TNAG-0132-FCO40-168-Tariff-preferences-for-developing-countries-1969 — Page 134

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CONFIDENTIAL U

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If, however, it transpires that Hong Kong will be able to participate in a generalised preference scheme, then if either of the possibilities set out in paragraph 2(b)(ii) or (iii) applied whether a formula or a straight escape clause would prove most acceptable would depend on the nature and provisions for consultation and restoration which each proposal contained.

6. It is probably visionary to expect such an outcome as is set out in paragraph 2(b)(iv) and it might, in any case, be a Pyrrhic victory in that Hong Kong's pre-eminence as a supplier of manufactures (over 20% of l.d.c. exports according to G.A.T.T's 'International Trade 1968') would focus the attention of the developing countries on the apparent damage to their interests being caused by Hong Kong's competitiveness.

7. On balance, therefore, we would suggest that from Hong Kong's point of view a solution based on that set out in paragraph 2(b)(iii) should be sought by H.M. Government's representatives, though perhaps the formula set out in paragraph 2(b)(iv) might first be presented as a gesture against discrimination on the grounds of competitiveness.

(c) Existing Preferences

8. The merging of Commonwealth Preference with a generalised scheme would be of serious concern to Hong Kong if this involved the application of safeguard/escape clause procedures, especially if these were on a basis of a formula applicable to all l.d.c's., and a phasing out in a limited period.

(The subject of existing preferences might offer H.M. Government an opportunity to threaten a diminution of preferential advantages to African Overseas Territories in the event of an ab initio exclusion of Hong Kong by the E.E.C.)

(a)

Rules of Origin

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In the interest of Hong Kong we would recommend:

(i) Common rules or individual rules

If only for administrative convenience we would recommend developed countries should adopt common rules.

(ii) Developing countries to be treated separately or

as a group

We would recommend that each 1.d.c. be treated separately unless under rules of origin the 'value added' criterion is adopted and the percentage is so high that Hong Kong products will not qualify unless we can include the cost of raw materials.

(iii) Criteria for claims to preference

We would recommend rules based on "transformation" rather than "value added". Hong Kong's interests lie in ensuring that the definition of "transformation" should cover our manufacturing processes generally and that there should be no limitation on origin of raw materials. If, however, the developed countries finally adopt "value added" rules, then Hong Kong's interests would lie in ensuring that the percentage should be low enough for Hong Kong to qualify. In either case, Hong Kong would prefer to see developed countries accept certification of origin issued by approved issuing bodies in the exporting country.

The reasons behind the recommendations may be set out as follows:

The transformation criterion:

(1)

This criterion does not lend itself to ready interpretation,

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