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CONFIDENTIAL
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although it was
live with the present situation
unless it could be acknowledged to be unsatisfactory shown that to take a firm stand would bring considerable advantages to Hong Kong. At present, they did not judge that giving notice of termination would yield such advantages.
In reply, Mr Sproat said the Department of Trade believed the present situation whereby CPA operated 3 services each. week to Shanghai, and BA operated its trunk route service once a week through Hong Kong to Peking without traffic rights - was inequitable. Not only did CAAC have a substantially greater share of services to both Peking and Shanghai, but they were also now adding to this dominance by routeing passengers to these two cities through Tianjin and Nanjing respectively (services to which CAAC had exclusive rights under the CMU). While the Department understood Hong Kong's anxiety to avoid unnecessary differences with Peking, CAAC's action was contrary to the spirit of the agreement; it had serious wider implications for other air services agreements (ASAs) in the region; and by flying in the face of international practice on bilateral ASAS, undermined the very sovereignty that it was crucial for Hong Kong to assert. If CAAC stepped up its abuses of the spirit of the agreement, the commercial consequences for CPA could be severe. The Department therefore believed that the UK should pre-empt further deterioration in our position vis-a-vis China by serving notice of our intention to terminate the CMU; but that this step should not be taken before the Prime Minister's visit to Peking. Mr Stevens said this action would give notice of our dissatisfaction with the present arrangements and future trends; it need not provoke the immediate political furore that Hong Kong feared. He was not convinced that CAAC would not back down if the UK took a firm stand; in the past they had done so (e.g. when CPA was allowed to retain its Shanghai service even after it gained rights to operate to London). There would be pressures to reach agreement from China, as well as from Hong Kong; the Ministry of Foreign Affairs would be anxious not to disturb continued co-operation for wider political reasons, while CAAC itself would wish to retain its access to one of its very few profitable centres.
Mr Sproat asked whether, if BA's review of present services led to its withdrawal from the London-Peking route,
this would (i) allow CPA access to Peking or (ii) necessitate a renegotiation of the CMU. It was agreed that such a step would not of itself improve the position, first because the Hong Kong-Peking route was not available under the CMU if CPA was serving London as well, and secondly because the CMU did not automatically grant to a Hong Kong based
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