225 Mr S. M. Bruce, High Commissioner in London, to Mr J. A. Lyons, Prime Minister

Letter LONDON, 18 June 1938

I enclose herewith a note of a conversation I had with the Japanese Ambassador [1] on Tuesday last, together with a copy of a Note he handed to me on that occasion. [2] He also gave me for my information, copy of a Note Verbale which had been handed on the 5th May last to Mr Moore [3] for transmission to the Ministers composing the Delegation at present in London. [4] As this latter document has, no doubt, already been forwarded to you, I am not enclosing a copy.

During my interview with the Ambassador I had not an opportunity of reading the Note which he only presented to me when he was leaving. I have accordingly subsequently written to the Ambassador informing him that I was forwarding the Note he had left with me to the Commonwealth Government, together with the representations he had made verbally.

S. M. BRUCE

1 Shigeru Yoshida.

2 Enclosures to this Document.

3 Not found. A. C. Moore was adviser to the Australian ministerial delegation in London to discuss revision of the Ottawa Agreement of 1932.

4 Sir Earle Page (Minister for Commerce), R. G. Menzies (Attorney- General) and T. W. White (Minister for Trade and Customs).

Enclosure I

Note by Mr S. M. Bruce, High Commissioner in London, of Conversation with Mr Shigeru Yoshida, Japanese Ambassador to the United Kingdom

LONDON, 14 June 1938

The Japanese Ambassador came to see me to-day with regard to Yampi. He said that his Government had instructed him some little time ago to make representations on the subject but that he had delayed doing so. The reason why he had chosen the present moment to make the representations was a little difficult to follow but it appeared from what I could understand of his statement that Baron Ito [1], who is a personal friend of his, is in some way financially interested in the position and had apparently been in communication with the Ambassador upon the matter.

In his statement to me he said very little with regard to the facts of the case but talked generally about good relations with the British Empire and pointed out that the present action of the Commonwealth Government was not helping to improve those relations. He expressed his regret that action even if it had to be taken had not been delayed until the relations between Great Britain and Japan had been established on a more satisfactory basis. Beyond this he really said nothing.

In reply I told him that the Australian Government had taken the action it had solely for the purpose of preserving natural resources inside its own country which were vital to it. That I was sure his Government would not for one second challenge our right to do this.

I expressed my regret that the report [2] which we had now received upon the Iron Ore resources of Australia indicated that those resources were far less than we had believed they were. That it was solely because of the position revealed by this report that the Government had taken the action it had and that that action was solely designed to safeguard the vital natural resource of Australia and was in no way directed against any country.

I asked him to assure his Government that in no sense was Australia's action directed against Japan and I pointed out to him that Japan was not the only country affected as we had in the past exported substantial quantities of iron ore to the United States of America.

I further stressed to him that it was not merely the interests of Japanese citizens or of any foreign citizens that were affected but that the interests of Australian citizens were also interfered with.

I then pointed out to him that the question which arose in this matter was in no sense one between Governments save in the sense that the financial interests of commercial concerns might be affected. This being the case the matter would only be one for the consideration of his Government in the event of Australia not according to the commercial concern involved fair and equitable treatment.

I pointed out to him that the Prime Minister [3] in his statement [4] had made it clear that the Australian Government would give careful consideration to any representations by commercial concerns or individuals affected. I added that I was certain he could rest assured that any claim by Japanese citizens in respect of Yampi would receive not only careful but the most sympathetic consideration from the Government.

I asked him to convey to his Government what I had said and in particular to stress to them that the basis of the action taken was entirely to conserve the important natural resources of Australia; that it was in no way directed against the Japanese nor was it discriminatory against Japan. That the matter was really one for consideration of compensation to commercial interests and not a question between Governments at all. That the Commonwealth Government would treat any representations by commercial interests in the most sympathetic manner.

The Ambassador then handed me a Note Verbale [5] together with a previous Note Verbale [6] which, I understand, was handed to Mr Moore [7] on the 5th May. I assured the Ambassador I would give full consideration to the Note Verbale but I had no opportunity of reading it while he was with me.

Note.-Having read the document it is in no way a summary of what the Ambassador said to me personally.

I also assured the Ambassador that I would submit to my Government the representations he had made to me personally as well as the Note Verbale he was leaving with me.

S. M. B[RUCE]

[AA : A1608, C47/1/4, iv]

1 President of the Japanese Mining Company.

2 The Woolnough report. See enclosure to Document 203.

3 J. A. Lyons.

4 See Document 202.

5 Second enclosure to Document 225.

6 Not found.

7 A. C. Moore, adviser to Australian ministerial trade delegation.

Enclosure II

Note verbale handed to Mr S. M. Bruce, High Commissioner in London, by Mr Shigeru Yoshida, Japanese Ambassador to the United Kingdom

n.d. [c. 14 June 1938]

1. JAPANESE INVESTMENTS IN AUSTRALIA FOR SECURING IRON ORE It was about two years ago that the Japan Mining Company concluded a contract with the Yampi Sound Mining Company to obtain iron ore supplies from Australia. (A brief history of this development is given in the attached memorandum prepared by Messrs H. A. Brassert & Co. Ltd, of London [1]).

