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4. We ended by discussing the situation which would arise in Hong Kong on the return of the negotiating team. Mr Cater's expectation was that after preliminary discussion in EXCO this week the matter would be referred back to TEXTAB and subsequently reconsidered at EXCO. It seems likely therefore that it will be a fortnight or so before we get any considered reaction from Hong Kong and much will depend upon what the members of the delegation have to say in public and the press reaction too.
5. As I see the situation now there are 3 possible outcomes given that the matter cannot simply be allowed to drift. The Hong Kong Government made clear through Mr Haddon-Cave that they had not accepted the proposition put to them by HMG that they (the Hong Kong Government) would continue to administer a quota system for textiles in 1972. If they refuse to do so there is every likelihood of the DTI doing it from this end, which would greatly please UK manufacturers but much upset Hong Kong. What could happen therefore is:
(a)
(b)
(c)
EXCO will not endorse the views of the advisers and will inform HMG that what Mr Haddon-Cave negotiated is satisfactory to them and accordingly that they will administer the quota system as before;
the Hong Kong Government will endorse unofficials' criticisms of the agreement negotiated and will approach HMG for improvements;
the Governor will endorse the agreement reached by the Financial Secretary and will over-rule the advice
of his unofficials, in which case he would have to refer the matter to the Secretary of State and this could lead to a first-class constitutional crisis. My guess is that (b) is the most likely course. The Governor is likely to ask us whether we might squeeze a little more out of the DTI in order to save a bit of unofficial "face" in Hong Kong. If this happene, subject to the views of Mr Hale and Mr Laird, my expectation is that the DTI could up the figure of 4.6 million a little bit without causing themselves too much trouble. Secondly, the passage of time and consideration of over-licensing may enable the DTI to give a firmer answer in the issue of hardship and I regard this as particularly important. Thirdly, as a result of a
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