TNAG-1748-FCO40-2467-Visit-by-Sir-Geoffrey-Howe--Secretary-of-State-for-Foreign-a-1988 — Page 109

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the Department of Transport. British Airways (BA) have tabled

far-reaching demands.

6. An issue of particular contention is the service by BA from

London to Peking over Hong Kong, which BA wish to maintain and

possibly expand. BA had stated their intention of discontinuing the

service after March 1987, then changed their minds. The Hong Kong

Government regard this as a breach of faith. They also contend that

continuation of the service could have an adverse effect on the

development of Hong Kong-based airlines and send the wrong signals

to the Chinese, with BA enjoying a privileged position over other

airlines.

THROUGH RUNNING

7. The BA service has however now been placed in a different perspective since CAAC have expressed their own interest in operating services from the mainland via Hong Kong to points beyond.

In preparation for the next round of UK/PRC talks, HMG have indicated to the Chinese side, with Hong Kong's agreement, willingness to discuss this question.

8.

We believe this could well give rise to pressure from airlines

of other countries to negotiate the opening of services through Hong Kong to points on the Chinese mainland. The Hong Kong Government

are reluctant to begin steps in this direction yet, as they believe

this could provide an unwelcome precedent of which China might take

advantage after 1 July 1997. ASAS including points in China would

fall to the Chinese authorities to negotiate or amend after 1997,

taking account of Hong Kong's interests, rather than being within

Hong Kong's area of autonomy. We see this development as

inevitable, sooner or later: there could be advantages in begining

it before 1997 when we could have a greater influence over the

process.

BA/BCAL MERGER

9.

The merger took effect on 14 April. As far as Hong Kong is concerned, the status quo has been maintained with BA operating the

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