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LAL AND IDRDUNAL
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at all in United Kingdom quotas. Under joint pressure from the DOT and ourselves, as well as in Brussels, they were forced to retreat and were for a time thinking about 3% growth. A French compromise formula appears however now to hold out a reasonable prospect for agreement. This formula would, applied to Hong Kong, give her a growth of 1.79% in the British market during the first year, with slightly lower percentages in the two following years, and would also secure for her the better than 6% rate in the Community market as a whole. We think this would be satisfactory. Negotiations on the basis of the French formula are continuing and, if successfully concluded, could lead to its adoption and approval by the Council of Ministers at a meeting scheduled for 14 October.
KNITWEAR IMPORTS
9.
The DOI are considering the possibility of EEC restrictions on knitwear imports from Hong Kong. This is a new departure which would not we think be justified on the grounds of market disruption in Britain. The only argument for these restrictions is that the other Community members are already applying them bilaterally, and if we agree to Community wide restrictions we should be able to apply the burden sharing concept and get part of the load shifted to the rest of the Community. But neither we nor the DOT think this argument strong enough. It would certainly not be strong enough to prevent a substantial row with Hong Kong. We will keep you posted on the outcome.
STERLING GUARANTEE PAYMENT
Hong
10.
At the end of July, a further payment of £9,755,451 was made to Hong Kong under the terms of the six-month guarantee. Kong had expected £40,000 more and queried the basis on which we had arrived at our figure. The difference of opinion seems to have sprung from the manner in which a 10% deduction in respect of the Total Official External Reserves (TOER) should be calculated in order to arrive at the balances eligible for guarantee. We have explained our view fully to Hong Kong and since nothing further has been heard since the middle of August we are hoping that our case has been accepted. It is also encouraging that Haddon-Cave made no mention of the matter when he passed through London on his way to the Finance Ministers' meeting in Ottawa.
HONG KONG REGISTER OF SHIPPING
11.
During the Governor's talks in London in June, it was generally recognised that the task of reaching a compromise which would satisfy the Hong Kong shipowners on the one hand and meet minimum competence and safety standards on the other, was probably not capable of a quick solution. The DOT have provided Hong Kong with details regarding the modified examinations for second and first mates which would be acceptable qualifications in the event of the creation of an autonomous Hong Kong register. There is a further problem in regard to the recognition of Japanese safety equipment which would also have to be solved. The latest DOT comments are now under study in Hong Kong and the ball is therefore in their court.
THE WESTMINSTER
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CONFIDENTIAL AND PERSONAL
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