E (PD) (3 7) 11 (extract) LONDON, 2 June 1937
SUGGESTION FOR REGIONAL PACT IN THE PACIFIC
2. MR CHAMBERLAIN reminded the Conference that the suggestion for a Regional Pact in the Pacific, now made in the Memorandum by the Australian Delegation (E. (37) 29)  before the present Meeting, had been first put forward by Mr Lyons at the Opening Plenary Meeting of the Conference.  Possibly Mr Lyons might wish to open the discussion by developing some of the particular points in his Paper.
MR LYONS thought that it was hardly necessary for him to add anything to his Memorandum at the present stage.
MR MACKENZIE KING said that he had read the Memorandum with much interest. There was of course no one Pacific problem. Three of the continents of the world bordered on the Pacific. Canada as one of the bordering countries would be greatly relieved at any guarantees of peace in the Pacific area, and would be very glad to consider definite proposals.
A great deal remained both for study and for debate. The first step of all ought probably to be informal and confidential discussions with the United States and Japan with a view to ascertaining their attitudes towards the proposal. Before those attitudes had been ascertained any step taken in public was more likely to jeopardise than to advance the prospects of the plan.
Now that the United States had withdrawn from the Philippines  it seemed to him that a revival of the Four-Power Treaty of 1922  would not be the right form for the new Pact to take.
MR SAVAGE agreed in general with Mr Mackenzie King. The Conference ought to go forward with the proposal since it was clearly a step in the right direction. He only hoped there would be no stepping on other people's toes. It seemed to him to be a pity that the proposal had already been so well ventilated in the Press. People would now be disappointed if nothing came of it.
He did not see that the Dominions bordering on the Pacific could enter into any Pact of the kind suggested, without almost automatically involving the United Kingdom. Was it the intention of the United Kingdom Government to take part? If so, there would be no means of keeping other European Powers out of it.
GENERAL HERTZOG said that he did not wish to contribute to the discussion at the present stage.
LORD ZETLAND stated that the Government of India was much interested in the suggestion. They would look favourably on any scheme which would lessen the prospect of perpetual danger from Japan.
It might, however, be difficult to secure Japan's whole-hearted co-operation. Indeed, from the Japanese point of view it was hard to see what basis for a commercial economic arrangement could be found. Japanese trade competition with the United Kingdom and the United States continued unabated. The low cost of production in Japan remained a constant menace to the standard of life of the West. The only new factor was that the internal situation in Japan appeared to have become difficult and unstable.
The delicate question of Manchukuo would also arise. Would the Pact mean a recognition of the Japanese conquest? Possibly Mr Eden might be able to enlighten the Meeting on this point.
MR EDEN said that the United Kingdom Delegation were grateful to Mr Lyons for bringing the proposal forward; they liked the idea and would do their best to co-operate. It did indeed seem that the present was the psychological moment for a detente in the Far East. A detente there would certainly be a very real service to peace in general.
It was no use ignoring the difficulties. There were many problems to be examined. For instance, those set out at the end of the Australian Memorandum:-
(i) The scope of the scheme.
(ii) The question of adding a general declaration of economic and cultural collaboration.
(iii) The question of adding a guarantee of non-aggression and respect for each others' sovereignty, and (iv) the question of reiterating the principle of the Paris Pact to the effect that war was renounced between the signatories as an instrument of national policy.
As regards the scope of the new arrangement, he thought it would probably have to be wider than Mr Lyons had suggested. For example, China, Russia and Holland ought to be included. The position regarding the Four-Power Treaty of 1922, to which reference had been made, was that it had not actually lapsed. It remained in force after the expiration of the original period in 1933, subject to the right of the High Contracting Parties to terminate it at 12 months' notice. The Four-Power Treaty would not altogether serve as a model on the present occasion. For one thing, it was only concerned with the islands in the Pacific. The new agreement would certainly have to be extended to the mainland if it was to have any attraction for China and Russia.
As Lord Zetland had said, Manchukuo presented a difficulty. There was not only the technical question of the recognition of the Japanese conquest, but also the practical questions raised by the Chinese attitude to the territory.
He had had several messages from Foreign Powers since Mr Lyons' speech at the Opening Plenary Session. These showed both an interest and a willingness to co-operate.
In reply to the question raised by Mr Savage, Mr Eden said that the United Kingdom ought certainly to be a party to the Pacific Pact as they were to the Nine-Power Treaty. So far as he could see there would be no objection if France or other European Powers wished to follow suit. The essential thing, of course, was that the Pacific Powers should join in.
The first step required seemed to be a technical examination of Mr Lyons' proposal by the experts of the Delegations interested.
MR CHAMBERLAIN said that as one who for a long time had taken a personal interest in Far Eastern affairs, he wished to add a few observations.
He had first been led to study Far Eastern questions by consideration of defence and strategy. A threatening situation in Europe was capable of being multiplied in gravity by the difference between our present relations with Japan and those we enjoyed in 1914. There was now the perpetual danger that trouble in Europe might be Japan's opportunity to take some step to our disadvantage in the Far East. At present we should be quite unable to counter such a step. It was impossible to say where things would stop.
All this was in unhappy contrast with the days of the Anglo- Japanese alliance.  In those days Japan had felt real friendship and gratitude towards us as the one European Power prepared to associate with them. They had been bitterly disappointed when the alliance was not renewed. We had many reasons for not renewing it, and we could not go back on that decision; but it had meant a great addition to our anxieties.
