TNAG-0335-FCO40-371-Visits-of-Secretary-of-State-for-Foreign-and-Commonwealth-Af-1972 — Page 32

CONFIDENTIAL

EEC

3.

The EEC also has quotas on Hong Kong cotton textiles.

We are discussing with the Commission how to assimilate our system

with theirs. We expect that in 1973 the pattern and level of

cotton textile quotas will be much the same as this year.

We are also discussing with our partners the question of long term

textile policy in the enlarged Community.

Cotton Yarn

4. Cotton yarn is a special problem because it is the only

significant textile product which the Six have liberalised and we

have not. Hong Kong has agreed that her exports of cotton yarn

to us should continue to be subject to quota in 1973.

CURRENCY

5.

The floating of sterling created special problems for Hong Kong.

6.

Nearly all Hong Kong's external reserves are held in sterling.

Their value in relation to other currencies has declined with the

fall in sterling's value after the float (by 7 per cent or so on a

total of over £800 million). Following the earlier loss in

November 1967, when sterling was devalued by just over 14 per cent,

Hong Kong has naturally resented this most recent loss. It might

however be pointed out that the present US dollar value of sterling

is no lower than it was in mid 1971 or indeed at the end of 1967.

7. Because of Hong Kong's extreme dependence on external trade,

and, particularly as far as imports of commodities for local

consumption are concerned, on trade with China, Hong Kong felt it

with UK concurrence to peg the Hong Kong dollar

in July of this year, at least temporarily to the US dollar

necessary

KON

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CONFIDENTIAL