TNAG-0345-FCO40-381-UK-and-Hong-Kong-talks-on-cotton-textiles-1972 — Page 76

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finished fabric group; the present agreement allows no trans- ferability at this point. (Incidentally, the figure of

4.6 million square yards which Hong Kong now wants more than doubled to 10 million square yards was one which the Hong Kong side themselves suggested in the course of the general bargaining) We were also ready to give considerably greater flexibility than at present between the different clothing categories within the group.

As it is, we are likely to be criticised in Lancashire for going as far as we have. We are, of course, concerned with the aggregate impact of concessions. Although individually these may seem fairly small, to go further than we have done already would increase the total impact to a point which would be very difficult to justify. In addition, flexibility in the fabric categories (as requested in the Governor's paragraph 4) would be particularly awkward presentationally because this would impinge more directly on Lancashire than concessions in the clothing sector; and they would seriously increase our vulnerability to pressure for similar concessions from other restricted supplier countries, because most of their quotas are concentrated on fabrics.

I would, nevertheless, be prepared to help Hong Kong by seeing if we could give them some of the extra flexibility they are asking for without increasing the total effect of our concessions above what we have already offered. I have asked officials here to work out some re-shaping of the package which could be communicated to Hong Kong.

I know, of course, that this is less than Hong Kong wants but I really have gone as far as I think is possible without completely undermining our own position. I do not in any case believe that Hong Kong's complaints are well-grounded. It now seems very clear that a combination of quotas and tariffs gives Hong Kong greater advantages than the tariff coupled with unrestricted trade. Her present very large bilateral quota enables her to supply 2/5ths or more of the UK market for cotton textiles imports from restricted countries. We now have overwhelming evidence from our information about forward contracts that, if we had not kept quotas this year, there would have been a massive diversion of orders away from Hong Kong to cheaper suppliers like Pakistan and Taiwan; as it is, Hong Kong exporters have been able to take advantage of the market we have preserved for them to re-introduce the "quota premium" charged to customers by exporters holding export licences, These circumstances, coupled with the package we have already offered, seem to me to recognise very fully Hong Kong's special situation as a Crown Colony.

Finally,