Could we now obtain, not an alliance, but an understanding with Japan? If we could, it would be an enormous burden off our shoulders. It would leave us free to prepare for dangers nearer home.
[Chamberlain then referred to Britain's position in China, a country he regarded as 'one of the great potential markets of the world'. He explained that Sir Frederick Leith-Ross, whose mission to China ostensibly concerned Chinese finance, 'had been instructed to enter into relations with the authorities both in China and Japan on a wide range of questions'. Chamberlain then proceeded to speak of the attitudes of the Chinese and Japanese Governments to the United Kingdom.]
Both countries, at any rate, had now greater confidence in us. So far as we were concerned they knew that they had nothing to fear.
Japan herself had recently become less aggressive. Possibly she had seen that a policy of aggression did not pay. It had been a sign of the times that the German-Japanese agreement  had been received with no enthusiasm either in Japan or elsewhere.
The great economic problem of Japanese competition remained. We felt it everywhere with increasing severity-at Home, in India and in the Colonies. In some cases no tariff wall had been high enough to keep out Japanese goods which were on sale at prices less than we paid for the raw material. The solutions of surrendering our trade to Japan or reducing our standard of living to a Japanese level must both be ruled out. The only real solution was to reach a friendly agreement under which Japan would agree to regulate her exports in such a way that both countries could continue to make a living. Such an arrangement, if it were practicable, would be an enormous contribution to the political and economic appeasement of the world. He meant, of course, an arrangement in which the other Pacific countries shared. The parties to the agreement would certainly have to include this country, the Pacific Dominions, China, Japan, Russia and Holland. He was not without hope that the United States also would wish to take part. A conversation with Sir Ronald Lindsay  before the last Presidential election had encouraged him to hope that the United States would not recoil from a Pacific Pact in the same way as they recoiled from 'European entanglements.' Mr Lyons had taken a step in the direction in which he, Mr Chamberlain, had been anxious to move. The next thing was to put into effect Mr Eden's suggestion of a technical examination of the proposal by the experts of the Delegations interested.
LORD ZETLAND remarked that such news as came from Japan seemed to show that the civilian element was now asserting itself while the influence of the Army had waned. Had Mr Eden formed any appreciation of the extent of these changes.
MR EDEN said that it was very difficult for anybody not on the spot to make such an appreciation. It certainly seemed that Japanese opinion was more moderate now than for a long time past.
Possibly this was due in part to rearmament in the United Kingdom and in Russia. Internal difficulties in Japan-political, financial, and trading-had no doubt contributed to the result. One important change for the better had been the appointment of Mr Sato as Foreign Minister. We certainly ought to give Mr Sato every support in our power.
Mr Eden mentioned a recent conversation between himself and Dr Kung, the Chinese Finance Minister, who had hailed Mr Sato's appointment.
One could not, of course, say how long this more hopeful situation might last. Reaction might always follow.
MR SAVAGE said that he was very glad that Mr Chamberlain had mentioned the dangers inherent in Japanese commercial competition.
The fact must not be lost sight of for a moment that Japan was able to produce and export first-class goods at prices which in our case were impossible.
MR HAVENGA recalled the fact that the South African Delegation at Ottawa had agreed to impose special duties to keep out Japanese goods. It was now becoming more and more difficult to maintain these duties. The Japanese had regarded their imposition as an unfriendly move.
Mr NASH pointed out that a country with as low a standard of living as Japan became more dangerous in proportion as it became conscious of that low standard. There was no effective means of keeping Japan out of their markets, and it was certainly out of the question to lower our own standards. The only solution was to raise Japan gradually to a standard approaching our own.
One point which ought to be noted in connection with the proposed Pact was that the United States and Japan were not members of the League of Nations.
SIR SAMUEL HOARE referred to his remarks on the Defence question at an earlier meeting of the Principal Delegates. Mr Chamberlain had now greatly reinforced what he (Sir Samuel) had said. The overwhelming gravity of the present situation was that Germany, Italy and Japan must all be accounted as potentially hostile. In these circumstances a regional Pact in the Pacific would be an enormous assistance. If possible the Pact should cover not only the islands of the Pacific but the mainland of Asia. Even an insular pact, however, would be a great achievement.
These were the only methods by which we could relieve ourselves of the burden of overwhelmingly high Naval estimates. We might otherwise carry that burden for twenty years to come.
MR LYONS said that he much appreciated the reception given to his proposal. He was very grateful also for the frank discussion of the difficulties which it involved.
Mr Chamberlain's contribution had been most illuminating. Provided that progress was made he would be happy to accept Mr Eden's suggestion of an examination of the proposal by experts of the Delegations. As regards measures to restrain Japanese competition, Australia's experience might be of interest. The Ottawa agreement  had not been effective in keeping Japan out. The Commonwealth had then decided, in order to assist United Kingdom manufacturers, to raise their tariffs against Japan. Finally by friendly negotiations they had obtained an arrangement with Japan. Japan had undertaken to regulate her exports. Australia and Japan were now on good terms, and he felt sure that any other difficulties could be resolved by methods of friendly negotiation.
It was agreed:-
That experts of the Delegations interested should examine Mr Lyons' proposal for a Pacific Pact in its technical aspects and report whether any, and if so what, methods could be adopted usefully to further the idea.