249 Note verbale by Mr Torao Wakamatsu, Japanese Consul-General in Sydney
SYDNEY, 8 September 1938
RE EMBARGO ON THE EXPORT OF IRON ORE FROM AUSTRALIA
Since the decision by the Commonwealth Government to impose an embargo on the export of iron ore from Australia, the Japanese Government has been studying this question from a practical point of view, with the sincere desire to find some form of reasonable compromise which will be acceptable to the Governments of both Japan and Australia, although it is unable to deviate from its views on the principles involved, which were set out in the successive correspondence on this question from the Japanese Consul-General at Sydney to the Prime Minister of Australia - particularly the letters of May 24th and June 14th -and which were, in part, as follows:-
That the questions of the conservation by a sovereign State of its own natural resources, or of a monopoly within the country, which are generally matters of domestic concern, are not purely domestic matters but should be recognised as international problems when they affect vested interests of foreign nationals:
That it is most disturbing to Japan that she should be deprived of her interests through a measure taken by the Commonwealth Government without full evidence of absolute national necessity, which should first be established, taking into consideration the probable future development of iron ore supplies in Australia as well as the conditions of demand in the future.
2. Thus, the Japanese Government has arrived at the conclusion that, pending the completion of a thorough and critical survey of the iron ore deposits throughout Australia, there can be no reasonable and practicable way of temporarily settling the question other than by the Commonwealth Government granting permission for the export of a certain quantity of iron ore over a certain period of years from Yampi Sound to Japan, while making subsequent decisions dependent upon the result of the survey; for this purpose, a yearly export of one million tons for the period of fifteen years, if possible (or, at the least, ten years) is suggested by the Japanese Government as the quantity which will be the absolute minimum basis from the economical point of view of the enterprises concerned, and which will yet be harmless from the standpoint of the conservation of Australian iron ore. It will be realised that the Japanese Government is not asking too much of the Federal Government in requesting it to adopt this special measure, in view of the assurance of the Commonwealth Government, contained in the letter of March 29th from the Australian Prime Minister to the Japanese Consul-General at Sydney , that, in considering future action, full cognisance would be taken of the situation which already existed and of the special circumstances surrounding the working of the deposits at Yampi Sound. Otherwise, the Japanese Government will be placed in an awkward position with its people, if Japan is forced to abandon her interests relating to investments in connection with the Yampi Sound developmental work and to the export of iron ore therefrom before the establishment of concrete evidence of the absolute national necessity for Australia to enforce the embargo, which evidence should be based on the result of a far-reaching survey such as has now been commenced by the Commonwealth Government.
3. There are also practical reasons which make it imperative for the Japanese interests to obtain from the Commonwealth Government its guarantee, in some form or other, to permit the exportation of the above-mentioned quantity of iron ore from Yampi Sound, viz., (1) Even if the preparatory work for the exploitation of Yampi Sound is suspended pending the above-mentioned survey, the running expenses necessary for the up-keep of the leases, the reservation, and the various equipments at Koolan Island will amount to a large sum, say about A1,000 a month, which must be paid by the Yampi Sound Mining Company after the expiration of the contract recently concluded between the Commonwealth Government and this Company relative to prospecting work that has now been started by the Commonwealth Government. Furthermore, if the preparatory work is thus suspended now, it will be another two years before iron ore can actually be mined, should the embargo be lifted as a result of the thorough survey now being made.
(2) Then, if the preparatory work is to be continued, a monthly expenditure of about A3,000 will be incurred. Under these circumstances, it is not unreasonable that the interests concerned should desire to obtain from the Commonwealth Government a preliminary undertaking, in some form or other, to permit the exportation of such a quantity of iron ore as is deemed to be the absolute minimum in order to cover expenses and yield a reasonable profit. In the absence of this guarantee, all efforts and expenditure relating to the enterprise have to be risked entirely upon the results of the survey by the Commonwealth Government.
4. Even the results of practical studies so far made by a number of experts are sufficiently convincing that in Australia there are enormous known quantities of iron ore economically accessible, and, besides, almost inexhaustible unknown quantities, and that the exportation of such a small quantity as 10,000,000-15,000,000 tons from Western Australia will have only a negligible effect on the conservation of iron ore resources in Australia. Taking into consideration the deposits of the Yampi Sound group alone, the quantity of 10,000,000 tons above-mentioned is less than one-sixth of the total deposits above the sea-level, even according to Dr Woolnough's minimum estimation , and less than one-ninth of the total deposits according to other estimations generally accepted.
