TNAG-0462-FCO40-527-Entitlement-of-Hong-Kong-to-EEC-Generalised-Scheme-of-Prefer-1974 — Page 50

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reasons which we can elaborate on later, is unlikely to have. Consequently, it seems to us that the present proposals could lead to a diversion of trade away from Hong Kong but no compensatory diversion of trade back to

Us.

Thus we would be suffering even greater discrimination than presently applies. Since the GSP was in part to compensate us for the loss of Commonwealth Preference in the UK market, you will understand the feelings that wider discrimination against Hong Kong will arouse in local industrial commercial and political circles.

So in the light of all this, we still believe that the best solution is to continua to treat textiles as a special area and to include Hong Kong on all fours with other nountries. (I repeat that there is no czas whatsoever for the exclusion of footwear and I hope this problem will go away). can show, as far as textiles are concerned, through under-utilisation of our quotas and rising unit costs that we are no longer the threat which the EEC thought us to be in 1971, and that as a consequence the special safeguards which already apply to textiles in the preference schemo would ** Up, sufficientity contain any atypical novenant in toxtile exports fruit

Hong Kong, Inclusion of textiles in the D°C CTP will also help ua considerably in considering export restraint requests on our textiles to the EEC boyond 1974. Obviously our industry, especially in the light of present figures, is not going to agree readily to export rastraints plus discriminetion when our competitors are subject only to restraint. We are not going to be allowed to separate the two,

The basic point on the 'super-competitive' business seems to us to be this: the butoir system was designed to ensure that no beneficiary should get a disproportionate share of the 'benefits'; it is doing just that; there is therefore no need for any further elaboration of the scheme,

Comment on Mr Jordan's letter

16. Hong Kong ovidently rejects the Commission's package lock stock and barrel, whether or not it would bring inclusion for textiles and footwear. It is our impression, however, that, short of elevating CEP into a major runegotiation isquo, it will be none too easy even to maintain the status quo for Hong Kong, Zot alone gotting extra benefits. It may be worthwhile to put this over to Mr Jordan and also to mention that the Commission's packago has "softened" very considerably.

17. We did not get a clear lead in Brussels last Thursday as to whether wa could expect to get footwear and textiles for Hong Kong as a price for going along with the Commission's packago, but for the first it is probably yes, and for the second no. It is interosting that Hong Kong does not consider miniscule textile quotas worthwhile, in distinction from what we suspected earlier.

18. Hong Kong donies firmly that she is "supercompotitive" on the grounds that she is prevented faca so becoming by the butoir systea ard that the figures boar out that she is not. 11.sevor this may be, the Community believes tint Hong Kong ia benefiting excessively from GSP and really has no need of proferentiel treatment. This is a deeply hold view, which we would do nell to recognize that the rest of the Nino vill not be shifted fren by logical demonstrations however powerful,

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