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7. That other European countries are progressing towards naval

sales does not necessarily mean that we should move as well. We

have more to lose than they through poor relations with China.

However the AWP application is only the first step in what may be a

lengthy process towards an eventual sale. By the time the sale is

made, if it is, other countries may well have moved forward to the

extent that, not only are we covered by their much more forward

positions, but we will have more indication about how China i s

likely to react to the sale. We would still be in a position to refuse an Export Licence should this be necessary.

The potential value of the sale is considerable: Vosper

Thorney croft estimate £100 million.

8.

9.

If there were Chinese protests, and these cannot be ruled out

when the boats are delivered, we would

delivered, we would have a defensible position

that the boats were unarmed and were for a civilian end user.

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H LI Davies

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