United Kingdom authorities have proposed and the Air Transport Board have agreed that D.I.B. Muir of the Ministry of Civil Aviation will come to Ottawa on February 26 for informal discussions on outstanding civil aviation questions. Baldwin has asked that Irwin31 attend for External Affairs and, if you agree, I will try to arrange this.³²

We rather welcome the United Kingdom proposal because, as you know, we have not been very happy about the way our civil aviation relations with the United Kingdom have developed during the past two or three years. In our view, United Kingdom goodwill must continue to be of considerable value to us in pursuing our international aviation objectives, but this view has not received much recognition in the attitudes taken by TCA and the Air Transport Board on certain questions which have arisen with the United Kingdom. The proposal for informal discussions suggests that the United Kingdom authorities are interested in putting relations on a better footing. On our side, Irwin talked to Baldwin this week and found him in a very reasonable frame of mind. He will probably try to meet the United Kingdom half way if TCA do not put up too much opposition.

I attach a draft memorandum which reviews questions likely to be discussed and suggests what our point of view should be on each of them. If you approve this memorandum, I will send a copy to the Air Transport Board.³³

A.E. RITCHIE

[PIÈCE JOINTE/ENCLOSURE]

Note de la Direction économique

Memorandum by Economic Division

CIVIL AVIATION DISCUSSIONS WITH THE UNITED KINGDOM

At the suggestion of the United Kingdom authorities arrangements have been made for D.I.B. Muir of the Ministry of Civil Aviation to visit Ottawa for informal. discussions with the Air Transport Board on Canada-United Kingdom civil aviation relations, the discussions to begin on February 26.

2. Eamscliffe has said that the principal matters which Muir will wish to discuss are (a) the carriage by TCA of "Cabotage" traffic between the British West Indies and London via Montreal and (b) carriage of immigrants by air from the United Kingdom to Canada. They have also said that he would no doubt like to exchange views on the route schedules of the Canada-United Kingdom Air Services Agreement -- in other words, he will broach the subject of amending and extending the Agreement to provide some further rights for BOAC.

3. The two principal matters mentioned above have been bones of contention between the United Kingdom and ourselves for more than two years and have adversely affected our normally good relations on civil aviation. Detailed accounts of both questions have been given in previous memoranda. External Affairs' views on them can be summarized as follows:

(a) British West Indies Cabotage

Legal Division examined this question in March 1951 and decided that the United Kingdom has solid legal grounds for claiming traffic between the United Kingdom and the British West Indies to be cabotage traffic. Further, it is clear that the Canada-United Kingdom Air Services Agreement of 1949 gives a Canadian carrier no rights to this traffic. On the other hand the Air Transport Board have felt, and we have agreed, that the extension of the principle of cabotage to points so far apart as London and the British West Indies is unfair and that we could make a good claim on grounds of equity for the right to carry this traffic through Montreal.

United Kingdom authorities in the British West Indies have used exchange controls to prevent the British West Indies-United Kingdom traffic from moving to London via Montreal. We have objected to this practice on the grounds that it was an improper use of exchange controls. However, the United Kingdom authorities would no doubt have other means of enforcing their ruling. It is possible that if TCA persisted in carrying this traffic without United Kingdom approval the Company would become liable to prosecution in United Kingdom or British West Indies courts.

In September 1951 and January 1952 there were discussions with the United Kingdom on this subject but on our side these were confined to obtaining removal of the exchange control restrictions. It is hard to see now what the United Kingdom have in mind in proposing to revive this question. It may be that they are hoping to clear the air with a little friendly discussion, while leaving matters as they are. If, on the other band, they come forward with proposals which would give TCA rights to the disputed traffic, these should be given fair consideration, though there is no reason why we should not weigh very carefully the value of this traffic to TCA against the value to BOAC of any concessions demanded in return.

(b) Carriage of immigrants by BOAC

TCA's arrangement with the Immigration Branch -- which ended in April 1952 permitted TCA to offer air passages at very reduced rates to persons immigrating to Canada from the United Kingdom. In each case, the difference between the normal and reduced fare was made up to TCA by the Immigration Branch. A large number of passengers (4,000 or more) was carried under this scheme during a period of less than 18 months. The United Kingdom authorities regarded this arrangement as "fare cutting" and as a means of circumventing IATA³⁴ agreements on fares. They claimed that, even had they wished to, they were prevented from establishing a similar scheme for BOAC by statutory provisions governing the payment of subsidies to BOAC. They also held the TCA arrangement to be contrary to the terms of Article 5 of the Canada-United Kingdom Air Services Agreement which calls for "fair and equal opportunity" for the designated carriers of both parties. UK proposals that BOAC be allowed to establish for immigrants a fare about the same as that which TCA was collecting from its immigrant passengers were repeatedly rejected by us on the grounds that the proposed fares were lower than established IATA fares.

