0003230
G.F. 323
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Excl. 13
of imports, and political pressures have been brought to bear on the Canadian Government for increased protection. It is understood that the Canadian Prime Minister himself has been drawn into this matter. In these circumstances the Department, takes the view that, irrespective of whether the Canadians can fully substantiate their claim of damage as a result of imports of polyester/polynosic shirts, the Canadian Government will take steps to protect Canadian manufacturers. that Canadian law does not make provision for the imposition. of quantitative restrictions; instead the Canadian Government can resort to the imposition of surcharges which can in practice stop the trade altogether. These provisions were recently invoked against exports of shirts from Malaysia and South Korea.
Members will be aware
Becausc
of the wider implications for Hong Kong of a surcharge, it has been the Hong Kong Government's policy to avoid the imposition of surcharges on exports from Hong Kong to Canada even to the extent of reaching an inequitable agreement. In the circumstances, therefore, the Department feels obliged to respond to the Canadian request and to recommend that Hong Kong unilaterally restrains exports of shirts of polyester/polynosic blends.
49.
It is to be expected that the Canadians will be
intransigent in their demand for an immediate cessation of the trade in polyester/polynosic shirts until some agreement is reached, especially since Hong Kong's exports in the current textile year from 1st October, 1968 to 21st July 1969 total 46,504 dozen and this figure, combined with shipments of restrained polyester/cotton shirts, already exceeds the restraint limit on polyester/cotton shirts by some 36,131 dozen. There is likely also to be considerable pressure from the Canadians to count any "excess" shipments this year over any agreed limit for the next textile year against the next year is limit. The Canadians, in their recent communication to us on polyester/polynosic shirts, have hinted at this possibility; they have also proposed an immediate 2% growth (i.e. 1,500 dozen) on the present restraint limit (75,000 dozen) for polyester/cotton shirts to accommodate part of the trade in-polyester/polynosic shirts.
50.
In an attempt to take some of the heat out of the situation, and to prevent speculative shipments, the Department therefore believes that it would be advisable to register firm contracts for polyester/polynosic shirts immediately, and for the time being to license exports of polyester/polynosic shirts only. against registered contracts. A draft Notice to Exporters containing the Department's proposals is attached at Enclosure 13.
Negotiating instructions
51.
In all the circumstances it is difficult to formulate firm negotiating instructions for the Hong Kong team and the Department believes that it will be necessary to allow the team a great deal of discretion in this matter in view of the threat held in reserve by the Canadians to impose a surcharge on this trade. Howover a suggested broad outline of how the Hong Kong team might proceed is set out in the following paragraphs.
52.
It is suggested that the Hong Kong team should (a) first take the Canadians through the statistics to
establish how much of a case there is for restraint; (b) eventually concede restraint for this textile year
at the nearest level to the sum of shipments of polyester/polynosic up to 26th July plus amounts registered on firm contracts for shipment before 30th September;
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