0003230 G.F. 323
58.
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Mr. Stewart reverted to the possible advantages for Hong Kong in switching from the production of wide sheeting to other lines. Mr. Jeaffreson pointed out that while in theory there were opportunities for expansion in the n.e.s. fabric categories, the practical possibilities were limited by market demand for the items concerned; he drew attention to the fact that in the Group II"basket Hong Kong's performance in all but two items (viz. Category 8(3) canvas and duck, under 46 inches, and Category 8(6) - loomstate fabrics, n.e.s. under 46 inches) was negligible. Mr. Stewart remarked that it was only logical that the greater part of any compensation would be applied to "basket" items. Mr. Jordan replied that this would certainly not be acceptable to the Hong Kong Government.
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59.
Mr. Stewart stressed that H.M.G. had no wish to curb Hong Kong's overall export opportunities and there was no question of any reduction being made in the aggregate and group limits. If the Hong Kong side could convince him that additional yardage in the "basket" could not be used, he would be prepared to consider offering a measure of compensation in the limits for other sensitive categories. However, any such compensation could only be paid within the groups concerned, and some of it would have to be taken in the "basket"; in other words, the amounts offered would be less than the reduction in the sensitive wide sheeting and sheets categories. He was personally of the view that Hong Kong would be able to continue to ship up to
the aggregate limit, even if there were no compensatory increases in the limits for other sensitive categories. He warned Hong Kong
not to try to transfer all the compensatory yardage into sensitive categories. There could also be no question of increasing group limits by way of compensation.
60.
Mr. Jeaffreson said that, in view of the very severe cut-back proposed for finished sheeting, he could not share Mr. Stewart's optimism. The fact was that the B.O.T. were trying to cutback Hong Kong in categories where performance was good, and if compensation was to be meaningful it would have to take the form of increases in the limits of other sensitive categories where there was a real potential for expansion. He referred to the shipment position in Categories 5 (grey poplins) and 6 (grey sheeting under 60 inches), and said that as exports were well below the limits any offer of compensation in these categories would not be attractive.
61.
Mr. Stewart reiterated that a situation of market disruption did exist and, in the circumstances, compensation for the exporting country was not indicated. He suggested to Mr. Jordan that he stress to the C.A.B. that the B.O.T.. vere not trying to discriminate against Hong Kong. The situation was quite the reverse, H.M.G. having first approached Portugal. It had been hoped that the limitation on Portugal would have solved the problem but regrettably this had not happened. This was why Britain now had to seek the assistance of India and Hong Kong. He was not prepared to accept that the existence of an Article 4 agreement with India prevented H.M.G. from dealing with a situation of market disruption arising out of imports from India. The situation with Hong Kong was similar; and even if the C.T.A. did not apply, Britain had a strong case under Article XIX of the G.A.T.T. Did Hong Kong agree that British imports from Hong Kong here disrupting the British market?
62.
Noting Mr. Stewart's remarks, Mr. Jordan said he would like to know 'precisely what the B.O.T. were prepared to offer by way of compensation. Mr. Stewart replied that, while there could be no question of any increased inter-group swing
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CONFIDENTIAL
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