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that "things are not necessarily as simple as Hong Kong makes them out". This may have been a misunderstanding, but if you do envisage difficulties in the line we are pursuing it would be very helpful if you could tell us about them as soon as possible.
One difficulty that is clearly in the way is the German attitude as expounded by Friedrich. I had a talk with him in Geneva and he went back over the theory which you told me he had elaborated in Brussels; that is, that there are good economic reasons for expressing restraints by weight or by value. These reasons, as far as I could understand him, were that by working in such units the Hong Kong suppliers would be encouraged to maximise the volume of their shipments and would therefore stay in the cheap end. This would fit in with the German master plan of, on the one hand, containing inflation; and, on the other hand, forcing the German textile industry into the higher end of the textile market.
I argued with him at length, pointing out that neither value nor weight were practical units of control.
Had we expressed our earlier restraint limits in, say, US3, the parity changes of the last couple of years would have reduced the supply of 'desirable' cheap textiles to the German market by something like 30 per cent; while the difficulties experienced in using conversion factors for control by weight were fresh in everybody's memory.
He tended to concede the former point more readily than the latter. He nurtures a strange theory whereby governments should be prepared to enter into international agreements to restrain textiles at given limits and then promptly abandon all responsibility to the exporters and the Customs authorities in the importing country. He thinks that exports could then be licensed ed lib end if the Customs in the importing country detected significant discrepancies they would merely refuse entry. This, he thinks, would adequately encourage the exporters to toe the line. He also sees such a system as containing a degree of flexibility very suitable to current German conditions. time when increased imports were desirable, as at present, the degree of tolerance toward discrepancies exercised by the importing country could be manipulated so as to increase substan- tially the volume of imports; and the converse was obviously in his mind, although he had the good grace not to express it.
At a
I disguised my horror at the commercial chaos which could ensue from such an arrangement, not to mention the antipathy we have toward import controls, and contented myself with pointing out to Friedrich, disingenuously, that while the 'liberal' Germans might be trusted to operate such a system in a fair and reasonable manner, the same might not be true of other Member States. indeed some might even take a poor view of a Government which
And failed to control exports in the manner agreed.
I fear that Friedrich's obsession with his grand design is going to cause quite a few problems in the next few months. Arguments based upon commercial considerations designed
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