Protecting Free Trade

Protecting Free Trade: The Hong Kong Paradox 1947 – 1997

Lawrence W. R. Mills
Copyright Date: 2012
Pages: 424
https://www.jstor.org/stable/j.ctt1xwf8z
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  • Book Info
    Protecting Free Trade
    Book Description:

    Protecting Free Trade is the story of a paradox that both limited and stimulated Hong Kong's post-war economy. In order to preserve its access to open markets, Hong Kong was obligated by international agreements to accept restraints on its exports; and in order to sustain growth, Hong Kong had to subject its largest industry — textiles — to a massive network of restrictions. Protecting Free Trade examines how Hong Kong handled, by negotiation, attempts by developed economies to limit international trade through protective measures. The central argument is that, far from stifling Hong Kong's industry, restrictive international trade agreements became a stimulus for economic success by creating a sellers' market in which Hong Kong was the dominant supplier. The book is also a personal memoir by someone who was deeply involved in policy formulation.

    eISBN: 978-988-220-899-5
    Subjects: Economics

Table of Contents

  1. Front Matter
    (pp. i-iv)
  2. Table of Contents
    (pp. v-vi)
  3. Abbreviations
    (pp. vii-x)
  4. Prologue
    (pp. 1-2)

    For one hundred and seventy years, Hong Kong has had to rely on its commitment to free trade and open markets for its survival. It has had to accept and adapt to the circumstances in which it found itself at any particular time. They have been such as to move the territory in incremental stages from entrepôt for China from the early 1840s to the 1940s, to entrepôt and manufacturing base from the late 1940s to the mid-1980s and, finally, from the mid-1980s to the present day, to entrepôt, manufacturing base, and service and financial centre.

    My story covers Hong...

  5. Part One: Five Pieces of Paper
    • Chapter One Early Problems
      (pp. 5-14)

      The Second World War ended in 1945. Its aftermath marked a time of upheaval and change for victor and vanquished alike. For Great Britain, it meant the end of empire as nations, colonies, protectorates, trucial states and other sundry places under its administration gained their independence. Among the United Kingdom’s few remaining dependent territories was Hong Kong. Although Britain was steadily dismantling its empire and returning sovereignty to the peoples of their native lands around the world, it stoutly refused to hand its Far Eastern outpost over to Generalissimo Chiang Kai-shek of the Kuomintang. Nor could it grant Hong Kong...

    • Chapter Two The GATT: The First Piece of Paper
      (pp. 15-24)

      Acronyms abound in the world of trade, but probably none holds greater importance than the GATT, the General Agreement on Tariffs and Trade.

      The GATT has been around since 1947. It continues as the internationally accepted instrument governing world trade, and is now the responsibility of the World Trade Organisation, established in 1995. Earlier, towards the close of the Second World War, the soon-to-be victorious allies sought to establish ways and means of co-operating in order to move as smoothly and as swiftly as possible from a war footing to normalcy once the fighting had ceased. The United Nations Monetary...

    • Chapter Three The Certificate of Origin: The Second Piece of Paper
      (pp. 25-36)

      It is probably fair to say that not too many people have stopped to consider the question as to what confers origin on a product. It sounds pretty dull stuff, and, these days, apart from mild surprise to find something not ‘Made in China’, people manage to get on with their lives unaffected by such matters.

      In the immediate post-war years, however, origin was of considerable importance and for governments a matter of substantial concern. This was because import duties were used as a means to protect domestic industries or to grant preferential rates to those with special relationships with...

    • Chapter Four Commonwealth Preference: The Third Piece of Paper
      (pp. 37-48)

      The United Kingdom market attracted Hong Kong exporters for a number of reasons.

      First, there were the opportunities presented by Imperial Preference. At the time of their signing the Ottawa Agreements of 1932, sixty-five countries and territories, ranging from ‘Aden and the Federation of South Arabia’ to ‘Zanzibar’, offered each other Imperial Preference. By the time Hong Kong found itself in a position to take advantage of it, the number granting preference had shrunk considerably as independence became the flavour of the international political scene and the MFN principle the order of the day. From Hong Kong’s perspective, the United...

    • Chapter Five The Comprehensive Certificate of Origin: The Fourth Piece of Paper
      (pp. 49-60)

      Nor was it all sweetness and light several thousand miles away in the other direction.

      The Foreign Assets Control Regulations, introduced in 1950, effectively stopped all imports into the United States of America using Chinese raw materials. Although non-discriminatory and applicable to all imports from all sources, it was clear that Hong Kong’s emerging industry would be hit harder than most. Consultations were held with the United States with a view to devising a control system that would serve two purposes — to assure the US authorities that a product claiming Hong Kong origin for export there did, in fact, originate...

    • Chapter Six The Arrangement that Lived Up to Its Name
      (pp. 61-72)

      I have already described how, in 1958, the Hong Kong textile industry was persuaded to volunteer restraints on its exports of cotton yarns and grey piece-goods to the United Kingdom, and how, shortly thereafter, it was further persuaded to volunteer additional restrictions on finished fabrics. I also pointed to the move up-stream that Hong Kong manufacturers were to make into garments. I have mentioned also the increasing interest the USA showed in Hong Kong products and that the US market attracted Hong Kong because of its size and the long production runs that large orders made possible. Hong Kong quickly...

