TNAG-0332-FCO40-368-Visits-of-Secretary-of-State-for-Foreign-and-Commonwealth-Af-1972 — Page 39

CONFIDENTIAL

3.

It was too inflexible now that there was to be a new tariff. At the talks in London last month Hong Kong sought some right of transfer from fabrics to garments, but the DTI's offer was so derisory that the local industry would not accept it.

Sir Alec Douglas-Home asked whether it was the amount of swing or the conditions attached which was causing the trouble. Mr Haddon-Cave explained that he had originally wanted swing rights up to 24 million yards, he had been prepared to accept 10 million, but had been offered only 4.6 million. Under pressure, DTI had just agreed to increase to 10 million, but with conditions which were novel and damaging and this was unacceptable.

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4. Sir Alec Douglas-Home asked what effect an allowance of 10 million yards would have on Lancashire. Mr Haddon-Cave said that, in his view, there would be no discernible effect on the UK market. For its part Hong Kong was principally interested in obtaining some amelioration as a gesture. Sir Stanley Tomlinson said that he thought that the DTI could be persuaded to change its outlook. Mr Laird added that he had been surprised to see the DTI offer, as he had not heard of a proposal involving these conditions when he had left the UK, he had expected an offer half-way to the Hong Kong position as suggested by the Governor. He thought that the DTI had brought in the conditions in an attempt to respond to pressure from the Foreign and Common-

Mr Haddon- wealth Office and at the same time avoid trouble with Lancashire. Cave emphasised that the conditions proposed by the DTI could not be accepted as they would set a dangerous precedent prejudicial in other and more important negotiations. Sir Hugh Norman-Walker underlined the danger of Hong Kong accepting any agreement which included swing rights being subjected to qualitative as well as quantitative limits. Sir Alec Douglas-Home asked what was the minimum swing acceptable to TEXTAB. Mr Haddon-Cave suggested that

Sir Alec Douglas- it would be between 7 and 8 million yards, without conditions.

Home then said that a telegram be sent to the DTI proposing a swing of 7.5 million yards without conditions.

Textile negotiations - Long Term problems

5.

Mr Haddon-Cave said the prospect for Hong Kong for the next 18 months must be considered against the following background:-

(a)

(b)

the growth rate of the Hong Kong economy was slowing down. In 1967, they had been affected by the disturbances and the growth rate fell in 1968 to 4-5%. A resurgence of confidence followed and by 1969 a strong growth movement was under way, and in 1969 and 1970 the growth rate rose to about 20%. In 1971 it dropped to about 10-11%, and the forecast for 1972 was for a further drop, perhaps to about 7%;

Hong Kong has become locked into cotton textiles because of the affect of quotas. Only recently had Hong Kong started to move

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CONFIDENTIAL