SECRET AND PERSONALI
Foreign and Commonwealth Office London SW1
Telephone 01-
His Excellency
Sir Murray MacLehose KCMG KCVO MBE
HONG KONG
Your reference
Our reference
Date 1 August 1975
པ་་
Dear Murray,
DEFENCE COSTS AGREEMENT
1. You will have gathered from our telegrams nos 593 and 594 that Ministers took a decidedly less flexible line on the long, Kong contribution to the garrison than we had thought likely.
2. We had hoped they would stick more or less to the line decided in February which envisaged the graduated scale as a fall-back position with discretion for UK officials to negotiate the best possible deal within certain general guidelines. Indeed this was the proposition put up by the Ministry of Defence but very strongly opposed by the Treasury and it would appear that the con- trast between Hong Kong rates of taxation etc and those applicable here had carried the day. "aturally we at official level had recommended support of the MOD line, with reference to the difficult economic situation with which you are faced, but the Secretary of State went along with the general conclusion.
3. We also recommended that negotiations should begin at the official and therefore less conspicuous level, leaving the proposal to send a Minister out to Hong Kong in abeyance until we could assess how the megotiations were proceeding. However, in the light of the decision reached, we would judge that there is much to be said for taking the burden of presenting IMG's views to UMELCO off your shoulders in the manner which has now been proposed.
4. I should add that Mr Rodgers believes he may be able to persuade the Chancellor to give him full powers to negotiate without further reference back to Ministers here, even if this means agreement to some sort of graduated scheme. We and the Ministry of Defence are
SECRET AND PERSONAL
/somewhat
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