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and even thè majority, of these assumptions may not turn out to be correct.
21.
The most crucial assumption is probably that conceming the competitive position of the British yarn and fabrics sectors. If they are not able to reduce their costs to the extent expected in the Report before quotas are removed a tariff alone of about 171% mfn and 15% preferential (with continued duty free entry for EFTA countries and the Irish Republic) would not be sufficient to prevent significant increases in imports. The Report recommends that, if this were to happen, rapid action should be taken through the provisions of the C.T.A. to reimpose controls over imports and that similar action should also be taken to prevent any
If it damaging increase in imports in particular categories. becomes clear to importers and to exporting countries that this is the situation which could be faced, the removal of quotas could lead to a very unstable (and probably short lived) situation with very large speculative increases in imports in order (a) to get as much in as possible before quotas are reimposed and (b) to
This could be a build up performance in anticipation of quotas. very possible situation if the British industry is not able to improve its competitive position rapidly enough.
22.
It is also possible that HMG's consideration of the Textile Council's Report will lead to other outcomes than the imposition of a tariff and the removal of quotas. The range of possibilities could be :
(i) Quantitative limitation without tariff
This is the existing situation and there would be little change provided bilateral quotas at the present size were still made available to India and Hong Kong.
(ii) Replacement of quotas by a 15% tariff on the Commonweal th
This is the position analysed in the foregoing
paragraphs.
(iii) Retention of quantitative limitation plus a 15% tariff
This could well be the interim position if quantitative limitations were not removed at one go but were gradually phased out as the effects of the tariff began to show. Under this possibility the pattern of trade initially would probably remain roughly the same, again on the assumption that the existing distribution of quotas was not disturbed. On the other hand, as the tariff would have to be paid, the earnings accruing to Hong Kong would be less, the exact figure depending on whether the tariff would lead to price increases under conditions where quotas were maintained.
(iv) Imposition of a tariff at a level higher than 15% with
removal of quotas
This is not at all a likely possibility as it would involve increasing the U.K. ufn tariff and would have GATT implications. It would be that much more protectionist and that much less acceptable to Commonwealth and GATT opinion. Voices
/have,
CONFIDENTIAL
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