-2-
5. The Prime Minister will know that whatever the Section of the
Act under which business is underwritten E.C.G.D. must make an
ases ment of the risks and that in neither case can the Departament
accept risks which in the views of their advisers both in Government
and in banking appear axosssively hasardous. It is the general
concensus of opinion that even under Section 2 of the Export Quarantees
Aet the risk that the Colony might be over-run by the Chinese is such
that it would not be reasonable for the Department to cover more than
5 years forward risk. The necessity for a joint guarantee arises from
the need to pursue whichever of the shareholders with funda outside
Hong Kong can be pursued during the second 5 years of the contract
period.
6.
Colonel Clague argued strongly that in political and social
terms it was desirable for H.M.O. be seen to be supporting Hong
Kong by accepting the political risk involved during the 10 year period
of the contract. It is the view of Commonwealth Office that there is
no significant political element in this and that the contract should
be assessed solely on its own commercial merits. This being so there
would seem to be no justification for ary special arrangements to be
made for withdrawing the conditions which the Tumel Company as
borrowers find onerous; certainly it would be difficult for E.C.G.D.
to accept the risks involved on a loss secured basis.
7%
Costains and the Tunnel Company are being informed accordingly.