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4. I am not of course suggesting that your people's cost estimates for the proposed forces should be revised unrealistically downwards; or that the forces themselves should be reduced in size beyond the minimum safe level agreed between CDS and CBF. But, given the size of the gap that will have somehow to be filled, I think that we must once again examine whether the defence requirement of Hong Kong could not be met by cheaper and perhaps radically different forces. For example, the Hong Kong garrison, including the Gurkhas, are still trained for general soldiering, and include an artillery regiment. These functions are not strictly relevant to the internal security requirement which we agree will from now on be the garrison's purpose.
5. I hope, therefore, that before your meeting with the Governor, the Ministry of Defence might be able to review once again the possibility of savings by changes in commend structure, training, weaponry and personnel. I realise that this is a tall order. But if impasse is to be avoided, I think we must examine all possibilities, even if we have to dismiss them later.
6. The second point on which I think it would be wise to have an understanding between us and the Governor at official level, is the question whether any agreement on percentages should be exact or general. Your officials have hitherto tended to assume that Hong Kong would be called upon to pay the agreed majority percentage of the actual costs, presumably on an annual basis. This will be for Ministers to decide, but I believe that on agreement of this kind would be full of pitfalls and lead to endless wrangles throughout its life. Hong Kong would inevitably and understandably want a running say in the detailed composition of the forces and in each item of expenditure, including its allocation to Hong Kong. I very much doubt whether this would be in the interests of either party.
7. The most practical solution would seem still to be a prior agreement on total costs with an escalation clause. This total could then be divided by the agreed percentages. Merginal costs would under this arrangement continue to fall on the MOD, but I take it that you would prefer this to any form of financial and policy interference by Hong Kong.
8. If you would like a word about all this before the telks next week, please get in touch.
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Women Walia
Duncan Watson
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