TNAG-0627-FCO40-775-Effect-of-GATT-Multi-Fibre-Arrangement-on-Hong-Kong-negotiat-1977 — Page 176

CONFIDENTIAL

AMONG THE PROPOSALS ARE TWO THAT WOULD, IN OUR VIEW, INVOLVE FUNDAMENTAL CHANGES TO THE BASIC CONCEPTS OF THE MFA. THESE ARE

A PROPOSAL TO RELATE THE GROWTH IN QUOTAS TO THE DEGREE OF IMPORT

PENETRATION AND ANOTHER TO IMPOSE GLOBAL QUOTAS ON ALL ''DISRUPTIVE

OR POTENTIALLY DISRUPTIVE' IMPORTS.

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THE FIRST OF THESE WOULD INVOLVE ABANDONING THE BASIS OF MARKET

DISRUPTION, NAMELY DAMAGE TO DOMESTIC INDUSTRY, CAUSED BY SHARP

AND SUBSTANTIAL INCREASES IN IMPORTS. IT IS QUITE POSSIBLE AND

HAS INDEED HAPPENED - FOR ''IMPORT PENETRATION'', THAT IS,

THE PROPORTION OF IMPORTS IN TOTAL CONSUMPTION, TO INCREASE,

EVEN THOUGH DOMESTIC PRODUCTION AND SALES AND SOMETIMES EXPORT

SALES AS WELL ARE INCREASING AND THE DOMESTIC INDUSTRY

IS FLOURISHING.

THE SECOND PROPOSAL ''GLOBAL'' QUOTAS - WOULD INVOLVE SETTING

A LIMIT ON ALL ''DISRUPTIVE' OR ''POTENTIALLY DISRUPTIVE"'

IMPORTS, REGARDLESS OF WHATHER THE IMPORTS FROM ANY PARTICULAR SOURCE WERE ACTUALLY CAUSING OR THREATENING ANY DAMAGE TO

DOMESTIC INDUSTRY, AND OF COURSE THIS STRIKES AT THAT BASIC CONCEPT OF THE MFA WHICH SAYS THAT ACTION MAY BE TAKEN ONLY

AGAINST IMPORTS OF PARTICULAR PRODUCTS FROM PARTICULAR SOURCES

THAT ARE ACTUALLY CAUSING OR THREATENING DISRUPTION. AND INDEED,

SINCE THE 'GLOBAL'' QUOTAS WOULD IN FACT AFFECT ONLY CERTAIN

PARTS OF THE GGOBE, SELECTED BY THE IMPORTING COUNTRY, THEY WOULD STRIKE AT THE HEART OF THE GATT ITSELF, WHICH IS BASED ON THE

PRINCIPLE OF NON-DISCRIMINATION, BECAUSE THE 'GLOBAL'' QUOTAS

WOULD AFFECT ONLY CERTAIN PARTS OF THE GLOBE, SELECTED BY THE

IMPORTING COUNTRY FROM AMONGST THOSE TO WHICH IT HAS NOT WRITTEN

COMMITMENT. I DON'T THINK IT IS ENVISAGED THAT THE GLOBAL

RESTRICTIONS WOULD INCLUDE OTHER MEMBERS AND THE EEC, A MEMBER OF EFTA, OR LOME CONVENTION COUNTRIES, WE BELIEVE THEREFORE THAT THEY WOULD BE GENERALLY INEFFECTIVE BUT DAMAGING TO US.

THE HONG KONG GOVERNMENT IS NATURALLY VERY CONCERNED ABOUT

THESE PROPOSALS AND HAS MADE ITS VIEWS KNOWN VERY CLEARLY TO

HM G ABOUT THEM.

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-3 CONFIDENTIAL

/WE AGREE