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indeed gained much by it in Hong Kong. This evolution in local relations between the Hong Kong Government and Chinese officials has been achieved without the unsettling impact on public confidence that would have attended the dramatic innovation of official recognition of the Chinese mission.
7. The visit of The Queen and Prince Philip was of great significance in this enigmatic relationship. It was the first of a reigning monarch and a great event in itself for Hong Kong. The rapport which the visitors immediately established with the population, and the latter's happy reaction, were a personal triumph and will long be remembered here. But for the population and foreign observers alike the dominant consideration was that the visit took place at all, because it demonstrated, as nothing else could, Chinese acceptance of the status quo.
8. The status quo contains many oddities, but from the mixed experiences of the last four years I conclude it is something in which changes, if introduced at all, should be introduced gradually and as unobtrusively as possible. It is not field for diplomatic pyrotechnics.
9. Though for the last year or two the relationship between Hong Kong and China has caused no difficulties the relationship between Hong Kong and the UK has. Though these may have been small in comparative terms, they have been an irritant and you, Sir, and Lord Goronwy Roberts, have discussed remedial action with me. Hong Kong exposes many different surfaces, which are of interest to many different groups, and the motivation behind criticisms levelled covers a wide spectrum. But the main sources of friction seem to me to have been: (a) defence costs; (b) corruption; (c) industrial competition and (d) lack of information about or comprehension of the Hong Kong scene. On all these some progress was made during the year.
10. On defence costs we have agreed a reduced size for the garrison, and have negotiated a completely new framework for cost-sharing and for land-use by the Ministry of Defence which in all respects brings arrangements for the garrison into line with modern realities. It is certainly much more favourable than the previous defence costs agreement to Her Majesty's Government, it has sufficient flexibility written into it to allow it to last, and I sincerely hope it will end this perennial source of friction. The price in local resentment was significant but was well worth paying.
11. The problem presented by UK resentment of industrial competition by Hong Kong has been tackled within the rules of the GATT and its multi-fibre textile agreement and within the negotiating framework of the EEC. Considerable progress was made this year through the agreement reached with the EEC and in subsequent interpretive negotiations. Approximately 80 per cent of Hong Kong's exports to the UK are now subject to restraint agreements. I have no doubt this will be a continuing problem, with restrictions resented as deeply in Hong Kong as competition in the UK, but it should be manageable provided the rules are followed by both parties, as they were last year.
12. I doubt if, anywhere in the world, corruption is being faced so frankly or attacked so vigorously. There may be grounds for reproach about the past, but there are none for the present so long as the vigour of present action is maintained, and continues to command the confidence of the public. The build-up, training and deployment of a powerful independent organisation to fight corrup- tion in all its aspects, its acceptance by the public and its growing impact on the problem, have been one of the successes of the year.
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