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The Governor has since reported, in his telegram no 304, on his first soundings with UMELCO about the next Agreement. UMELCO continue to regard the garrison as an essential symbol of Britain's commitment but the Governor thinks they will accept official advice on the necessary force level. On the question of cost-sharing, however, the positions of the two sides remain far apart. The Governor estimates that £17 million and a 50/50 split remain an optimistic forecast of what can be got from Hong Kong in the present financial difficulties facing the colony.
5. It seems from his telegram no 304 that the Governor is hoping for rather more substantive discussions of the issue this week than is in fact possible, given the present status of the Working Party's Report and the absence of any final Ministerial views on the position we should adopt in the negotiations. Formally, the position is that we shall not be able to discuss the variants on the £35 million theme until the whole question has been considered by the Chiefs of Staff, which may not be until the end of April; and cannot discuss cost-sharing until OPD has agreed the brief for the negotiations thereafter.
6. The Governor is aware that the possibility of graduation has been discussed, at least at official level, and he may wish to enquire whether the gap can be narrowed between the two sides by this device. It would on the whole seem wisest to ask the Governor whether he has any views on the subject which might go some way to closing the gap, bearing in mind the stringent criteria applied to our own defence requirements worldwide and the present economic situation facing Britain. It might be possible to add that obviously a decision by the Chiefs of Staff to accept any of the cheaper options presented in the Working Party's Report would considerably ease the problem; and the Governor's endorsement of any of these options would obviously influence the Chiefs of Staff in their consideration of the case. Nevertheless the question of relative contributions throughout the period of the next Defence Agreement would remain outstanding.
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