TNAG-0345-FCO40-381-UK-and-Hong-Kong-talks-on-cotton-textiles-1972 — Page 12

CONFIDENTIAL

(ii) MODERNISATION OF CATEGORIES IN GROUP IV

The present pattern of categorisation, which was now eight years old, did not in Hong Kong's view reflect the pattern of trade. Even HMG had described it as "outmoded" when the announcement of the tariff decision was made in 1969, and Hong Kong intended to hold HMG to this statement. Secondly, the process of alignment to EEC would have to begin fairly soon; and finally, on the gloomy assumption that HMG was not as generous as it ought to be, modernisation would ease the short-term hardship problem. The actual form of the categorisation would depend on the yardage involved, but as a general principle Hong Kong would prefer broad categories with high specific limits rather than narrow categories with low limits. Mr Haddon-Cave suggested in this context a development of the "basket" concept (the current n.e.s. category being only a limited form of this). If access rights had to be limited because of the sensitivity of certain items, Hong Kong was prepared to see "trigger points" introduced as a protective measure for certain goods in the basket.

(iii) MODERNISATION OF THE SWING ARRANGEMENTS

The present "downswing" facility was considered archaic, and the absence of inter-category swing as unfair. In their arrangement with the EEC, Hong Kong was allowed 10% swing between categories, no swing between groups (because there were no restraints in Group I' grey cloth group) but 10% downswing of the group limit. If a similar arrangement were adopted with the UK, the now-reduced competitiveness of fabrics under the tariff system would be offset.

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15. Mr Ridley said we had not yet had time to discuss the question of alignment with the EEC Article IV Agreements. We were anxious to avoid guessing at the type of changes which might have to be made in case other changes were required later. We agreed in general with Hong Kong's comments on modernisation of the present categories, but we had to look at this from the UK's point of view as well. more we shifted the preponderance of our quota arrangements from fabrics to made-ups, the greater the impact on the most vulnerable sector of our own industry. We also had to consider the requests we had received from our other suppliers for similar ameliorative arrangements; if we accommodated Hong Kong, it would become harder to resist these pressures.

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16. Concluding for Hong Kong, Mr Haddon-Cave said his side had not modified its distaste for this concept of equity of treatment for all the UK's restricted suppliers. Hong Kong was merely requesting fair treatment which should mean "appropriate" and not necessarily "equal" The fact that Hong Kong enjoyed a favourable position in the UK market with 40% of the share of quotas was irrelevant to the argument because this share had been earned. Re-shaping of the quota arrangement along EEC lines could be of great advantage both to the UK and to Hong Kong. In the UK's case, it could help to get HMG "off the hook" as regards the equity concept, because we could argue that the process of alignment had to begin sooner or later, and that we had chosen to deal with our major bilateral suppliers first; in Hong Kong's case, it would be presentationally useful even if the new arrangement did not amount to a real improvement. Progress would appear to have been made.

17. The meeting was then adjourned until Tuesday morning.

CONFIDENTIAL