CONFIDENTIAL

:

under the Joint Declaration with the Peoples Republic of China, the relevant

extract of which reads:-

"The Government of the United Kingdom and the Government of the

Peoples Republic of China declare that, during the transitional

period between the date of the entry into force of this Joint

Declaration and 30 June 1997, the Government of the United Kingdom

will be responsible for the administration of Hong Kong with the

object of maintaining and preserving its economic prosperity and

social stability; and that the Government of the Peoples' Republic

of China will give its co-operation in this connection".

4.

The main points of principle which will be fundamental to negotiating

a new Agreement, or even possibly extending the present one, are:

(i)

Size and shape of the Garrison and the formations to be

included under the DCA.

(ii)

Phase down of the Garrison in step with RHKP expansion

(iii) HKG's overall percentage contribution to Garrison costs.

CONFIDENTIAL

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