TNAG-1102-FCO40-1352-Smuggling-between-Hong-Kong-and-China-or-Taiwan-1981 — Page 26

-2- CONFIDENTIAL

CONFI

However, they still want two privileges which we cannot agree:

exemption from tax on property owned by Visa Office;

(iii)

and

(iv) exemption from duty on goods for official purposes.

Also, Chinese have so far side-stepped caveats on (d) to (f) mentioned above. Essential that they be included in any agreement or in separate exchange of notes.

4. Absence of (iii) and (iv) above would not affect the efficiency of Visa Office; New China News Agency in Hong Kong has managed well without them. Former would not be a problem in practice as tax is levied only on owned property and we understand that Visa Office would share NCNA's rented premises. Any further concessions would require special legislation in Hong Kong and give Office a greater status than that originally agreed with Peking. This would be seen in Hong Kong as giving Visa Office special status there.

Exchanges with the Chinese

5.

Discussion of modalities of setting up Office started in 1979 in Hong Kong, initially between Political Adviser's Office and NCNA and subsequently with Director-designate of Visa Office. When difficulties arose over privileges, 'negotiations' shifted to London where Chinese Ambassador raised the matter with Sir M Maclehose (then visiting London) and Sir E Youde. British position subsequently set out in draft memorandum (Annex A) latest version of which was handed to Chinese in December 1980. Chinese MFA gave Embassy a counter memorandum in February (Annex B). Some of their earlier demands modified, but not sufficiently to remove legal difficulties which Chinese demands pose for Hong Kong Government. Embassy were instructed on 23 March to tell Chinese in advance of Secretary of State's visit that UK position could not be modified in essentials. (FCO Telegram No 149

甲

Chinese Consulate-General'

6.

Annex C).

The problem could be resolved if Chinese were to agree to Visa Office being designated as Chinese Consulate-General or Consulate in Hong Kong. However, this would amount to

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