argument that Hong Kong will suffer unacceptable damage. We can urge only the political arguments and our special and wider responsibility for a dependent territory as grounds for treating Hong Kong as a special case and for conceding in the eventual discussions a measure of generous treatment to meet their problems as they emerge. The possibilities for special treatment are examined below.
6. On the tariff itself, clearly no lower preferential rate of duty is possible (as a "new preference" it would, I understand, be contrary to GATT) We have considered the possibility of securing for Hong Kong the choice of remaining on quotas or taking the tariff. But my informal contacts with Mr. Goldsmith in the Board of Trade suggest that this is not a practicable course to present, in the context of the industry's recommendation which is deliberately designed to decrease imports from the Commonwealth (with Hong Kong particularly in the Industry's mind) and not to sustain them at present levels. Even if the principle of retaining quotas for Hong Kong were to be conceded, there would undoubtedly be strong pressure for lower quotas. Furthermore it is very doubtful whether there would be any advantage for Hong Kong in being bound to a pattern of trade set by the quotag when all their competitors would be free to adjust their trade to changes in the U.K. market pattern that may emerge behind a protective tariff.
7. Nor do I think there is anything we can do about the point made in Paragraph 3 above. If Hong Kong exports do indeed cause injury to a particular sector of the industry, that can be the only relevant factor in the decision to ask for restraint; Hong Kong's losses in other sectors of the trade are irrelevant.
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But we could, I suggest, argue strongly for a measure of elasticity in the quota arrangements during the transitional period (paragraph 4 above) to permit adjustment to new patterns of trade. This might be done by permitting greater "swing" rights between quotas than at present exist.
9. One final point. Despite all that we have done by way of consultation so far, we may be vulnerable vis-a-vis Hong Kong on the point that a decision had been taken without affording the Hong Kong Government the opportunity to represent the Colony's interests. We have, in fact, made a special concession to Hong Kong's position as a dependent territory in giving its Government a chance to express its views to us. No other Commonwealth Government has been consulted: we have asked Commonwealth posts only for their views. All this has been done without the knowledge of the Board of Trade. When it comes to the crunch, the Governor is not going to be able to say openly that he was consulted not only because of the deception practised on the Board of Trade but also because he
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