iii The arrangements set out in the Heads of Agreement cannot be changed except with the consent of both parties or as a result of multi-lateral discussions in which Hong Kong has been fully consulted.
IV
MODIFICATIONS SOUGHT BY HONG KONG
A 1
Transfer of yardage into Group IV
The Hong Kongers have asked for transfer of yardage from the grey, finished and "newly restrained" (Group V) items into the major Group IV category of made-ups and garments partly to recognise the changing pattern of their export trade and partly as compensation for the reduced competitiveness of fabrics as a result of the introduction of the tariff. We should refuse this request. If a similar concession was made on an across-the- board basis to all our restricted suppliers, the effect on the United Kingdon's making-up industry would be formidable. Most countries would opt for a switch out of cloth into garments because
A 2
i
making-up is more labour intensive than weaving
or spinning, and this means that, given their lower wage levels, they can undercut UK producers very considerably.
ii
the end product is much more profitable than piece goods.
Modernisation of categorisation
The Hong Kongers did not develop this request in detail at the recent meeting, confining themselves to a suggestion that their current category format could be modernised, perhaps by bringing it into line with that operating under their arrangement with the EEC. We do not agree that a revision along these lines would ultimately be of benefit to Hong Kong's trade or indeed to our own. The EBC had specific categories for six products in its agreement with Hong Kong, as originally negotiated. Some of these (eg male woven trousers, woven male under-garments including shirts and woven female under-garments) are narrower in coverage and therefore less flexible than the corresponding categories in the Hong Kong/UK arrangement. For no less than thirteen categories in the basket, Hong Kong has agreed to supply the Commission with a fortnightly return showing the export authorisations issued for each. Hong Kong has agreed to suspend the issue of El's on any of these items immediately the Commission requests them to do so, pending consultations (ie with a view to fixing specific ceilings). Our information indicates that at least two of the EA items (lnitted under- garments and knitted outer-garments) have been the subject of consultations and have been transferred to the specific category list.
From our own point of view we see grave disadvantages in establishing an EA system at this stage. The task would be formidable, given the size of the Hong Kong made-ups quota.
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