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UK EYES
AUS(GS) 457/75°
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HONG KONG DEFENCE COSTS AGREEMENT
We discussed this morning a draft minute for S of S to send to the Prime Minister reporting for tomorrow's OPD meeting on last week's negotiations in Hong Kong and circulating the Heads of Agreement which were initialled on 1st November. The Minister of State, who has been visiting Diego Garcia on his way back from Hong Kong, has not yet returned to the office; but I understand that you are arranging for him to brief s of s orally first thing tomorrow morning. This will avoid the need for elaborate written briefing; but it may be helpful for S of S (and the Minister of State) to have in advance a few notes to supplement the material contained in the reporting telegrams from Hong Kong.
2=
The Minister of State will give S of S his own assessment of the negotiations; but in my own view the agreement which has been reached is as good as could have been expected and considerably better than seemed likely when we were first able to assess the situation at first hand in Hong Kong. It preserves the minimum garrison, which would have been brought into question again if no agreement had been reached; and it secures a very much increased contribution from Hong Kong to the cost of this garrison. We did not succeed in getting 75% from the outset; but no-one expected that we would. We have however got 50% at the start rising to 75% by the third year, with an inflator clause. At current prices this will give us some £143 over a 5-year period, compared with £421M under the present 5-year agreement. This will represent a very considerable relief to the defence budget.
3. In return we had to agree to the release of land at Kai Tak and Victoria Barracks, subject to the reprovision of facilities by Hong Kong. This was a necessary step if we were to achieve a satisfactory financial agreement and I believe it to be both militarily acceptable and politically defensible.
4. The agreement which was reached by the Minister of State was in accordance with the terms of his amended mandate from OPD and I would hope that it will be welcomed by the Committee. If there is any criticism I would expect it to be directed to the following points:-
SECRET
UK EYES A
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