and South China.

firm

This

no less opposition would, however, be aroused equally by a full

wight

Customs union and would very likely be politically strong

enough to prevent it.

important

8. On the other hand there are two big disadvantages

in a Customs union: first, the loss of the Free Port

status, particularly the damage to the non-Chinese

entrepôt trade; and second, the inevitable increase in

the cost of imported goods which must result from the

application of the Chinese tariff to Hong Kong's own

imports. It must be remembered that three quarters of

these imports come from foreign countries and they consist

largely of foodstuffs and necessaries.

There must

That

might

therefore, be some increase in the cost of living.