The above brief summary does not mention various legalistic and other aspects of the question which have been fairly fully covered in previous memoranda. The main fact emerging is that for a period of almost eighteen months TCA were able to offer passages to an important segment of United Kingdom-Canada air traffic at a considerably reduced rate and that BOAC were not permitted to compete on equal terms. As with the cabotage question the history of this affair has been unfortunate for our civil aviation relations with the United Kingdom, but in this case the main responsibility is ours. It would have been more in keeping with the spirit of our bilateral agreement and of our previous relations (intergovernmental relations that is, -- not TCA-BOAC relations) if in the first place there had been consultation with the United Kingdom before the Immigration-TCA scheme was implemented and, secondly, if later on we had shown more willingness to find some means by which BOAC could compete on equal terms for the immigrant traffic.

We have said that we could not agree to any proposition involving the carriage of immigrants by BOAC on a fill-up basis at lower than established fares unless IATA's approval is obtained. In the absence of any new arguments on proposals from the UK we could hardly abandon that position. We can only wait to see what Muir has to say, keeping in mind that there is perhaps some onus on us to see the UK satisfied on this subject.

4. It might be premature to develop views concerning modification of the Canada-United Kingdom Air Services Agreement until we know what the United Kingdom authorities will propose. However, the Chairman of the Air Transport Board thinks that they may raise the question of traffic rights for BOAC at Toronto from London, and of Third and Fourth Freedom³⁵ rights at Edmonton and possibly Vancouver on a route from London to the Orient via Canada. On this basis some preliminary observations can be made.

(a) In the present circumstances it can be agreed that as a general rule, and where the economic interests of the country do not otherwise dictate, traffic rights at points in Canada should be used to obtain similar rights required by Canadian carriers in other countries; that is, they should not be granted except in return for concessions of reasonably equivaient value. For instance, as far as transatlantic carriage is concerned, the Toronto area is now reasonably well served through quick connections with Montreal. There would be no very strong reasons why we should grant to BOAC traffic rights between London and Toronto unless we were thereby able to obtain required and equally valuable traffic rights in return.

(b) However, if there is a clear economic advantage to the country or a part of the country in a certain international route being operated and if a Canadian carrier is not prepared to provide services it might become desirable to permit a foreign carrier to operate the route, always provided that protection is assured for the right of a Canadian carrier to enter the route when it is prepared to do so. For instance, it is clear that a service could be flown from Western Canada -- say Edmonton -- over the Arctic to London with fewer stops and a considerable saving of distance compared to present services through Montreal. Based only on Western Canadian-United Kingdom traffic such a service might not be profitable immediately but it would have economic advantages for Western Canada which are likely to be important to the future development of that area. In such circumstances the immediate interest or lack of interest of Canadian carriers in the route need not be a decisive consideration. In the first place, if BOAC were prepared to fly via the Arctic to Edmonton on the basis of Third or Fourth Freedom traffic rights, and particularly if it can be shown that such a service would not draw off significant amounts of traffic from present Canadian services, good reasons would exist for permitting BOAC to develop this route. Secondly, if such services were delayed and Western Canada deprived of the advantage of faster and cheaper connections with the United Kingdom simply to ensure that Western Canadian traffic remains the monopoly of a Canadian carrier and continues to be funnelled through Eastern Canada, strong objections could and probably would be raised in the West.

5. It would appear to us that the United Kingdom must remain one of the most important countries on the map -- second only perhaps to the United States -- as far as our international civil aviation relations are concerned. The United Kingdom not only controls strategically located traffic and transit points in various parts of the world (Hong Kong, Singapore, Fiji, etc.) but her homeland is for Eastern Canada the gateway to Western Europe, the Middle East and points as far away as Bombay. Canadian services to these latter points could be operated most logically as extensions of the Montreal-London service as some services to Western Europe are now. With her position as a trading nation and depending so heavily on the expansion of a diversified export trade into wide-spread markets, Canada cannot delay too long in creating the extensive network of international air services which are becoming an important adjunct to the normal machinery for promotion of international trade. When Canadian international air carriers are ready to take further big steps forward in the international field, we are likely to find ourselves going once more to the United Kingdom for concessions. It is this probability which obliges External Affairs to take a particular interest in the forthcoming discussions. While we see no need whatsoever to give away useful concessions for no return, it will be very much in our long-term interest to restore and maintain with the United Kingdom authorities the best of relations and the rather special sort of amicability which the Commonwealth connection makes possible.