repercussions of the australian embargo on iron ore exports

Institute of Pacific Relations

Repercussions of the Australian Embargo on Iron Ore ExportsAuthor(s): Jack ShepherdSource: Far Eastern Survey, Vol. 7, No. 25 (Dec. 21, 1938), pp. 294-298Published by: Institute of Pacific RelationsStable URL: http://www.jstor.org/stable/3021262 .

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294 Repercussions of the Australian Embargo on Iron Ore Exports December 21

baht. It is not so much lack of confidence in government-run industry that makes the individual Siamese investment in them so minute, but rather because there is virtually no liquid capital in Siam outside the Treas-

ury reserve. For the little investment he can make the Siamese prefers land or jewelry.

Paradoxical as it may seem from this lack of pub? lic spirit, economic nationalism has recently reared its

ugly head. A strong and new tendency to reserve cer? tain fields to Siamese labor was shown by the Labor Bill introduced into the Assembly last August, and

by the obligatory employment of Siamese labor in the new state factories. Ninety percent of the labor in Siam is foreign, and this is a fact only recently resented

by the Siamese. One of the constitutional regime's avowed purposes, in the manifesto it published justify- ing the 1932 revolution, was to remedy the former

regime's failure to meet native unemployment. A few

employment agencies have been opened; Chinese immi?

gration has been progressively restricted; 77 new voca-

tional schools are in the process of being established; and the government has persuaded foreign firms,

though not on a large scale, to take on native appren- tices. Although the state has dealt successfully with

a few strikes, labor in the organized sense does not exist in Siam. Rather, it is contagion of the general politi? cal unrest in the country since 1932 more than either

the depression's inroads or the designing hand of Mos?

cow. And whatever political self-consciousness labor

may have as a group, it is wholly confined to Bangkok. Siam's affinity for Japan, and notably the Kra Canal

bogey, have been of recent years exploited by the un-

discriminating press. But Siam's na-

Friendship- tionalism is in no way tinged with Pan-

With-All Asiaticism. In fact her indifference to

Policy nationalist movements elsewhere in

Asia is very striking. It is obvious

that Siam has no intention of acquiring an Asiatic

tutelage any more than she formerly wanted a Euro?

pean protectorate. Her foreign policy over changing

regimes has been perfect impartiality so as to main-

tain her independence and to insure markets for her

exportable surplus. Siam does not benefit like her

three colonial neighbors from a protected home market

?perhaps tiresome from an internal tariff viewpoint but a welcome haven in time of depression. She must

remain on good terms with everyone, and particularly with Great Britain who is not only her greatest market

and investor, but who also controls her foreign debt.

The only flaw in Siam's impeccably correct foreign policy is vis-a-vis China. Intent on having indigenous labor, Siam has restricted Chinese immigration and is determined to obviate the potential menace of the Chin? ese as a state-within-a-state. She has tried to exercise a severe control over the Chinese schools in Bangkok, and has prevented an active boycott of Japanese goods which last year formed about one fourth of Siam's im?

ports. These measures have brought down periodic counter-boycotts of Siamese rice in Southern China, but the fact that these measures hurt the Chinese merchants in Siam who control the rice export, neutralizes such action. Also the realization that Siam has been and still offers the Chinese an undeniable refuge in these troubled times, plus the primordial Japanese men?

ace, makes China's indignation rather academic and ineffectual.

Self-sufficiency is an impossible goal for a country without natural frontiers and lacking certain basic

necessities, such as fuel. But Siam has Real Self- simply followed the world's suit in this

Sufficiency drawing in of her economic horns. She

Impossible is not going to antagonize any nation and she hopes to escape unnoticed in

her remote corner of Asia. No matter how sensitively she may reflect the shifting balance of power in Asia, her aim is to be lef t alone long enough to develop the resources of the country which she is at present arm-

ing so expensively to defend?against a strictly anony- mous and probablv theoretical enemv. PRINCIPAL SOURCES:

Statistical Yearbooks of the Kingdom of Siam; Ministry of Economic Affairs, The Record; Bangkok Times, Bangkok Directory; Ministry of Commerce and Communications, "Siam: Nature and Industry," Bangkok, 1930; "General Medical Features," (official), Bangkok, 1930; C. C. Zim- merman, "Siam: Rural Economic Survey," Bangkok, 1931; J. M. Andrews, "Siam, Second Rural Economic Survey, 1934-35," Cambridge, Mass., 1936; P. W. Thornely, "The History of a Transition," Bangkok, 1923; W A. R. Wood, "History of Siam," Bangkok, 1933; W. A. Graham, "Siam," London, 1924, 2 vols.; M. Sivaram, "The New Siam in the Making," Bangkok, 1936; Bangkok Times; Siam Chronicle.

