TNAG-0345-FCO40-381-UK-and-Hong-Kong-talks-on-cotton-textiles-1972 — Page 10

CONFIDENTIAL

8. The consequences for the UK were frustration of trade, (losses to both importers and end-users), and, to a certain degree, of British investment in the Colony (Documentary evidence of British Home Stores' and Martin Emprex interest was later produced in support of this statement). One UK order alone for 1m. sq. yds. of corduroy had been placed in anticipation of the removal of quota restrictions, but the category ceiling would now remain at 274,000 sq yds. The case for hardship was therefore unanswerable not only in principle but also arithmetically. Hong Kong did not however expect an open-ended commitment from HMG, but suggested that an arbitrary figure to cover at least a proportion of these valid cases should be agreed to alleviate exporters' difficulties.

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9.

UK OPENING STATEMENT

Mr Ridley, replying to this part of Mr Haddon-Cave's introductory remarks, said that HMG were fully aware both of the restraint which Hong Kong had exericsed since 1959 in co-operating in the quota arrangement with the UK, and of the disappointment caused by the reversal of policy. We had had every expectation that the removal of quotas in 1972 would be achieved, but an unlucky combination of events towards the end of 1971 had forced us to reconsider. However HMG still believed that the decision to retain quotas went a long way towards taking account of the reality of Hong Kong's interests in the UK market in 1972 and thereafter. This belief was reinforced by statements made in February 1971 during the talks between Messrs Cater and Carey when Hong Kong had emphasised that the disappearance of the quota premium would be a disadvantage to Hong Kong exporters, and that unrestricted competition from other South East Asian suppliers was regarded as a threat to the Colony's share of the UK market.

10. The evidence which we now had of the extent of orders placed with other suppliers for which there was no room under either country or global quotas underlined the fact that the new decision unlike liberalisation would enable Hong Kong to retain her preponderant historical share of the market. Similarly, although Hong Kong had sacrificed to a certain extent her growth potential because of her willingness to operate voluntary restraint arrangements, she was starting from a much higher base point than other LTA suppliers. Secondly, Hong Kong would surely agree that the real growth areas were increasingly outside the cotton sector in mmf and mixture fabrics and particularly in garments. Imports of non-cotton garments and made-ups had steadily increased until in 1971 their volume was three times as great as in the cotton sector. There was from this point of view a considerable offset of real growth in mmf against potential, but artificially restrained growth in cotton.

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11. The "hardship" question was very difficult for both sides.

We now had an approximate idea of the volume of orders which UK importers claimed to have placed before 8 December (some in the last days and last hours as a consequence of the decision to give overseas suppliers some notice of the impending change in policy). In some cases firm orders amounted to double or more the whole annual quota. We needed therefore to look at Hong Kong's request for "hardship" yardage in terms both of the loss to the UK industry of allowing similar concessions to our other overseas suppliers, and of the effect on the pattern of trade (possibly to the detriment of Hong Kong) if performance from these lesser suppliers were allowed to build up. As Hong Kong was aware, EEC quotas were related to performance in a particular base year; under these circumstances, Hong Kong might find herself at a disadvantage.