TNAG-0281-FCO40-317-Visit-of-the-Chancellor-of-the-Duchy-of-Lancaster-to-Hong-Ko-1970 — Page 12

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Lancashire problems, not the EEC. He added that the introduction of a tariff followed by a return to quotas could mean the loss of the established benchmarks and the imposition of lower limits than at present. Mr. Jordan pointed out that, disregarding Yorkshire woollens, the total value of Hong Kong's textile exports was now approaching those of the United Kingdom in absolute terms; in relative terms the value of Hong Kong's textile exports to the economy was of course much greater. Mr. Rippon said that the new Government would be looking again at this policy in the light of its EEC application and was open to representations from interested exporting countries.

Effect of Britain's entry into EEC on Hong Kong

5. Mr. Rippon said that assuming the four applicants gained entry, the enlarged Community was going to be very different to the Six. The United Kingdom and the other applicants would inject different views from some of those prevalent at the moment and this had been for some time the fear of certain present members. Since the departure of de Gaulle from the scene, Germany's influence had been increasingly felt. He noted the considerable trade between Hong Kong and Germany, which reflected Germany's strong economy and liberal trading policy; a strong EEC economy would by extension help to promote more trade between Hong Kong and the EEC. Mr. Dorward stated that 11.6 per cent of Hong Kong's domestic exports in the first seven months of 1970 went to EEC countries and 11.9 per cent to Britain. The trend was for the EEC figure to increase and the United Kingdom one to decrease. In the course of uncompleted negotiations for a proposed cotton textiles agreement with the EEC, the Germans were adopting a very liberal line and were in fact proposing more than to make up cutbacks in the limits proposed by France and the Benelux countries. Mr. Jordan said that this went to show that Germany was still acquiescing in the restrictive attitudes of the other countries. It was possible that the proposed German quota would prove to be higher than demand and if this happened Hong Kong would not stand to gain very much, given the restrictions on exports to other member States.

6. The Financial Secretary went on to say that one of the changed circumstances since the first United Kingdom application to join the EEC was that Hong Kong had in the interim gained experience in dealing with the Six. Outside cotton textiles, the EEC adopted in general a liberal trading policy towards Hong Kong. France was the only member State which did not. However, much depended on the acceptance of Hong Kong as a beneficiary under the GPS, especially in view of the possible effects on Hong Kong of the growing number of preferential association arrangements being made by the EEC.

7. The Financial Secretary referred to a widely held view that Hong Kong was flexible and could get over any tariff. Although this might to some extent be true, none the less a tariff, especially where none had existed before, was going to hurt. If a tariff on cotton textiles had come earlier and in isolation, the repercussions might not have been too bad, but now there were other black clouds on the horizon. If at much the same time Hong Kong found itself having to cope with the United Kingdom tariff, restrictions in the United States and the exclusion from the GPS it was quite possible that she would find herself moving backwards and not just slowing down in growth; such a position would be very serious. Mr. Rippon agreed it had often been said that Hong Kong could overcome any problem. Her Majesty's Government had up to now tended to look at the Hong Kong/EEC "problem" in isolation but as a result of the present discussions he realised that, so far as Hong Kong was concerned, this was not possible and he would endeavour to have this understood when he returned to the United Kingdom.

CONFIDENTIAL