TNAG-0345-FCO40-381-UK-and-Hong-Kong-talks-on-cotton-textiles-1972 — Page 37

CONNIDENTIAL

3.

You asked that the UK Government should issue licences for exports over and above 1972 quotas in respect of contracts entered into before 8 December 1971 but for which the Hong Kong exporters concerned were not in possession of appropriate quota allocations. I recalled the UK Government's request in its communication of

that pre-existing orders should be regarded as a first charge against 1972 quotas; the UK Government therefore considered that the orders in question should be covered either by revised allocations of quotas by the Hong Kong Government or by the purchase of quotas by the exporters themselves from other traders. I also explained that the UK Government faced a very difficult problen because of the high level of pre-existing orders in relation to the quotas of many other supplier countries. I undertook, nevertheless, that should an agreement on the extension of the Heads of Agreement, appropriately modified, for 1972 be reached, and if the UK Government decided in principle to agree to licensing for such orders outside the quotas, the claims of Hong Kong would be given sympathetic consideration, including your request that any excess yardage should be made available to the Hong Kong Government for allocation."

(The section relating to the proposed merger of categories 3 and 10 was omitted pending further examination).

5. A further side letter was drafted to explain more fully the extent to which HMG might be able to compensate Hong Kong's claim for hardship. Mr Ridley made clear that HMG did not want to be forced into a commitment to admit excess yardage from Hong Kong solely on the grounds that in proportion to claims from other suppliers, Hong Kong's request represented only a small percentage of the total.

SIDE LETTER

6.

(Attached text)

seer Appendix I

REJECTION OF THE OFFER BY HONG KONG'S INDUSTRIAL ADVISERS

At 7.30 p.m. Mr Haddon-Cave reported that follwoing representations by his advisers, Hong Kong would be unable to accept HMG's revised offer. It was agreed therefore to alter the text of the draft letter shown in paragraph 4 above and to omit the side-letter in paragraph 5 above. The new text would simply record the stage we had reached by the end of the consultations, and would be submitted to EXCO in this form (see Annex ).

7. The stumbling block for Hong Kong's advisers appeared to be that they did not consider the proposed flexibility/yardage transfer facilities to go far enough. Mr Ridley said this was an unrealistic basis for refusal; if HMG had been as rigid in sticking to its own proposals, we should have been accused of being inflexible. In these circumstances, HMG could not therefore regard itself as committed in any way to the arrangement we had reached with Hong Kong after five days of bargaining, and any resumed consultations must began again ab initio.

IDENTI