SECRET DREVES A
8.
s reproduced at Appendix A.
Subsequently one of the provisions in this MOU for a review of
the contribution had to be called into force. This was because
building costs in Hong Kong had increased by over 50% compared
with the price level in the Agreement. As a result the Hong
Kong Government agreed in June 1974 that an additional £2.85M
should be made available for capital works services. But it
is likely that about half of this will be unspent by 31.3.76
because uncertainty about the size and composition of the Garrison
due to the Defence Review has prevented a works programme being drawn
up which could absorb it all. There is no entitlement for the
balance of this money to be carried over into the next Agreement
but it could become a useful point for negotiationif we find
ourselves looking for a quid pro quo for some concession on some
other aspcct.
9. So far as the Defence contribution after 1.4.76 is concerncă,
we have already made some progress with a Memorandum of Understanding
(MOU). While nothing could be included about what was to be paid,
both parties produced drafts of what they thought the MOU should
look like. These were considered at a meeting held in London in
July and at Appendix B is the joint version which has been agreed
by UK and Hong Kong officials subject ot a satisfactory overall
settlement being reached.
10. One of the key points in the new draft MOU is that full
allowance is made for the effect of inflation on what Hong Kong is
called upon to pay. There is provision for the amount of the
contribution to be reassessed at quarterly intervals to account for
movements in both pay and prices as well as exchange rate fluctuations,
3
SE SECRET F
A
UK EYES A
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