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the second of 10.5 kilometres was under full construction; and a decision was taken to build the third of 13-2 kilometres along the north shore of Hong Kong Island. The opening of the first section in February by Her Royal Highness Princess Alexandra was a particularly happy event and was attended by a galaxy of international suppliers and bankers.
14. Work is also in full swing on double-tracking and electrifying the Kowloon-Canton Railway as far as the border. When completed in 1982/83, it will have an interchange with the MTR and the two linked systems will provide wider transport coverage.
Hong Kong/United Kingdom relations
15. In the course of the year agreement was reached with the Ministry of Defence on a new Defence Costs Agreement and to increase the Garrison from four to five major units. The costing conventions of the new agreement involved doubling Hong Kong's contribution. It was satisfactory that unofficials, the media, and the public took it in their stride without any of the shrill recriminations that would have been inevitable five or six years ago. Recognition of the fine performance of the Garrison against illegal immigrants certainly helped, as did also the quiet and unpublicised professionalism with which the highly intricate discussions were conducted.
16. Though the relationship is far better than I have ever known it, there was a disturbing outburst of anger against the UK in March over a combination of the White Paper on the New Nationality Bill, the increase in university fees for Hong Kong students (but not for EC or some EC colony students), and the Civil Aviation Authority's (CAA) grant of a licence to British Caledonian to compete with British Airways on the London/Hong Kong cabotage route but not to Cathay Pacific Airways (CPA), the local Hong Kong carrier. The com- bination of what appeared to be indifference to the Hong Kong connection with unfair preference for UK interests caused a temporary storm. This was stilled by Mr. Nott's clever decision to overrule the CAA and license four applicants (including Cathay Pacific) instead of two. But the other two issues remain:
(a) University fees: Retention of this academic link is important. The ideal would be to accept that Dependent Territories students should have home student status for fee purposes. But if this is not possible the Hong Kong Government stands ready to play a full financial part to ensure that the present drift away from UK schools and universities is reversed;
(b) The New Nationality Act: I am grateful for Her Majesty's Government's agreement to create a category of citizenship for Dependent Territories distinct from Overseas citizenship, but the effect of the Bill here will still be bad. It will be interpreted as a slamming of the door to possible asylum, and an evasion of historical responsibility, and will raise in Hong Kong minds many questions about the future to which there is still no satisfactory answer. I am in touch with the department about what might be said to reassure the public and the public service. 17. UK exports to Hong Kong continued to improve and it looks as if they will have topped £550 million in 1980. The efforts of Sir Keith Joseph, Mr. Nott and Mr. Parkinson to bring home to British exporters the potential of the Hong Kong market both in its own right and as a stepping stone to China and the Western Pacific growth area have been extremely useful.
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