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has not yet been officially published. I tried to get a copy from the Acting Commissioner for Transport before Shephard's return but he unfortunately asked for permission from the Colonial Secretariat and this was refused! Shephard, however, on his own responsibility, has given me a copy of the first volume, in confidence, and after a rapid perusal, I am enclosing it for your information, also in confidence. However, as you may know, Shephard has already sent a copy to Ross of the Export Group for the Constructional Industries (EGCI) and to Birch of E.C.G.D. so there does not seem to be anything very confidential about it. However, it would be as well not to specify your source of supply.
Shephard once again made to me the obvious point that the most difficult aspect of this scheme would be its financing. He admitted that the Hong Kong Government would have to play their part and could not shrug off responsibility entirely. However, they would still try to get as much outside finance as possible and, of course, E.C.G.D. will be expected to assist. Shephard told me that there seemed to be still some bitterness in E.C.G.D. over the Hong Kong tunnel - and there is certainly a considerable amount of bitterness in Hong Kong over E.C.G.D.'s handling of the question. I hope, therefore, that it may be possible to avoid this sort of bad feeling on this occasion. I think it ought to be put very strongly to the E.C.G.D. at the highest level that it is essential from every point of view that Britain gets this order and that normal commercial criteria cannot hecessarily be expected to apply. It is fairly certain that, for instance, in the case of Japanese interests, they would not apply.
In E.C.G.D.'s letter of 9 September to the Treasury, a copy of which I enclose, they hint at the political risk. In the period required to amortize the cost of this scheme - not longer than 10 years at the most, according to Shephard, I seriously consider that the political risk is less than in almost any S.E. Asia country. This is certainly the view of the Hong Kong Government and of most knowledgeable resident Europeans. I hope, therefore, that E.C.G.D. will be able to be as flexible as possible and rather less hidebound by their regulations than usual. I know and sympathise with their objection to subsidising both sides in this sort of deal but all countries seem to do it and if we do not, we run the risk of losing the order. It is, after all, only a form of hidden export subsidy such as our competitors have no compunction in employing.
I have not written to E.C.G.D. about their letter as I wished to discuss it with you first but I am, of course, always
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