TNAG-0098-FCO40-134-Construction-of-a-Cross-Harbour-Tunnel-1968 — Page 43

CONFIDENTIAL

137

23rd

September 1968.

Hong Kong Cress Harbour Tunnel

I could not

Thank you for your letter of 9th September. accept as it stands the statement in the second paragraph of your letter that "E.C.G.D. have a duty to safeguard their funds by every means available to them" if this means according a political priority to E.C.G.D. debts. We accept that you have to maintain minimum underwriting standards and that this can involve the guarantee of the government of a country in which a project is taking place, or if this is not available, rather more extended guarantees than may be usual by the participants in a particular enterprise. These are underwriting problems which the Treasury tend to regard as very much a matter for E.C.G.D., since they alone have full access to information about the viability of individual firms etc. I would not therefore in this case seek to influence your own judgment as to what you think should be the right underwriting standards to adopt.

I do not think however that in an ordinary commercial case we could consider any special form of underwriting by H.M.G.or any department of H.M.G. We might do so if H.M.G. had decided that political reasons should prevail over E.C.G.D.'s normal commercial underwriting standards; it was for this reason that a cross guarantee was considered some six months ago. However that situation no longer obtains, and as I understand it no one is attempting to make a political case for the continuance of the Hong Kong Cross Harbour Tunnel. In these circumstances I do not think there can be a case for any guarantee by the Treasury or by the Commonwealth Office.

You asked what steps E.C.O.D. night take (given that the Hong Kong Government is not at present prepared to be a joint and several guarantor) to establish rights over the external assets of the Colony "if the worst happened". (I take this to mean

a Chinese take-over followed by blocking of the Hong Kong Government's assets by H.M.G.). It seems clear from the legal advice which

Lord Brown, M.B.E., Minister of State, Board of Trade, 1, Victoria Street, LONDON, S.W.1.

OREDENTIAL

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