At the time, the Yampi Sound Mining Company reached an understanding with the Government of Western Australia, who gave their assurance to the Company that the export of iron ore to Japan would not be hampered in any way by Government action.

Besides this assurance, the Prime Minister of the Federal Government of Australia [2] stated on more than one occasion that the Government would not interfere with the enterprise undertaken by the Yampi Sound Company, who-relying on the assurances given by both the State and Federal Governments-have already spent enormous sums of money in the development of this undertaking.

At the same time, the Japanese Government, notwithstanding the strict foreign exchange control in operation in Japan, gave special permission for this particular investment abroad, not only for the purpose of securing iron ore supplies from Australia, but also with a view to the furtherance of the amicable trade relations between Australia and Japan-two great Powers of the Pacific. In this connection, it should be observed that the export of iron ore from Australia to Japan would benefit not only the Australian interests immediately concerned, but a much wider circle of interests in Australia.

As one example of this, the recent development of the iron ore trade has brought about the opening up of favourable freight services between the two countries, and in turn the source of the frozen meat supply to Japan, is being gradually diverted from South America to Australia. It is reasonable therefore to conclude that with the establishment of a regular trade in the supply of iron ore to Japan under the development of the Yampi Sound scheme, the additional benefits, in which Australia as well as Japan would share, are likely to be much greater.

2. THE JAPANESE VIEW OF THE MATTER The happy prospects outlined above gave rise to a unanimous feeling in Japan as to the scope for the satisfactory development of this enterprise and all that it involved. It was therefore with considerable alarm, and even concern, that the news was received of the Federal Government's decision to prohibit the export of iron ore from Australia. [3] This concern was shared not only by those immediately concerned in Japan, but by the Japanese people as a whole, who had looked for a strengthening of the commercial ties existing between the two countries.

Prior to and also following the announcement of this decision of the Federal Government, the Japanese Consul-General at Sydney [4] had been, under instructions from Tokyo, in constant touch with the Federal Government, with a view to requesting them to reconsider their decision.

The Japanese Government consider the present decision of the Federal Government of Australia most regrettable because they deem it a de facto discrimination against Japan, especially when considered in the light of the various factors involved, such as:

the total export of iron ore from Australia, the consuming countries for such ore, the quantity consumed in Australia, and the fact that the Japanese interests are largely concerned in the Yampi Sound Company development.

Although the Japanese Government share the view of the Australian Government that all countries have the right to preserve important natural resources, they nevertheless are not convinced of the reasons the Federal Government have put forward as the grounds for their present decision, since the survey so far carried out by the Commission of the Government cannot be regarded as complete, a fact which the Government themselves admit. Moreover, there is a conflict of opinion revealed in the various views expressed by a number of experts on the question of the potential supplies of iron ore in Australia, and it is clear at least that there is no imminent necessity to take such a drastic measure as the complete prohibition of export.

If it be admitted that Governments are entitled to take drastic measures of the nature in question, on the ground of an investigation which is by no means conclusive, the basis of confidence necessary to foreign investment will be entirely shaken, and there will be no scope for international co-operation in the development of natural resources.

Moreover, especially so far as concerns this particular case, the definite assurances given both by the State Government and by the Federal Government of Australia, to the effect that there would be no Government interference in the development of the enterprise, would in the circumstances make it difficult for either of the two Governments concerned to liquidate their responsibility in the matter by the mere compensation of the parties for their expenses.

3. CONCLUSION It would be most regrettable if some means could not be found to prevent what seems to be an avoidable difficulty in view of the fact that the trade relations between Australia and Japan were so amicably strengthened about eighteen months ago, after a short period of tension.

Therefore, the Japanese Embassy in London, always mindful of the desirability to maintain good relations between the British Empire and Japan, and especially in their relations in the Pacific, have already taken the opportunity offered by the visit of the Australian Trade Delegation to the United Kingdom [5], to draw attention to this matter in the conversations between the principal delegates and the Japanese Ambassador [6], and also in a Note Verbale presented to the Delegates,-a copy of which is attached hereto-and they now desire to bring the matter to the notice of the High Commissioner for Australia in London. [7] It is earnestly desired, in the interests of the relations between the two countries, that the High Commissioner would be good enough to see his way to assist in bringing about as speedily as possible some amicable settlement of this question taking into special consideration the views expressed in this Note.

[AA : A1608, C47/1/4, iv]

1 Not found.

2 J. A. Lyons.

3 See Document 202.

4 Torao Wakamatsu.

5 See Document 181, note 1.

6 Shigeru Yoshida. No documentation of these conversations has been found.

7 S. M. Bruce.

[AA : A1608, C47/1/4, iv]