CONFIDENTIAL
Background.
1. Two White Papers of 1954 and 1960 set out obligations recognised by HMG towards HMOCS officers when they lose HMG's protection, eg because of independence. Subsequent practice in some 42 cases where British rule ended established a clear pattern of arrangements for them, notably payment of compensation and provision of safequards for the sterling value of their pensions; and the right to early retirement with immediate payment of earned pension.
2.
Application of these general principles to Hong Kong has been under discussion since the negotiation of the Joint Declaration in 1984. Unless we can agree and announce a satisfactory package soon, we risk losing many of these officers well before 1997: as they occupy key positions in the police and administration, this could jeopardise our ability to govern Hong Kong effectively up to 1997 and damage the prospects for a smooth transition. We also face a political storm at home if we seem to renege on these long-standing commitments. There is also a risk of judicial review, based on the reasonable expectations of the officers concerned.
The
3. In 1984 Ministers hoped that the Hong Kong Government would itself be able to fund these arrangements for HMOCS officers. It has since become clear that this is not possible: HMOCS officers are fully integrated in the Hong Kong public service, and the Executive Council and Legislative Council would not permit the use of Hong Kong funds for the exclusive benefit of these expatriates. Chinese would also be intensely hostile to such discriminatory treatment or to the transfer of Hong Kong reserves to the UK: they would see this as a major change in the 1984 status quo which they pledged to continue after 1997; in response they might threaten to repudiate their Joint Declaration commitments regarding continued payment of pensions (in Hong Kong dollars) by the Special Administrative Region Government.
4.
Compensation
In 1988 the Chief Secretary agreed to Sir Geoffrey Howe's proposal that HMG should fund a compensation scheme, framed in a way which would provide an incentive to officers to continue to serve after 1997. However this was not taken forward immediately, and after Tiananmen we judged that it would be better not to open consultations until we could offer a package including a sterling safeguard of pensions.
5. In January this year, the Governor strongly recommended that, given the long delay in agreeing the sterling safeguard, we should go ahead first with the
CONFIDENTIAL