My telegram of 19th October, Circular Z.311.  Trade with Japan.
Now that the United States Government have imposed an embargo on exports of scrap iron, the position in regard to exports of scrap iron to Japan from Empire sources should, we feel, be reviewed.
Such exports are normally insignificant compared with United States exports, but it may be assumed that the Japanese will seek to divert orders formerly placed with the United States to other sources of supply. Lord Lothian  accordingly attaches great importance to our being able to assure the United States Government that parallel action is being taken by the Empire Governments concerned.
In general the position is that exports of scrap iron are subject to licence in any Empire country from which exports are substantial. No licences are being granted in the United Kingdom or Canada and we hope that in view of the great importance of keeping in line as far as possible with United States action, the Commonwealth, New Zealand and the Union of South Africa Governments will now have no difficulty in imposing similar prohibition on exports.
We realize that such a step might at first sight be regarded as provocative in any Dominion in which scrap is not needed for domestic consumption and shipping is not available to carry it to the United Kingdom. On the other hand, scrap is of course an essential war material and prohibition on export could, we think, be fully justified on the ground that it is not desired to part with material which may later be valuable as a supply reserve. We feel therefore that a general refusal throughout the Empire to export scrap to other than British Commonwealth or allied destinations can reasonably be said to fall within the framework of the general policy of bringing economic pressure to bear on Japan without giving her undue provocation.
Please explain accordingly to the Commonwealth Government and express our hope that, following the action which has been taken by the United States, as well as by Canada and ourselves, future exports of scrap to other than Empire and allied destinations may be prohibited. In the meantime it has been arranged that the Governments of India and the Eastern Colonies should refuse or suspend the issue of licences for exports to Japan.
In view of the importance of the United States aspect, H.M. Charge d'Affaires at Washington  has been informed by telegraph that request on the above lines is being made to the Dominion Governments other than Canada and of the interim arrangements in regard to India and the Colonies. He has further been asked to ascertain the intentions of the United States Government in regard to exports of pig iron. It would seem logical to impose restrictions on pig iron similar to those imposed on scrap and justification for restrictions in the latter case would apply with equal validity in the former.
As regards exports of scrap to the Netherlands East Indies, it is thought that these should be permitted only if covered by adequate guarantees against re-export. It is understood that this course would be in accordance with the wishes of the Netherlands East Indian authorities themselves, who recently informed H.M.'s Consul General at Batavia  that Japan was seeking to import scrap from the U.S.A. via the Netherlands East Indies. We hope therefore that the Commonwealth Government, if they agree to a restriction of exports on the lines proposed above, will be willing to deal in this way with any applications for export of scrap to the Netherlands East Indies.