Mr Thompson
HACK 1781 25/1
RECEIVED IN
25 JAN 1978
DESK OFFICER
NO. SI
REGIS MY
INDEX
-4225
PA
Action Taken
20 January 1978
Bir Leo Pliatzky KCB Department of Trade 1 Victoria Street London SW1H QET
C N
HUGD
Copy as earlier of please
Hittunt 2011
Contazzi / Stratton
TRED
No
was thanks / In Bully Chiy ish PSD
PS) PUS
EXPORTS TO HONG KONG MASS TRANSIT RAILWAY
NIR.
X Thank you for your letter of 16 January explaining the importance of the cost escalation scheme to Cammell Laird's decision whether to pursue the contract for a further 150 cars for the mass transit railway.
2. I well understand the urgent need to decide the future of this scheme. It has not been easy for us to strike a balance between the conflicting interests which this issue involves – not least the obvious objections to providing compensation from public funds for wage increases in breach of the Government's guidelines. However, we think that we have now found a modus vivendi and a submission has been put to the Chancellor. We are awaiting his reaction, and I cannot forecast the outcome, but at all events the Chancellor can be expected to write to your Secretary of State in the near future.
3. I do not know whether Mr Gardiner left you with the impression that the availability of cost escalation cover was the only factor which stood in the way of the Laird Group getting this contract. In case he did I ought to alert you to the fact that the passage of events, eg the introduction of the international guidelines for export credit terms and foreign currency financing for major project business, will affect the credit terms which can be offered for the prospective order for 220 further rail cars. The export credit guidelines mean that the UK and its competitors should not offer more than 8 years credit compared with the 12 years provided in 1976 for the first batch of cars. Metro-Cammell need to keep closely in touch with the ECGD on these points.
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