HONG Kong's increasing trade in re-exports has left the Government and business community vulnerable to trade disputes which involve the countries whose re-exports are handled by the territory. Director-general of Trade Tony Miller said that with the ratio of re-exports to domestic exports rising to four to one, there would be implications for the government and businesses. ''The first, which primarily concerns the government, relates to our standing in international trade disputes. ''As the proportion of re-exports in our total exports grows, so the proportion for which we can claim a direct interest in a dispute shrinks. ''We therefore become more vulnerable to disputes between countries whose re-exports we handle,'' he said. He cited the annual renewal of China's Most Favoured Nation (MFN) status and Mexico's anti-dumping action against China-made products in the middle of 1993 as examples. The second implication related to reputation and in that area, he said that the responsibility lay with the private sector. ''As regards reputation, Hong Kong is a victim of her own success,'' Mr Miller said. He said that regardless of how particular products were classified under rules of origin, buyers and competitors tended to regard goods sourced through Hong Kong as being the work of the territory's entrepreneurs. ''By the same token, anything which undermines the reputation of our entrepreneurs will be seized on by protectionists to convince governments that there is unfair competition from which they deserve some form of protection,'' he said. He said that it was therefore important that Hong Kong entrepreneurs who set up offshore bases preserve their reputation for quality. ''Offshore investment can be portrayed positively or negatively, depending on how it's done. ''On the negative side, the offshore investment might be depicted by some as simply turning under developed economies into an industrial backyard, as exporting pollution, exploiting cheap, untrained labour and so on. He added: ''My point is that the outside investor can, and should, in his own interest, set a good example.'' Mr Miller was speaking at the Hong Kong Toys Council dinner yesterday. On the toy industry, he said that total toy exports in 1992 amounted to some $6 billion, an increase of one third over the previous year. In 1993, the first nine months of the year showed a 10 per cent increase in total export value. Hong Kong Toys Council chairman Dennis Ting was confident that the total annual growth for 1993 would be up a few percentage points as a substantial portion of toy shipments were made during the fourth quarter of the year. The industry's biggest worry at the moment is the development of a European Community quota system against selective China-made products and toys have been knwon to top the list. ''Under those circumstances, it does look like our fortune in continental Europe will be complacent in the coming year,'' he said. On the US market, Mr Ting was confident that there would be improvements in the toy business as economic indicators showed that the country would have a mild recovery in its economy. On China, Mr Ting said that the promulgation of quality approval licences for toy exports by Chinese authorities would be an impediment to the development of the toy industry and had lobbied extensively to repeal the law. Efforts have led to the Chinese authorities extending the deadline for the application of the quality approval licence to the end of June this year.