TNAG-0635-FCO40-783-Supplies-of-electricity-for-Hong-Kong-1977 — Page 7

CONFIDENTIAL

1

SOLUTIONS HAD BEEN FOUND, OR AT LEAST TALKS WERE UNDER WAY. DR.

OWEN SAID THAT BILATERAL ARRANGEMENTS HAD BEEN VERY USEFUL IN

THIS CONTEXT.

3. THE PRIME MINISTER SAID THAT THE PLAIN FACT WAS THAT THERE WAS

A SERIOUS IMBALANCE OF TRADE BETWEEN BRITAIN AND JAPAN. HE THEN

MENTIONED THE NEW POWER STATION CONTRACT IN HONG KONG FOR WHICH

A TENDER HAD BEEN PUT IN BY CHINA LIGHT AND POWER (CLP). OUR

OWN PEOPLE WERE PUTTING IN A TENDER FOR THIS, BUT WERE FRIGHTENED THAT THE JAPANESE WOULD UNDERCUT THEM, WHETHER ON CREDIT TERMS OR IN OTHER WAYS. THE PRIME MINISTER SAID THAT IT WOULD BE OF GREAT

ASSISTANCE TO HIM IF MR. FUKUDA COULD ENSURE THAT ANY TENDER THAT

THE JAPANESE MIGHT PUT IN DID NOT CUT ANY CORNERS. MR. FUKUDA SAID

THAT HE DID NOT KNOW ABOUT THIS PARTICULAR CASE BUT WOULD LOOK

INTO IT.

4. MR. HATOYAMA SAID THAT, SO FAR AS THE SHIPBUILDING INDUSTRY WAS CONCERNED, THE JAPANESE COVERNMENT HAD TAKEN CERTAIN STEPS IN FEBRUARY AND HE DOUBTED WHETHER THESE HAD YET TAKEN EFFECT. THEY

WOULD IN DUE COURSE, AND HE THOUGHT THAT THE WHOLE TRADE IMBALANCE

WOULD SOON CHANGE IN OUR FAVOUR. THE PRIME MINISTER SAID WE HAD

RECENTLY SEEN CASES WHERE JAPANESE TENDERS FOR SHIPS HAD QUOTED

PRICES HALF THOSE QUOTED BY EVEN THE MOST EFFICIENT OF BRITISH

SHIPBUILDING FIRMS. AS AN ISLAND, WE COULD NOT ALLOW OUR SHIP-

BUILDING INDUSTRY TO DISAPPEAR. EVEN AN ADDITIONAL TEN PER CENT

ON THE JAPANESE PRICE DID NOT BEGIN TO MAKE THE DIFFERENCE, DR.

OWEN SAID THAT THE JAPANESE CONSUMER INDUSTRY WAS GEARED TO A

REMARKABLE EXTENT TO JAPANESE PRODUCTION. THIS PRESENTED A REAL

PROBLEM FOR US IN TRYING TO BREAK INTO THE JAPANESE MARKET. MR.

FUKUDA QUESTIONED THIS, AND POINTED OUT THAT NEARLY ALL CLOTH

FOR JAPANESE SUITS CAME FROM ENGLAND.

5. IN CONCLUSION, THE PRIME MINISTER SAID THAT HE WAS SORRY TO HAVE

TO RAISE THESE PROBLEMS, BUT THEY WERE OF REAL CONCERN TO THE

BRITISH PEOPLE. MR. FUKUDA SAID THAT IF ONE TOOK INTO ACCOUNT THE

INVISIBLE BALANCE, THE RESULT CAME OUT ABOUT EVEN. THE JAPANESE

HAD UNDERTAKEN MEASURES FOR EXPANSION IN THEIR ECONOMIC POLICY, AND HE THOUGHT THAT IMPORTS WOULD INCREASE AS A RESULT, THOUGH IT WAS TRUE THAT THIS MIGHT PRIMARILY BENEFIT THE DEVELOPING COUNTRIES. NEVERTHELESS, THE IMPORT OF SCOTCH WHISKY HAD INCREASED FOUR-FOLD

/IN THE

-2- CONFIDENTIAL