SECRET
GRS 400
PRIORITY
CYPHER CAT/A
FM HONG KONG 1803117
RECEIVED IN
REGISTRY No. 50
18 AUG1975
LAKKION
244
SECRET
TO PRIORITY F C O TELEGRAM NO 797 OF 18 AUGUST.
LAST
M.I.P.T.
NEXT
REF.
(243) 261)
DEFENCE COSTS.
BEFORE THIS NEGOTIATION STARTS WE MUST KNOW WHAT ''£33.5M AT 1975/76 ESTIMATES PRICES'' IS LIKELY TO MEAN IN TERMS OF THE
AMOUNT THE HONG KONG GOVERNMENT WOULD BE REQUIRED TO PAY IN
1976/77, FOR WHICH PROVISION MUST BE MADE IN THE FORTHCOMING
ESTIMATES. OBVIOUSLY THE AMOUNT ACTUALLY PAYABLE WILL NOT BE KNOWN UNTIL THE END OF THE NEXT FINANCIAL YEAR, BUT WE MUST AT LEAST KNOW WHAT THIS FORMULA MEANS AT CURRENT PRICES OTHER-
WISE WE WILL NOT KNOW WHAT WE ARE TALKING ABOUT. IT IS NECESSARY TO APPRECIATE THAT WHEREAS THE PRINCIPLE OF COST-SHARING
PERCENTAGE LOOMS LARGE WITH H.M.G. HONG KONG IS PRINCIPALLY
CONCERNED WITH BUDGETARY CONSIDERATIONS AND CONSEQUENTLY WITH
ACTUALS.
2. WE ALSO NEED TO BE ASSURED THAT THE INFLATOR DEVISED AT ANNEX
B WORKS PROPERLY.
3. PLEASE THEREFORE SEND US AS SOON AS POSSIBLE THE COST OF THE 4 1/3 GARRISON (AT 1975/76 PRICES) EXPRESSED UNDER THE HEADINGS
REQUIRED FOR THE INFLATOR. THIS WOULD ALLOW US TO MAKE A ROUGH
CALCULATION. I SUGGEST WE ALSO MOUNT A TRIAL EXERCISE TO APPLY
THE INFLATOR TO SEPTEMBER 1975 INDICES. DO YOU AGREE? WHEN MAY
WE EXPECT THE BREAKDOWN?
4. NAVAL ELEMENT. THE ''PREFERRED'' ELEMENT WAS A FRIGATE PLUS 3
PATROL CRAFT. WE HAVE NEVER BEEN FORMALLY ASKED WHAT OUR PREFERENCE WOULD BE IF THIS HAD TO BE REDUCED, BUT OUR MARGINAL PREFERENCE HAS IN FACT BEEN FOR A FRIGATE ONLY. BUT IT HAS ALWAYS
| BEEN.
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