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29
10.
kli
Sir D, Watson
Ps. Mr Royle
26/10
CONFIDENTIAL
Minister.
han
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well.
A.R.
Jdes 29/10
HONG KONG MASS TRANSIT SYSTEM
1.
I attended a meeting at the Treasury on 23 October together with Mr Rushford. Other Departments represented were the DTI, ECGD and the Bank of England.
2. The meeting agreed that Hong Kong could legally give a guarantee to the Japanese consortium without the UK being involved as a guarantor of last resort. It depended on the form of the guarantee. We would be wise to make a private disclaimer to the Japanese, and would also probably have to do so in public in response to questions.
3. Such a disclaimer would be embarrassing in the context of our relations with Hong Kong. The Chinese Government might also have something to say as a potential successor government to Hong Kong. But the underlying point was that the guarantee could in law be given without involving us.
4. We could of course veto the guarantee or the whole contract under our general constitutional power. But it was agreed that there was no question of this.
5. We then moved to the tactics of our response to Hong Kong's validation of the Japanese bid. It was eventually agreed that the right policy was to tell the Anglo/Italian consortium to put the best possible bid in now. Thereafter, but not before, we could point out to the Hong Kong Govern- ment that, having already breached the terms of their competition, they should now look at our bid on its merits. At that stage also we could make use of political arguments against the Japanese bid, but to do so before our own bid was in would be self defeating.
6. The meeting thus accepted our view that we should use the latest developments to promote our own bid, rather than to cry foul. If we did the latter and Hong Kong returned to the full rigour its original conditions, the Japanese might accept, but we almost certainly could not. We would thus defeat ourselves. The only doubtful voice at the meeting was the DTI, whose ministers have hitherto taken a more belligerent view. Their
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