1 Senator A. J. McLachlan.

2 Enclosure to this Document. The new Minister was R. G. Casey.

3 Already printed as Document 114.

Enclosure

Memorandum by Lt Col W. R. Hodgson, Secretary of Department of
External Affairs, for Mr R. G. Casey, Minister in Charge of
Development

13 December 1937

YAMPI SOUND-DEVELOPMENT OF IRON ORE DEPOSITS

The arrangement for the working of these deposits is a mining
lease granted by the Government of Western Australia which is held
by an English company (Brasserts) which assigned rights to develop
the lease to an Australian company (Yampi Sound Mining Company)
which is bound to sell the whole output to an Anglo-Japanese
company, with head offices in Tokyo, controlled by a purely
Japanese company, the Nippon Mining Company which supplies the
capital.

Brasserts are to be paid annual sums for the lease and for its
activities in inaugurating the local company to mine the ore in
Japanese interests.

2. Public attention has been focused on the exploitation of this
Australian resource for three main reasons:-

(a) There is a belief in many quarters that existing known bodies
of iron ore are insufficient for future Australian requirements,
and that exclusive rights should not be granted to any foreign
company over a commodity which is so vital to national interests,
especially those of defence.

(b) That this exploitation is a part of the 'Southward advance'
policy of Japan, which manifests itself at the moment in economic
penetration, by the acquisition of leases and holdings in iron,
tin, cotton, rubber and copra products in the Philippines,
Netherlands East Indies, Malaya and Dutch New Guinea.

Any foothold, therefore, in Australia by Japanese interests will
give rise to future political difficulties with Japan, and
possible interference by that country on the grounds of
'protection of national interests', which has been the basis and
justification for her action in Korea, Manchuria, Jehol and China
in recent years.

(c) There is also the more or less temporary view, illustrated by
innumerable resolutions and letters of protest to the Government,
that the Commonwealth Government should not allow the export to an
aggressive nation of a commodity which is used for war purposes.

3. As to (a), there would be justification for the prohibition of
the
export of iron ore from Australia if it were established that
Australian
resources are in danger of depletion. At the present time,
approximately 500,000 tons of iron ore are being exported annually
from Australia. These particular leases have been 'hawked' for
years throughout Australia, the United Kingdom and in various
foreign countries, including Japan and the United States, without
success, mainly for the reason that the exploitation of the ore
would be an uneconomic proposition.

The Australian Iron and Steel Company has had leases at Cockatoo
Island, Yampi Sound, for many years, but has practically done
nothing with them.

Recent advice from the United Kingdom is to the effect that ore
reserves throughout the Empire are ample and that those of Yampi
Sound do not affect the general position to any extent.

4. As to (b), there is no doubt that the southward advance policy
of Japan is being actively pursued, and is causing serious
misgiving to all countries bordering on the Pacific. Political
difficulties have already arisen in the case of the Philippines
and Netherlands Indies over the commercial exploitation of
plantations and fisheries.

As against this, there are few general restrictions operating
against sales of products by any country. The present difficulty
is rather to find buyers. British Malaya places no difficulties in
the way of Japanese exploitation of iron ore, and a large
proportion of Japan's requirements are obtained from this source.

Japanese interests are also actively acquiring and exploiting iron
ore, copper, and paper pulp interests in Canada, and so far as can
be ascertained Canada is not restricting such activities.

It is felt that the dangers of penetration by Japan into Australia
by the operation of the Yampi leases are somewhat exaggerated. The
Defence authorities, in their latest review of the problem,
December 6th, 1937, feel that there is little danger of Yampi
Sound becoming a potential naval base.

If the Department of the Interior strictly limits the number of
Japanese allowed on the leases for technical purposes and
exercises some supervision over their movements, and if the
Defence Department appoints a Harbour Master to control strictly
the resultant shipping, most dangers of racial penetration could
be avoided.

Moreover, experience in China shows that if Japan desires to
create incidents in order to force a quarrel, mere correctness of
conduct by the other party will not prevent a dispute arising.

5. Generally speaking, the question of 'access to raw materials'
is today assuming great significance, and a special Committee of
the League of Nations is now working on this problem. Australia
would be gravely criticised if she prohibited a nation deficient
in raw materials from acquiring by legitimate means a raw material
which she did not need herself, and which would otherwise never be
exploited.

The Japanese Company has already incurred substantial expenditure,
and a notification of prohibition at this stage would probably be
regarded as a serious affront by the Japanese Government. The
Foreign Office point of view on the question is one of great
significance and should be borne in mind:-

'The Russians are not very happy about supplying the Japanese, and
the Japanese are frankly nervous of being in any way dependent on
the Russians. Accordingly the Japanese are seeking to tap another
source of supply for the raw material for their steel industry,
i.e. Yampi Sound. The comment then concludes that if this
enterprise succeeds it will mean that Japan will be more and more
dependent on British sources for the raw material of one of its
most important basic industries, and it is hard to believe that
Japan would make these plans and be prepared to incur this very
considerable capital expenditure if there were any danger of a
serious quarrel with the United Kingdom which would cut them off
from their source of supply of an essential raw material.' [1]

6. On the whole this Department inclines to the view previously
expressed, that it would be inadvisable and unnecessary to take
steps to prohibit the exploitation of these leases.

Should it be found, however, that there are adequate economic
reasons for imposing a ban on exports of iron ore, then it should
be done as part of a general prohibition and not on lines which
would make it be regarded as discriminatory action against any one
Power.

Should it be decided not to prohibit the export of iron ore from
Yampi Sound at the present time, it might be considered advisable
to include in any public statement upon the matter, a paragraph to
the effect that the sufficiency of iron ore deposits in Australia
to meet Australian needs would receive the close attention of the
Commonwealth Government in the future, and should detailed surveys
of these resources disclose a serious danger that these deposits
might speedily be exhausted, the Commonwealth Government would of
course have to take any necessary action to conserve Australian
interests.

A statement of this kind would assist in meeting any future
objection on the part of Japanese interests that by permitting the
export of ore from Yampi to proceed and thus inviting Japan to
spend additional money upon the development of the Yampi leases an
implied promise was given not to interfere with such development
at any later stage.

[AA : A981, AUSTRALIA 90B, i]

1 The origin of this quotation is not known.