TNAG-1148-FCO40-1428-Effect-on-Hong-Kong-of-the-Portuguese-and-Spanish-accession--1982 — Page 14

CONFIDENTIAL

Portuguese were conducting bilateral negotiations with

Japanese. They had asked the Community to let them

maintain 48 products on the Japan list. The Community

had offered 22 products. No doubt a compromise was

possible between the two. Under taxation, on VAT zero

rating the Commission had just proposed placing

agricultural inputs in Annex F of the VAT Sixth

Directive as a compromise.Should Portugal accept?

There was also a problem as regards Madeira and the

Azores in that they wanted to avoid fiscal barriers

between Portugal and the islands but the islands did

have a justification to be less heavily taxed than the

mainland. They hoped transport costs could be

exempted; and perhaps VAT in the islands could be

imposed on only 80% of the value of the goods. As

regards rights of establishment the Portuguese wished

to be able to select and establish priorities for

inward investment projects of a certain size. There

was ambiguity in the text agreed between the Community

and Portugal setting a financial limit. The Community

argued that the limit applied just to incoming

investment, whereas the Portuguese maintained it

applied to the global value of the project. They

preferred to sort the question out now rather than

later.

CONFIDENTIAL