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f £1.5 million plus a special additional contribution of £3.5 million per annum towards the "local costs" of the garrison (which were assessed at £9-10 million in a total cost of about £16 million).
18. The defence contribution has always been a sensitive issue in our relations with Hong Kong since the Colony has been the only one to have made regular and substantial payment. The 1966 negotiations were carried through by Mr. Fred Lee (then Secretary of State) with great difficulty and the agreement, when announced, aroused unanimous public opposition locally. Serious political consequences could arise if this matter were to be raised again during the currency of the present agreement;
this is a factor that has to be taken into account in deciding
whether or not fighter aircraft should be repositioned in the Colony before April, 1971 when the present agreement expires.
19. In May, 1968 Ministers decided (in OFD) to defer considera- tion of where the costs of the post-1971 garrison should be borne pending a full assessment of the cost of the Hong Kong commitment. No information is available as to when the MOD will be ready with their assessment. But some decisions on this matter will have to
be reached in advance of negotiations with Hong Kong on a new defence contribution: these can be expected to start about the
middle of next year.
20. It also proved possible in 1966 to negotiate a settlement of issues connected with the Services' holding of lands and buildings; this was a subject that, since the turn of the century, had engendered much ill-feeling. It is hoped that the settlement now reached strikes a fair balance between the
civil and military interests in Hong Kong.
Hong Kong Department 21 May, 1969
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