TNAG-1459-FCO40-1983-Relations-between-Hong-Kong-and-Macau-1986 — Page 80

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12 May 1986

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PRIME MINISTER'S MEETING WITH THE PRIME MINISTER OF PORTUGAL, ON MONDAY 12 MAY 1986 AT 1715 HOURS

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The Prime Minister had a talk this afternoon with the Prime Minister of Portugal. Senhor Cavaco Silva was accompanied by his Diplomatic Adviser.

The Prime Minister commented on the historic importance of the Alliance between Britain and Portugal. We were very pleased that Portugal was now also a partner in the European Community.

European Community

Senhor Cavaco Silva said that Portugal would have to rely heavily on the Structural Funds to avoid being a net contributor to the European Community through the transitional stage of Portuguese membership. There was a huge task of modernisation of Portuguese agriculture and industry to be undertaken. A substantial number of projects had been agreed but it now seemed that commitments given by the Community would not be honoured because of the pressure on budgetary resources. This was a matter of real concern to his Government. There was a risk that opinion in Portugal would turn against the Community. He strongly supported budgetary discipline and restraint on agricultural expenditure. Portugal had honoured its commitments by introducing VAT and by re-directing its imports of agricultural products away from the United States. But only some 20 per cent of the commitments made to Portugal under the Structural Funds had so far been paid over. It was essential that any supplementary Community budget this year should share out resources fairly and not allow agriculture to absorb everything.

The Prime Minister expressed sympathy with Portugal's problem. The United Kingdom would suffer considerable losses of the benefits which it had hitherto gained from the Structural Funds, particularly the Social Fund, as a result of enlargement but it was absolutely essential to keep within the 1.4 per cent VAT ceiling.

CONFIDENTIAL