A new agreement covering commercial air services across the Pacific will face significant obstacles at a crucial meeting this week, according to negotiators. Representatives from Hong Kong and the United States and the respective national airlines are expected to meet in the SAR on Wednesday for three days of formal talks. While the last pact expired more than a year ago, differences over Hong Kong's air liberalisation plan have slowed the signing of a new agreement. 'There remains a significant gap and expectations for this set of meetings should be cautious,' a source said. 'While we can't rule out completely that a deal may be struck this week, it would require some drastic movements for the gap to narrow that quickly.' The source said meetings in Washington last month produced a formal proposal from the US to which Hong Kong representatives had responded verbally, but they would present a formal counter-proposal this week. He said the US proposal was very close to their open skies blueprint, which the Hong Kong Government has rejected. This meant it was 'not very palatable' to Hong Kong. The US proposal is understood to have focused on expansion of fifth-freedom rights for US carriers in cargo and passenger services and 'change of gauge' rights associated with fifth-freedom services. Fifth-freedom rights allow airlines to make an intermediate stop to pick up cargo and/or passengers while en route to a final destination. Change of gauge allows those airlines to switch aircraft during an intermediate stop, allowing flight segments to be matched with the size of aircraft. Specifically, besides allowing for change of gauge, the US proposal calls for an expansion of cargo fifth-freedom rights from the present eight to 20 destination points per US cargo carrier in Hong Kong. On passenger services, it calls for rights to be expanded to 10 destination points per carrier. In exchange, the US is prepared to offer Cathay Pacific Airways five additional destinations on the continental US to which they will be allowed to code-share with American Airlines. Cathay will then have access to 13 destinations. Cathay maintains that it needs at least 40 code-share destinations in the continental US to build a viable transpacific product. Hong Kong negotiators, including representatives from the Economic Services Bureau and the three Hong Kong airlines, said the US plan offered little 'in exchange for a lot'. Dragonair, which has a fledgling cargo operation operating between Asia and Europe, would presumably be significantly impacted by such a big ramp-up of US cargo-carrier rights in picking up traffic through Hong Kong. A government source said it was reluctant to give away so many fifth-freedom rights at one time, since most of them would remain unused indefinitely. 'Far from being protectionist, we are continuing a programme of progressive liberalisation. But there is little case for asking for more than you can use right away,' the source said. Of the US carriers, American Airlines and United Parcel Service are understood to be enthusiastic for a deal. Those two enjoy a much smaller transpacific market share than United Airlines (UA) and Federal Express (FedEx), which are understood to be unhappy that a deal short of open skies could potentially be struck. Hong Kong airlines have long charged that the pair have been pushing for open skies or no deal at all while knowing the Government will not accept it, since that would at least preserve the status quo and protect their market share relative to their US rivals. A source at one of the US airlines in favour of an agreement said there was a 50-50 chance that a deal would be struck this week. But if no deal could be agreed on, there would probably not be agreement on an expanded pact 'for a long time', given the intense lobbying of the White House and the US Department of Transport by UA and FedEx.