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affected. And even where a Hong Kong industry was strong enough to maintain its volume of sales to Britain over the c.e.to, it would in almost all cases have to bear the burden of the tariff in the form of reduced profits, both to its own detriment and that of the Hong Kong economy generally. He agreed that the magnitude of all those effects was conjectural; and that the longer the transitional period was, the loss harmful they would be.
13. Sir A. Snelling said that while British entry would clearly have some adverse effects on Hong Kong, it was not casy to form a judgment as to how serious these would be. Some factors suggested that they might be relatively minor. Bearing in mind that it might be ten years before Hong Kong faced the full impact of the c.c.t. in Britain, and projecting forward over that period Hong Kong's recent growth rate, it seemed that British entry into E.E.C. might be no more than a slight dampening influence in a period of expansion. Moreover if, as part of the harmonization of tax systems within an enlarged Community, Britain abandoned purchase tax in favour of a value added tax on a much wider range of goods and services but at lower rates, this would tend to increase the demand for the sort of goods exported by Hong Kong, many of which now attracted fairly high rates of purchase tax.
140 Mr. Cowperthwaite agreed that Hong Kong's growth since the 1961-3 negotiations showed that at that time the Hong Kong Government had been somewhat pessimistic about the colony's economic prospects; he also agreed that British entry into E.E.C. in the fairly near future would have a less marked effect on Hong Kong than it would have done a few years ago. At the same time, much of Hong Kong's recent growth was due to non-recurrent factors, and future progress would inevitably be more modest. Much recent export growth had been in cotton textiles and Hong Kong was now up against access limits in developed countries. Greater prosperity had brought to Hong Kong conditions of demand pressure and labour shortage which were beginning to be reflected in industrial costs; (this would be intensified after legislation was passed to limit permitted hours of work). As a result, Hong Kong's export prices, by contrast with a few years ago, were right up to what the market would bear. It was also proving less easy now to attract new investment, which was another pre- requisite of foster growth. Hong Kong might also be adversely affected by the trend towards containerized shipping in developed countries. Containerization was of no advantage in the shipping of Hong Kong's main exports, and it would require massive capital expenditure in Hong Kong. But if containerization continued to supersede conventional methods of shipping goods, Hong Kong might have to enter the field.
Commonwealth Preference Origin Rules
15. Mr. Cowperthwaite hoped that as soon as Britain began, at the beginning of the transitional period, to grant reduced margins of Commonwealth preference, she would at any rate for imports from Hong Kong abandon the percentage Commonwealth content' criterion for determining origin, and go over to the sort of change of state' rule by which the Six determined origin for the purpose of operating certain quantitative restrictions. This change would enable Hong Kong in certain cases to buy raw materials in the cheapest market (instead of exclusively in other Commonwealth countries), which would be some compensation for the diminishing margin of preference.
16.
Mr. Gildoa said that our assumption had been that we would continue to apply the existing origin rules for Commonwealth
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/preference
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