SECRET AND PERSONAL
Foreign and Commonwealth Office London SW1
Sir Murray MacLehose KCMG MBE
HONG KONG
LAST
REF
NEX
Dear Murray,
REF.
19
Telephone 01-
Your reference
Our reference HKK 10/7
Date
29 April 1974
14)
DEFENCE AGREEMENT
1.
When the Quarter-Master-General, Sir William Jackson, was in Hong Kong recently, there was some discussion about the trigger point of Article 3(i)(a) of the Memorandum of Understanding having been reached (i.e. works costs having risen by over 50% above the April 1971 price level).
2.
We understand from the Ministry of Defence that your general reaction was that this was a technical question; that the agreement provided for a review if costs rose to this degree; and therefore that the suggestion of discussions leading to an agreement on
This is borne out supplementary contributions was fully acceptable.
by the Secretary for Security's letters to me of 5 March and
3.
April.
First, would
I think there are two questions at issue. discussions on Article 3(i)(a) be appropriate and timely in themselves; and second, what are the implications for other concurrent developments? On the first question, I understand it is common ground that the trigger point has been exceeded. We could, therefore, as Bim Davies implies, go ahead with a review as a purely technical operation, unless the resurrection of the defence contribution debate in this context would cause unacceptable political repercussions. The strongest
argument for such a review is that the Ministry of Defence and Property Services Agency say that, if there is no agreement on cost escalation by June, they will have to stop the planning of new capital works altogether.
4.
As you The second half of the equation is more difficult. will know, there is a current Defence Review in which a wide range of options, is being considered. We have of course taken care from the very beginning to inject the relevant Hong Kong political facts, and we have particularly stressed our view that close and very discreet consultations with you will be essential. My purpose is not to pre-empt this consultation, or to spark off a reaction on the general question, which would be premature. But it does at least seem possible that, at the end of the day and when all precautions about presentation etc. have been taken, we could not rule out the possibility of a change which would trigger the second review provision of the Memorandum of Understanding (Article 3(i)(b)), i.e. the removal of more than one major
unit.
SECRET AND PERSONAL
15.