TNAG-1035-FCO40-1285-Visit-by-John-Nott--Secretary-of-State-for-Defence--to-Hong--1981 — Page 22

HONG HUNG DEFERO COSTS AGKLEVENT (DCA) 1981

1.

the this.

A new DCA was signed on 10 October by US of S(Army) (Barney Hayhoe) and the Governor of Hong Kong. Under the new agreement, which came into force on 1 April 1981, the Hong Kong Government will continue to contribute 75% of the cost of the

garrison, but this will be calculated on a new basis to ensure that actual costs are fully reflected. The previously agreed arrangements were not based generally on actual costs; they excluded in practice some costs arising from the stationing of the garrison and did not make provision for certain improvements that have now taken place (eg developments in the equipment field). In the event they also made insufficient allowance for inflation.

2. The new DCA allows for an annual retrospective adjustment

based on the actual size and shape of the garrison. The UK has

agreed to the enlargement of the garrison by one additional

battalion and certain other smaller elements, Recruiting for the

new battalion, which will initially be Gurkha, has been underway and is on target for the planned operational date of early 1982.

3. The new basis of costing and expanded garrison will mean that the Hong Kong Government's contribution will be substantially

larger. Since contributions will in future be based on actual

costs, it is impossible to give an exact estimate for 1981/2, but

a figure of £120M at September 1980 prices is of the right order.

The negotiations were conducted in a friendly spirit. The HKG

naturally wished to minimise the additional costs arising from the

revised basis of costing, whereas MOD wanted to eliminate the

shortfalls of the previous (1976) DCA. However HKG fairly readily

accepted that the HKG contribution could not continue to be with-

drawn from an understated total, although they have been concerned

about the public presentation of the greatly increased costs.

CONFIDENTIAL