111 Mr Longfield Lloyd, Trade Commissioner in Japan, to Mr J. F. Murphy, Secretary of Department of Commerce

Memorandum [1] TOKYO, 6 October 1937

HIGHLY CONFIDENTIAL

Referring to various notes upon the above subject, I now set out hereunder two brief outlines indicative of the penetrative system of Japan:

(1) The use of Japanese capital for economic development is a feature of Japanese penetration and 'special interests'. It has been utilised in Japanese efforts in China. The system has been proved to operate against the country accepting it.

(2) Japan is always prepared to invest even in unpromising ventures to secure a foothold.

The tendencies indicated have been generally noted by observers in the Orient and have been emphasized in much that has been written from time to time.

It is to be noted also that Japanese efforts in the Philippines, Portuguese Timor, Siam, Malaya, Dutch New Guinea and Netherlands India have in recent years been supplemented by an investigating activity in the Mandated Territory of New Guinea and Yampi, in the two last mentioned places particularly by the Japan Mining Company. The Chinese Island of Hainan is further a feature of Japan's present conflict with China and there is no shadow of doubt that all this is in deliberate pursuance of the southward expansion policy regarding which details have already been furnished. Please also see the map, with relative captions, contained in the Japanese book 'Construction of New Japan' sent to the Department last year.

The Yampi endeavour, as shown in the Brassert-Japan Mining Agreement, is unquestionably part of the whole scheme and the operation of the terms of that Agreement can only result in the occupancy and exclusive right over a portion of Australian territory by Japanese interests and personnel, upon the face of it for half a century; a hold from which these people will not be either then or in the interim readily loosened once the Agreement is allowed to become operative.

Of the three methods of prevention which might be applied to this question:-

(a) Immigration Act;

(b) Preclusion of export by declaration of insufficiency of iron for Australian or Empire needs;

(c) Defence Act;

method (b) is diplomatically unobjectionable and should provide the readiest solution. Method (c) could also be unobjectionable for reasons obvious to anyone, but (b) is probably better. Method (a) may be diplomatically objectionable and in any case could not be a complete remedy in that at best it would exclude Japanese personnel only and not remove the exclusive lien over the ore under the Agreement, and even then the Japanese may seek exemptions for brief periods and try to overcome the personnel factor by sending fresh employees of the Japan Mining Company every six months or so. Expense is no object to the Japanese penetrative effort and the men would travel upon the ore-carrying ships in which the Company will directly or indirectly have an investment interest since their connections in Japan will ensure this.

It is a considered opinion that the fulfilment of the Brassert- Japan Mining Agreement could have the practical effect of affording a foothold to Japan upon Australian territory for a very long time and the position is so exceedingly serious as to justify the compulsory cancellation of the Brassert scheme by any means whatsoever.

1 This memorandum was sent to W. R. Hodgson (Secretary, Department of External Affairs) by J. F. Murphy (Secretary, Department of Commerce) on 23 November 1937, together with a memorandum prepared in the Department of Commerce on the subject of Yampi Sound iron ore deposits (not printed; see AA : A981, Australia qua, i).

Murphy asked Hodgson to consider the matter in so far as its external political implications were concerned, and suggested he might also wish to consult with the Intelligence Section of the Defence Department. Hodgson then forwarded the Commerce memorandum to F. G. Shedden (Secretary, Department of Defence) for consideration by the Defence Committee. See also Document 114.

[AA : A981, AUSTRALIA 90B, i] LONGFIELD LLOYD