HWB 21/5
CONFIDENT IAL
COMMONWEALTH OFFICE,
London, S.W. 1.
7 October, 1968
142
(24)
(133)
I told you the day you left London that Ministers had decided not to intervene in the matter of ECGD's requirements for covering the loan to the Tunnel Company. The purpose of this letter is to Bet out the history of the ministerial exchanges and state more fully the reasons for their decision.
At the end of July Lord Shepherd wrote to Lord Brown at the Board of Trade urging reconsideration of the requirement of a joint guarantee. A copy of that letter is attached (Annex A).
Simultaneously, we received an approach from ECGD putting forward a suggestion (attrib-ted to Clague) that in some way H.K.G. ought to be able to give ECOD an assurance that, in the event of an enforced British withdrawal from the Colony, they could have "an unsubordinated right of access to Hong Kong assets held in London. We could see a number of objections to this proposal but agreed to seek legal advice as to whether in fact it was a practicable proposition. Before we had that advice Tord Brown replied to Lord Shepherd (Annex B).
This letter, together with the ECOD approach mentioned above, made it quite clear that (contrary to earlier protestations) the political risk was still a major factor in determining ECGD's attitude to the project. The legal advice we received on ECGD's proposition (and passed on to them) indicated that no assurance by 1.G. would give ECGD a secure claim against Hong Kong Government assets
??
(a) in the absence of a formal guarantee of the loan to the
Company by the Hong Kong Government, and
(b) because such an assurance would amount to no more than a statement of intent by the British Government of the day which could not tie the hands of Parliament or any future British Government.
Thus once more the wheel had turned full circle and we were back again with the problem of ECGD requiring cover for the political risk. In further informal exchanges ECGD maintained the view that it was their duty to cover all the risks, including the political risk, and that the requirements they were seeking must in all the circumstances be regarded as a minimum. They naturally repeated their argument that an "infrastructure" project of a public service
/ nature
Sir J. Cowperthwaite, KB., Colonial Secretariat, Hong Kong.
CONFIDENTIAL