TNAG-0153-FCO40-189-Exports-of-cotton-textiles-to-Canada-1969 — Page 116

CONFIDENTIAL

HONG KONG TELNO 660 TO FCO

-5-

AND THAT GROWING EXPORTS ARE CIRCUMVENTING THE RESTRAINT ON CABINET

TOWELS. WE ARGUE THAT OUR SHIPMENTS OF THIS ITEM ARE LEGITIMATE

AND WITHIN THE TERMS OF THE BILATERAL AGREEMENT. THEY, WITH SOME

HEAT, CALL THIS A LEGALISTIC ARGUMENT.

3. PROVIDED WE CAN REACH A COMPROMISE ON THIS ISSUE WE UNDERLINE

NEXT WORD MAY BE ABLE TO REACH AGREEMENT ON THE COTTON TEXTILE

ITEMS BUT ON A WORSE BASIS FOR US THAN IF THERE HAD BEEN AN

OVERALL PACKAGE INCLUDING NON-COTTONS. NEVERTHELESS WE FEEL IT

WOULD BE WISE TO TRY TO REACH AN AGREEMENT ON THIS UNSATISFACTORY

BASIS BECAUSE IF MATTERS LATER REACH A PASS WHERE THE SURCHARGE IS

IMPOSED ON M.M.F. THE CANADIANS WILL TRY TO DO SO ON THE BASIS OF

THEIR OWN CUSTOMS CLASSIFICATION WHICH DEFINES M.M.F. AS 5% OR

MORE M.M.F. (94% OR LESS OF COTTON). THIS WOULD CATCH A CONSID-

ERABLE PROPORTION OF OUR COTTON EXPORTS TO CANADA WHICH, FOR CTA

PURPOSES, ARE DEFINED AS OVER 50% COTTON. IF WE HAVE REACHED A

COTTON AGREEMENT, ON THE OTHER HAND, WE CAN ARGUE THAT THE SURCHARGE

SHOULD NOT APPLY TO EXPORTS DEBITED TO QUOTA UNDER THIS AGREEMENT. 4. IN PRIVATE CONVERSATION HOWARTH HAS TOLD JONES, WHO IS

LEADING FOR HONG KONG, THAT IF NO AGREEMENT IS REACHED BETWEEN THE

U.K. AND CANADIAN GOVERNMENTS OVER M.M.F. THE CANADIANS WOULD

HAVE THE CHOICE BETWEEN THE FOLLOWING COURSES OF ACTION 1-

1) IMPOSE THE SURCHARGE ON THE ITEMS AFFECTED (AS DEFINED IN THEIR

CUSTOMS TARIFF).

2) WITHDRAW M.F.N. TREATMENT FROM HONG KONG ON THESE ITEMS (AND

TAKE THE RISK OF RETALIATION).

3) RAISE THE TARIFF AGAINST HONG KONG AND INVOKE ARTICLE XIX (HE

CLAIMED THEY COULD GET ROUND THE REQUIREMENT ON NON-DISCRIMINATION

BY CLAIMING THAT PRICES WERE RELEVANT).

4). DO NOTHING AND LET THE TRADE RUN ON.

/5. HE

CONFIDENTIAL