SECRET
FROM THE GOVERNOR OF HONG KONG
Run-down of the Hong Kong Garrison and Defence Cost Agreement
(DCA)
1. The Treasury proposal does not take into account the reality with which we have to deal. That reality is as follows.
2. There is a defence costs agreement in place, framed in a way which is certainly not disadvantageous to the UK tax payer. The funds for the Hong Kong Government's contributions have to be voted each year by a Legislative Council in which there is no government majority, nor will there be. The Chinese have said they will not expect Hong Kong to pay anything for their garrison after 1997. It will be increasingly difficult to persuade the Legislative Council to vote funds for the garrison. We will need to show a downward trend in expenditure (to match the run-down in the garrison) otherwise the argument will slip away from us. We will then have no funds, and a constitutional crisis on our hands.
3.
I am anxious to avoid this. But it will be touch and go. We will need Treasury (and MOD) understanding. The MOD know our problems. I hope we can avoid being pressed into a position where we become powerless to defend any defence costs agreement.
4.
It is against this background that the Treasury proposal has to be judged. The Commander British Forces in his press conference in July made clear that we would be left between late 1994 and the end of 1996 with a single Gurkha Battalion. This would be replaced for the final six months before the handover by an unaccompanied British Battalion. For both practical and financial reasons this remains the only sensible option. We are also committed to it publicly.
5. The Gurkha Battalion is perfectly adequate to meet Hong Kong's needs. There are no political or security grounds in favour of a British battalion returning in April 1995 instead. Therefore any change would be perceived in Hong Kong purely in terms of financial benefit to HMG. I need hardly dwell on the PR windfall this would provide to the Chinese who lose no opportunity to suggest that HMG is in the business of siphoning of Hong Kong's assets.
6.
The consequences for the defence cost agreement would be grim.
We have already made clear in our continuing talks with MOD that overall costs must be contained within a declining profile until 1997 if LegCo is to be kept on side. It is proving extremely difficult to achieve this. There is simply no room for the additional pounds sterling 30 million which the Treasury proposal would cost us.
garr.JM.JRB