5. My conclusions are that we must stand on the argument that the OPD decision of May 1968 (to defer consideration as to where the costs of the garrison should be borne pending an assessment of the full cost of the Hong Kong commitment) referred to the whole garrison including the fighter aircraft unit. For Hong Kong to be drawn into separate negotiations on the unit at this stage has the disadvantage that, in an area where it seems inevitable that she will make a major contribution to costs, she may concede points that will prejudice subsequent negotiations on the rest of the garrison (e.g. a capital payment in respect of the aircraft could be used to support a similar demand in respect of guns, tanks, scout cars, etc.). Furthermore it seems highly unlikely that either the MOD or the Treasury would at this stage be ready to make any concessions on costs in advance of a settlement of the MOD thesis in OPD(68)32 about Hong Kong's responsibility for the fully budgetary costs of the garrison.
6. If we do stand out against separate negotiation in respect of costs of the unit, the alternatives are
(a) the unit should be positioned in Hong Kong in 1970,
MOD accepting the cost on Defence Votes for 1970/71;
(b) the positioning of the unit should be deferred until 1971
by which date there will be agreement on a new defence contribution covering the whole garrison.
7. This is the course I recommend and suggest that we write accordingly to the MOD, including as appropriate the arguments advanced by the Governor. A draft letter is attached.
8. It is possible, but in my view unlikely, that the MOD will come back with some strong reasons for not deferring the positioning of the aircraft in Hong Kong. But if they did in fact make a more or less compelling case against deferment, we should have to give serious consideration to the tactics of a separate negotiation on this issue. It is, moreover, likely that even in the context of the over-all
negotiations for a revised defence contribution there would be an
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