'With reference to your further letter of June 14th 1938 [2] on
the subject of export of iron ore from Australia, I have the
honour to inform you that the views of your Government in this
regard have received fullest consideration of the Commonwealth
Government, but that it is regretted that decision to prohibit
exportation of iron ore from Australia as from July 1st next
cannot be varied except to extent referred to in paragraph 9 of
this letter.

2. Whilst a detailed survey of Australia's iron ore resources has
not yet been made the Commonwealth Government is nevertheless in
possession of convincing information that accessible deposits of
ore of adequate tonnage capable of economical development are so
limited as to occasion greatest alarm concerning the future of
Australian iron and steel industry.

3. The statement which I made in August 1937 [3] in which Yampi
Sound was referred to was made at a time when information
available was inadequate. Subsequent to that date a general review
of iron ore deposits was made by Commonwealth Geological Adviser,
and it was the serious position revealed in report of this review
which compelled Government to decide upon prohibition of export. I
feel that your Government will recognise the right of any
government to vary its policy from time to time to conform with
changing conditions and in the light of any fresh facts which may
come before it.

4. Your letter under reference contains the observation that
Commonwealth Government has taken into consideration only the
quantity of iron ore which can be economically developed. That is
true. The Government Advisers have stated that there are
quantities of ore in Australia which by reason of their
inaccessibility cannot be economically developed. For the purpose
of placing Australian industry in a position to meet competition
of other countries which have access to cheap raw materials these
deposits are valueless. Moreover, improvements in method of
treatment etc. are not likely to alter this state of affairs
within any foreseeable period.

5. The position in regard to pig iron and steel products differs
from that of ore, for reason that up to the present the quantities
which are exported are comparatively small. The situation is,
however, being watched closely and if there should be any material
change it will be necessary for Government to consider its
attitude in this regard.

6. Your Government's reference to monopolistic profit must be
based on a misapprehension as to position. The proposed
prohibition will be enforced solely to conserve ore for Australian
requirements. Any question of danger of development of a monopoly
within Australia is entirely a matter of domestic concern.

7. According to Dr Woolnough [4] there are only two groups of ore
deposits in Australia which could be economically developed,
namely, Iron Knob Group and Yampi Sound Group. The former is being
actively exploited. It is certainly no reflection on Australian
industry however in its relatively early phase that development
has not yet occurred at Yampi Sound.

8. If, as you suggest, a quota system were applied to Yampi Sound
it would be necessary, both on constitutional grounds and on
grounds of equity to apply it equally to all other localities of
the Commonwealth. The adoption of this course would result in such
a depletion of accessible reserves of iron ore as greatly to
imperil the future of Australian industry and seriously to retard
Australian development.

9. It is realised that shipping arrangements are in existence for
export of substantial quantities of iron ore to Japan and
elsewhere and that if prohibition is rigidly enforced as from July
1st the Shipping Companies and consumers who may not in short time
available be able to make any alternative arrangements may suffer
hardship. In the circumstances and with a genuine desire to
maintain good faith with the peoples of Japan and other countries
interested in these shipments the Commonwealth Government has
decided to permit export under licence of quantities of ore which
were arranged for prior to my announcement on May 19th and which
will not have been shipped before July 1st provided shipments are
made on or before December 31st next. The total quantity involved
in this regard is approximately 150,000 tons 90,000 tons of which
is for Japan.

10. The Commonwealth Government views with concern suggestion that
its decision in respect of exportation of iron ore may have some
effect upon traditional amicable relationships of our respective
peoples. It is convinced, however, that if the whole of the facts
are placed before the people of Japan they will recognise that
Commonwealth has no alternative in the interests of the
preservation of the Australian industry but to adhere to course
upon which it had previously decided. 11. The Commonwealth
Government repeats its previous assurance of goodwill and
sincerely trusts that your Government will appreciate the unusual
circumstances which have arisen and sincerity of purpose with
which these circumstances are being met.' [5] Ends.

LYONS