CONFIDENTIAL - UK EYES A
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John; I am still compiling a big table of the various quentities being banded raund Brussettes and their total value in HK$''s, aswell as the exports year (so for &- which I'm afraid is culy till May for everything except cotton "fabrics and underwear which are till August, and June). But Hong Kong's exports Mr Stewart (HKGD) don't always equal EEC imports because it must take about a month to ship the
goods round. If you're desperate for this table phone complete next week. Mark
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EEC TEXTILES AGREEMENT ·
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1. It was agreed at the last meeting of Mr Cortazzi's Standing Committee that we would try to work out the effects of the EEC's best and worst proposals on Hong Kong's economy.
2. This has not been easy. The haggling in Brussels concerns actual numbers of blouses, shirts, tonnes of synthetic fabrics etc, to be imported in 1978. To
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calculate the effect on the economy these have to be transformed into HK $'s. With a lot of effort this has been done using published Hong Kong trade figures for 1976 but there are errors of the order of 5 % involved.
3. If the very worst happens. Economically the worst thing that could possibly happen would be for Hong Kong to refuse to sign an agreement with the EEC (I note that to force Hong Kong to sign would have political costs, but I am only here considering "the costs to the Hong Kong economy" of the various possible outcomes). Hong Kong may be the EEC's largest single supplier but it still only provides 15% of EEC imports. The EEC has something of a monopsony · which could only be countered by a producing countries' cartel (and even then the EEC still would have the 'whip hand' because it has control of its own manufacturers). Such a cartel has no likelihood of formation whatsoever the political differences between supplier countries are too great; some small countries have signed the agreement already. So in fact Hong Kong has no 'negotiating position' at all - there are no threats it can make and carry out which would substantially harm the Community. In the extreme the EEC could ban all imports from Hong Kong. This would delight EEC manufacturers and rival suppliers from India, South Korea, Brazil etc who would carve up the Hong Kong quota between them giving' plenty of room for growth of their exports. The effect on Hong Kong's economy would be so disastrous as to make a precise calculation pointless the loss of 30% of clothing and textiles exports could mean 115,000 people out of work (or unemployment of another 5.8% of the labour force),a devaluation of up to 7%, a GDP decrease of up to 8% etc, etc.
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4. I really cannot predict what would happen if Hong Kong refused to sign an agreement and the Community imposed unilateral quotas (but did not ban all imports) since I don't know how small these quotas would be. One possible level for unilateral quotas would be the EEC's "initial position" at the beginning of the present bilateral talks (analysed below).
5.
If the worst happens. Assuming Hong Kong signs some aggreement with the EEC it could be that it will be no better than Tran's "initial proposal". This would mean a decrease in Hong Kong's exports from 1976 to 1978 of HK$ 509,000 which is probably 2.1% of Hong Kong's total production of textiles and clothing. Thus conceivably the labour employed in these industries could fall by 2.1% or 8,100 which is about
0.4% of the total labour force. But I say "conceivably" because this is comparing 1978 with 1976, not with where we are now - at present -demand in Europe is so low that the existing quotas are not being fully used up. 1976 was an exceptionally high year for exports of textiles and clothing because European importers considerably overestimated the effect reflating the European
CONFIDENTIAL
MKK.12.
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162164
Veconomies
CODE 18-77
25.99
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