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felt that there was an overriding need to avoid an unbalanced agreement. Subject to Hong Kong's views on the latter point, I do not believe that either argument is true.
4.
British Airways have indicated that the package now on offer in the first option would, in their judgement, be commercially viable (unlike a trunk route only agreement, which would probably not become profitable for some years). Also, despite the gross imbalance in what is being proposed on the regional routes, the Chinese offer does involve two very important concessions by allowing a British airline to operate at all on what they regard as Chinese domestic routes, and by allowing a Hong Kong based airline to be designated as well as British Airways. The package also includes an agreement to review the operation of the services after a year or so, which leaves open the possibility of correcting the imbalance once the Chinese have been reassured that they can live with the commercial competition.
5. Far Eastern Department do not entirely accept the argument that the political climate is now so propitious that we ought to go for an agreement on the best available terms rather than break off the negotiations altogether. But it does remain true that there are strong practical arguments in favour of accepting the best agreement now available, particularly the fact that we are unlikely to be in a better bargaining position in the foreseeable future. All of this therefore points to our accepting HM Ambassador's recommend- ation, and settling for the package outlined above.
13 June 1979
Cc: MAED
FED
W.&. Quanwill
WE Quantrill
Hong Kong and General Department
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I have