E.E.C. NEGOTIATIONS HONG KONG ANOTHER PROBLEM FOR BRITAIN AT BRUSSELS

Press, Volume CX, Issue 32462, 24 November 1970, Page 14

E.E.C. NEGOTIATIONS HONG KONG ANOTHER PROBLEM FOR BRITAIN AT BRUSSELS

(Reprinted from the "Economist'* by arrangement)

The Six are afraid of Hong Kong because it looks too successful At the start of the Brussels talks, Britain asked for Hong Kong to be given the same affiliation to the European Economic Community as other surviving British colonies. But the Six, while willing to accept the Falkland Islands and other economic nonentities, jibbed at an appendage whose exports are mushrooming by 20 per. cent each year, and are now worth an annual $2.2 billion, and which is thus already the world’s twenty-third largest trading nation.

The European commission’s civil servants are now preparing a paper on their objections. Hong Kong’s trade with the Six is not important, partly because its small volume of exports to them is strictly limited by quotas. For Britain to make an issue of Hong Kong would be seen by the Europeans as a last gasp of imperial irresponsibility, a hangover from the sentiments that sabotaged Britain’s two previous attempts to enter the Common Market. But Mr Rippon and the Foreign Office are determined that Hong Kong should not be brutally treated on two negotiating tables at once, both at the Brussels talks and at the awkwardly coincidental United Nations Conference on Trade and Development (U.N.C.T.A.D.) negotiations. Under-‘developed’ The United Nations Conference on Trade and Development is trying to persuade the developed West to give tariff preferences to manufactured goods from under-developed countries. Britain wants Hong Kong to be included in the underdeveloped list. The E.E.C. and America do not. They argue the colony is already developed enough. If one looks at the deep underlying poverty of the colony, Britain is undoubtedly right; but the Six prefer to look at its trade figures, and to listen to the frightened cries of their own protective textile lobbies.

One major trouble is that Hong Kong, although represented by Britain, has little political significance and no voice in the United Nations. Competitor countries like Taiwan, South Korea and Mexico are on everybody’s U.N.C.T.A.D. list; even .if Spain is being considered. If these competitors get preferential tariffs and Hong Kong does not, then its trade in the more basic sorts of manufactures will fall. Much of Hong Kong’s exports to America, 42 per cent of its total, will be discriminated against. Hub of trade

If Britain could be sure that toe Six would look kindly on Hong Kong in the U.N.C.T.A.D. negotiations, then it would be much less likely to haul toe colony’s problems on to toe Brussels table as well. What Mr Rippon does not want to see is Hong Kong excluded from both treaties. The colony relies wholly on its overseas trade. Without access to the world’s markets it is nothing. This is where both the E.E.C. and America are being shortsighted. Hong kong needs to import all its raw materials. Its import bill last year was $2.5 billion, with imports of materials like iron 40 per cent higher than a year before. The colony is toe hub of a great deal of Far Eastern trade, and toe British Foreign Office is saying indignantly that it provides a test of how far toe enlarged European community really wants to be outward-looking. If toe Six did adopt Hong Kong into toe community, then the new Europe could have a valuable springboard for trade with toe Far East. Too forceful? The biggest danger now is that, under Foreign Office prompting, Mr Rippon may play the role of Hong Kong’s protector so forcefully that the issue will grow bigger at Brussels than it really is. In the past, Hong Kong has shown itself capable of jumping over tariffs with ease. The one serious threat to its development would be a quota system: where the quotas, once filled, would leave no room for further expansion. Britain’s present intention, unless' all its trading arrangements are rewritten by entry into toe E.E.C., is to end all its own quota restrictions on textile imports in 1972, and replace them by a general external tariff. This would help Hong Kong. In its talks with the Six, Britain would serve Hong Kong best if it could conceivably per-

suade the whole E.E.C. to do the same. Serious consequences If Britain fails to secure either an ending of quotas or favourable tariff terms for Hong Kong in its negotiations with U.N.C.T.A.D. and the E.E.C., what will happen to the colony? Many of its most basic industries, the simple textile yarns and fabrics, will probably be forced out of business. These are also the most labourintensive industries. Optimists will say that this would speed the pace of change into more sophisticated products, a trend that is already under way. But toe social consequences could be serious. The government of Hong Kong keeps deliberately detached from matters of economic policy, to the extent of not even attempting to keep track of the gross national product, and any changes in external trading conditions cause immediate disruption, with nothing to cushion the switch from one form of industry to another. Moreover, there is only a fairly narrow range of industries prepared to set up in Hong kong, which is not, and is never likely to become, another Japan. Capital-intensive industries like cars, steel, shipbuilding —the big growth areas in Japan—are not attracted to a colony that owes its daily existence to toe whim of Peking. Under existing treaty obligations Hong Kong is meant to be handed back to become part of Communist China in 28 years’ time. With this risk in mind most entrepreneurs aim at profits that will be high enough to get their capital investment back within five years. Uncomfortable boom What would happen if to<. wheels of fortune spun the other way if Britain was successful on both fronts and won Hong Kong a place on both the U.N.C.T.A.D. list and within the E.E.C.? Oddly, the Hong Kong Government might not be at all grateful. The colony could then see a runaway boom, with some uncomfortable results. This is the other side of Hong Kong’s prosperity. The economy is already stretched. Unemployment is low, and hardly anyone wants to see more refugees drawn in from Red China; this would swell the chance of rioting and increase the pressures from Peking. Hong Kong’s population has already increased nearly seven times, from 600,000 just after the war to 4 million today.