TNAG-0249-FCO40-285-Effect-of-entry-of-UK-into-EEC-on-exports-from-Hong-Kong-1970 — Page 146

CONFIDENTIAL

threat to public order, exploited by the Communists in the

trade unions. Hong Kong's status as a colony could be

called into question, with a consequent failure of

confidence and further deterioration of the economic

situation.

3+

Trade Measures

31.Hong Kong exercises her GATT rights through the United

Kingdom. Though she might continue to exercise them, for

what they are worth, against the USA, it is scarcely

conceivable that she could do so against an enlarged

Community of which the United Kingdom is a member state.

Since Hong Kong imports more than she exports, the

possibility of trade retaliation might be considered.

Hong Kong has no protective tariff and merely imposes

revenue duties on drink, tobacco and petroleum. She

could institute a customs tariff, as Britain did in 1931,

or impose quantitative restrictions. Either of these

would require setting up a new administrative machine,

and the concept of a colonial government taking retaliatory

action against a metropolitan power is difficult to

envisage. It could scarcely be done against the enlarged

Community without the consent of the United Kingdom

Government. On the whole retaliation by means of trade

measures seems highly unlikely.

b.

Sterling Balances

32. Under the Sterling Agreement, which was signed with Hong

Kong in September 1968, the UK provides a US dollar value

guarantee of the bulk of Hong Kong's sterling balances in

return for an undertaking by Hong Kong to maintain a minimum

proportion of her reserves in sterling throughout the life

of the Agreement.

The proportion, which was established in

/bilateral