SECRET
Background
Hong Kong has paid an annual defence contribution since 1863.
Initially calculated as a percentage of revenue, the contribution
was fixed at £1 million p.a. when payment was resumed after the
second World War. This was raised to £11⁄2 million in 1958.
2. In 1964 Hong Kong agreed to contribute, in addition, up to
£6 million over the next six years towards the Army and R.A.F.
works programme in the Colony. Thus the effective rate of
contribution became £21 million p.a.
J
March, 1971).
3. In the context of the Defence Review a further agreement was
negotiated in December, 1966 (in substitution of the 1964 agreement)
under which the Colony agreed to pay £5 million p.a. for the next
four years (April, 1967
The formula reached was
that Hong Kong agreed to make an annual contribution of £1 million
plus a special additional contribution of £32m per annum towards the
"local costs" of the garrison (which were assessed at £9-10 million).
HMG had asked for £11 million, being the assessed "local costs"
of land and naval forces.
4. The defence contribution has always been a sensitive issue in
our relations with Hong Kong since the Colony has been the only one
to have made regular and substantial payments. The 1966 negotiations
were carried through with great difficulty by Mr. Fred Lee (then
Colonial Secretary) in the course of two visits and the agreement,
when announced, aroused unanimous public opposition locally.
5.
Unofficial members of the Executive and Legislative Councils have
been prone to argue that defence is an imperial responsibility,
ignoring the doctrine that has been applied since the last century
/ that a Colony