TNAG-0475-FCO40-540-Contributions-of-Hong-Kong-for-costs-on-maintaining-military-1974 — Page 74

SECRET

In view of recent cuts HMG would have extreme difficulty in finding any of this money.

4.

Mr Scholar said that Ministers have committed themselves to cutting defence expenditure and this was likely to be of such an order that there would be considerable reductions which would involve Hong Kong probably to an extensive degree.

There were many likely options. Ministers had asked for the full background by July. The defence members considered that decisions would not be reached until October. This they argued would be too late if the works programme was to be kept going. Work would stop in June unless onward funding was available. However, a decision to continue the programme taken after discussions with Hong Kong would not necessarily mean spending more money until well into 1975. The programme could therefore be halted if the decisions arising out of the Defence Review were such that the works programme was no longer required. It was, however, stressed again that this outcome was considered most unlikely in respect of Hong Kong. Therefore it was important that we should go to Hong Kong to discuss the question of additional funds under provision 3(i) (a) now and not wait until the outcome of the Defence Review, particularly as the practical effect of any cuts would almost certainly be slow to take effect.

5.

In this connection Ministry of Defence representatives reiterated that it was unlikely that condition 3(i)(b) of the Memorandum of Understanding, involving the withdrawal of one or more major units, would be activated, if at all, until after the agreement ended on 31 March 1976. Thus we could safely assume that the Defence Review would not set off a second trigger.

6.

7.

x

The meeting therefore concluded:

(a)

(b)

(c)

It was unlikely that a review under 3(i)(b) would be needed before the end of the agreement.

That the continuing works programme would be needed anyway to bridge the gap until 1976.

That if, unexpectedly, the Defence Review resulted in a very large or more rapid withdrawal starting in the autumn of 1974, it would be possible to halt the works programme before any new money had been spent.

On this basis the Chairman agreed that the FCO would send a personal letter to the Governor informing him of the situation and asking his political assessment of the chances of agreement that Hong Kong should contribute further sums under 3(i)(a) of the Memorandum of Understanding. The Governor should also be asked what extra sums he thought the Hong Kong Government would consider reasonable.

Hong Kong & Indian Ocean Department

4 April 1974

SECRET