TNAG-0869-FCO40-1079-Air-services-between-China--Hong-Kong-and-the-UK-1979 — Page 170

CONFIDENTIAL

4. IF WE WERE TO PROCEED ON THE BASIS OF F.C.0. TELNO, 399, IT IS DIFFICULT TO SEE HOW A HONG KONG BASED CARRIER COULD COME OUT SIGNIFICANTLY WORSE OFF IN SUBSEQUENT NEGOTIATIONS UNDER PARA 2(A) AND 2(B) ABOVE, SINCE WHAT THE CHINESE ARE CONCEDING IS ALREADY OF SUCH MINIMAL VALUE,

5. OUR BELIEF IS THAT THE CHINESE ARE VERY WORRIED ABOUT THE IMPLICATIONS FOR THIRD COUNTRIES IN INCLUDING HONG KONG AT ALL IN ANY AGREEMENT DIRECTLY ASSOCIATED WITH AN ASA. IF WE INSIST THAT HONG KONG BE SO ASSOCIATED, IT SEEMS TO US THAT THE CHINESE WOULD FOR PRESENTATIONAL REASONS WANT THE ARRANGEMENT TO APPEAR SO PATENTLY UNBALANCED IN CHINA'S FAVOUR THAT NO THIRD COUNTRY WOULD USE IT TO ARGUE FOR SIMILAR TREATMENT. IN OUR VIEW THE KNOWN CHINESE INTEREST IN IMPROVING COMMUNICATIONS BETWEEN HONG KONG AND CITIES IN CHINA WOULD LEAD THEM TO ADOPT A MORE LIBERAL ATTITUDE, IF THE REGIONAL NEGOTIATIONS WERE CONDUCTED SEPARATELY AND DIVORCED FROM A FORMAL ASA.

6. THERE IS NO GOOD REASON TO BELIEVE THAT THE CHINESE WOULD START REGIONAL NEGOTIATIONS FROM THE POSITION THAT THERE WAS NO REASONABLE ROLE FOR A HONG KONG BASED BRITISH CARRIER. INDEED, ALL LOCAL INDICATIONS ARE TO THE CONTRARY, THE FACT THAT THEY

WERE HAVE NOT HINTED AT IMPROVEMENTS IF THERE TO BE A SEPARATE REGIONAL AGREEMENT IS HARDLY SURPRISING IN THE CONTEXT OF NEGOTIATIONS IN WHICH THE EMPHASIS HAS BEEN ON LINKING INTERNATIONAL AND REGIONAL

SERVICES.

7. WE ACCEPT THAT THE CHINESE WOULD PRESS FOR GREATER CAPACITY AND/

OR FREQUENCY FOR CAAC THAN FOR A HONG KONG BASED CARRIER ON REGIONAL SERVICES. BUT CAAC WOULD HAVE MUCH OF THEIR CAPACITY PRE-EMPTED FOR TRAVEL BY CHINESE NATIONALS. IN ADDITION, CAAC WOULD BE UNLIKELY TO BE IN A POSITION TO SERVE ON-DEMAND TRAFFIC, IF THEIR HIGH LOAD FACTORS AND RESTRICTIVE BOOKING PRACTICES WERE TO CONTINUE. THE CHINESE WOULD ALSO, WE BELIEVE, TAKE INTO ACCOUNT THE NEED FOR A REGIONAL AGREEMENT TO BE ACCEPTABLE TO INFLUENTIAL LOCAL PUBLIC OPINION. EVEN IF THE REGIONAL DEAL WERE NO BETTER THAN THAT AVAILABLE NOW, IT WOULD NOT BE SEEN TO HAVE RESULTED FROM THE U.K. SACRIFICING HONG KONG INTERESTS TO BA'S DESIRE TO INCLUDE HONG KONG IN THEIR INTERNATIONAL ROUTE

TO PEKING.

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