222 Sir Robert Craigie, U.K. Ambassador to Japan, to U.K. Foreign Office

Repeated to U.K. High Commissioner, Canberra, and to Prime Minister, Canberra

Cablegram 771 TOKYO, 24 June 1938, 8.00 p.m.

Received (Canberra) 25 June 1938

Vice Minister for Foreign Affairs [1] spoke to me today about Australian iron ore exports. He said he desired to impress on me what a very unfavourable impression decision of Commonwealth Government had made on Japanese Government and people. Japanese authorities had been inclined to take seriously protestations of Powers that raw materials were to remain accessible to 'have not' Powers and this general impression had been confirmed by proceedings of relevant League of Nations Commission. [2] Japan's difficulty in satisfying her needs for iron ore were well-known and now this special effort which the Japanese industrialists were making to secure regular supply was to be brought to an end without even so much as a period of grace. Consequences of such an action must necessarily extend beyond the immediate monetary loss to Japanese interests concerned and the Japanese Government could not therefore regard the matter as being susceptible to settlement by mere offer of compensation. The point was that Japan was being suddenly-and Japanese Government believed unreasonably-deprived of source of supply for raw materials which she would have difficulty in securing from elsewhere. It was very difficult for Japanese Government to believe that shortage thus suddenly discovered could be so acute as to justify so drastic a measure. Japanese Government therefore earnestly hoped that Commonwealth Government would reconsider their decision. Vice Minister for Foreign Affairs made a reference to relations between Japan and British Empire in general and the impending negotiation of a Japanese-Australian Commercial Agreement [3] in particular.

I informed His Excellency that instructions which I had received held out no hope at all of such reconsideration. It was true that His Majesty's Government in the United Kingdom and His Majesty's Government in the Commonwealth of Australia were sincere supporters of the policy of the maintenance of free and impartial access to raw material throughout the world. But this principle could obviously be made applicable to raw materials of which there was surplus for export in producing countries and I understood that League Commission had expressed recognition of the limitation on application of general principle. There was no question of possible shortage being used as pretext for embargo by Commonwealth Government; the latter were genuinely concerned at wholly unexpected result disclosed by interim report on survey now being undertaken and had considered that immediate action was necessary for the protection of their vital interests. Even at the present moment available resources of iron ore would only just be sufficient to meet needs and it was estimated that after a relatively short period Australia must become importer of iron ore. To have given the Japanese company a period of grace therefore would not in any way have eased the situation-in fact it might only have resulted in further unnecessary expenditure by Japanese promoter. After stressing the Australian Government's readiness to give reasonable compensation for actual monetary loss entailed by Japanese interests concerned, I reminded His Excellency that prohibition of export applied equally to United States which had been importing certain amount of iron ore from Australia.

Vice Minister for Foreign Affairs remained unconvinced by my arguments observing that they did not touch the central point, namely, bad impression which was being created throughout Japan at what seemed deplorable departure from generally accepted principle of free access to raw materials.

He begged to put this view very strongly before the Commonwealth Government and to urge even if Japanese group could not be given facilities for prolonged exploitation of Yampi Sound deposits they should at least be allowed partially to recoup themselves for their loss over a certain period and thereby help to relieve Japan's needs in the immediate future. I replied that I feared that decision of Commonwealth Government was irrevocable but that I would certainly place before them the general considerations which His Excellency had advanced.

1 Kensuke Horinouchi.

2 See Document 190, note 2.

3 Negotiations between Japan and Australia in 1937 and 1938 did not result in a formal commercial agreement, but a temporary arrangement was reached by an informal exchange of letters dated 1 July 1938 and effective for one year from that date (see AA :

A981, Trade 68, iii).

[FA : A2937, YAMPI SOUND]