ENG-1986 — Page 31

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HONG KONG AS A PARTNER IN WORLD TRADE

restriction of imports, an action which would only make things worse by restricting trade all round and lowering production and standards of living.

In Hong Kong's case, the major impact of overseas protection on its trade has, without doubt, been in textiles and clothing. This started with the so called voluntary restraint on exports of cotton yarns and grey cotton fabrics to the United Kingdom in 1958. Thereafter, restraints on exports to most of the main developed country markets grew in coverage and complexity, through the Short Term and Long Term Arrangements on cotton textiles in the sixties and subsequently the MFA, which came into force in 1973 and which has recently been renewed a third time for a further five years to 1991. Hong Kong has therefore faced restraints of one kind or another on its textile exports for almost 30 years. Being, however, one of the first in the field among the developing countries which are subject to these restrictions, it has usually managed to negotiate big quota entitlements, based on its previous export performance, as the restrictions spread to new products and new markets. Another consequence of the quantitative limitations resulting from the quotas has been a steady upgrading of quality by Hong Kong manufacturers in order to move into higher-priced and more profitable market sectors. Despite the undoubted effect of the restrictions, Hong Kong has still managed to become the largest exporter of garments in the world.

Beyond textiles, and of growing importance in the conduct of world trade, has been the tendency for protectionism to spread to other products, as indicated above, not so much through the old fashioned devices of tariffs and import quotas, but through the negotiation of industry to industry arrangements, voluntary export restraints (VERs) and orderly marketing arrangements (OMAs), in other words through arrangements to cartellise or manage trade and to share out markets. Virtually all this new protectionism, as it is coming to be called, is being negotiated and organised outside the GATT system of non- discrimination. Pressures are also increasing for changes in the GATT rules to permit emergency safeguard action, aimed at assisting industries threatened by sharply rising imports, to be directed against the exports of particular suppliers who are alleged to be causing the damage, rather than being applied to imports from all sources on a non- discriminatory basis. Actions of this sort to corral and manage trade and to discriminate between suppliers could be particularly damaging to Hong Kong, which is so dependent on the efficient functioning of a liberal, open and non-discriminatory world trading system. It is, therefore, a particularly important task for Hong Kong within the forum of the GATT, and acting in concert with other like-minded members, to fight against the new protec- tionism and for the continuation of an open, non-discriminatory, world trading system. Given its own completely open market, there is no doubt that it will be in a position to approach this task without ambivalence or hypocrisy.

Is Hong Kong a Laissez-Faire Economy?

People reading all the above and knowing little or nothing about Hong Kong could be excused if they assumed that the territory maintains a completely laissez-faire economy, somewhat along 19th century lines, and which relies completely on the free play of market forces for its functioning. Mention so far of the government's role has been confined to the maintenance of free trade, a convertible currency, low taxation and a balanced budget. This is true as far as it goes, in the sense that the government does allow private business to conduct its affairs without excessive interference and without subsidy. But it is far from being the whole truth. The fact is that the government does operate extensively and effectively in areas which are proper to its role and which, in some cases, are essential for the