TNAG-0543-FCO40-638-Strength-of-garrison-in-Hong-Kong-1975 — Page 72

SECRET

UK EYES 'A'

The Shillon

(316)

Treasury Chambers

Parliament Street London SW1P 3AG

Telex 262405

Telephone:

01 - 233 ...8119..

A JH WARD ESQ

DS 6

MINISTRY OF DEFENCE

MAIN BUILDING

WHITEHALL

LONDON SW 1

(Direct Dialling)

01 - 233 3000 (Switchboard)

Your reference

Our reference

Date

20 October 1975

HONG KONG DEFENCE COSTS NEGOTIATIONS:

BRIEFING

Thank you for sending us copies of the briefing which has been submitted to the Minister of State. As I mentioned to you on the phone on Friday afternoon, we have a number of drafting amendments to the Steering Brief and these are set out in the Annex attached.

Apart from these detailed points, we are inclined to wonder whether the Steering Brief or at any rate an Annex to it should not provide a more detailed statement of the economic arguments which Hong Kong are likely to use in the negotiations and, more important, the sort of answer which the Minister of State might give them. We are giving some further thought to this aspect and will try to produce a more detailed question and answer brief on the economic points which we would have available for Tuesday's briefing meeting. We will also hope to bring across a suggested revision of the summary note on the Hong Kong economy contained in Brief F.

You will see that in the amendments suggested to paragraph 9 in the Annex we have put forward some qualifications to the view that the Hong Kong sticking point may be as low as £17m. Apart from the arguments set out in the amendment, you may like to refer to Hong Kong Telegram No 1037 of 18 October last year, paragraph 3 in which the Governor implied that if the cost-sharing formula was 75: 25, then Hong Kong "would not be able to pay for the garrison it needs and would probably stick at a ceiling of something like £27m". This would imply that he envisaged a payment of the order of £20m even at Survey 1974 prices. Obviously, this is not a conclusive piece of evidence, but I think it is fair to say that nearly all his references to £17m have been linked with a 50: 50 sharing formula and have generally been in the context of the £34m garrison costing. It is also clear that all the Hong Kong officials concerned know very well that we shall be negotiating on a garrison costed at September 1975 prices and indeed it is they who have insisted on this point. They will therefore be anticipating that our opening position of 75% is related to £40m costing; Governor has consistently referred to £17m plus the inflator, and he must surely recognise that we would at least expect the £17m to be moved up in line with inflation since the four and one-third unit garrison was costed. However, as you rightly said, we will not know which interpretation is correct until the negotiations start!

the

SECRET UK EVES 700