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SECRET
Mr Male
Sir Duncan
in Watson
PS/Lord Geronwy-Roberts
PS
Ясне
HONG KONG DEFENCE COSTS NEGOTIATIONS
Problem
1.
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322
A
3
In his minute to the Prime Minister of 17 October the
Defence Secretary has sought the concurrence of his OPD colleagues
to a proposed fall-back position for use in the defence costs negotiations with Hong Kong. This fall-back position, known as Option A, has already been agreed between Mr Rodgers and the Chancellor of the Exchequer. It provides for a cash contribution of £25 m. in the first year and movement towards a contribution of 75% over three years instead of a contribution of 75% from the first year of the new proposed five year agreement. The Defence Secretary has asked for an answer before Mr Rodgers leaves for Hong Kong on 26 October.
Argument
2.
The OPD decided on 22 July that we should try to secure a Hong Kong contribution of 75% from the beginning of the new agreement. At September 1974 prices this would have meant a contribution of £25 m. However, since that time the estimated
costs of the garrisen have increased and a contribution of 75% would now mean about £30 m.
3.
The Governor of Hong Kong has consistently advised that the maximum which Hong Kong could contribute in the first year of a new agreement would be £17 m. This amount, which is twice what Hong Kong have been paying under the agreement which expires at the end of March 1976, represents about 50% of the costs of the garrison at September 1974 prices. While the Governer has reported that the Unofficial Members of the Executive and Legislative Councils in Hong Kong have accepted that the defence contribution has been
/unrealistically
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