TNAG-2815-FCO40-4061-Future-of-Hong-Kong-International-Rights-and-Obligations-(IR-1993 — Page 25

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4.

The institutions have prepared drafts of the various

B. documents which, unfortunately, now include an MOU to be signed

by the PRC and HMG. Under the MOU the two governments would

assume responsibilities, including, in HMG's case, guaranteeing

any HKG expenditure on the Meetings up to 1 July1997. The institutions maintain that the MOU is necessary as Hong Kong is

not a member of the IMF/IBRD in its own right. Our Legal

Adviser's view is that it should be sufficient for Hong Kong to

give the necessary assurances to the institutions direct given Hong Kong's autonomy and as the institutions are able to sign

contracts with non-members. Indeed, by not doing so Hong Kong

is not protecting fully its current and future autonomy.

5.

UKDEL has tried to persuade the institutions that there is

no need for an MOU to be signed by the PRC and HMG. But the institutions have shown no willingness to dispense with this

requirement and our cause has not been helped by the fact that the Chinese readily agreed to the proposal. However, UKDEL has

managed to secure some amendments to the documents to militate

against any impact on Hong Kong's autonomy. The HKG have confirmed that they are content for HMG to sign the proposed MOU, particularly if the alternative is to give up their bid to host the Meetings..

6.

On the question of contingent liability (estimated to be about £3.5 million), the Treasury accept that to pull out of the bid at this late stage could send damaging signals which could undermine confidence in Hong Kong. They also assess the

prospects of the contingent liability being called as very low

given Hong Kong's financial strength. The Chancellor has

therefore agreed that HMG should accept this contingent

liability, on the understanding that it would be shared jointly between the Treasury (with responsibility for the IMF) and the

imf.ADM.JRB

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