TNAG-0937-FCO40-1156-Visits-of-Sir-Murray-MacLehose--Governor-of-Hong-Kong--to-th-1980 — Page 186

CONFIDENTIAL

·3.

5. The Governor suggested that there could be two ways of approach- ing the financing of an additional battalion. The first would be to make a special arrangement covering the cost of the fifth unit alone, whilst leaving the remainder of the Garrison to be covered by the 75/25 formula. Alternatively the cost of the new Garrison at its five battalion level could be covered by increasing the percentage paid by the Hong Kong Government for the whole Garrison. The Governor said that his preference was for the latter. He made it clear that all this would have to be the subject of discussion within Hong Kong and he could not of course make any guarantee that he would carry his Government with him. Indeed it might be necessary for him to consider a fall back position based on the existing 75/25 split but with some special arrangement for addi- tional costs of the fifth battalion. The Secretary of State made it clear that for his part he would prefer to see the whole Defence Costs Agreement (DCA) reviewed, as indeed was necessary, to take into account the proposals for increases in the Garrison, rather than treating the fifth battalion in a different way from the others. He did not challenge the military case for the fifth battalion but without satisfactory financial arrangements, and arrangements for accommodation of the unit, he would not be able to put proposals before his colleagues.

6. Reviewing their discussion the Governor thanked the Secretary of State for the sympathetic hearing which was being given by MOD to the force level review. He personally accepted the Secretary of State's reservations over finance and accommodation. But he could not speak for his Government - and he would be entirely dependent on his Unofficials for the necessary funds. It they could be brought to agree, he did not foresee any difficulty over the negotiation of mutually acceptable financial terms, but he repeated that he could give no guarantee of this. The Secretary of State expressed his gratitute for the openness which the Governor was expressing his position. He understood that the Governor could not commit the Hong Kong Government now on finance, and he hoped the Governor would understand that he could not commit HMG without it.

7. Finally, it was agreed that officials would need to discuss in due course the financial terms of the DCA in detail, but that in view of the pressure of other work and to give adequate time for preparation it would be best if such talks did not take place for at least six to eight weeks. The exact timing could be discussed later, after the Governor's return to Hong Kong. Meanwhile, arrange- ments for recruitment of the new battalion will go ahead, but on the strict understanding that HMG remained uncommitted until a satisfactory financial agreement was signed.

Ministry of Defence

10th January 1980

CONFIDENTIAL