RELATED ARTICLES IN PREVIOUS ISSUES: "Siamese Labor Legislation Tinged with Nationalism," Nov. 23t 1938; "Siam Aiming for Self-Sufficiency in Sugar," May 4, 1938; "Restriction Group Increases Siam's Rubber Share," Apr. 20, 1938; "Siam Fights Growing Opium Menace," Mar. 23, 1938; "Siamese Adviser Recommends Long-Term Reforms," Feb. 2, 1938; "Siam Suffers from Poor Rice Crop," Jan. 5, 1938; "Siam Emerging as Aviation Center," Nov. 5, 1937; "Siam Seeks More Favorable Treaty Basis," Sept. 1, 1937; "Siam's Ten-Year Plan Stresses Coopera- tives," July 7, 1937; "Siam Begins 1937 with Brighter Pros? pects," Mar. 3, 1937; "Siam Balks at Tin Quota But Favors Restriction," Oct. 21, 1936; "Strengthening of Japanese Ties with Siam," July 15, 1936.

REPERCUSSIONS OF THE AUSTRALIAN EMBARGO ON IRON ORE EXPORTS

Jack Shepherd

It is almost as difficult to analyze the effects of the

Australian embargo on exports of iron ore announced

last May as it is to fathom the real reasons for the im-

position of the embargo. It seems likely that the Aus?

tralian action was linked up primarily with the government's new plans for the manufacture of armaments



1938 Repercussions of the Australian Embargo on Iron Ore Exports 295

and the large-scale development of secondary indus? tries rather than with any anti-Japanese feeling. For

Japan the embargo has had the effect not only of injur- ing particular interests but of interfering with broader official plans for the development of the iron and steel

industry. In Australia the embargo is still being op- posed by those who fear that it will unnecessarily prejudice good relations with Japan and more espe? cially by the Government of Western Australia which feels that the Commonwealth Government has killed a project which might have opened up a large unused area in the Northwest and contributed substantially to the prosperity of the state.

The first pressure upon the Australian Government to impose an embargo of this kind came from sections hostile to Japan who were insistent that Australia should not contribute even a small part of the raw ma? terial for armaments to be used against China. The

government stoutly resisted this pressure for over a

year, maintaining that wool could be used for uniforms and wheat to feed soldiers and that an embargo on the export of one commodity by Australia alone would not materially hamper Japan's advance in China, even if the government were disposed to attempt interven- tion in the Sino-Japanese struggle.

Whatever the real reason for the Australian Govern- ment's volte face the embargo was certainly not a re-

sponse to the pressure of anti-Japanese sentiment. At the very time when the ban was announced, the gov? ernment was threatening to impose a licensing system upon longshoremen in Sydney and Melbourne if they persisted in their refusal to load scrap destined for

Japan. Such action would virtually have crippled the

powerful Waterside Workers' Union, but the Govern? ment was insistent that the union must not take mat- ters of "foreign policy" into its own hands, and that

they could not allow sectional action of this kind to

endanger good relations between the Australian and

Japanese Governments. The waterside workers yielded and abandoned their boycott of scrap shipments on

May 25, just one week after the government announced its own embargo on exports of iron ore.

In response to charges that the embargo was dis-

criminatory against Japan the Prime Minister pointed out that the embargo affected exports not only to Japan but to all countries including the United Kingdom and the other British Dominions. It was also significant that although the export of iron ore was banned no restriction was placed on shipments of iron and steel

scrap. During the past few years shipments to Japan have been quite considerable, rising from 24,667 long tons in 1932-33 to 66,795 tons in 1936-37. The value of scrap shipments to Japan in 1937-38 was more than four times that of iron ore shipments.

There is not even any reason to suspect that iron and steel interests in Australia have brought any pres-

sure to bear on the Australian Government in this con? nection. The Australian iron and steel industry is con- centrated mainly in the hands of two firms, Australian Iron and Steel Ltd. and the Broken Hill Proprietary Company. These concerns recently arranged a merger which practically constitutes a monopoly, and between them they not only control the iron fields of South

Australia, which hitherto have been their main source of ore supply, but they also hold a concession of their own in Yampi Sound, on Cockatoo Island, which still remains undeveloped. These firms have not so far felt

any shortage of ore nor would the development of Koolan Island in the Japanese interest have endan-

gered their monopoly in Australia since the whole out?

put was to go to Japan in whose market for iron and steel they have never shown any interest. The fact that the British Government has allowed the develop? ment of iron ore by the Japanese in the Crown Colony of British Malaya rules out any suggestion that pres? sure from Britain influenced the Dominion Govern? ment in its decision.

