TO:
DRAFT LETTER
Sir Murray MacLehose KCMG MBE
HONG KONG
DEFENCE AGREEMENT
1. We understand that when the Quarter-Master-General, Sir William
Jackson was in Hong Kong recently there was some informal discussion
about the effect of Article 3(i)(a) of the Memorandum of Understanding
having been reached ie. works costs having risen by over 50% on
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 that the
suggestion of discussions leading to an agreement on supplementary
contributions was fully acceptable. This is bone out by the
Secretary of Security's letter to me of 5 March.
3. I think there are two questions at issue. First, are discussions
on Article 3(i)(a) appropriate and timely in themselves; and second,
what are the implications for other concurrent developments. On
the first question, I understand that it is common ground that the
trigger point has been exceeded. And it seems not unreasonable, in
view of the terms of the agreement, that we should now think again.
Unless you believe that the resurrection of the defence contribution
debate in this context would cause unacceptable political repercussions,
there would seem every advantage in going ahead with the review as
a purely technical operation, not least because the MOD and PSA say
that if there is no agreement on cost escalation by June they will
have to stop the injection into planning of the capital works.
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4. The second half of the equation is more difficult.
know, there is a current Defence Review in which all 'options are open.
We have of course taken care from the very beginning to inject the
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