Department of Foreign Affairs and Trade

10 May 1940

[On 3 May 1940 the Prime Minister (R. G. Menzies) asked the
Treasurer (P. C. Spender) and the Ministers for Trade and Customs
(Senator G. McLeay), Supply and Development (Sir Frederick
Stewart) and External Affairs (J. McEwen) to consider a report on
Australia's iron ore resources made by the Commonwealth Geological
Adviser (W. G. Woolnough) on 18 April 1940. (See file AA: A1608,
C47/1/4, vii and Cabinet Agendum 383A of 10 June 1940 and
attachments in series AA: A2697, vol. 4, 13 June 1940.) The
following memorandum was circulated to the other Ministers listed
above and also to the Minister for the Interior (Senator H. S.
Foll).]

EXPORT OF IRON ORE

I. In 1938 the Commonwealth Government placed an embargo upon the
export of iron ore from Australia because of reports received from
its Geological Advisers which raised serious doubts as to the
adequacy of Australian iron ore resources for Australia's own
need. In announcing this decision, the Commonwealth Government
stated that a complete investigation into the iron ore resources
of Australia would be made and at the same time indicated that if
this survey should disclose that the fears in respect to adequacy
expressed in the first report were not confirmed the question of
the embargo would be reconsidered.
2. The Japanese Consul-General [1], acting on direct instructions
from his Government, protested against the decision, mainly on the
ground that the embargo was directed principally against Japan. In
rejecting the protest, the Commonwealth Government pointed out
that the embargo applied not only to all foreign countries, but
also to the rest of the British Empire. The Japanese Consul-
General subsequently put forward a compromise proposal concerning
the Yampi Sound leases for permission to be granted for the export
of one million tons of ore per annum for 10 to 15 years, pending
completion of a thorough survey of iron ore deposits. This
proposal was rejected, one of the main reasons being that it was
proposed to extract ore from the most accessible deposits, thus
leaving the more costly mining operations to Australian industry.
3. The question of compensation will present major difficulties.
As an example of the extensive claims which will probably be put
forward, the following indication of damage which would be
suffered through the embargo by the Nippon Mining Company Ltd.,
which financed the leaseholding company at Yampi Sound, was
submitted by the Consul-General of Japan on 5th April, 1938:
'The Nippon Mining Co. Ltd. has spent about 260,000, and also
undertaken inescapable commitments amounting approximately to
300,000.
In addition, the Nippon Mining Co. Ltd. not only proceeded with
the construction of blast furnaces (now nearing completion) at
Osaka, in co-operation with another company, but also induced the
Yawata Iron Works to make elaborate preparations in their blast
furnaces to receive ore from Koolan Island in large quantifies
(based on the tonnages set out in the Memorandum of Proposals):
further, additional furnaces are now in course of construction at
Yawata for the receipt of Koolan ore.
Apart from the smelting programme, the Nippon Mining Co. Ltd. has
entered into a contract with its sister Company, the Nippon
Industrial Shipping Co. Ltd., to make all necessary preparations
for the transport of Koolan iron ore to Japan. In pursuance of
this contract considerable expenditure has been incurred, which
must be borne by the Nippon Mining Co. Ltd. should the
leaseholders be rendered incapable of providing the ore for
shipment from Koolan.' On 18th May, 1938, the Consul-General was
informed that the Commonwealth Government would be prepared to
'examine and consider equitable claims for reimbursement of
expenditure which has up to this date actually taken place in
connection with development operations directed towards the
exploitation of our iron ore resources for export.' In a further
letter of 1st June, 1938, to the Consul-General, the Prime
Minister [2] made the following statement-'I may add that to the
extent to which any individual Japanese interests are affected by
the decision an offer of compensation has been made and is
repeated.' The Consul-General [3] notified the Commonwealth
Government in a letter dated 19th December, 1939, that if the
Commonwealth Government decided not to lift the embargo, the
Japanese Government must take up the question of compensation for
the loss sustained by Japanese interests.
4. Meanwhile, a detailed survey of Australian iron ore resources
has been practically completed, and the Minister for the Interior
has now submitted the report of the Commonwealth Geological
Adviser, the main points of which are as follows:-
