TNAG-2238-FCO40-3217-Future-of-Hong-Kong-Royal-Navy-presence-1991 — Page 78

SECRET

HONG KONG : ROYAL NAVAL PRESENCE : FINANCIAL ARRANGEMENTS

Background

The MOD have not included funds for a Royal Naval Presence

Forecast.

in Hong Kong in their Government costs for beyond 1992.

This was on the basis that 1987 Garrison withdrawal plan provided for the vessels to remain until 1991 and for the position to be reviewed in 1990. The assumption in the plan

was that the vessels would be withdrawn in 1991 but this

changed quickly; firstly following strong Chinese pressure

for the vessels to stay, secondly because of concern that

the Marine Police would not be able to handle the Chinese

without the back up of the RN and thirdly, to maintain

confidence in Hong Kong following the events in China in

early June 1989.

Since early 1990 the MOD and HKG have been trying to agree a formula which would satisfy both sides - without success.

The MOD want a greater real contribution from Hong Kong than

the normal 65% provided for under the DCA, to ease the impact on their budget of retaining the vessels. Hong Kong are a adament that they cannot and will not reopen the DCA by agreeing a higher percentage because ExCo and LegCo would not agree it. They have therefore been suggesting

some methods which would give the MOD some cash up-front

and, possibly, more money.

V

Talks are currently stalled, with both sides' positions

hardening.

-

We need to give the negotiators a last chance and to brief

them to enter the discussions in a positive manner. If these fail, we believe full ministerial consideration will be necessary, in view of the important strategic aspects of

a withdrawal.

BATAJX/1