Mr Stewart
CONFIDENTIAL
HKK. 121/GRépce.
1
རྔུ#f?
354
HK+ Kaney
=313
HONG KONG AND THE MFA
1. I have studied the attached appraisal from Mr Hull of the likely effect on Hong Kong's economy of different outcomes to the current textiles negotiations. We generally agree that the net effect on Hong Kong will be small, on the assumption that the worst that could happen would be unilateral action setting quotas at the initial offer level. I would, however, dispute two minor points.
2. It is not true to say that Hong Kong has no negotiating position. If no agreement is reached with Hong Kong and unilateral action is imposed on South Korea as well or indeed if no agreement is reached with a number of other suppliers, the EEC would be perilously close to failing to reach agreement with suppliers of 75% of its textile imports. This level of agreement has been laid down as the minimum necessary for the Community to renew the MFA.
3.
Alternatively, Hong Kong might continue its machinations in Geneva which could lead to a GATT decision that, in its bilateral negotiations, the EEC was in breach of the terms of the MFA.
4.
In either event the Community would be seen to be taking the lead towards protectionism and the eventual breakdown of international trade. This, as Hong Kong well knows, is not in UK or EEC interests.
5. I am also a little concerned at Mr Hull's assumption that a lot of the inevitable unemployment in the Hong Kong textile industry has already taken place because of the downturn in trade in 1977. It is at least possible that Hong Kong manufacturers have seen this year's poor performance as a temporary phenomenon and have therefore kept on a good proportion of excess labour. If, as seems likely, the current negotiations confirm the downturn then redundancies would be inevitable.
6.
Neither of these two minor points alter my overall agree- ment with the paper. I am convinced that Hong Kong will sign and I am equally convinced that even the worst economic consequences will have little practical effect. The Hong Kong economy is already short of labour and steps have been taken to encourage industrial diversification. In addition, the Governor said at his meeting with Lord Goronwy-Roberts on 22 November that social advance will continue despite a temporary economi⚫ down- turn. This advance, and its consequent increase in public expenditure, could well compensate for any reduction in textile exports and the effect that this would have on GDP.
CODE 18-77
$5 10/76
23 November 1977
CONFIDENTIAL
пергол
J Thompson
Hong Kong & General Dept
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