Canada should have just let them - the benefit of further air service to the local economy is far greater than any possible negative effect on AC service. Also, I don't think Japan necessarily is more restrictive than Canada - they have a huge amount of fifth freedom rights. NW had a major hub, and at one point almost every South East Asian airline had a fifth freedom flight out of Japan, including SQ's NRT-LAX.
Yes, that would be the "Canadian" thing to do ... let them have it, just because they asked. IMO, the main reason Singapore's requests were turned down, likely was because it was so soon after they had denied Canada's requests. Singapore was certainly in no hurry to let Canada "just have it".
For some insight about Japan and restrictions, look closely at the AC/CP merger and how very close the Japanese were watching the transaction and how very quick they would have pulled the NRT slots AC gained with the purchase of CP. The main reason NW (and PA) has such liberal rights into Japan was the same reason BE, PA and AF had rights into Berlin .... it was political as a result of WW2.
In regards to the LHR-BOM-SIN, I thought it was India who denied AC further rights and not SIN? From what I understand, Singapore is very liberal with their air rights, it would surprise me that they would block it.
No, India was doing very well with the bilateral, as witnessed by Air India's success on the YYZ-LHR route. In fact, when Singapore finally "won" and AC pulled off the route, it continued as LHR-BOM. Who had a beef with the route was the UK, as AC was
carrying a lot of fifth freedom passengers out of LHR. I had always found that very ironic, as for the previous two decades (yes decades) BA was carrying fifth freedom passengers between Canada and the US, enjoying the bilateral.
And you are right, Singapore is very liberal with air rights ... when it is in their favour. It would appear not so much when the reverse is true.
Just because I stopped arguing, doesn't mean I think you are right. It just means I gave up!