discourage the Association if it is minded to act on this advice.
We should of course indicate that we are in touch with the Governor on the implications of this proposal for Hong Kong and should
'show some awareness of these, as set out below :-
(a) It is difficult to assess the effect of a tariff on Hong
Kong's competitive position but there will be clear threats to it from duty-free EFTA imports (particularly from Portugal) and from South Korea.
(b) We should expect that Hong Kong's trade in cotton textiles
might hold up overall, but that there would be changes of pattern (probably towards increased trade in garments, which is a labour-intensive industry, and away from fabrics).
(c) The proposed transitional period in which tariff and quotas
would operate could present difficulties for Hong Kong in that quotas would impose a strait-jacket on her trade preventing any adjustment of pattern to meet her changed competitive position. · One way round this\could be the injection of more elasticity into the quota arrangements by permitting greater "swing" rights between categories than at present exist.
3. Kai-Tak Airport Development
Lord Shepherd spoke in Hong Kong in deliberately discouraging terms about the possibility of British financial assistance for the development of the airport. Some newspapers reported him as "refusing" assistance.
I
We must not be too optimistic in what we say to the Association, since our own economic plight and the buoyancy of the Hong Kong
economy are such that a refusal may be the eventual outcome. But we can say that discussions with Lord Shepherd in Hong Kong indicated ways (short of a major loan) in which we might be able to assist with
this project and that these are now being considered here.
The "deal" we are examining, details of which should not I think be mentioned, consists of (a) waiver of the outstanding balance (£1.4 million) of the 1959 interest-free loan for Kai Tak;
+
/ (b)'...
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