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Sir D Watson
PS/Lord Goronwy-Roberts
PS
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£30m
DEFENCE REVIEW: HONG KONG
1. The Secretary for Defence has written to Mr Callaghan enclosing a DOPC paper on Hong Kong.
2. An early draft of the paper was submitted to Lord Goronwy- Roberts, and he has since commented that he hopes we can work from the basis of minimum need and negotiate for the highest possible Hong Kong contribution linked to a graduated period.
3. The main points of the paper are simple. There is still a gap between the Governor's assessment of the maximum that Hong Kong can pay (17 m. a year) and Ministers' preferred option of a 75% Hong Kong contribution to a £40 m. garrison. Without abandoning HMG's preferred option, the paper seeks authority to explore ways of lessening the gap. The main proposals are to study the possibilities of reducing the cost of the force still further, about £35 m. a year, and to consider ways of bridging the gap by (a) increasing both the UK and Hong Kong offers and/or (b) allowing Hong Kong to graduate their contribution, starting around £17 m. and working up to 75% over a period of years.
to
4. The Defence Secretary accepts that it would not be in our joint interest to seek to reach an agreement before May. He suggests, however, that we should consider the possibility of high level messages to Hong Kong. I think this would be premature at this stage. We have been in regular touch with the Governor about the prospects for the negotiations, and Lord Goronwy-Roberts was able to examine Hong Kong's budgetary situation at first hand during his recent visit. The Governor is already well aware of HMG's position. The moment to exert further Ministerial pressure may well come during the formal negotiations with Executive Council. But that moment is
not yet.
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