30
G.F. 323
CONFIDENTIAL
5-
16€
It would therefore appear that the adverse factors enumerated above which would seem likely to affect other sectors of the Hong Kong cotton textile industry as a result of the imposition of a tariff and removal of quotas in the U.K. would not be present to the same extent in the case of garments. compared with fabric exports the position on garments in the U.K. market would be as follows
(a)
As
U.K. costs would fall by a lesser percentage because the scope for mechanisation is less and labour costs are a significant proportion of garment production;
(b)
the "value added" in garment production is relatively high so a tariff of 15% would be less onerous relatively for Hong Kong than would a tariff on yarn or fabrics;
(c)
Hong Kong's garment industry is ahead of other low cost competitors in terms of quality, fashion and adaptability to markets; and
(a)
because of high "value added" Hong Kong garment makers could buy cloth in the cheapest market and still meet the requirements for Commonwealth preference.
17.
All this would seem to indicate that Hong Kong garment makers would without doubt be able to face a 15% tariff in the U.K. market and the increased competition due to the removal of quotas and still increase sales. That this is likely to be the position is evidenced by Hong Kong's consistently good performance in the sale of garments to markets like Canada, Germany, Sweden and the United States (despite a tariff hurdle) and our relatively poor performance in fabrics in these markets. Although sales of Hong Kong garments to the U.K. would be likely to increase, however, this would be at the expanse of lower prices.
18.
One important factor to be taken into account in this regard is that the imposition of a tariff in the U.K. and the removal of quotas on cotton textiles, including garments, coupled with the reduction of the U.K. tariff on man made fibres as a result of the Kennedy Round would make the position in the U.K. for cotton and muf much more similar. This would undoubtedly stimulate the sales of Hong Kong garments of mmf and the cotton/umf mixtures and blends. The overall result should be a significant stimulus to Hong Kong exports of cotton and cotton type mmf clothing to the U.K., with mmf expanding faster than cotton. It is clear, however, that, to the extent that Hong Kong garment makers utilised non-Hong Kong cotton cloth for these operations, it would have a further significant depressing effect on the Hong Kong spinning and weaving industry.
Knitwear
19.
Hong Kong's cotton knitwear exports to the U.K. already enjoy duty free entry without quota. They could therefore only lose from the imposition of a tariff. They now comprise nearly 13% of Hong Kong's total cotton textile exports to the U.K.
Other Considerations
20.
As explained the foregoing analysis is based entirely on the assumptions set out in paragraph 3. It has also attempted to describe the situation as it is likely to be when a tariff has entirely replaced the quota system and the repercussions have been allowed to work themselves out. It may well be that some,
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CONFIDENTIAL
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