TNAG-0461-FCO40-526-Exchange-of-newsletters-between-Foreign-and-Commonwealth-Off-1974 — Page 8

CONFIDENTIAL AND IDRJUNALIJ

Hong Kong's interests through the resentment it might cause in Europe. The Hong Kong representatives professed themselves unable to see this and in the end it was decided to refer to UKDEL Brussels for another opinion. The result was conveyed in our telegram no.943 of 31 October (copied to you) which seems to have had the desired effect of getting Hong Kong to drop the idea of linking the pending bilateral MFA negotiations with the GSP. I think they were wise to do so.

EEC/GSP

7. You will have seen from telegrams that the basis for the EEC 1975 GSP was finally settled on 12 November. This was less favourable than we had hoped but probably the best obtainable in a situation of growing concern in Europe over the signs of a deepening economic recession. However, as Mr Shore commented in his personal message to the Governor, the result firmly refutes the contention that Hong Kong's position in relation to the ERC was settled once and for all at the time of Britain's accession and also prepares the way for an advance on the textile front in the GSP for 1976. Judging from the Governor's reply to Mr Shore, the news seems to have been received without surprise in Hong Kong and I think Jordan's statement on his return may well have helped in this context by warning against exaggerated expectations.

Sterling Guarantees

8. The Hong Kong Government was given warning in advance of the British Government's decision, announced by the Chancellor of the Exchequer in his budget statement on 12 November, that the sterling guarantees would not be renewed when the present arrangements expire at the end of the year. So far there has been no official reaction from Hong Kong but I assume we must now expect that they will wish to reduce the proportion of the official reserves held in sterling • But our belief is that they will probably wish to do so gradually and in any case not to any significant extent before the end of the year so as not to forgo the benefit of the guarantee arrangement in force until then, which would result if the qualifying balances were to drop below the minimum provided for in the agreement.

Technical Assistance

9.

You asked about progress over the grants for technical education. It has now been agreed that both grants, £500,000 for the Polytechnic and £400,000 for the Technical Institutes, be met from technical assistance funds, whereas previously the grant for the Polytechnic was to have come from bilateral capital aid. Although both grants were previously approved at ministerial level, it is still necessary to obtain the formal approval of the Minister for Overseas Development through the ODM Projects Committee. We are in the throes of collecting data for the two submissions to the Projects Committee; these we would hope to have completed by the New Year. ODM Finance Department have agreed that £11,000 may be spent on book binding equipment for the Polytechnic in advance of the submission to the

/Projects Committee.

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CONFIDENTIAL AND PERSONAL

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CONFIDENTLAD AND I DIJONAIS

Projects Committee. However, the ordering of this equipment is being held up for some time pending advice from Hong Kong as to whom it should be consigned.

Yours cover,

Andrew

A C Stuart

Hong Kong & Indian Ocean Dept.

CONFIDENTIAL AND PERSONAL

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CODE 18-77

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MONTHLY NEWSLETTER

I attach a draft of the Monthly Newsletter to Mr Kinnear to which Mr Dinwiddy and Mr Wade-Brown have contributed the sections on political and technical aid items, respectively.

18 November 1974

K Hanna

Hong Kong & Indian Ocean Dept.

Letter to jsme

Des

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