(a) Only two main deposits of iron ore can be regarded as
commercially workable, namely, the Iron Knob Group (South
Australia) and the Yampi Sound Group (Western Australia).
(b) The maximum estimates of the extent of these deposits are 350
million tons, but for various reasons Dr. Woolnough considers that
200 million tons is nearer the truth.
(c) In the near future Australian demands for iron ore win be at
least 5 million tons a year and may rise to 10 million tons.
(d) Taking the maximum estimate of deposits (350 million tons) and
the minimum estimate of Australian demand (5 million tons),
Australian commercially workable iron ore resources will last only
70 years. If, however, Dr. Woolnough's estimate of deposits (200
million tons) is taken, then on the basis of a minimum Australian
demand, the resources will last only 40 years.
(e) These facts suggest the necessity for prohibiting the export
not only of iron ore, but of 'scrap', pigiron and steel in an
unfabricated condition.
5. Two questions now arise for decision, namely, (a) whether the
embargo should be continued, and (b) whether an embargo should be
placed upon the export of scrap, pigiron and steel in an
unfabricated condition. These questions have been considered by a
Committee consisting of the Minister for Trade and Customs, the
Treasurer, the Minister for the Interior, the Minister for Supply
and Development and myself.
Embargo of Iron Ore
In view of the abovementioned report, it is recommended that as
the detailed survey of Australian iron ore resources has confirmed
earlier doubts as to the adequacy of these resources, the embargo
upon the export of iron ore be continued. A public announcement to
this effect should be made and at the same time advice as to the
decision of the Government should be communicated to the Consul-
General.
Export of Scrap etc.
In view of the many considerations involved in the question of the
prohibition of export of scrap, pigiron and steel in an
unfabricated condition, the Committee found itself in some
difficulty in submitting a firm recommendation to Cabinet. The
main reasons for favour of prohibition appear to be:
(a) The strong recommendation along these lines made by the
Commonwealth Geological Adviser and the fact that it is in general
only logical and reasonable that if the export of iron ore is
prohibited in order to conserve resources, the export of scrap
should also be prohibited.
(b) Certain important Australian iron and steel interests, among
which might be mentioned Hadfield's, rely to a large extent on
scrap for their furnaces. Foreign competition for scrap forces up
prices to levels which render difficult the holding of the
Australian and export market for fabricated iron manufactured from
scrap. These industries strongly favour an embargo.
(c) The main purchaser is Japan, and Australia is morally bound
under League of Nations resolutions not to supply material which
will assist Japanese aggression in China.
The main reasons against prohibition are:-
(i) From a political point of view, it may cause further
resentment in Japan and be regarded as discriminatory.
(ii) The export of any commodity is of particular value at the
present time in order to build up overseas credits.
(iii) Several investigations into this question have indicated
that export of scrap is not at the moment generally prejudicial to
Australian industrial interests. The quantities of scrap iron ore
are in excess of current requirements. Prohibition of export would
lead to elimination of competition and serious depreciation in
price, thus affecting other interests than (b) above.
In the opinion of the Committee, the reasons against any
prohibition outweigh those in favour, and hence its view is that
an embargo should not be imposed at the present time. It is felt,
however, that this aspect should be subject to careful and
constant scrutiny by the Minister for Trade and Customs, and that
he should resubmit the question to Cabinet for review in the event
of present circumstances altering materially.
6. As to the extent of compensation, the Committee feels it can at
present do little more than invite the attention of Cabinet to the
facts indicated in Paragraph 3. It is not practicable to set out
any limits for compensation which the Commonwealth Government is
prepared to pay until specific claims are received. Such claims
can be expected after the decision of the Government has been
communicated to the Consul-General. A narrow limit has already
been communicated to him, and the next move would more
appropriately be made by him than by the Commonwealth Government.
It is possible that the question might in the last resort be
submitted to international arbitration by agreement. [4]