TNAG-0480-FCO40-545-Strength-of-garrison-in-Hong-Kong-1974 — Page 35

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TO PRIORITY HONG KONG TELNO 1117 OF 20 DECEMBER 1974

FOLLOWING PERSONAL FOR ACTING GOVERNOR FROM SIR M MACLEHOSE.

DEFENCE REVIEW,

1. IN MY TALKS AT THE MINISTRY OF DEFENCE I EXPLAINED OUR INTRAC- TABLE BUDGETARY PROBLEM. I MADE THE POINT THAT, IF HMG FOUND ITSELF UNABLE TO PAY MORE THAN ABOUT £10M (25 PERCENT OF A £40 MILLION FORCE AT 1974 PRICES), THERE MIGHT IN THE END BE NO ALTERNATIVE BUT TO CUT THE FORCE ACCORDING TO OUR CLOTH (1.E. TO ABOUT £27 MILLION). 2. OFFICIALS TOOK THE POINT BUT SAID THEY THOUGHT FURTHER INVEST IGATION WOULD SHOW THAT THE PRESENT PROPOSED FORCES WERE ABOUT THE SAFE MINIMUM AND THAT THE COSTS WERE RIGHT. NEVERTHELESS THEY WOULD BE WILLING TO RE-EXAMINE POSSIBLE ALTERNATIVES.

3. OFFICIALS ALSO AGREED THAT, SUBJECT TO THE VIEWS OF UK MINISTERS, THE RIGHT COURSE WOULD BE TO NEGOTIATE A FLAT RATE CONTRIBUTION BU HONG KONG WITH AN ESCALATION CLAUSE TO TAKE CARE OF INFLATION. THE ALTERNATIVE OF AN AGREED PERCENTAGE OF ACTUAL COSTS WOULD BE VERY UNDESIRABLE. I HANDED OVER OUR SUGGESTIONS ON AN ESCALATION CLAUSE

WHICH UK OFFICIALS ARE STUDYING.

4. ON THE DECISION BY UK MINISTERS THAT HONG KONG SHOULD BE ASKED TO PAY 75 PERCENT OF THE CUST OF THE GARRISON, THE TREASURY OFFICIAL PRESENT AT THE MOD MEETING SUGGESTED THAT THEY COULD EXAMINE THE IDEA OF A GRADUATED CONTRIBUTION WHICH MIGHT START AT LESS THAN 75 PER- CENT IN 1976, RISING TO THE TARGET FIGURE AFTER, SAY, FIVE YEARS. THIS WOULD MEAN, HOWEVER, THAT IN ORDER TO ACHIEVE AN AVERAGE 75 PERCENT OVER, SAY 10 YEARS, THE CONTRIBUTION WOULD NEED TO RISE CLOSER TO 100 PERCENT BY THE END OF THE PERIOD. I AGREED THAT THE

IDEA COULD BE EXAMINED BUT MADE NO COMMITMENT.

5. OFFICIALS ALSO SAID THAT THEY WOULD LIKE TO BE ABLE TO EXAMINE

OUR BUDGETARY POSITION IN DETAIL IN ORDER TO BE ABLE TO EXPLAIN OUR

CONSTRAINTS TO UK MINISTERS.

6. WE AGREED THAT MINISTRY OF DEFENCE WOULD CONSIDER AND PROPOSE

TO YOU THAT THEY SHOULD SEND A TEAM FOR FURTHER DETAILED DISCUSSIONS

ON ABOUT 9 JANUARY. THIS WOULD BE MOSTLY OF MOD OFFICIALS WITH

PROBABLY TREASURY AND POSSIBLY FCO SUPPORT. PURPOSE OF THE VISIT

WOULD BE TO EXAMINE:

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((A) THE DETAILS OF