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 [1]-
particularly the letters of May 24th and June 14th [2]-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 [3], 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 [4], 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.