CONFIDENTIAL
traditionally large importers, such as the United Kingdom, will receive a proportionately smaller share of the growth in the Community's annual aggregate quota, whereas hitherto small importers such as France and Italy will accept an increasing proportion of that growth. After protracted negotiations, agreement on "burden-sharing" was finally reached in October. DOI, which is primarily concerned with protection of the domestic interests of the British textile industry, regard the "burden- sharing" agreement as of major importance.
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Hitherto about half Hong Kong's total textile exports to the Community countries came to the UK. This trade was limited under the predecessor to the MFA to an overall growth rate of about 2% (1% for cottons plus 5% for polyester cottons under other arrangements). There was very little permitted growth to the continental markets, particularly France and Italy. Under the MFA, Hong Kong's growth rate on restricted items to the Community as a whole will be better than 6%, the bulk of which will go to the continental countries.
6.
Apart from growth rates, the main problem in negotiations under the MFA is coverage. Britain is committed to liberalisation. This is also in Hong Kong's interest. Unless it can be shown for example that imports of particular items from a low cost supplier are threatening or causing substantial disruption of the importing country's market, restrictions are not justifiable under the MFA. One of the major problems on coverage concerns knitwear. Imports of knitwear have previously been restrained in the rest of the Common Market, but not in Britain. In 1973, we agreed that there was no case for knitwear restrictions in Britain. Since then the picture has changed to some extent. The British textile industry is having a difficult time and the DOI is under pressure to increase protection, particularly in regard to shirts and certain other items, against low-cost producers. There is also the point that if Britain were to opt out of the Community-wide restrictions it might adversely affect the application of the "burden-sharing" scheme. There is substantial disagreement on the question in Whitehall, but the Secretary for Trade and the Secretary for Industry have now reached
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