On the evidence so far available there does not seem to be much reason to doubt the official explanation of the embargo, which is that fresh geological reports have shown earlier estimates of Australia's iron ore re? sources to be over-optimistic, and that in view of the

country's probable future needs the government be- lieves a policy of conservation to be wise. Between the time when the first clamor arose for an embargo and the Government refused to act, in March 1937, and the time when the embargo was actually imposed four- teen months later, only two developments were made

public which might account for the government's change of front. The first was that in March the gov? ernment announced a new three-year defence plan in-

volving an increase of annual defense expenditure to

?A14,300,000 (1 Australian ? = about U.S.$3.75) as

compared with an annual expenditure of ?A6,500,000 provided for in the plan announced in 1934. The new

plan, which seems largely to have been inspired by the fear that British assistance in the event of war was not likely to be as substantial as had been assumed in the past, envisaged not only the strengthening of the

army, navy and air force, but also the development of munitions manufacture on a large scale and the gen? eral stimulation of secondary industry, particularly the manufacture of aircraft and automobiles. The idea was that Australia should be equipped not only to defend herself but also to become the chief center of

munitions, aircraft and automobile manufacture for the southwest Pacific region.

The second new development prior to the announcement of the iron ore embargo was the receipt early in

April of a new report on the extent of Australia's iron ore reserves, from the Commonwealth Geological Ad-

viser, Dr. Woolnough. Earlier reports had indicated



296 Repercussions of the Australian Embargo on Iron Ore Exports December 21

that Australia's ore reserves were ample for her future needs but Dr. Woolnough was more pessimistic. He

reported that only two groups of Australia's known iron ore deposits were economically accessible, namely those at Iron Knob in South Australia, and those at

Yampi Sound, and that the estimated available ton?

nage of both of these had been grossly exaggerated. The Prime Minister obviously had these two de?

velopments very much in mind when he replied, late in June, to critics of the government's iron ore policy. The smallness of the known deposits of economically accessible ore, he said, "are so limited as to cause very great concern as to the future of the iron and steel

industry," particularly in view of the fact that home

consumption of ore was likely soon to be doubled or trebled. He emphasized that Australian industry was in the developmental stage, and that in taking into consideration only "economically accessible resources" the

government felt that "for the purpose of placing Aus? tralian industry in a position to meet the competition of other countries which have access to cheap raw ma? terials the more inaccessible deposits are valueless_

Obviously, therefore, our resources viewed in relation to our requirements are dangerously limited."

But however innocent the Australian Government

may have been of anti-Japanese intentions there is no

question that certain Japanese interests will lose

heavily as a result of the embargo. The principal losers will not be the Japanese firms which have been

importing iron ore from Australia during the past few

years. All Australian iron ore purchased by Japan hitherto has come from South Australian mines, and the government has, since the first announcement of the embargo on May 19, agreed to allow all contracts made prior to that date to be fulfilled provided that the ore is shipped before the end of this year.

The effects of the embargo will be most serious for the Nippon Mining Company which was interested pri? marily in ore from Koolan Island in Yampi Sound, Western Australia. Although the British firm of Bras- serts held this concession, no secret was made of the fact that they were developing it for the Nippon Min?

ing Company with money loaned by the Japanese firm. Actual expenditures up till May 1938 on developmental work such as the construction of roads, wharves and a

pumping station, preliminary drilling, and the instal- lation of machinery amounted to ?A70,000. Large quantities of machinery had been ordered and other commitments made at the time of the embargo which must have eaten up a great part of the original Jap? anese allocation of between ?6,000,000 and ?7,000,000 for the development of this field. Though the Aus? tralian Government admitted its liability, the question of compensation is still under consideration and no

payments have yet been made. It may be possible to compensate Japanese investors

in the Yampi Sound enterprise, but Japan will not find it easy to replace so rich a source of badly needed iron ore as Koolan Island promised to be. As from 1939 an annual output of 1,000,000 tons was expected. This

represented more than 10% of Japan's total requirements from foreign currency countries from 1940 on- wards under the new five-year plan for the iron and steel industry announced by Domei in March this year. In protesting against the embargo, on behalf of the

