TNAG-0543-FCO40-638-Strength-of-garrison-in-Hong-Kong-1975 — Page 110

1.

SECRETEK EVE

EYES

HONG KONG DEFENCE COSTS NEGOTIATIONS OCTOBER 1975

OPENING STATEMENT BY MINISTER OF STATE

BRIEF B

The purpose of my visit to Hong Kong is, as you know, to put HMG's position on

the terms of a new defence costs agreement to succeed the present arrangements

March 1976. /

which expires at the end of The Government of Hong Kong has made a financial

contribution to the cost of the Hong Kong garrison for many years in a succession

of agreements and you will rightly have concluded that, the practice being so

well established, HMG would not have sent a Minister of State to discuss these

matters with you now were it not necessary to ask the Hong Kong Government to

make a substantially increased contribution; and that HMG viewed this matter so

seriously as to warrant our position being put at the highest political level.

2.

Before explaining in detail our position on the future cost sharing arrangements I

believe I must first make it clear to you why we have decided that we must reduce

the garrison in Hong Kong and must ask you to take on the greater part of its costs,

and why a satisfactory agreement with you on these matters is now of the greatest

importance to us. The simple fact is that the British economy and the British

Government is facing a crisis more serious than at any time since the war. Last

year our balance of payments on current account was showing a deficit at an

annual rate of £3,750m or nearly 5% of GNP, inflation was running at a high level

and unemployment was beginning to rise. We are attacking inflation through a

severe limit on vage increases one which will mean a fall in real living standards

for many workers and families during the next twelve months.

Our balance of payments

has improved, it is true, but our deficit so far this year is running at an annual

rate of £1,500m

(and that is before the most recent increase in oil.

prices). Even though there has been this improvement, the solution to our balance

of payments and resource problems is far from complete. By itself the elimination

of our remaining current account deficit will require a substantial shift of

resources from private and public consumption and will be made more difficult

while the world economy remains in recession. Moreover, in order to allow time

for our economy and particularly the balance of payments to adjust to the new

SEORET.UK EYES A