114 Mr F. G. Shedden, Secretary of Department of Defence, to Lt Col W. R. Hodgson, Secretary of Department of External Affairs
Memorandum MELBOURNE, 6 December 1937
YAMPI SOUND-DEVELOPMENT OF IRON ORE DEPOSITS BY JAPANESE
With reference to your memorandum of 24th November 1937  on the above subject, I desire to inform you that the matter has been considered by the Defence Committee and the following observations by the Committee are submitted.
'1. The matter was considered by the Defence Committee in 1934 and again in 1935. The proposals then in view were as follows:-
(a) The formation of an Australian Company registered under Western Australian law and financed by Japanese interests to work the iron ore leases at Yampi and to deposit the ore in ships for export to Japan.
(b) The Australian Company to be wholly Australian controlled.
(c) Only Australian labour to be employed in Australia.
2. The Committee decided then that there was no objection to the proposal from the defence point of view, but, on the contrary, it would be advantageous in developing a further source of supply of iron ore in Australia.
3. The memorandum from the Department of Commerce now submitted disclosed the existence of an agreement between Japan Mining Company and the lessees (Brasserts) which involved a radical departure from the conditions for the development of the iron ore deposits at Yampi Sound as originally contemplated. The Defence Committee decided to submit the following observations from the defence and national aspects-
4. The Committee adhered to its previous decision that from a strategic point of view the harbour at Yampi Sound would not be likely to create any danger as a potential Naval base.
5. The Committee, however, was of opinion that the development of this area under the conditions set forth in the agreement between Japan Mining Company and Brasserts quoted in paragraph 6(d) of the memorandum from the Department of Commerce, would be an aid to the influx of Japanese into North Australian waters, thereby increasing the possibility of undesirable incidents and constituting a potential threat to Australia.
6. They observed that the number of Japanese at present engaged in the pearling industry had paved the way for Japanese penetration in North Australian waters. These operations are carried on outside territorial limits and therefore beyond Commonwealth control, whereas the development at Yampi Sound under the conditions of the agreement, if it involved the legal right of entry into Australia and residence therein, would carry this penetration to a further stage. In this connection, the Committee noted that the provision of the agreement quoted in paragraph 6(b) of the memorandum from the Department of Commerce was at variance with the conditions of the lease entered into between Brasserts and the Western Australian Government. The latter provides for cancellation of the lease in the event of the employment of Asiatics, whereas under the agreement, Brasserts are expected to secure the right of domicile for Japanese engineers and assistants.
7. The resources of iron ore in Australia appear at present to be an unknown quantity , but the Committee understands that the supply is by no means inexhaustible, consequently, it is of opinion that the proposal to allow the Japanese to have complete control of the output at Koolan Island for 50 years (paragraph 6(d) of the memorandum) , is a very dangerous one.
8. For the reasons stated above, the Defence Committee considered that there were Strong objections to the development of the iron ore deposits at Yampi Sound under the conditions set forth in the agreement between Brasserts and the Japan Mining Company, but they adhered to the view previously expressed that there is no objection from the defence point of view to its development on the basis of the proposals quoted in paragraph 1 above.'
F. G. SHEDDEN