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change would be perceived in Hong Kong purely in terms of financial benefit to HMG. I need hardly dwell on the PR windfall this would provide to the Chinese who lose no opportunity to suggest that HMG is in the business of siphoning off Hong Kong's assets.
6.
The consequences for the defence cost agreement would be grim. We have already made clear in our continuing talks with MOD that overall costs must be contained within a declining profile until 1997 if LegCo is to be kept on side. It is proving extremely difficult to achieve this. There is simply no room for the additional pounds sterling 30 million which the Treasury proposal would cost us.
7.
The political scene has changed considerably since the defence cost agreement was approved in 1988. My main goal now is to preserve that agreement in the face of an increasingly assertive Legislature. The agreement in its present form could not survive the close public scrutiny it would attract if it became a public issue. My conclusion therefore is that the profile of the subject must be kept as low as possible. The Treasury's latest proposal would achieve the opposite. If this resulted in the Hong Kong Legislature refusing to vote any further funds for the garrison, I have no reserve powers to overrule this. The future of the garrison would be in jeopardy.
PATTEN
YYYY
ADVANCE
3
HKD//HD
FED//HD
NNNN
DISTRIBUTION
3
NPDD//HD
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