Completion of a new air-services arrangement between Hong Kong and Taiwan is proving elusive, as negotiators navigate the tangle of cross-strait politics and fierce competition between airlines. However, a flurry of activity from negotiators before Christmas seems to suggest a breakthrough is imminent. According to sources close to the negotiations, representatives from Cathay Pacific, Dragonair, China Airlines and EVA Air met several times last week. The move is significant because it follows months of relative inactivity since the original five-year deal expired on June 12. Unable to strike a new deal, the two sides simply agreed to extend the existing arrangement until December 31. A senior Cathay negotiator said: 'There is no question of the services stopping. None of the airlines involved want to see that happen.' If agreement could not be reached soon, another temporary extension of the deal was likely, he said. Unlike most air-services agreements, air traffic between Hong Kong and Taiwan, known as the Golden Route for its profitability, is governed differently, with the SAR Government not allowed to have direct official contact with Taipei. Instead, the airlines work out a binding confidential arrangement among themselves, under the guidance of the two governments. However, complicating the negotiations is the political intrigue that marks all cross-strait relations. In all likelihood, there will be a resumption of direct air links between Taiwan and the mainland during the life of the new arrangement. A new Hong Kong arrangement is being seen by Beijing as a first step. Controlled by China National Aviation Corp, the Hong Kong-listed branch of the mainland civil aviation authority's commercial arm, Dragonair specialises in services between Hong Kong and mainland destinations. The carrier will almost certainly be allowed to offer competing services between Hong Kong and Taipei under any new deal. This would create a politically important direct service between Taipei and Beijing, albeit with a stopover for passengers and fuel in Hong Kong, where Dragonair is based. It is estimated that as much as 40 per cent of the Taiwanese passengers on the route use Hong Kong to transfer to mainland destinations. There is a pressing need for a new arrangement governing air traffic between Hong Kong and Taiwan as, despite heavy airline coverage, there is a shortage of seats between Hong Kong and Taipei. Not only is Hong Kong-to-Taipei one of the most profitable routes in the world, they are the most-travelled international city pair in Asia. According to industry figures, more than 5.5 million passengers travelled between the two destinations in 1999, an increase of about 20 per cent on the previous year. While Dragonair services Taiwan, it does not fly to Taipei, offering flights instead to Kaohsiung, a secondary city in the south, four times daily. Its Taiwanese counterpart, EVA, flies to Hong Kong three times a day. That compares with Cathay's maximum allowed 14 daily flights to Taipei and China Airlines' 11 daily services.