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agreements which discriminated against the United States and undermined the most favoured nation principle. Mr. Edwards pointed out that, whatever view one took of these grievances, it would not help anybody to set off on a course of restrictionism. Mr. Bergsten said he fully accepted this.
5.
The conversation then turned from the Trade Bill to the question of textile imports from Far Eastern countries which had stimulated it. Mr. Bergsten said that 24 hours after the achievement of any restraint agreement with Japan, it would be necessary to institute negotiations with Hong Kong as well as with Taiwan and Korea. We reminded Mr. Bergsten that we had asked the State Department unofficially some time ago to let us know if it would help to encourage Hong Kong to negotiate. Mr. Bergsten said that he was aware of this informal approach but that at the time they had thought| it advisable to see what could be done with Japan first.
6.
Mr. Edwards then raised the question of the inclusion of Hong Kong in the proposed Generalised Preference scheme for developing countries. Mr. Bergsten confirmed that the United States position was she would exclude Hong Kong unless the EEC and Japan decided to include her. He claimed however that the United States! position was at least as fluid as that of the other major industrial countries. Mr. Edwards urged that at least the United States attitude should be revised to the extent of agreeing that Hong Kong should be included in the preferential scheme unless the others were to exclude her. We pointed out that the exclusion of Hong Kong would mean discrimination against her with potentially serious economic and political consequences Mr. Bergsten put forward the argument that, whilst the delicate political situation of Hong Kong was understood, the per capita income in Hong Kong was high compared with that of the other Asian countries. If Hong Kong's export trade were adversely affected by her exclusion from the scheme she would not need to import as much and, as she had no raw materials of her own, her balance of payments should not prove unmanageable. We pointed out that this argument not only ignored political and economic realities but also the unique geographical and sociological problems of Hong Kong. With so large a population concentrated into so restricted an area there was no fallback to e.g. a subsistence agrarian economy in her case. It could not be to our advantage or to that of the United States to risk turning Hong Kong into an over-populated slum. Moreover it was no answer to say that it was up to the United Kingdom as the colonial power to undertake the full burden of maintaining Hong Kong's prosperity. If the whole burden were to be placed on the United Kingdom, we would presumably be obliged to see what other burdens we could shed and this might well lead to a general unravelling of the generalised preference scheme on which so many hopes had been based Mr. Bergsten seemed to be somewhat impressed by these arguments and said that he would look at the matter again in the light of the points Mr. Edwards and I had put to him.
Deterrit
(D.C. Tebbit)
26 October, 1970
CONFIDENTIAL
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