(a)
(b)
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we must help the Governor to get his social programme through;
the chances of agreement on a substantially larger defence contribution (which alone could mean an increase in present Hong Kong tax rates by about one-seventh) will be reduced if the negotiations coincide with those for other tax increases.
Substance
6.
You will remember that the Governor said he could not advise on how to present the 75% concept to Executive Council on the basis of the MOD's estimate of £38 m. for a 63 unit force. His considered opinion was that a Hong Kong contribution of the requisite size was not on. He therefore reluctantly advised that the Ministry of Defence should consider a reduction to a 5 unit force. Sub- sequently the Defence Planning Staff produced the concept of a force maintained at 6 units, five of which would be Gurkha battalions (but without the frigate), which might cost £304 m. Mr Jackson and I said that this seemed to be more in the range of negotiating possibilities. If it was agreed by the CBF Hong Kong and the Chief of the Defence Staff, we could put it to the Governor as a proposal which could form the starting point of negotiations in May.
7.
Subsequently I understand that CBF and CDS have constructed another pattern of forces which, at 53 major units, would be between the Governor's and CBF's estimates, but would include the frigate, and would also cost about £301 m. Again I think this would be a viable starting point for consultations with Hong Kong.
8.
Defence Planning Staff also produced the useful concept of the ideal force. Their suggestion was that Hong Kong's contribution might be negotiated on the basis of the cost of five Gurkha units, but that if in the event we sent more British units for UK reasons, then HMG should bear the extra cost. Although the MOD did not concede this at our meeting, the same concept might perhaps be extended to the frigate. It is agreed by all that what is really needed in Hong Kong is a fast and well-armed patrol boat. This the Navy do not at present have. It might be possible to think of charging Hong Kong the lower cost of this ideal naval craft. Until one is available, however, the Navy might be asked to bear the extra cost of the more expensive but less suitable frigate.
9.
Defence Planning Staff were able to take this relatively relaxed attitude to the negotiations with Hong Kong, because they said that the Treasury had come round to the view that, provided extra costs were met from within the critical level, there was no need to be over-rigid about non-NATO commitments. Commodore Perowne also expressed the view that Ministers' requirement of a 75% Hong Kong contribution was a maximum negotiating position. He believed at the end of the day HMG would be satisfied with anything better than 50%. ile hoped we would be able to persuade the Governor to let the proposal of a £30 m. force ride until the negotiations in May, without worrying too much about whether Hong Kong could pay 75% of even this reduced figure.
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/10.
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