TNAG-0629-FCO40-777-Effect-of-GATT-Multi-Fibre-Arrangement-on-Hong-Kong-negotiat-1988 — Page 55

CONFIDENTIAL

8.

The Governor of Hong Kong has argued that the

Commission's proposals as put to him by Tran would have

serious consequences for Hong Kong's economy; warned that the

Hong Kong Government's programme of social reforms could be

put in jeopardy; implied that there could be unfortunate consequences

for British contractors bidding for major contracts, including

in particular that for a new power station for the China Light

and Power Company; and suggested that tough Community action could

cause the United States to renegotiate downwards the quotas

it recently agreed in a new Hong Kong/US Textile Agreement.

9.

We have a duty to protect the interests of Hong Kong and,

where these conflict with Britain's own interests, as in this case,

at least to try for reasonable treatment for Hong Kong. But

Hong Kong and General Department have reservations about the

Hong Kong Government's case, at least as it has been presented so

far,with regard to the likely effect of the proposed Community cut-

backs on the growth of Hong Kong's economy and the implementation

of social reforms. A comparatively modest increase in taxation

ought to be sufficient to ensure that these reforms can still be

carried out. We would clearly not want to lose the China Light

and Power contract. A bad textile deal with the Community, which

might be attributed in Hong Kong to British protectionism could

lead to such a swing of opinion against Britain as to undermine

the Department of Industry's current efforts to see the contract

awarded to British firms. But our main potential competitors, the

Japanese, would have a price edge anyway and I do not think we should

/be

CONFIDENTIAL