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2.
Mr Davies agreed that the scope of the meeting should be as proposed. It was naturally disappointing that, contrary to the expectations which had been given in Hong Kong, no decision on force levels had yet been reached. However there would be much value in having an agreed MOU which the Governor could put before Unofficials in advance of the precise proposals for the Hong Kong contribution. The less the new agreement departed from the provisions of the existing MOU, the more easily it could be explained to the Unofficials.
3.
Mr Andrew then withdrew and the chair was taken by Mr Thorp.
Item 1
Provision of Adjustment for Inflation
4. The proposals in the UK draft MOU to cover a review for inflation both in the course of a financial year and to make provision for the forthcoming year, were elaborated. After discussion it was agreed that the most suitable arrangement to cover inflation would be for each quarter's contribution by Hong Kong to be adjusted before payment in accordance with the indices set out in the Inflator agreement. A rewording of paragraph 3 of the MOU was agreed to cover this procedure.
Item 2 Currency in which Payments will be made
5.
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Whilst accepting the proposal that their payments should be made in HK dollars, the HK Government wished to ensure that the This fluctuation in exchange rates did not favour either side. was particularly relevant in relation to costs expressed in sterling under the Inflator agreement. It was agreed that in these cases, conversion to HK dollars should be at the average exchange rate for the quarter. There would need to be a breakdown of the Garrison costs under the Inflator categories showing what expenditure was incurred in HK dollars and what in sterling. This would fall to be done in Hong Kong between the Command Secretary and the HK Government. A rewording to form para 4 of the MOU was agreed.
Item 3 Method of dealing with Works and Expenditure
6. It was explained that there was no prospect of producing a capital works programme which had any real meaning until force levels were decided. With all the various uncertainties it was likely to be the end of the year before any figures could be given to show what might be expected to be spent in this way over the next 5 years or so. There was no justification from the UK point of view in having a similar arrangement for capital works as in the present Agreement. After discussion it was agreed that capital works costs should be shared between the two Governments on the same basis as was agreed for the remaining expenditure on the Garrison. Since the HK Government would be carrying out the work (or most of it) and meeting the cost initially, the UK share would have to be set off
The HK against the quarterly payments to be made by Hong Kong. Government wished the MOU to include a reference to the size of the capital works programme over the period of the agreement and it was agreed to insert maximum and minimum figures for this purpose although it was clear such figures would not be available for some time. The HK Government was also desirous of the MOU containing some reference to the provision of an adequate programme and to facilitating the release of land. A revised paragraph 5 of the MOU
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