TNAG-2978-FCO40-1470-Trade-relations-between-Hong-Kong-and-the-UK-1982 — Page 48

CONFIDENTIAL

4

DSR 11C

discrimination. If an appreciation grows that individual

Western countries can be picked off without risk of retaliation,

discriminatory action may become more frequent. Indeed, there

are already signs that this may be happening: the weak LC

response to Indonesia's action against the UK encouraged Mexico

to threaten the UK with similar trade discrimination over

textiles. The strength of Malaysia's determination to adopt

a tougher policy towards the UK may also owe something to the

perception of UK weakness in the face of Indonesia's challenge.

Vulnerability

9. Is the UK more vulnerable to trade discrimination than other

developed nations? Trade represented a higher percentage of

1980 GNP for the UK (26.8%) than for the US (10.4%), Japan

(15.6%) and France (22.0%), but not the FRG (29.0%).

The UK iš

the second largest direct investor overseas after the US

(though the FRG is catching up fast) and around one fifth of

this investment is in LDCs. The pattern of trade also makes

for vulnerability: the UK tends to run trade surpluses with LDCs

while its trade deficits are weighted towards developed countrie

such as the US and Japan (though this is equally true of France

and the FRG). Admittedly North Sea oil makes Britain less

dependent on the Middle East for imports than its fellow members

of the EC. But it remains vulnerable on the export front, as

Saudi Arabia's recent hostile economic action demonstrated, and

could still be subjected to financial pressures.

9. Britain is not the only developed nation to have faced

trade sanctions (see Appendix B). But there are a number of

reasons, apart from Britain's relative vulnerability, why

countries may be more willing to take such action against us.

In the North-South dialogue the UK is seen as more hawkish than

other developed countries, apart from the US, and on specific