TNAG-0863-FCO40-1073-Involvement-of-Hong-Kong-in-air-services-agreements-1979 — Page 144

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GRS 930

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FM WASHINGTON 142345Z FEB 79

TO PRIORITY F C O

TELEGRAM NO 664 OF 14 FEBRUARY

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HELF 184/

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INFO HONG KONG (GOVERNOR AND BCARFE)

Sen 142 185

1. AIR SERVICES DISCUSSIONS WITH A US TEAM LED BY ATWOOD WERE HELD ON 13/14 FEBRUARY AND THE FOLLOWING POINTS WERE COVERED.

2. CARGO LIBERALISATION, THERE ARE NOW THREE KEY POINTS WHICH

NEED TO BE RESOLVED IF AN AGREEMENT IS TO BE ACHIEVED. THE US COULD NOT ACCEPT OUR PROPOSAL THAT THE AGREEMENT SHOULD REQUIRE THEM TO GIVE ALL POSSIBLE IMMUNITIES FROM ANTI-TRUST AND EXERCISE ALL DISCRETIONS OPEN TO THEM IN OUR FAVOUR, POINTING OUT THAT THIS WAS A COMMITMENT TO PERMIT ARRANGEMENTS WHICH MIGHT BE CLEARLY ANTI- COMPETITIVE, THE STATE DEPARTMENT IN CONSULTATION WITH. THE

JUSTICE DEPARTMENT WILL NOW PREPARE THE MOST HELPFUL SIDE LETTER THAT THEY BELIEVE IS POSSIBLE. THE US UNDERSTOOD OUR NEED FOR A WAY OF TAKING ACTION IF IT APPEARED THAT UK CARRIERS WERE BEING EFFECTIVELY FORCED OUT OF THE CARGO MARKET, WHILE THEY COULD NOT ACCEPT A MECHANISM OF RESTRAINT ON MARKET SHARE THEY PROPOSED

A PROVISION FOR TERMINATION OR SUSPENSION OF THE MORE LIBERAL CARGO ARRANGEMENTS WHICH WOULD SIMPLY FOLLOW ON FROM UNSATISFACTORY CONSULTATIONS AND WOULD NOT BE CONSIDERED AS AN UNFRIENDLY ACT

AS WOULD A FORMAL DENUNCIATION, BOTH SIDES ARE STUDY ING WHAT FORM THIS TERMINATION PROVISION MIGHT TAKE. THE US MADE IT

CLEAR THAT THE COMBINATION PASSENGER/CARGO CHARTER COULD BE

A SINE QUA NON IN ANY AGREEMENT. WE EXPRESSED OUR DISLIKE FOR IT AND BOTH SIDES AGREED TO STUDY THIS FURTHER. IF IT

SEEMS LIKELY THAT SOLUTIONS TO THESE THREE ISSUES, AND PARTICULARLY THE LATTER, ARE WITHIN THE LIMITS OF NEGOTIATION WE HAVE AGREED A TENTATIVE DATE FOR A MEETING IN LONDON BEGINNING 26 MARCH 1979.

2. THE ATMOSPHERE OF THESE DISCUSSIONS WAS FRIENDLY AND OPEN BUT

THE US SHOWED NO INCLINATION TO DEPART SIGNIFICANTLY FROM THEIR INITIAL DEMAND FOR TOTAL DEREGULATION (INCLUDING FREEDOM FOR COMBINATION CHARTERS).

3. US DOUBLE DESIGNATION AT BOSTON. THE US REHEARSED THEIR FAMILIER ARGUNENTS OF HIGH LOAD FACTORS, LOWER PERCENTAGE OF DEEP DISCOUNT FARES AND POLITICAL PRESSURE. WE HANDED OVER A SHORT CAA.PAPER SHOWING THAT THERE WOULD BE AN INCREASE OF 40% IN GATEWAY. CAPACITY WHICH, ALLOWING FOR GROWTH, WOULD REDUCE THE PEAK SUMMER FOUR MONTH

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