SECRET
70752.
MDHIAN 5521
WHEREAS THE LCS PROVIDES FOR AN OFFICER TO BE COMPULSORILY RETIRED WITH SIX MONTHS NOTICE. EVEN SO, THIS LINE OF ARGUMENT WOULD BE STRONGLY RESISTED BY THE HMOCS ASSOCIATION.
5.
STERLING SAFEGUARDS.
A SAFEGUARD RATE OF 16:1 IS THE MINIMUM WHICH WE BELIEVE COULD HONOURABLY BE PUT TO THE HMOCS ASSOCIATION. WE COULD NOT ACCEPT OR ENDORSE ANY COMPROMISE BELOW THIS LEVEL. THE MECHANISM IS SOMETHING FOR DISCUSSION WITH TREASURY AND ULTIMATELY THE HMOCS ASSOCIATION. A RATE OF 16:1 IS THE BOTTOM LINE AND IS A REMOTE CONTINGENT
LIABILITY ONLY.
6.
SPOS.
WE BELIEVE THAT THE SPOS REVISION PROPOSED BY ODA IS ESSENTIAL FOR SUCCESSFUL RESOLUTION OF HMOCS ARRANGEMENTS.
7.
WAY FORWARD.
ON THE BASIS OF THE ADDITIONAL INFORMATION YOU HAVE PROVIDED WE CAN SEE LITTLE ALTERNATIVE TO PRESSING FOR A DECISION AT OPD (K) ON 1 JULY WITHOUT MAKING ANY CONCESSIONS. DECISIONS ON HMOCS ARRANGEMENTS HAVE BEEN OUTSTANDING FOR SO LONG THAT WE SIMPLY CANNOT HOLD THE LINE WITH THE HMOCS ASSOCIATION. IN ADDITION, FOLLOWING RECENT FORMAL AND INFORMAL MEETINGS WITH THE VISITING MINISTER OF STATE, THE ASSOCIATION ARE EXPECTING DECISIONS WITHIN THE NEXT FEW WEEKS. A FURTHER TWO MONTH DELAY IS UNACCEPTABLE.
8.
THE ONLY POSSIBLE SUGGESTION WE COULD OFFER IS THAT, SUBJECT TO ODA CONFIRMATION, AND CONDITIONAL ON TREASURY'S FIRM AGREEMENT TO THE FULL HMOCS PACKAGE BEFORE 1 JULY, FULL TRADITIONAL COMPENSATION FACTORS USED IN THE FIJI AND WESTERN PACIFIC SCHEMES MIGHT BE USED IN THE HONG KONG HMOCS SCHEME. HOWEVER WE MUST AVOID THE PITFALL OF INDICATING TO THE TREASURY THAT WE ARE PREPARED TO SEE A LOWERING OF THE FACTORS BUT GET NOTHING IN RETURN. WE EMPHASISE THAT THE CONCESSION IS ONLY ACCEPTABLE IF ALL ELEMENTS OF THE PACKAGE ARE DEFINITIVELY AGREED BEFORE 1 JULY. OTHERWISE WE FORESEE A SITUATION WHERE TREASURY POCKET THE CONCESSION AND DRAG ON TALKS AT OFFICIAL LEVEL FOR SEVERAL MONTHS. IF NO FIRM AGREEMENT TO THE FULL PACKAGE IS SECURED BEFORE 1 JULY, WE WOULD HAVE NO OPTION BUT TO PRESS FOR A DECISION AT OPD (K) ON 1 JULY
WITHOUT MAKING ANY CONCESSIONS.
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