TNAG-0382-FCO40-428-Sterling-assets-and-balance-of-payments-of-Hong-Kong-1974 — Page 169

Сс

Dr. Stuart

Lis

22 Cv w

(214

SECRET

RECE!

REG

HKK 5/1

VA

Mr Cambridge

STERLING GUARANTEES:

HONG KONG TELEGRAM 1317

(1)

Both

نكما

Зен

These must be the final squirmings of a dying issue. the substantive points which are now made seem to derive from the use of the words "statutory basis" in the unilateral declaration. The Hong Kong contention is that their accounting convention does not have statutory backing, since it is based on CR 230 (whatever that may be). Hong Kong now seeks to turn this to their advantage in justifying a lower MSP and breaches of MSP from time to time.

2. It seems a point for the lawyers. Offhand, it would not seem implausible that "statutory backing" may be capable of a different interpretation in colonial circumstances. Could it not be that a CR in such circumstances can be regarded as giving a backing which is equivalent to statutory backing in other circumstances?

3. Failing that, it is quite clear from paragraph 5 of our telegram 1133 that we visualise that valuation shall continue on the book value basis as currently practised in Hong Kong. Maybe we were in error in describing this valuation as "your statutory basis"; but it is surely open to us to say now that the Hong Kong valuation conventions are acceptable to us for the purposes of the unilateral declaration?

4. If we can argue that CRS have some sort of statutory force, or if we can accept Hong Kong's valuation conventions for purposes of the declaration, both of Hong Kong's new points would seem to fall away.

5.

On presentation, Hong Kong's response is much as we had anticipated. They want to make something of the favourable aspects of limited MSPs; and they consider that the last sentence of paragraph 7 is not sufficiently forthcoming. We have made both these points to the Treasury; and Russell Barratt who is in Hong Kong now is we know aware of them. I think that we can safely leave him to play the presentational hand without further guidance from here.

6. It may be, too, that he can be left tohandle the purported points of substance without further guidance. But it might be that he would appreciate some background on the legal position: if so, it would have to be got off quickly.

19 November 1973

Mr Marshall

Mr

Mr Stuart

Mr Aust

D G Holland

SECRET