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For a very limited number of highly sensitive products, the Community intends to draw up its own "internal global import ceilings" and will endeavour to keep the totality of imports (regulated by the new bilateral agreements) of those products within those ceilings. The implication of this for Hong Kong is that the Community is likely to take a tough position in negotiating the new EEC Hong Kong Textile Agreement. There is sure to be some hard bargaining but I do not think that this implies that the Community and Hong Kong will be on a collision course. After all, both sides are concerned to obtain a new agreement which will be ready to come into force when the present one expires at the end of this year. None of us wants a repeat of the disruption of trade which occurred in the first months of 1975 because of the delays in concluding the present EEC Hong Kong agreement.
5. There is the further point about growth rates. You made the point in your letter that Hong Kong's trade is in fact dec- lining in many quota items. The Community's position is that for highly sensitive products, growth rates ought in future to vary in inverse proportion to import penetration.
I may be wrong, but I believe this position will not seriously affect Hong Kong exports to the UK, both because growth rates on most of those items are already very low under the burden-sharing arrangement and because of the point you make about under- utilization of quotas. We have taken account of David Jordan's point about the relationship between import penetration and our export trade. However, when textile factories are closing down all over Europe and Britain in particular this point cannot be given much weight.
6. I think that Francis Tien and his Delegation did a good and timely job here. You will have seen the record of their preliminary session with me in the FCO, when I was able to give them some degree of reassurance. Much mort important, of course, was their session with Mr Meacher (of which I have not yet seen a record), which Francis Tien said went very well. Certainly DOT officials were impressed. The session with MP was, I gather, short but hard-hitting on both sides and I told Francis Tien afterwards that I thought he was right to talk bluntly.
7. What I hope the Delegation realised (and I am sure they were under little illusion even before they came) is that there is still real concern within the Community about the survival of its own textile industries. The announcement by the French on 18 June of their intention to take broad measures immediately to cover themselves for the period until the new Community regime enters into force next year is yet another indication of this deep concern. French import penetration for a number of highly sensitive items (shirts, blouses, etc) has risen by massive proportions in 1977. In fact, the French concern will
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