TNAG-0308-FCO40-344-Contributions-of-Hong-Kong-for-costs-of-maintaining-military-1971 — Page 33

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Treasury Chambers

Great George Street, London S.W.1

Telephone: 01-930 1234, ext.

SECRET

Our reference: 2DM 415/01 Your reference:

A W Gaminara Esq

Hong Kong Department

Foreign and Commonwealth Office

London SW 1

Year Bill,

HONG KONG DEFENCE CONTRIBUTION

26 April 1971

NKK 10/9 акк

(63

You asked us to consider what should be said to the Unofficial members (in an "Annex" to the Secretary of State's message) on Developmental Assistance and on the repercussions of devaluation.

2 On the first of these you asked whether we could agree to a text following the lines of the Governor's suggestions at paragraph 4 of his Tel 250. We are in consultation with the ODA on this but I regret that we are not yet in a position to give a considered view.

3

As regards devaluation we feel that, in the circumstances in which the Unofficials' point will now be answered, there is not as much objection as before to the kind of approach which the Governor recommends. Indeed there is much to be said for now keeping the reference short. We would be prepared to see a reply on the lines of "The views of Unofficial members as expressed in paragraph 10 are noted and it is recognised that there are strongly held opinions on this subject. HMG appreciates also that Hong Kong's situation was such that devaluation resulted in the Colony sustaining losses in 1967". But it could also be useful to give the Governor the points in the text I supplied with my letter of 5 April (ie all but the first sentence there) by way of additional guidance against the Unofficials coming back yet again on this matter.

4

You agreed that in the first instance the FCO would draft such references as may be needed to the question of the future of Hong Kong's economy and trade. We shall be interested to see this in due course.

5 I have also seen Thorp's letter of 23 April. In general we go along with his proposals. However we do not agree that £61m over 7 years would be acceptable. In principle we think that 7 years is too long a period over which to conclude a financial agreement of this type but, nevertheless, if good reasons for doing this emerged, we consider that the annual average represented by a 7-year incremental arrangement, must be significantly higher than that which Ministers are willing to accept for a 5-year period (eg nearer £70m than £65m total contribution). Thus I should like to see the penultimate sentence of paragraph 4 of Thorp's draft read:-

"The only alternative starter as we see it is some escalating programme over say 5 years which would provide say £43m in total during that period (for a term in excess of 5 years the average annual rate would need to be significantly more than £8.5m)."

1