TNAG-0462-FCO40-527-Entitlement-of-Hong-Kong-to-EEC-Generalised-Scheme-of-Prefer-1974 — Page 95

CONFIDENTIAL

WE SHOULD BE GRATEFUL IF YOU COULD EXPAND ON YOUR PARAGRAPH 3. IT IS OUR IMPRESSION THAT AT LEAST THE LEADERS OF OPINION HERE HAVE A FAIRLY GOOD UNDERSTANDING OF THE POSITION, AND HAVE ACCEPTED YOUR ASSURANCES OF A STRONG EFFORT IN 1974 EUT REALISE THAT IT WON'T BE EASY. HOWEVER, THEY DO FEEL THAT IT IS UNREASONABLE THAT THE ORIGINAL DISCRIMINATION SHOULD NOT ONLY CONTINUE THROUGH 1974, BUT BE EXTENDED TO THE UK. YOU WILL RECALL THAT IN OUR TELEGRAM 1265/73 WE SUGGESTED THAT IT WOULD BE HELPFUL IF WE COULD EXPLAIN WHY YOU HAD CONCLUDED THAT -NO CHANGE WAS POSSIBLE FOR 1974.

THE INDUSTRY HERE IS GENUINELY ANND RIGHTLY WORRIED ABOUT THE CONTINUATION AND EXTENSION THROUGHOUT 1974 OF A DIVERSION OF TRADE THAT HAD BEEN STARTED IN 1972 BY THE IMPLEMENTATION OF THE SIX'S GSP. THIS WORRY IS INCREASED BY THEIR FEAR OF GENERALLY SOFT MARKET CONDITIONS IN 1974 SINCE DIVERSION CAN ACCELERATE WHEN SUPPLYING COUNTRIES HAVE SPARE CAPACITY AND THE SUM OF EXPORT RESTRAINT LIMITS EXCEEDS IMPORT DEMAND.

MACLEHOSE

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EUROPEAN ECONOMIC FILES DISTRIBUTION

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PS/MR BLAKER

SIR D WATSON

MR WILFORD

MR YOUDE

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