TNAG-1035-FCO40-1285-Visit-by-John-Nott--Secretary-of-State-for-Defence--to-Hong--1981 — Page 10

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We had a useful exchange on the strategic situation in the area, the Malaysians being predictably gloomy about the future cohesion of

Thailand. The Malaysians are embarking on a major expansion of their defence programme, and there should be prospects for us as a result, in aircraft and armoured vehicles as well as in defence infrastructure

projects. We were criticised on the costs of training and Loan Service Personnel we provide; a subject which I am currently examining. But I stressed here, and to others who made the same complaint, that reduced charges had an opportunity cost to us in terms of our own

capability and would be very much easier to contemplate in cases where substantial sales of British defence equipment were involved.

10.

In the context of Five Power Defence Arrangement we also discussed

the prospects of more joint training and exchanges, possibly using

British units in Hong Kong.. The Malaysian Military Staffs welcomed

this, though their Prime Minister's current attitude to FPDA might

require them to stress the bilateral aspects of any such developments.

11. Sales prospects in Thailand seem far less certain. The Americans

have largely dominated the market. We sensed however that for a number of reasons, not least the growing links between the US and China (whom

the Thais regard as the most significant long term threat), Thailand

was anxious to improve their defence relationship with us.

But our

prospects will depend heavily on being able to offer a good credit

package, and an IMS team is today in Bangkok discussing the possibilities

12. On the wider issues I concentrated in my talks with Thai leaders

and in public statements on our support for ASEAN, especially in

regard to attempts to resolve the Cambodian problem. The Thais saw

Sino/Russian rivalry in the area as themain hindrance to a peaceful

solution on Cambodia.

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CONFIDENTIAL