TNAG-0301-FCO40-337-Effects-of-tariffs-on-imports-of-cotton-textiles-to-UK-from--1971 — Page 151

Hong Kong should have opportunities to make gains, particularly in the garments sector, to offset any losses elsewhere. Any reimposition of quotas in the circumstances laid down would be confined to the sectors affected and would therefore be different from the present restrictions. There was therefore no case for retaining the present restrictions in the interests of continuity.

7.

Hong Kong pressed for a phased introduction of the tariff by the adoption of decalage. There could be a transitional period starting in 1972 during which quota restrictions would be maintained. When the tariff was applied in full at the end of this period quotas could either be removed or modified in the event of U.K. entry into the E.E.C. which would by then have been decided. This policy

would be fairer on Commonwealth suppliers who would not suddenly be subjected to unrestricted low-cost competition from other sources and the prospect of losing part of their present share of the U.K. market in any reimposition of quotas from a new base. The D.T.I. replied that under the present quota arrangements Hong Kong occupied what amounted to a privileged position in the U.K. market.

no part of U.K. policy to favour Hong Kong's non-Commonwealth competitors, but they had to recognise that the present quota arrangements were unsatisfactory from the point of view of the U.K. industry and should therefore be abandoned. Equally, the proposed tariff, which incorporated a measure of Commonwealth Preference, was set at the lowest level for adequate protection and there was no scope for decalage. Hong Kong's concern that it should maintain its performance against its competitors was understandable, but the D.T.I. believed that this could be achieved by moving into different sectors of the trade. The advance notice of the change to tariff protection had been intended to allow preparations to be made for such a change in the pattern of trade. Any reimposition of quota restrictions in the future might well be on a different basis to the present system and Hong Kong should not assume that in that event its present performance would automatically be preserved by maintaining its present pattern of exports. Restrictions could be imposed not only under the L.T.A. on cottons, but, in the event of disruption, under Article XIX of the G.A.TT, if necessary embracing products of other fibres as well as cotton.

8. The D.T.I. said that the President's statement on the introduction of the tariff included provision for a review of the policy only on actual entry into the E.B.C. There would of course be discussions with the Commission on textiles policy during the period of negotiations, but not as part of them. These would not affect the decision to introduce the tariff on 1st January 1972. From that date the only countries continuing to enjoy duty free entry into the U.K. would be Ireland and the members of E.F.T.A. who enjoyed treaty rights to free entry. It was not expected that any benefit that Portugal derived from this situation would be specifically at the expense of Hong Kong and its right to duty free entry did not extend to Macao.

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9. Hong Kong feared that the introduction of the tariff would result in a direct transfer of income from Hong Kong to the U.K. The present quota restrictions allowed Hong Kong to include a premium in the prices of its exports to the U.K. which was a legitimate reward for the operation of the restraint arrangements. This would disappear with the removal of quotas while the receipts from the tariff would accrue to the U.K. Even if the volume of trade was maintained or increased, the result could therefore be a loss of income and a reduction in profitability. If in addition, however, Hong Kong were to be seen to be losing trade to its non-Commonwealth Asian competitors, confidence within the colony might be eroded. They had to face the prospect of exclusion from the E.E.C.'s UNCTAD offer on textiles which would represent discrimination against them and in favour of South Korea and Taiwan. The worst eventuality would be if the U.K. were then to be compelled to conform to this on entry into the E.E.C. This could lead not only to a reduction in trade and employment but to political difficulties.

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