THE news from Europe does not look good for Hongkong manufacturers, especially those in the toy and footwear industries. It seems the European Community (EC) is about to dramatically cut quotas on a wide variety of imported goods, including toys and footwear, from countries whose economies are centrally planned. It is a move obviously aimed at China which just happens to be one of Europe's major trading partners and the world's leading toy and footwear producer. Hongkong manufacturers will feel the pinch too as 90 per cent of the territory's toy and footwear manufacturing is now done in China. If the quotas are introduced Hongkong manufacturers stand to see 11 per cent of their European export market disappear overnight. For years now Hongkong has had to live with the threat of the United States imposing conditions to China's Most-Favoured Nation (MFN) trade status knowing that such a move would have serious ramifications throughout the territory. Hongkong manufacturing, and to a lesser extent its service sector, is inextricably linked to China. Any sanctions or quota restrictions the international community places on China will have an impact on Hongkong. The EC has yet to give a clear explanation as to why it wants the new quotas but it does not take much to understand that in the highly protectionist environment that Europe has become it is at the behest of those member nations whose industries simply cannot compete on an open market. Countries such as Italy, Spain, Belgium and Portugal have complained bitterly that their manufacturing industries, particularly toys, clothing and footwear have suffered from cheap imports from China. Why? Because their richer, EC neighbours such as Germany and Britain have been able, in the past, to maximise their quotas and in turn flood the European market. It is argued that with one EC quota, instead of each member country having its own quota, individual domestic markets will be protected. But doesn't this go against the very principles of what capitalism is all about . . . the freedom to come and go as one pleases and to trade with whom one likes? Whatever happened to the concept of free trade and market forces? No nation or group of nations can realistically expect to survive as protectionist islands any more. The new economic realism as we move into the 21st century is the survival of the fittest. Or to put it more bluntly: if you can't compete you simply go out of business. Another aspect to that new economic realism is that companies can no longer afford to simply ''go it alone at home'' any more. Simple economic home truths such as inflation and labour costs are forcing companies to relocate to places where the cost of production is cheapest. China is one such location. Many European companies now have manufacturing operations in China. So any protectionist move against China could be counter-productive in the long run. Last year when the US issued its ''hit list'' of Chinese imports, China produced its own. It didn't take too long before the realists in the US saw that China could inflict its own brand of pain on the US domestic economy too. Obviously this is something the Europeans should think about before slashing quotas and, in particular, against Chinese industries.