Furthermore, apart from the report made by Mr Montgomery (late State Mining Engineer in Western Australia) in 1920, from Dr Woolnough's remarks to members of the staff of the Yampi Sound Mining Company, after his first visit to Koolan Island, viz., 'I discovered some interesting features of the deposits at Koolan:
they are deep-seated, and of a large scale', it can be safely judged that there are almost inexhaustible deposits of iron ore below the sea-level. It is recognised by experts that, with the highly advanced technique of modem times, underground mining below sea-levcl differs very little in method and expenditure from that above sea-level; even above sea-level at Koolan Island about three-quarters of the deposits cannot be exploited by open-cut methods, and underground work has to be carried out as in the case of deposits below sea-level. Admitting that the exploitation work at Koolan is no easy task, Dr Woolnough stated, during his conversation abovementioned, 'I can now fully appreciate the strenuous efforts of those concerned in this difficult work.' Dr Woolnough stated in his report of April 14, 1938, that workable deposits must be so situated as to be within economical transportation radius of adequate supplies of coal of just the right quality, and that, in existing conditions, only deposits favourably situated for water transportation are economically possible of exploitation. But, from the point of view of transportation expenses, the distance by sea-route (about 3,000 miles) from Koolan Island to either Newcastle or Japan can be compared to a distance of 300 miles overland. Nevertheless, the work is looked upon by the Japanese interests as an economical enterprise, and Dr Woolnough's above-mentioned report also admits that the Yampi Sound deposits are economically accessible resources. If so, then it will reasonably be admitted that not a few large deposits in other areas are also capable of being developed economically, and the authoritative view held by most experts that Australian iron ore resources are abundant -or almost inexhaustible-may not be too optimistic.
Under these circumstances, the exportation of 10,000,000- 15,000,000 tons will become an even more negligible matter for Australia.
5. If only this licence for the exportation of the limited quantity of iron ore as mentioned above is pledged, in some form or other, by the Commonwealth Government, the Japanese Government is prepared to consider the matters relating to the disposal, by some means, of the Japanese investments at Yampi Sound after the exportation of that quantity, should the results of the thorough survey be undoubtedly disturbing to the Commonwealth Government from the point of view of meeting the demands of the iron industries.
6. With regard to the view that, should the licence as abovementioned be granted to Western Australia, similar treatment would have to be extended to other States for constitutional reasons and on the principle of equity, and the consequences would be contrary to the policy of the conservation of iron ore resources, the following points should be mentioned:
For the present, only South Australia should be taken into consideration in connection with the question of equitable treatment as regards export licences for iron ore, in view of the fact that it is the only State other than Western Australia likely to export iron ore when the embargo is possibly lifted in the immediate future. Since, however, even under the present embargo, pig iron or steel can be exported freely from that State, the special granting to Yampi Sound of an export licence will have little effect upon the principle of equity, or, the extension to Iron Knob of the export licence system will make little difference from the point of view of the conservation of iron ore resources.
7. The sole interest which the Japanese investors originally intended to have in connection with the development work at Koolan Island was the obtaining of iron ore supplies for Japan, and the acquiring of reasonable profit from its sale in Japan. Except so far as the safeguarding of their investments in the form of loans, and the necessary arrangements as regards quality, size and quantities of iron ore to be exported to Japan, are concerned, they have nothing to do with the actual management of the enterprise, which is entirely in the hands of the Yampi Sound Mining Company, an Australian corporation. Thus, Japan's interest in the development work being purely economic, there need be no fear that political issues will arise in this connection in future between Japan and Australia, and particularly if, in consequence of the result of the survey now being made, Japan has to be satisfied with the exportation of only a limited quantity for a limited period, instead of the almost unlimited exportation in the original plan, which was approved, either tacitly or explicitly, by the Australian Governments concerned.
8. It is the most earnest desire of the Japanese Government that, in the interests of the long-standing friendly relations between Japan and Australia, the Commonwealth Government, appreciating the sincere intention and conciliatory attitude of the Japanese Government, will give full and favourable consideration to the compromising proposal as above set forth, in order that the issue may be amicably settled.