ENG-1987 — Page 96

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INDUSTRY AND TRADE

re-exports were China, Japan, the United States and Taiwan. The largest re-export markets were China, the United States, Taiwan, the Republic of Korea and Japan.

External Commercial Relations

Hong Kong believes in free trade. The aims of Hong Kong's external commercial relations policy are thus to safeguard its rights and to discharge its obligations in the pursuit of free trade. The most important of these rights and obligations are contained in the General Agreement on Tariffs and Trade (GATT) and the Multi-Fibre Arrangement (MFA).

Textiles

Textiles trade is the major sector that has been hardest hit by restraints. Bilateral agree- ments negotiated under the MFA govern Hong Kong's textiles exports to Austria, Canada, the European Economic Community, Finland, Norway, Sweden and the United States.

The new bilateral textiles agreement between Hong Kong and the EEC, concluded at the end of 1986, governs Hong Kong's exports of cotton, man-made fibres and wool textiles to the 12 member states of the EEC from 1987 to 1991. In October and November, two rounds of consultations between Hong Kong and the EEC were held to address the problems arising from change of product definitions due to the adoption of the Harmonised Commodity Description and Coding System by the EEC. Agreement was reached on adjustments to the quota levels of 16 categories restrained under the bilateral textiles agreement.

The bilateral textiles agreement with Norway expired in June 1987. Negotiations in March and April led to a new and somewhat less restrictive three-year agreement which contained improved growth and flexibility provisions. The bilateral textiles agreement with Sweden also expired in August 1987. Negotiations in June led to a new agreement with improved provisions for a further period of five years.

A new five-year textiles agreement was concluded with Canada on January 17, with retroactive effect from January 1. The main features of the agreement are the extension of coverage to silk blends and non-cotton vegetable fibres for nine apparel items and the introduction of a group structure for application of the swing provision. The new agreement further tightens restraints on apparel categories as the average growth rates have been reduced although the overall growth rate is about the same as before. The new agreement is restrictive, especially as regards apparel. There are nevertheless no cutbacks and modest growth has been provided for the textiles trade in the next five years.

A major threat to Hong Kong's textile trade was the introduction of the Textile and Apparel Trade Act of 1987 to the US Congress on February 19. The bill contained provisions to limit imports of textiles and apparel into the US to 1986 import levels on a product-by-product basis with annual growth at one per cent.

If the bill were passed, it would lead to widespread disruption in the textiles and apparel trade. It would be in violation of the GATT, the MFA and the bilateral agreements between the US and various developing exporters including Hong Kong. Moreover, the bill would undermine efforts to strengthen the world trading system through the Uruguay Round of trade talks under the GATT. While it was not possible to assess precisely the full implications for Hong Kong if the bill were to be enacted, it was certain the institution of global quotas would inevitably lead to cutbacks in Hong Kong's market access.

Like its predecessor, the 'Textile and Apparel Trade Enforcement Bill' (generally known as the Jenkins Bill), the bill was indicative that protectionist sentiment was still strong in the US. Hence, Hong Kong's battle against the textile bill lasted for most of 1987. In this