My telegram of 19th October, Circular Z.311. [1] Trade with Japan.

Now that the United States Government have imposed an embargo on
exports of scrap iron, the position in regard to exports of scrap
iron to Japan from Empire sources should, we feel, be reviewed.

Such exports are normally insignificant compared with United
States exports, but it may be assumed that the Japanese will seek
to divert orders formerly placed with the United States to other
sources of supply. Lord Lothian [2] accordingly attaches great
importance to our being able to assure the United States
Government that parallel action is being taken by the Empire
Governments concerned.

In general the position is that exports of scrap iron are subject
to licence in any Empire country from which exports are
substantial. No licences are being granted in the United Kingdom
or Canada and we hope that in view of the great importance of
keeping in line as far as possible with United States action, the
Commonwealth, New Zealand and the Union of South Africa
Governments will now have no difficulty in imposing similar
prohibition on exports.

We realize that such a step might at first sight be regarded as
provocative in any Dominion in which scrap is not needed for
domestic consumption and shipping is not available to carry it to
the United Kingdom. On the other hand, scrap is of course an
essential war material and prohibition on export could, we think,
be fully justified on the ground that it is not desired to part
with material which may later be valuable as a supply reserve. We
feel therefore that a general refusal throughout the Empire to
export scrap to other than British Commonwealth or allied
destinations can reasonably be said to fall within the framework
of the general policy of bringing economic pressure to bear on
Japan without giving her undue provocation.

Please explain accordingly to the Commonwealth Government and
express our hope that, following the action which has been taken
by the United States, as well as by Canada and ourselves, future
exports of scrap to other than Empire and allied destinations may
be prohibited. In the meantime it has been arranged that the
Governments of India and the Eastern Colonies should refuse or
suspend the issue of licences for exports to Japan.

In view of the importance of the United States aspect, H.M. Charge
d'Affaires at Washington [3] has been informed by telegraph that
request on the above lines is being made to the Dominion
Governments other than Canada and of the interim arrangements in
regard to India and the Colonies. He has further been asked to
ascertain the intentions of the United States Government in regard
to exports of pig iron. It would seem logical to impose
restrictions on pig iron similar to those imposed on scrap and
justification for restrictions in the latter case would apply with
equal validity in the former.

As regards exports of scrap to the Netherlands East Indies, it is
thought that these should be permitted only if covered by adequate
guarantees against re-export. It is understood that this course
would be in accordance with the wishes of the Netherlands East
Indian authorities themselves, who recently informed H.M.'s Consul
General at Batavia [4] that Japan was seeking to import scrap from
the U.S.A. via the Netherlands East Indies. We hope therefore that
the Commonwealth Government, if they agree to a restriction of
exports on the lines proposed above, will be willing to deal in
this way with any applications for export of scrap to the
Netherlands East Indies.