TNAG-0345-FCO40-381-UK-and-Hong-Kong-talks-on-cotton-textiles-1972 — Page 169

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entitlement rather than present need. This could lead to a situation where mill A has outstanding orders, but mills B, C and D some of whom have long since abandoned any direct interest in exports, and simply sell their licences receive all the available exsort entitlement. This seems to us a problem which the Hong Kong authorities have brought upon themselves, and it is up to them and the trading system in licensing - to ensure that the mill A orders are covered.

Upswing

The Hong Kongers requested an "upswing" facility and swing between specific categories in Group IV to provide an opportunity of trading up in order to offset the reduced competitiveness of fabrics (Hong Kong uses the term "upswing" in terms of numerical ascendancy of the Groups from Group II to Group III, III to IV etc). We must refuse this request for two major reasons:

(1) on the "equity" principle, we should be obliged to offer the concession to all our restricted suppliers. We have no Ministerial authority to do this, it would involve enormous consultations with over 70 suppliers and would completely alter the pattern of trade, thus defeating the object of offering a measure of protection to Lancashire.

(2) We are already dangerously exposed on a number of sensitive items, particularly in the made-upз field, and cannot afford to increase that exposure. The Hong Kong category ceilings for made-ups have already grown considerably over the years as a result of the 95% use/5% growth provision at the turn of each year (eg male coats and trousers from 17.5 a sq yds in 1966 to 20.9 m sq yds in 1971). This facility has not been available to the global quota countries.

V

THE UNDERTAKING ABOUT COMPETITION FROM EFTA

We cannot give Hong Kong a formal undertaking that they will not suffer further from duty-free EFTA competition, but we can assure them that we are watching the position very carefully, and that we do not rule out the possibility of an approach to Portugal if her cotton textile exports reach a level where they seriously undermine our import controls.

It would be difficult to take restrictive action against an EFTA partner. However, Portugal has twice secretly agreed in the past to restrict her exports of cotton textiles to the UK. The most recent agreement, negotiated in the spring of 1967, was unilaterally abrogated by the Portuguese in December 1968, following the introduction of our import deposit scheme. Given that the import deposit scheme has long since ended, and given that Portugal will be in a newly-favoured tariff position vis-a-vis our other major suppliers of woven cotton textiles. next year, she might be willing to co-operate again if it were judged necessary to make a further approach. However, if Hong Kong continues to use her quota fully, she can hardly claim that increased imports from Portugal (which are running at about one-quarter of our intake from Hong Kong) are harming her interests.