1
CONFIDENTIAL 2.
want 4 but would propose restrictions on the 5th freedom rights beyond Hong Kong f removal of the right to pick up passengers in Hong Kong and take them on to Tokyo) and slightly reduced 5th freedom capacity even to Taipei.
Sp
•
5. Mr Steele hopes that the Malaysians will be, prepared to negotiate on the basis of this, to them, disappointing offer. If they do so well and good. The Department of Trade will then be prepared to offer a bit more but not, at present, to allow the Malaysians to keep all their 5th freedom rights beyond Hong Kong. This because CPA are likely to lose a useful route they have from Kuala Lumpur to Perth, as a result of the Australian ICAP scheme. The Hong Kong Government representatives argue that the ASA with Malaysia will be even more unbalanced than at present with the loss of CPA's 5th freedom route beyond Kuala Lumpur to Perth, and that MAS's 5th freedom rights from Hong Kong to Tokyo must be cut to balance the effect of the Australian actions.
6. Mr Steele is also prepared for the Malaysians to refuse to negotiate on the new British draft, and to make a political appeal. Again, the DOT are prepared to improve our offer as in para above, in response to
to a Malaysian démarche.
Ś
7.' The danger in tabling a disappointing British paper is that the rather unstable leader of the MAS delegation will over-react and return home. But in the interests of getting serious negotiations going, Mr Cortazzi has agreed, subject to the Minister of State's views, to allow the DOT to table it.
2s
8. The DOT also ask for FCO Ministers agreement that we do not even later improve our offer to allow the status quo to continue for MAS beyond Hong Kong. This is perhaps more difficult to agree. The Malaysians are likely to make a great fuss about HMG actually cutting back MAS activities. They could very well cancel permission for Concorde to overfly Malaysians waters at supersonic speed, which would threaten the Singapore route. The controversial Australian ICAP scheme, from which BA will benefit, is not yet finally agreed.. Malaysia could give Singapore, who hate ICAP, greater support in attacking ICAP. On the other hand CPA. are doing rather well on other routes, and would not be badly damaged by letting MAS continue
CONFIDENTIAI
/exercising