TNAG-0781-FCO40-985-Involvement-of-Hong-Kong-in-air-services-agreements-1978 — Page 157

Telephone: 5-768111

Telegrams: CIVATT, HONG KONG

Reference: CA/6/2

TH Stables Esq.,

CAIR 1A

DOT

1 Victoria St.

London SW1H OET

CONFIDENTIAL

BRITISH CIVIL AVIATION REPRESENTATIVE (FAR (AST)

First Floor Caroline Court

14 Yun Ping Road

Hong Kong

26 October 1978

TTACHES

539

Dear Tom,

I have only just received (from the Hong Kong Political Adviser's Office) a copy of the FCO Research Department's minute of 28 September on the Sino/Japanese ASA of 1974; of which a summary was made in FCO Telno 600 of 7 October to Peking and Hong Kong.

2. I see no point in offering any comment on the historical aspects of that minute, but it may be perhaps worth making one or two observations on its paragraph 22 (ii), which deals with possible Taiwan reaction to British comment on the status of CAL.

3. The minute of 28 September understandably seems not to have taken account of the analysis in Hong Kong's Telno 1131 to the FCO of 25 September; but I assume that Hong Kong comment was borne in mind by the parties concerned in their subsequen exchange of telegrams dealing with the line which we might adopt in any resumed talks with the Red Chinese. However, it seems to me that the Hong Kong analysis of 25 September (which can be broken down into an assessment of CPA/CAL financial interest, an analysis of CPA's overflight interests and a commentary on the value of Red Chinese non-scheduled services to Hong Kong) omits one point which bears on paragraph 22 (ii) of the Research Department's minute of 28 September.

Lo

The point that seems worth making is that, in purely civil aviation terms, the Taiwanese could positively benefit from a cancellation of the current CPA/CAL deal which (discreetly endorsed by governments) currently governs the operations of both airlines. I do not want to recapitulate all the earnings points already made in existing documents, but none of those documents seems to focus on the fact that CPA's loss of earnings from 5th freedom rights beyond Taiwan would not simply be greater than CAL's loss of earnings from 5th freedom rights beyond Hong Kong; but t CAL would be able to reimburse itself by exploitation of CPA's loss on the Taiwan/J and Taiwan/Korea sectors; whereas CPA would have very little scope indeed to reimburse itself for its lost earnings by exploiting CAL's lost 5th freedom rights beyond Hong Kong.

5.

I recognise that much of the significance of this point is subsumed in the point already made by Hong Kong that CAL is anyway increasingly likely to overfly Hong Kong on its western services; but it nevertheless just seemed worthwhile carrying the analysis of our interests just one stage further. The essence of the point remains that paragraph 22 (ii) of the Research Department's minute is pretty shaky. I have not attempted to work out the likely final result of CAL's shifts i earnings that would arise from a cancellation of the current CPA/CAL deal, but I a pretty sure that the consequent increase in CAL earnings on the Taiwan/Japan and Taiwan/Korea sectors would outweigh the loss of their earnings at and beyond Hong

Yours as ever,

Graume.

G MCD Wilson

CONFIDENTIAL