TNAG-2879-FCO40-4151-Agreements-between-the-Hong-Kong-Special-Administrative-Regi-1993 — Page 104

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OD, W.CONFIDENTIAL

370/9

27 SEP 1993

© R+L

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M625/C

From: Mr A Grainger Assistant Legal Adviser K157A

270 3066

Date: 27 September 1993

Taken

CC: Ms Brooks

Mr Bunten, HKD

Mr Cumming

Joint Directorate

PROPOSED UK/HONG KONG IPPA

The

You minuted to me on this proposal on 4 August. subject is now not particularly urgent as negotiations have been postponed until December.

1.

2. You ask whether the existence of the UK/China IPPA would preclude a separate UK/Hong Kong agreement after 30 June 1997. In fact, the UK/China IPPA is not explicit as regards its scope, and whether it would apply to Hong Kong as part of China after that date, but I understand that it was clearly understood during the IPPA negotiations that it would not so apply. Apparently this is reflected in the negotiating documents. In these circumstances, a separate UK/Hong Kong IPPA will be needed if British investments in Hong Kong are to be protected. The UK/China IPPA is, in any case, rather weak both as regards treatment of investments (Article 3) and repatriation (Article 6), whereas the Hong Kong draft has the added benefit of protection on these points along the lines of the UK model draft.

3.

I agree that the Hong Kong draft offers few obvious difficulties. I see no problem with the omission of the words "prompt, adequate and effective compensation" in Article 5, as the substance of the Hong Kong model Article does in fact confer this level of protection. The only real difference is the obligation to compensate "without undue delay" (cf the UK model text "without delay"), but as the UK text in any case assumes that delay is possible by providing for interest until the date of payment the Hong Kong text is in my view acceptable. Equally, I see no problem with Article 8

(arbitration), as a suitable arbitration provision is made, albeit without reference to ICSID. I understand that, in fact, the Chinese (who would need to approve the IPPA) cannot accept reference either to prompt, adequate and effective compensation, or to ICSID, so I see no prospect of going beyond the Hong Kong draft on these points.

4.

As regards duration (Article 11), I do not understand why the Hong Kong draft makes no mention of continued protection after the termination of the agreement. As you know, such protection is included in the UK model text, and it rarely proves difficult to negotiate (see the UK/China IPPA, Article 12).

We should press Hong Kong to accept our text on this

CONFIDENTIAL