C. & 1. 200
2700206
5,000-7/66-B55340
BY DIPLOMATIC BAG
GÖNEMDENTIAL
TELEGRAPHIC ADDRESS:-
ANDIHONG" HONG KONG
CR EIC 1240.
OUR REF.:
YOUR REF.:
10
Dear Michael,
COMMERCE & INDUSTRY DEPARTMENT,
FIRE BRIGADE BUILDING,
HONG KONG.
20 September,
196
are,
I have been intending to write to you ever since I got back but papers have been pouring in and it has been difficult to arrest the flow long enough to do anything but the immediately urgent things.
2.
We were in some difficulty in replying to your telegrams 594 and 595 because we had not seen the amended version of the PC(0) paper that I was shown in London, The Governor's reply was confined to general points of importance but there also a number of points of detail which, we believe, add up to the conclusion that the arguments and the conclusions on whichthe 'Article XIX policy' is based are not sound.
3.
I covered some of our points in my very hurried 'Preliminary Comments', which I left with you and Bob Goldsmith. Since my return
I have shown these to John Cowperthwaite, who agrees generally with what I said, and has added the following comments.
4.
While it can be argued that tariffs are more respectable in the GATT than quantitative restrictions, this does not necessarily mean that tariffs are in fact a better way of regulating trade than are q.r.s. An effective tariff is indeed the bluntest and most effective weapon for controlling trade: it can cut it off entirely and force exporting countries intothe remaining unprotected sectors (if any). Furthermore the GATT was written in terms of import control export restraint is a new concept that had not been developed twenty years ago. Q.r.3. with export control are not as inflexible a method of regulating trade as seems to be imagined in some quarters. They allow for genuine negotiations on levels, they can have growth and flexibility provisions (swing, carryover, anticipation) built into them. They may put some money into the wrong pockets but they don't do it to nearly so great an extent as the raising of tariffs which (so long as they don't kill the trade altogether) put it into the treasuries of the importing countries, which in the case of low-cost textiles' are generally the richer and more developed countries to start with.
5.
With regard to the suggestion that the LFA has not only failed to serve Britain's interest in getting other countries to share the burden of low cost imports but has actually increased the pressure on Britain because she didn't impose restrictions until imports had taken over a large share of the market, John has pointed out that the basic cause of Britain's high level of imports of cotton textiles has been the relative inefficiency of the British industry. Those exporting countries
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