TNAG-0544-FCO40-639-Strength-of-garrison-in-Hong-Kong-1975 — Page 123

SEOPET

the UK request that Hong Kong should meet 75% of costs and the Hong Kong offer of meeting 50%. The Governor was not authorised to go beyond 50% but he suggested that it would be helpful if both sides now examined the possibilities for closing the gap.

2.

The Minister of State commented that he would have welcomed the opportunity to reply to some of the points made by Unofficials at the morning meeting. He had in mind parti- cularly the suggestion that revenue would not increase if Hong Kong raised its taxes, that much of the money spent on the garrison ended up outside Hong Kong and that, if Hong Kong was called upon to pay the full costs of the garrison, this would undermine the UK commitment to Hong Kong to the extent that Hong Kong would be better off without a garrison at all. The Governor said that some of their propositions had been misunderstood and others very badly expressed and suggested they should not be taken literally.

3. The Governor said that, at an appropriate stage, discussions should take place on:

(a) the period to be covered by the agreement which

(b)

Hong Kong would like to be as long as possible; and

the possibility of a graduated contribution by Hong Kong.

But whatever agreement might be reached on these aspects, a number of questions would have to be critically examined:

4. Basic costing: The Governor said that the Minister had referred to £44m as being the basic cost from which it appeared that the cost of a 4 1/3 garrison had increased by 33% in 12 months. As the sterling content was only about 48% and UK inflation was of the order of 26% while Hong Kong inflation was under 5%, this was difficult to understand. It would help if a working party would examine various aspects of costing including the exchange rates used.

SEGRET

/5.