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On these assumptions (and assuming that the increased production under (b) had an import content of 25 per cent), the net effect on the visible account would be positive at say £27 million. (Income would have increased because of increased United Kingdom production, though in real terms this would be partially offset because domestic production and imports from third countries could be assumed to be more expensive than the Hong Kong imports displaced.) Taking account of the assumed £5 million loss on invisible account above we get a balance of payments
improvement of say £20-25 million.
10. The above analysis yields a range (annual rate) for the balance of payments effects from minus £55 million to plus £20-25 million. Some part at least of the United Kingdom resources used for exports to Hong Kong would be expected eventually to be redeployed into usos. beneficial to the balance of payments and increased United Kingdom production should meet some of the demand hitherto met by imports from Hong Kong. It is difficult to assess the extent to which this would happen or what time lag would be needed for the necessary adjustments, but there are some grounds for relative optimism:-
(i) About 18 per cent of Hong Kong's imports (1966) are
re-exported and assuming that imports from the United Kingdom are re-exported in roughly this proportion, this gives £10-12 million of United Kingdom exports which it should be relatively easy to re-direct to their ultimate destinations;
(ii) Hong Kong is a special case in that over 60 per cent of her
exports to the United Kingdom are of "low cost" textiles and clothing, and imports into the United Kingdom of similar "low cost" textiles from third countries are subject to quantitative limits; moreover even in general conditions of full employment the United Kingdom textile industry can be expected in the foreseeable future to have some surplus capacity so that increased domestic output could reasonably rapidly be substituted for some part of our imports from Hong Kong (the remainder - subject to (iii) below would no doubt be replaced by imports from other "high cost" countries);
(iii) while the loss of imports of Hong Kong clothing and textiles
would generate pressure for increased access to our market from other controlled low cost suppliers, there would be countervailing pressures from domestic producers, and in any case the scale of "low cost" imports is a matter within
Her Majesty's Government's control, so that it is reasonable to assume that increased supplies from low cost producers would be permitted only in return for countervailing commercial (or other economic) advantages.
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