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COPY NO. 3 of 24 So w
MINISTRY OF D'EFENCE
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Mo Welford En
AKD. 14
MAIN BUILDING, WHITEHALL, LONDON, S. W. I.,
PRIME MINISTER
TELEPHONE
01-930 7022
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I have seen the Foreign and Commonwealth Secretary' memorandum (DOP(71)44); it refers in paragraph 8 to my position. I am putting this minute to you in order to emphasise the concern I feel about the next round of negotiations, and also about the Defence Budget implications of what is now being proposed by the Foreign and Commonwealth Secretary.
2.
I would not wish to contest the Governor's view of the possible effects of imposing a settlement on the Colony. But Ministers agreed in February to negotiate a contribution of £8.5m. a year; and I do not think that HMG should accept without further question the present reluctance of the Unofficial members of the Executive Council to make a reasonable contribution. A total of £8.5m. would do no more than restore the proportion of our total costs which Hong Kong would pay to the level accepted when the previous contribution was negotiated in 1966; and, in terms of a percentage of the Colony's estimated revenue, it would be a smaller contribution. I can see the merit of the Governor's suggestion of a settlement based on an average figure for a period of several years; but I judge that there is, in the circumstances, a strong case for instructing him to enter into another round of negotiations on the basis of Annex II, rather than Annex I, of the Foreign and Commonwealth Secretary's paper.
3.
As to the Defence Budget, the effect of a settlement based on Annex I would be that we should receive £4.5m. less
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