0003230
G.F. 423
CONFIDENTIAL
-7-
31.
Mr: Jordan repeated that the concept of a cutback was most obnoxious to Hong Kong and that, if such were accepted, there was no telling what international repercussions there might be. As to increased imports from Hong Kong in the first half of 1968, he felt sure this was attributable to an upsurge in demand which the British industry was unable to satisfy. As Mr. Ord-Johnstone had said in October 1967, a number of mills had closed down and it was quite understandable that British production fell short of requirements. Naturally, the gap had been bridged by imports.
32.
Mr. Stewart said that since the recession of 1966 a number of mills had been reopened, but production capacity overall was still less than it had been. The reluctance of firms to reopen or to re- equip could be ascribed to a fear of what could be described as unfair competition from relatively low-cost producers such as India and Hong Kong.
33.
Mr. Jordan was not convinced that the situation described by Mr. Stewart bore any relation to market disruption as the concept was normally understood. The high level of imports simply appeared to be the result of the British industry's inability, or unwillingness, to meet domestic demand. Mr. Stewart responded by saying that Mr. Jordan appeared to be enquiring whether Britain actually needed a wide sheeting industry. The answer was yes, and the reasons were political as well as economic. As far as the latter aspect was concerned, he was quite satisfied that a situation of market disruption existed.
34.
Mr. Jeaffreson commented that the decline in British production of woven shecting might be attributable to the increasing popularity of knitted nylon sheets as to increased imports of woven sheeting and sheets from overseas suppliers. He did not feel that the situation was quite as clear as Mr. Stewart made out.
35.
Mr. Stewart agreed that a number of factors were involved, but the most important element in the situation was the increasing level of imports, particularly at a time when the market for wide woven sheeting was declining. He felt this clearly established his contention that market disruption existed. Mr. Jordan replied that injury to industry could only exist if British mills were working under capacity or on short time. If they were not, there was no situation of market disruption. Whether it had existed in the past was a different question. His point was that such a situation did not exist now. Mr. Stewart had said earlier that present production was running at some 86% of total capacity, and he did not think this indicated a continuing situation of market disruption.
36.
Mr. Stewart retorted that Hong Kong could hardly expect Ministers to accept the argument that, because H.M.G. had adopted a liberal attitude for so long, they should now be denied the opportunity of doing something to remedy the situation. The 5.0.T. were firmly convinced that unless imports could be curbed British production would surely continue to decline. Even a cutback on imports would not guarantee any significant increase in domestic production. Agreeing, Mr. Jordan said he thought it was only logical that firms which had gone out of a particular business would think twice before entering it again.
37.
Mr. Jeaffreson said it seemed rather strange that the level of sheeting imports had become a problem in the very year that imports of Hong Kong sheeting had been made subject to specific limitations. Prior to 1966, imports of Hong Kong sheeting had not been so rigidly categorised. Mr. Stewart explained that the British industry had been operating at 100% capcity until the second half of 1966 - i.e. after the global quota and special country arrangements had been made. excessive and unforeseen imports were now preventing it from maintaining a reasonable share of the market. He would later produce more detailed capacity-utilisation figures to prove his point.
CONFIDENTIAL
138.
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