    • Chapter Seven The Multi-Fibre Arrangement: The Fifth Piece of Paper
      (pp. 73-84)

      By the beginning of 1973, international trade in textiles and garments was subject to a network of restrictions arising from the use of the LTA for cotton textiles, and voluntary export restraints for those of man-made fibres and blends thereof, and in some cases, wool. All those exercising restraint or volunteering so to do were developing countries, and all those applying restraints were developed countries. The one major exception was Japan. It had got rid of most of the restrictions that applied after the end of the Second World War but had had to accept restrictions on textiles (and some...

  6. Part Two: The Emerging Paradox and Some Other Diversions
    • Chapter Eight Making It Work
      (pp. 87-98)

      Hong Kong enjoyed its greatest success with the implementation of its restraint agreements and maximising the opportunities within them.

      The entire control system was built and operated based on the advice of the Textiles Advisory Board, whose wise words earned the grateful thanks of the industry they represented and much criticism from outsiders.

      The key document to the whole of the export control system was the textile export licence (E/L). No ship could load a textiles consignment without one. The ship’s manifest was checked against a copy of the E/L held by the DC&1. The E/L contained the name of...

    • Chapter Nine Quota Transfers
      (pp. 99-104)

      From the very beginning of the restraints on textiles to the United Kingdom, it was possible for companies to transfer quotas. The need for such transfers was obvious to all who wanted to see and inexplicable to those who did not. It was the one aspect of Hong Kong’s export control system that came in for the most criticism overseas and locally as well. It was the one area where DC&I faced down its critics and refused to budge.

      From 1960 onwards, all quotas were distributed on a fifty/fifty basis between exporters and manufacturers by reference to their past-performance in...

    • Chapter Ten Renewing the MFA, Again and Again
      (pp. 105-118)

      The LTA stated categorically that it was ‘intended to deal with the special problems of cotton textiles’ and was ‘not to be considered as lending itself to application in other fields’. President Nixon must have missed that bit because, as this story has revealed, Hong Kong, along with South Korea, Japan and Taiwan were obliged to volunteer comprehensive restraints on exports of man-made fibres and wool, and then, eventually, sign up for the MFA in 1974.

      Bill Dorward had represented Hong Kong and I had had to implement the results. The 1974 Agreement had, in many respects, worked well — I...

    • Chapter Eleven David and the Two Goliaths
      (pp. 119-132)

      With the extension of the MFA for another period with effect from 1 January 1982, it was necessary for David to confront the two Goliaths once more.

      The USA and the EEC each had the same goals but not the same approach to achieving them. They each wanted restraints on Hong Kong exports, but their domestic situations, both economically and politically, were very different. I have given some of the trade statistics in the previous chapter. Total textile imports into the USA from all sources (developed and developing) were at extremely low levels. Most of the US domestic market was...

    • Chapter Twelve The Four Faces of Hong Kong
      (pp. 133-146)

      A major issue from the start was how Hong Kong’s relationship with the United Kingdom should and could be managed.

      Immediately following the Second World War, the United Kingdom was leaning towards socialism, striving to maintain its pre-war standing in world affairs, and slowly abandoning its colonial past. Constitutionally, Hong Kong was a dependent territory for which the United Kingdom had formal international responsibility and a duty of care as regards its well-being. The UK could not in all conscience offload it to an insecure regime in China or set it free as an independent entity. Furthermore, no sooner had...

    • Chapter Thirteen Beyond the World of Textiles
      (pp. 147-164)

      As may be expected with a story that relates to an important but narrow aspect of Hong Kong’s development from the 1940s into the 1990s, I have up to now glossed over or ignored much else that was taking place at the same time. This has been for two reasons. First, I wanted to limit myself to incidents and issues of which I had direct experience. Secondly, the development of the emerging paradox and the attention that, of necessity, had to be given to textiles and garments required a focus on specific goals and objectives which, truth to tell, provided...

    • Chapter Fourteen The Tussle with TOGA
      (pp. 165-174)

      I joined the government on 16 October 1958 as an Executive Officer, Class II and became an Assistant Trade Officer on 14 March 1960. As much as I enjoyed the work in the DC&I, my prime motive for changing grades at the time was financial — the starting salary for my new grade was equivalent to that of an Executive Officer, Class I, a rank I could never have hoped to have reached within eighteen months of joining the government.

      As I got deeper into my work, I became aware of the divergent views that existed within the department as to...

  7. Epilogue
    (pp. 175-178)

    So, that is the story of my years in Hong Kong. It was a challenging time for the territory and an exciting period for me. I would not have wished to spend those years in any other place or in any other way. To my mind, I arrived at just the right time and I left at just the right time. The Hong Kong of 1958 was so different from that of 1989. Within those thirty-one years, Hong Kong was transformed from a dot on the map with its name underlined in red and the letters (Br.) after it, to...

  8. Index
    (pp. 179-182)