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trade has continued to expand, she has found no difficulty over capital investment. In 1967 there was a sugestion, from the Hong Kong side, that HG might consider refunding duty paid on imports into Britain from Hong kong. The British side replied by explaining the difficulties involved but agreeing that, should other precedents emerge in negotiations, Hong Kong's case for duty refunds might be
strengthened.
22. A Hong Kong suggestion that the UK might contribute to its civil airport development, which was never a strong runner, has now collapsed with the contract for the development
buing given to a Japanese firm
Air Communications
23. We are well aware of the importance of civil air communications to Hong Kong and rectly, when it was necessary to cut down on UAR rights under the UAR/UK Air Services Agreement because of a growing imbalance of earnings, took care to retain UAR's two flights a week to Hong Kong. Sterling Balances
24.
(See Annex I
V
paragraph 25-27)
25. Hong Kong officials could conceivably press for a lower minimum sterling proportion in her reserves, in the event of
UK entry into the DC reducing her trade with the UK, on the grounds that in these circumstances she would need larger dollar balances, If they do, the UK should not accept this
argument. The link between reserve distribution and trade
pattern and financing is at most weak. Well over half Hong Kong's exports, and even more of her imports are with non-sterling area countries, but she is able to finance her trade despite holding virtually all her reserves in sterling. There is thus no reason to suppose that an increase in the propoition of her trade with the non-sterling area would require greater 7 holdings. And in any case the increase in this proportion as a result of UK membership of the BLC is not likely to change completely the existing pattern. Declaration of Responsibility
26. (see paragraphs 4-7 above) In 1967 Hong Kong officials wore most eager that HG should make a declaration of
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/responsibility
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