161 Draft Full Cabinet Submission by Department of External Affairs

7 October 1940

EXPORT OF SCRAP IRON TO JAPAN

The question of the export to Japan of scrap iron was considered by a Cabinet Sub-Committee in May. The Sub-Committee recommended, on the information before it, that an embargo should not be imposed on scrap export to Japan at that time. This recommendation was adopted by Cabinet on 13th June. [1] It was felt, however, that the question would require to be submitted for further review in the event of existing circumstances altering materially.

2. The main economic reasons against an embargo were accepted in May as:-

(i) The export of any commodity is of particular value at the present time in order to build up oversea credits.

(ii) The export of scrap is not at present generally prejudicial to Australian industrial interests. The scrap iron available is in excess of current requirements.

(iii) The Japanese buy all three grades of scrap, for the lowest of which there is no other market of any size.

(iv) The Australian demand for scrap is very limited.

Manufacturers use only a small proportion of scrap in relation to pig-iron and crude steel.

(v) The United Kingdom is able to use a greater proportion of scrap to virgin metal, but lack of shipping space prevents extensive export.

3. As against these reasons there is:

(a) The strong recommendation of the Commonwealth Geological Adviser [2] in favour of the conservation of scrap resources.

(b) The disadvantage which some Australian iron and steel interests suffer by the forcing up of scrap prices by foreign competition.

4. The economic reasons against an embargo, however, were held to outweigh (a) and (b).

The export of scrap to Japan has shown an increase since May. The figures are as follows- May 2,759 tons June 3,752 tons July 3,566 tons August 10,769 tons.

5. The principal political reason against an embargo at the time of Cabinet's decision was held to be the undesirability of causing further resentment in Japan following the decision to continue the embargo on the export of iron ore. On the basis that the economic aspect of the question is unchanged, it is for consideration whether political circumstances which have arisen since then outweigh this factor. It may be noted that- (i) The tightening up of the restrictions on key exports to Japan by the United States includes the cessation of exports of scrap iron.

(ii) The United Kingdom Government appears to be opposed to the continued export to Japan of surplus wool.

(iii) It is reported that the Egyptian Government is considering the suspension of exports of raw cotton to Japan.

(iv) The Canadian Government, according to press reports, is considering the cessation of exports of copper ore to Japan.

(v) The swing of Japanese opinion and policy towards the Axis Powers is bringing about a rapid consolidation of British and American interests in the Far East. Continued sanction by the Commonwealth Government of the export of scrap iron to Japan might well be held to be an action at variance with the present trend of Anglo-American policy.

In other words, there are strong political reasons for Australia acting along parallel lines with the United Kingdom and United States Governments to ensure, in the present situation, that Japan is denied commodities vital for war purposes. [3]

1 See Documents on Australian Foreign Policy 1937-49, vol. III, Document 221, note 4.

2 Dr W. G. Woolnough.

3 There is no evidence that this document was submitted to Full Cabinet. It was superseded by the general review of trade relations with Japan carried out during November (see Document 186).

[AA:A981, AUSTRALIA 90B,ii]