CONFIDENTIAL
7.
e.
f.
adequately takes care of what the Treasury were seeking to achieve in the proposals in our first draft MOU.
as well as breaking down the cost of the recommended Garrison into the various categories under the Inflator agreement (Annex B) (this
is something we have already done but not declared as yet), there is a need to show the extent to which the expenditure is incurred in sterling or HK dollars. This is necessary to meet the point made by Hong Kong at para 4b above and it can only be done from advice in Hong Kong.
We have told the Hong Kong representatives that we will ask our Command Secretary to liaise with them on this aspect and I am notifying COMSEC separately about this. No progress can of course be made on the point until we are in a position to declare the breakdown referred to above.
I have handed over our breakdown of Garrison local expenditure in Hong Kong in 1974/75 totalling £41.9M. I explained that this was on a Sept 1974 price base and related to an overall Garrison cost estimated at £50M. Thus, and this would be confirmed by the breakdown of 1.4.76 Garrison cost into inflator categories, it could be reckoned that 80% of the overall expenditure was local. We hoped this would be helpful to the Hong Kong Government.
Altogether our discussions with Mr Davies and his team were most harmonious and there is no apparent reason why any of the terms of the MOU as now drafted should prove to be a stumbling block in reaching agreement as to precise arrangements for Hong Kong Defence contribution from 1st April 1976.
- 8.
We shall be circulating a brief record of the discussions in due course.
21 July 1975
3
CONFIDENTIAL
Ther
A F THORP
Head of Fl(Air)
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