$3230 G.F. 323
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that of Hong Kong were to be allowed to participate in the scheme.
13.
Mr. Ernst replied that per capita income and competitiveness might not be directly related; there were many examples indicating that certain products of a country having a high per capita income were not .in fact as competitive as those produced by a country with a relatively low
per capita income.
14.
Mr. Jones said that he recognised this. It was for this reason that he had used the two criteria of per capita income and competitiveness. One of the objectives of international trade was to increase the per capita income of the trading countries and this was certainly one of the objectives of a preferences scheme for 1.d.c.s. In the case of Hong Kong, export trade had a particularly significant political impact because her population had no direct representation in political affairs and it was therefore all the more necessary to provide them with a rising standard of living which could only be obtained through increasing exports. Hong Kong might tolerate exclusion from a preferences scheme only if other l.d.c.'s of the same or higher degree of development, and others who were particularly competitive, were also excluded, leaving the 'least-developed' countries, as it were, to participate in the scheme. Exclusion of Hong Kong would also create political difficulties vis-a-vis the U.K. He could not envisage a situation where Hong Kong was excluded whilst countries like Israel or Yugoslavia were included in a preference scheme in which the U.K. participated. inclusion of Hong Kong, on the other hand, would ease everyone's problems if and when the U.K. joined the Common Market.
15.
The
Mr. Jones went on to say that he saw no point in the complete exclusion of Hong Kong from a generalised preference scheme where Hong Kong was competitive in only a few lines. Indeed, it would be particularly
Should the unfair and would create a large new area of discrimination. need arise surely Hong Kong could be excluded from preferential treatment on those items in which she was particularly competitive (provided the same applied to other 'competitive' countries) but be included for other items in which she was not significantly competitive.
16.
Mr. Ernst said that such measures would give rise to technical difficulties and would make the scheme too complicated to operate. He enquired what Hong Kong would lose if she was excluded.
17.
Mr. Jones said he could not agree with Mr. Ernst's first comment. The difficulties involved would be much less than were involved in operating a duty free quota system for all 1.d.c.s, which had already been accepted in principle. On the second point he said that, as an example, Hong Kong had already experienced keen competition from South Korea in certain acrylic knitwear products. He was unable to say at this stage exactly what would happen, but he felt fairly certain that, apart from Korea, Hong Kong could also experience considerable difficulties in the E.E.C. market in some products from competition from Taiwan, Singapore and Yugoslavia and perhaps some other countries, if these countries were accorded preference whilst Hong Kong was not. In this connection he would point out that the level of preferences involved would not be negligible if the impact of tariffs on added value (which is what counted) were considered. Mr. Jones added that, in view of all this, it seemed to be too drastic a measure, and completely unnecessary, to keep Hong Kong out altogether and to allow her competitors to take part. He explained that Hong Kong actually preferred to have no generalized preferences at all; she would rather retain the G.A.T.T. most-favoured-nation treatment. But she could not afford to be discriminated against. A major consequence of the exclusion of Hong Kong by the E.E.C. would be that the U.S. and other donor countries would probably follow suit. This would put the U.K. in a very difficult position. Hong Kong enjoyed Commonwealth preference in the U.K. market and had not caused market disruption there. It was difficult to imagine that Hong Kong could disrupt the E.E.C. market in a generalized preferential scheme, especially when it was operated under a tariff quota system.
CONFIDENTIAL
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