TNAG-2478-FCO40-3608-Trade-relations-between-Hong-Kong--the-UK-and-other-countrie-1992 — Page 81

CODE 18-77

K22THU.147

Reference

hu

OT4/3 OT4/3A

Gray

OT2/2D

To:

M PAYNE

ITP3B

From:

K MELVILLE

OT4/3A

Bay 712

Kingsgate House

215 5276

19 March 1992

cc Mr Berg

Mr Thomas Miss J Gr

DELTA CROMPTON CABLES: SOUTH AFRICAN COMPETITION IN HONG KONG

Further to our telephone conversation, please find attached the background correspondence to which I referred.

2.

You will note that Delta believe they are facing unfair competition from South African companies who are benefiting from considerable amounts of State aid of which, apparently, they make no secret. The precise terms of the aid support are not known but Delta have set out what they believe to be the likely terms.

3. Delta are deeply concerned about the future of the company should it not succeed in retaining the Hong Kong contract and Mr Eggar has asked that officials look into the details to establish whether the South African companies are likely to be breaching international trade agreements.

4. I have consulted the Consul-general in Johannesburg who confirmed that the South Africans have imposed a raft of export incentives over recent years, many of which must surely infringe GATT but also serve as incentives to invest in export-oriented ventures. By far the most significant and controversial of the export incentive schemes is GEIS (the General Export Incentive Scheme) on which an explanatory leaflet is enclosed, which would seem to be the scheme referred to by Delta. The formula is not too difficult to understand; in essence it provides virtually no assistance to exporters of primary products or manufactured materials with little local content. But for beneficiated primary products, which by their nature have a very high local content, and for manufactured products with a high local content, the benefits can be considerable. At the extreme, manufactured products with 100% local content, with the current E-factor of 7.5%, would receive a rebate of 17.5% of the value of the export.

5. I will need to provide MFT with a draft reply within the next couple of days and therefore need your advice as to whether the GEIS scheme is in breach of the GATT and, if so, what steps HMG or