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the world with competition from smaller producers and sellers who, not having incurred the expenditure of creating an extensive marketing organisation, are in a position to market their products at prices which are definitely unremunerative so far as the major companies are concerned.

B." The charges in this Colony do not represent more than a reasonable return on money expended by the companies and should not in fairness be compared with charges in areas where cut-throat competition has forced down prices to an uneconomic level.

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C. In support of the first statement in "B" it must be remembered that physical conditions in Hong Kong are such as to necessitate a certain amount of duplication of plant and equipment and to increase overhead expenses generally without securing a corresponding return in the shape of increased sales. The total monthly trade in petrol in Hong Kong averages approximately 310,000 American gallons, as compared with 1,000,000 American gallons in Shanghai, and an even larger quantity in Manila. This difference in turnover means a very much higher overhead, especially since the distribution facilities provided in the Colony are designed to cater for a much larger volume of trade. Rents, rates and labour are more expensive in Hong Kong than in most of the areas mentioned above, while regulations regarding the provision of special and often very expensive forms of fire fighting appliances are strictly enforced.

CC D." The figures given in the summarized table represent the approximate gross returns to the Oil Companies and not the nett returns. No allowances are made for dealers' discounts and for rebates granted to important commercial cus- tomers. Here again the restricted gallonage in Hong Kong plays an important part. Dealers sales are smaller and their discounts from the Oil Companies correspondingly larger than in areas where petrol dealing is a more profitable business. It has been estimated that the average nett return to the Oil Companies is 68 cents per Imperial Gallon, as opposed to the gross return of 85 cents.

E." Finally, it was pointed out that the cost of motor fuel represents only a small part (roughly 20%) of the total cost of operating trucks and automobiles. A reduction in the price of petrol would, therefore, have but little effect in re- ducing the operating costs of local industries, whereas the aggregate loss to the Oil Companies would be considerable.

4. There can be no question but that the geographical condition of this Colony, together with the restricted gallonage, must tend to render working costs higher and profits less. Nevertheless we are not entirely satisfied that in the existing circumstances Hong Kong is not being made to shoulder some part of the burden imposed on the Companies by competition in other areas. It is, for example, re- markable that petrol which has been stored in Hong Kong and carried from Hong Kong to Canton should, in spite of additional freightage and other charges, be sold at a cheaper rate in that city than in Hong Kong itself.

5. Undoubtedly the most potent factor in the reduction of prices is open com- petition and it must be admitted that, so far as this Colony is concerned, this factor is largely non-existent. While we would not, at the present time, advocate any measures which might tend to reduce prices to uneconomical levels, we find it difficult to credit that the large Oil Companies are selling at a loss in the above mentioned markets where prices are so much lower than in Hong Kong and, if this is indeed the case, we find it still more difficult to believe that Hong Kong sales

could offset such losses.

6. We would remind those Companies that the possession of a virtual mono- poly carries with it a duty to the community which should not be overlooked and that it is in their own interests to ensure, by charging reasonable prices, that the public of Hong Kong will not welcome with enthusiasm the advent of fresh com- petitors.

7. In particular we would urge on them the propriety of passing on to the consumer with the least possible delay the benefits received from an appreciated cur- rency. We note with pleasure that since we began to consider this subject the price