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Secretary of State is to be convinced; and behind him of course stands the Cabinet and its domestic preoccupations.
10. In this connection you may now perhaps wish in the light of the Defence Review statement and the repercussions therefrom, to reconsider your advice that formal negotiations should not take place until May. The Treasury have now taken the line at PUS level that they would wish to avoid delaying a decision until after your budget is out of the way, "since this would seem to pre-empt available finance and increased tax revenue for improvements to the social programme, thus making it more difficult to secure an increased defence contribution". We have of course pointed out that this is a tactical judgment which you are in the best position to make. But to maintain our position on the postponement of formal negotiations might cost us some of our scanty negotiating strength within Whitehall; and with so much already said in public, we wonder whether it is still necessary or even desirable in Hong Kong.
11. Some of the newspaper reports are of course erroneous and speculative. We have not been able to find where the reference to a £28 million force came from, though it has been repeated in several quarters. Still less was there any licence for the story that Hong Kong's contribution would be £28 million (your telno 1209). But the Secretary of State for Defence did say in his unattributable press briefing both that Hong Kong would have to pay much more towards the cost of maintaining our forces there, and that the forces were to be reduced by one major unit. Presumably these reports are now public in Hong Kong, and it might now be difficult or even dangerous to let them fester until May. All in all we are, I fear, heading towards some very difficult negotiations, and it may perhaps be wise to face them and get on with it.
12. If you have time to let me have your thoughts before your visit, it would help us in briefing Ministers. I am sorry that we have not been able to do more to smooth your path, but we have
done our best.
Jos
eve
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Duncan Watson
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