SECRET
SECRETA
SPORED U VESAVES A UK EYES A
consequently with the actual estimates provision to be made for 1976/77 the first year of the successor agreement. Unfortunately, it is now clear that the cost of the reduced garrison at 1976/77 prices is likely to be some £40M as compared with the £33.5M (at 1975/76 prices) discussed by the DOPC. This is known in Hong Kong and will seriously aggravate the negotiating difficulty, since it will make the increase represented by our demands appear much steeper. It will no longer be possible, as we had hoped, to negotiate in terms of a percentage contribution of £33.5M (with later price movements dealt with under the inflator arrangements). The Hong Kong Government will concentrate on the £40M figure and see our demands as representing an immediate increase from £8.5M under the present agreement to £30M in 1976/77.
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I have given very careful thought to our negotiating position in these circumstances. We must aim for an immediate 75% and I intend to press the Hong Kong Government hard to achieve this. But to do this without a fall-back position could risk a breakdown in the negotiations. This is a risk that we must be ready to take but we must also recognise that once the negotiations were broken off, we could expect a hardening of local attitudes and a deterioration in relations which could jeopardise all hope of a reasonable settlement.
In the light of this I have considered various alternative fall-back positions which I might adopt up to the point at which there is no alternative but to break off negotiations. As I see it, the options are broadly as follows:-
Option A.
A cash contribution of £25M in the first year, moving to a full 75% contribution, at the relevant price levels, in the second and subsequent years. £25M is 75% of the cost of the garrison at 1975/76 prices and represents what we originally hoped to achieve.
SECRET UK EYES A
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I-
A
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/Option B