TNAG-0643-FCO40-791-Involvement-of-Hong-Kong-in-air-services-agreements-1977 — Page 146

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CONFIDENTIAL

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The Governor agreed that this was the main outstanding problem, although he showed himself much more sympathetic towards BA's problems than his officials had been. He referred to recent correspondence between Mr Ross Stainton and himself (of which I had not previously been aware) and said he had great sympathy for what he called the "appalling difficulties" with which Mr Stainton was faced. He said that if there were no improvement there was bound to be pressure from Hong Kong public opinion to bring a second carrier on to the route: but he said this in a way which implied that he, at least, would not encourage such pressure.

5. I said that another current problem related to CPA's services to the Gulf. Some people had spoken as if this were a major issue; but when viewed against the wide sweep of Hong Kong's civil aviation interests it was of very minor importance. It did not, for example, come anywhere near the scale of our recent negotiations with the Thais. I hoped our difference of view about the handling of this question would therefore be kept in perspective.

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6. The Governor said that although the question was not of great importance in itself, it had been linked, in some peoples' minds, with the much wider question of the UK's commercial relations with Hong Kong. Up to the present, the UK had adopted an extremely generous attitude towards Hong Kong and the Common Market also had been liberal in admitting Hong Kong's exports. But in the current negotiations over textiles and in other matters the UK was going out of its way to obstruct Hong Kong's exports. The EEC was clearly determined to cut down imports from Hong Kong and the US, and Scandinavia were likely to follow suit. Hong Kong must therefore look to other markets to sell its products. In order to do this, Hong Kong needed better air transport links with other potential markets, of which the Middle East was one. Since this enforced shift in Hong Kong's trading pattern stemmed originally from the UK's more protectionist attitudes, (the reasons for which he well under- stood although naturally he could not welcome their consequences) there was a feeling that it was up to the UK to do its best to make good the deficiencies in our general trade policy by a more liberal attitude towards air traffic rights between the third countries con- cerned and Hong Kong.

7. The Governor went on to say that he understood our policy of keeping air services matters separate from other trade questions. He felt, however, that there would be considerable resentment in Hong Kong if people felt that we were using Hong Kong as leverage to obtain advantages for British Airways (as to the benefits of which he gathered there were some differences of opinion) rather than in Hong Kong's own trading interests.

8. I said experience had shown that it was disadvantageous to attempt to bargain traffic rights against other economic concessions. Some countries had tried it at times in the past; but virtually all of them had reverted to the normal practice of bargaining traffic rights against traffic rights. This was not to say that we dis- regarded the wider trading - less still political interests involved in air services negotiations. There were, however, times when it was our judgment that an air services objective should be pursued even if this caused temporary damage to other commercial

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