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1.

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RICHARD MUIR

You commented recently that it would be highly advantageous to get correspondence on this subject on to an ODA/Treasury basis and for the Diplomatic Wing to stay out, except as copy recipients. You pointed out that the more of a lead we take, the more likely we are to be hit with the bill.

2.

I entirely understand and share your concerns, but I regret that what you propose is not practical politics. HKD have consistently led on the subject since 1984, because a satisfactory outcome is fundamental to the achievement of the Government's objectives in Hong Kong: the good governance of the territory, and the protection of the rule of law, a smooth transition in 1997 and continuing stability and prosperity. ODA's interest is a subordinate one, and they do not have sufficient resources to grasp the policy issue and to carry matters forward to top-level resolution. Frankly if we had left them in the lead, I fear the Treasury would have won the game long ago, with great damage to Hong Kong.

3. I think we shall therefore have to carry on as at present. We shall continue to stress the general nature of HMG's obligations towards HMOCS, but we cannot delude ourselves that, when Ministers come to decide, political considerations will be anything but paramount. However the political case for doing what we can to secure Hong Kong's future success is not just a question of foreign policy: we have for example big commercial and financial interests there and a strong concern to avoid an influx of immigrants here. It is a broad political issue, not one related solely to foreign policy.

SOSABH

Andrew Run

RA Burns

CONFIDENTIAL

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