TNAG-1176-FCO40-1478-Air-services-between-the-UK--China-and-Hong-Kong-1982 — Page 34

CONFIDENTIAL

From the Secretary of State

into

of

My negotiators believe that the only way to get Cathay Peking is to negotiate а completely new Memorandum Understanding on the regional services, and that this would require the leverage of withdrawing from the old one. This could be achieved on 12 months' notice, and we believe that the Chinese would not let the agreement expire without a replacement since the Hong Kong service is. apart from the Tokyo service, CAAC's only major source of profit.

It is against this background that we have to choose between two possible approaches to the forthcoming negotiations: -

(i)

We could insist that the review of the current arrangements should lead to unqualified Chinese acceptance of our designation of Cathay

for services to Shanghai and to Peking, and a reasonable share of such services; and if the Chinese refuse to grant this, we should threaten, and at a second round early next year be prepared to give notice of, withdrawal from the present Memorandum of Understanding governing regional services; BA might have to cease routeing their Peking service over Hong Kong if we had local rights for Cathay. But in a full review we could try to retain the Hong Kong route for BA, perhaps in exchange for allowing CAAC to operate one or two services a week via Hong Kong to London with rights.

CONFIDENTIAL

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