TNAG-0046-FCO40-82-Britain-s-entry-into-EEC-effect-on-trade-with-Hong-Kong-1967 — Page 63

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C.F. 323

CONFIDENTIAL

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General effects of loss of preference on Hong Kong's competitive position with United Kingdom industry

4.

A number of manufacturers point to the adverse effects of the 15% surcharge as an indication that Hong Kong would have difficulty in competing with British industry without preference. Exporters, on the other hand, consider the adverse effects of the surcharge to have been caused mainly by uncertainty surrounding its removal.

5.

H.M. Government have tended to argue that the margin of preference benefits exporters in the form of additional profits rather than importers in the form of lower prices. Where this is so, exporters will presumably be able to maintain their position in the United Kingdom by reducing these, as it were, extra profits. In contrast, exporters themselves claim that preference results in lower import prices and assists Hong Kong to compete against United Kingdom industry; thus they will have to shave profits below the normal level, or to induce manufacturers to reduce other costs.

6.

Another suggestion which seems to allow scope for Hong Kong to survive competition with United Kingdom industry in spite of the tariff, is that Commonwealth preference is alleged in fact to have had a stultifying effect on Hong Kong industries. Exporters, in particular, hold this view and consider that the end of preference could provide a necessary stimulus towards improved quality (preference has apparently caused United Kingdom importers to demand poorer quality than do, say, European buyers) and more advanced methods of production.

That

expensive costings would no longer be required should help to reduce costs; and that manufacturers would no longer have to segregate manufacturing processes in respect of products intended for the United Kingdom should remove a factor hindering their exploitation of other markets.

General effects of reverse preferences on Hong Kong's competitive position

7.. It has proved impossible to get reliable views on how Hong Kong's exports to the United Kingdom will be able to face preferences favouring E.E.C. suppliers. By and large, the items already isolated as being dependent on the United Kingdom do not sell successfully in Europe. There could be any number of reasons for this fact: lack of demand, failure to meet E.E.C. specifications, inadequate promotion, lack of developed trading channels. The Trade Development Office are conducting an extensive market survey designed to reveal Hong Kong's trading prospects in the Community. They have adapted this survey slightly in such a way that it should also highlight whether failure to sell is the result of inability to compete with European industry.

8.

Manufacturers and exporters have pointed out that E.E.C. suppliers will have certain advantages over Hong Kong. They are close enough to the United Kingdom to adjust quickly to changes in demand; they will have lower freight costs to bear to the extent, for example, of about 3% of value for cotton fabrics; they can ship in less expensive packing.

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Effects of loss of preference on Hong Kong's trade with the United Kingdom

9.

The three enclosures to this memorandum are Enclosures 2 to 4 of T.I.A.B. Inf/37/67 rewritten to take account of the specific comments of manufacturers and exporters. As a result, the Department is now able to carry the statistical exercise a stage further by ignoring those export lines that, although directed to a large extent at the United

CONFIDENTIAL

/Kingdom