SECRET
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7 In the context of the United Kingdom Defence Review a
further agreement was successfully negotiated in December,
1966, (to run from April, 1967) under which the Colony agreed
to pay £5 million a year for the next four years. The formula
reached was that Hong Kong agreed to make an annual contribu-
tion of £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.
political consequences ould arise if this matter were to be
This is raised again during the currency of the present agreement; shie
a factor that has to be taken into account in deading whether or not fighter aircraft will be a complicating factor for Hong Kong in finding the money-
should be repositioned in the Colony before April, 1971 when the present agreement to pay for the Hunter aircraft as from March, 1970 (see para. expires. Bbover
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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.
7
SECRET
Hong Kong Department
May, 1969
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