'But as quotas imposed by the US on Chinese textile exports do not cover Hong Kong, local manufacturers can circumvent the restriction by moving their production facilities back to the city' South China Morning Post June 7 IT SEEMS TO make perfect sense. An international system of quotas on garment and textile exports was abolished on January 1 with the proviso that importing countries could impose temporary surge controls if there were sudden big dislocations in shipments. The United States and the European Union have ruled that such dislocations indeed occurred almost immediately after January 1 with a huge boom of garment exports from China, and these surge controls have now been imposed. But they are surge controls on China alone. If Hong Kong-based garment makers who have set up production plants in the mainland relocate back to Hong Kong, their exports will not come under these controls. Hence acting chief executive Henry Tang Ying-yen now expects that they will do so and is considering how he may facilitate this development if it occurs. I have a few remaining questions about all of this, however. It does not entirely make sense to me. In the first place, let us set things straight about how the rag trade here has actually worked for many years. When these quotas were first set up in the 1970s, Hong Kong was a big garment exporter while the mainland was an insignificant one and, as the quotas were allocated on the basis of existing trade patterns, Hong Kong won a big share of them. Then came the mainland's industrial emergence and it was soon apparent that it made much more sense to base garment production in the mainland than in Hong Kong. The business consequently moved across the border and garment production in Hong Kong withered. But of course, Hong Kong's quotas were meant only for garments produced in Hong Kong and those garments had to be accompanied by certificates of origin. A little subterfuge (well, perhaps somewhat more than a little) was called for and it was duly practised. It was all done quietly but essentially what we have in garment production now is mainland production with a little bit done here and there in Hong Kong to keep up appearances. The chart lets the cat out of the bag. Last year, our official statistics showed garment production in Hong Kong at 85 per cent of 1988 levels (the red line) and those garments accounted for half of our domestic exports, making us the second-largest garment exporter in Asia after the mainland. But the blue line shows employment in the rag trade in Hong Kong now stands at only 13 per cent of 1988 levels. No, this was not the result of a breathtaking leap in labour-saving devices. Garment making is a stubbornly labour-intensive trade. This is the subterfuge revealed. Meanwhile, the Hong Kong holders of garment quotas have had an easy life of it. They did not even need to establish garment plants in the mainland. They could simply rent out their garment quotas to mainland producers and then lay back and enjoy the money, which is what they have done. So here are my questions to you, Mr Tang. Just how do you find all the trained seamstresses and other workers to bring production back to Hong Kong? They are getting on now. Their skills have become a little rusty and they have either found other jobs or retired. A transition like this is not made overnight, even if you import tens of thousands of workers from the mainland, which is easier said than done. And if it is not done this way, but simply by reviving the subterfuge, are you sure that you can continue to pull the wool over the eyes of trade specialists in the US and the EU? They may not be quite so ready this time to look the other way. They are very likely to decide that garments made in China are garments made in China, whatever the label sewed on in Hong Kong says. Most of all, sir, you were until very recently chairman of your family firm, Peninsula Knitters, one of Hong Kong's largest garment companies. Could you tell us to what extent Peninsula Knitters sold its garment quotas to others while those quotas were in force? Could you also tell us how the fortunes of the family company may be affected by any revival of quota rentals or relocation of production to Hong Kong? Transparency in government, you know. I understand you are big on it.