reasons.
SECRET UK EYES A LOCSEN
Government, reflecting the fact that the craft would be retained primarily for political rather than military He added that some informal negotiations had already taken place with the HKG. The MOD had thought that the basis of a satisfactory deal with the HKG paying 100% of running costs from 1992 in exchange for increasing their share of the disposal value of stores bought under the previous Defence Costs Agreement (DCA) from 65% to 75%. This would have been easier politically for HKG than the MOD's proposal which was to split running costs 65%/35% in accordance with the current DCA with the HKG waiving their right to 75% of the disposal value of the patrol craft when they were finally withdrawn and financially likely to be more favourable to the defence budget.
13. Unfortunately there was evidence that the HKG were drawing back from this. It was not entirely clear what they were seeking but it was possible that
that they were endeavouring to ensure that they would be no worse off financially under the proposed deal than if the current arrangements including those for sharing the disposal value of the patrol craft were to continue.
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14. This was
was unacceptable to the MOD, given Ministerial endorsement of the need for some financial compensation for taking on an additional commitment which would attract a low military priority, particularly given the current and growing pressures on the defence budget and the expectations of a peace dividend. PUS had advised COS of this development and said that if the HKG prosecute this line the MOD may have to reconsider the decision in principle to retain the patrol craft after 1992.
15. However, it was much more likely that this was a negotiating ploy on the part of the HKG, and the MOD believed that there was room for a compromise which would preserve the essential elements of the deal but which would be slightly less favourable financially for the MOD. This was being examined in the MOD at the moment and, if agreement could be reached, the aim would be to put it to the HKG next week. In sum, this was probably a hiccup | Sec(0) (C) rather than a fundamental problem.
16. The Chairman expressed his irritation that the HKG had gone back on the arrangements agreed informally but he agreed that it would be better not to 'rock the boat' at this juncture. CBF was pleased to note that Sec (0) (C) was still optimistic that the matter would be concluded satisfactorily. He added that he could not agree
agree that
little military justification for the retention of the patrol craft which he saw
craft which he saw as filling an important role in maintaining the territorial integrity of Hong Kong water.
4
UK EYES A
SECRET