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17. As things are at present it seems that there is little or no hope of compen- sation for the exclusion from these foreign markets by entry on favourable terms into Empire markets. It is true that under the Ottawa Agreements Canada and New Zealand accord the same preferences to imports from the Colonies as to those from the United Kingdom. It appears from evidence which we have heard, how- ever, that Canada is inclined to impose restrictions on Hong Kong produce. The other Dominions and India afford Hong Kong little or no preference.

18. The conclusion we have come to is that while Hong Kong might reasonably expect some consideration from the rest of the Empire, we cannot expect sufficient preference to enable the Colony to manufacture on any large scale for the propose of supplying Empire markets. We can expect from the Empire that there should be no further restriction and that such preference as is accorded should not be rendered negative by means of dumping taxes or high valuations for purposes of duty. We are convinced that Hong Kong as a free trade channel is of benefit to the Empire and that the Colony deserves consideration on that account but, as stated in the last chapter, we believe that Hong Kong's economic value is more closely re- lated to South China and that such industrialisation as may be possible in the Colony should be a part of the economic development of South China as a whole.

19. We considered the question as to what Hong Kong could give to the Empire in exchange for preferences enabling Hong Kong to market her goods therein. We refer anyone greatly interested in the subject to Chapters 51 to 53 of the Singapore's Commission's Report. The following is a quotation from Chapter

51:-

"To implement this policy as between itself and the Crown Colonies and Pro- tectorates, the United Kingdom exempted Empire goods satisfying the prescribed conditions from the duties imposed by the Import Duties Act, 1932, and imposed duties on a number of new articles, Empire goods again being excepted, by the Ottawa Agreements Act, 1932. The conditions in question were that to qualify for preference goods must be shown to have been consigned from and grown, produced or manufactured in a part of the British Empire. For manufactured articles to be entitled to preference the general rate is that not less than 25 per cent of their value must be derived from materials grown or produced, or from work done, within a part of the British Empire. There are certain exceptional cases where a different percentage is admitted, and the Federation of Chambers of Commerce of the British Empire at its Thirteenth Congress in 1933 urged the adoption of a minimum ratio of 50 per cent and a greater approach to uniformity. So far this proposal has not been approved."

20. The Crown Colonies and Protectorates were invited to reciprocate by giving preference to goods manufactured in the United Kingdom, but there was no attempt at compulsion and the invitation was to be governed by the tariff policy of the Colony. (The present tariff policy of Hong Kong is "Free Trade " and generally speaking we strongly feel that it should not be altered.) We discard sentiment, however, and think that if it could be shown in respect of any one commodity that it can be economically produced in the Colony, that Can import tax would be a clear advantage to the Colony as a whole) and that such taxation would not interfere with the entrepot trade and would not invite retaliations, there is a bias in favour of affording the manufacture of that commodity in the Colony some protection. In the evidence which has been placed before us and during our own deliberations, however, we have been unable to dis- cover any article of manufacture which fulfils all these conditions.

21. Even if the Colony were to adopt forms of protection, these could only apply in respect of goods consumed within the Colony, the whole of which is only about 10 per cent of Hong Kong's total imports. To give Empire Preference on such proportion of the Imports as is consumed in the Colony would not, as regards the vast majority of commodities, be of sufficient benefit to Empire countries to warrant reciprocation. Only in respect of one commodity, Motor Vehicles, can we perceive that Hong Kong can accord a preference which is really beneficial and in respect of which the United Kingdom and Canada can be expected to re- ciprocate. It must be remembered, however, that Hong Kong is a Crown Colony, and as such purchases through its Crown Agents, large quantities of goods and

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