TNAG-0345-FCO40-381-UK-and-Hong-Kong-talks-on-cotton-textiles-1972 — Page 72

CONFIDENTIAL

52

RECEIVED IN REGISTRY.No.51 -7PEE 1972

HKK 6/548/1

Mr Dodds (Commodities Department)

HONG KONG COTTON TEXTILES

1.

I mentioned to you on the telephone this morning that Mr Royle had suggested to me that if we did not wholly accept the point about diversion of orders away from Hong Kong to cheaper suppliers we should Bay 80. He asked that drafts be prepared to go in reply to the letter he had had from Sir John Eden and the letter the Secretary of State had had from Mr John Davies.

2.

As I explained over the telephone, my own view is that while there is something in what the DTI are I saying they are making far too much of the point. consider that we shall have to be very careful indeed what we say to Hong Kong in this matter.

I am attaching a copy of our saving despatch No 95 of 18 March 1971 (this was drafted by the DTI). You will see that the TI then argued that as a result of the introduction of the tariff in place of quotas Hong Kong would lose trade in the cheaper end of the market to her lower cost competitors in the Far East, Taiwan in particular. The DTI also argued however that some sectors of the Hong Kong industry could look forward to increased trade opportunities particularly in the made-ups sector following liberalisation. It is the tariff therefore that is expected to knock out some of the Hong Kong trade at the cheap end of the market and now that quotas are being retained Hong Kong is not in a position to make up losses by gains in other sectors.

3.

I have not attempted to draft a full reply to Sir John Eden's letter because I do not know what line you would wish to take in reply to the point made in the last paragraph. There is also Hong Kong's "first point" referred to in paragraph 2 on page 1. What the DTI proposes will, I think, be all right for Hong Kong but I cannot speak for other suppliers. As regards the "re-shaping of the package", we cannot judge to what extent the kind of arrangement proposed will be acceptable to Hong Kong until we have the details.

4. I doubt if we can send a reply to Sir John Eden's letter of 4 February confining ourselves only to the point about diversion of orders away from Hong Kong to the cheaper suppliers.

7 February 1972

Сс

Mr Wilford

E O Laird

Hong Kong Department

COMIDENTIAL