Nippon Mining Company, the Japanese Consul-Gen- eral in Australia stressed particularly the fact that the

Japanese Government had given permission for the

export of a considerable quantity of Japanese cur?

rency for the development of the Yampi Sound field. In view of Japan's present serious difficulty in making overseas payments it is certainly significant that such

permission should have been given and it is indicative of the importance attached by the Japanese Govern? ment to the West Australian field as a source of

urgently needed iron ore. Iron ore and foreign ex?

change are both rare and valuable commodities in

Japan and Australia's recent action has meant that a considerable sacrifice of foreign exchange has been made by Japan without any adequate recompense in the form of iron ore.

Moreover had the Yampi scheme been allowed to go on as planned it seems certain that Japan would in the future have been able to obtain Australian ore on much more favorable terms than she had in the past. Full details of the arrangements between Brasserts and the

Nippon Mining Company are not available, but since the whole project was being financed with Japanese capital and the entire output from the Yampi field was to be carried to Japan in Japanese ships it is probable that the cost of the ore and the arrangements for pay? ment would have been more convenient to Japan than those involved in purchases from mines under purely foreign control such as those in South Australia. The

embargo is thus a source of concern not only to a par? ticular Japanese interest but to the Japanese Govern? ment itself.

The full significance of the Australian Government's action from the Japanese point of view can only be ap- preciated when the seriousness of Japan's iron ore prob? lem is understood. Though it is imperative that she cut down the total volume of her imports if she is to remain solvent it is equally imperative that she should have an adequate supply of iron ore if she is to de-

velop her own industries, increase her exports and above all keep her armies supplied with munitions. The problem is such a vital one that the government has thought it necessary, since the outbreak of the conflict in China, to suspend publication of the figures covering production and trade in iron and steel, and to institute an elaborate system of control over the im-

portation and distribution of these commodities. An



1938 Repercussions of the Australian Embargo on Iron Ore Exports 297

official Iron and Steel Distribution Adjustment Coun? cil has been established to ration the available sup? plies of ore, first preference being given unconditionally to industries directly connected with the manufacture of armaments and munitions. Supplies of iron and steel for building and other peacetime industries have been severely restricted especially in recent months.

Every effort has been made to stimulate iron ore pro? duction in Japan Proper and areas under Japanese control. In September 1937 the purchase was reported of a Krupp process for the direct manufacture of steel from low grade ore, of which there are extensive de?

posits in Japan. In March this year the effort to increase production of iron ore in Japan, Korea, and in various parts of China was intensified and this move was stated to be due to the fact that heavy purchases of ores from foreign countries would seriously affect the position with regard to international payments and the unfavourable trade balance. In June, after the Australian embargo had been announced and protests had proved unavailing, the Ministry of Commerce an? nounced an increase of ?1,000,000 in the subsidy for ore prospecting, and a Minerals Production Increase

Law, promulgated in April, was put into force. The semi-official Japan Iron Manufacturing Company was

reported in July to have set up a special resource sec? tion to develop local iron ore resources. The Company has offered to buy up small mines and small quantities of ore, it has started digging operations on several fields of its own in Hokkaido, Nugata, and Fukushima

prefectures, it is offering technical advice to indepen- dent companies, and it is carrying on an extensive search for new fields not only in Japan but in Korea and Manchuria.

The intensification since June of efforts to stimulate

production of iron ore in Japan and in Japanese con? trolled areas cannot, of course, be attributed solely, or even mainly, to the announcement of the Australian

embargo, though that seems certainly to have been an

important contributory cause. There were reports in

July that owing to the exchange situation increased dif? ficulties were being encountered in bringing in ores from foreign countries and that efforts were being made to replace supplies from southeastern Asia with local ore. In October the efforts of the Japan Iron Manu?

facturing Company to expand production of ores within the Japanese Empire were said to be meeting with some success, and further curtailment of iron ore imports was expected.

In the meantime exports of iron ore from British Malaya to Japan are reported to have increased since last year. In the first seven months of 1938 they totaled 791,164 metric tons as against 697,084 tons in the cor-

responding part of 1937. A further increase is ex? pected to result from the Australian embargo. On the other hand Transpacific reported in October that the

Government of Indo-China had decided to ban the ex?

port of iron ore from the colony. As reported, a Jap? anese concern, the Formosan Development Company, has invested several million yen preparing an iron ore concession in Indo-China for development. No reason has yet been made public for the French decision which had still to be implemented by the French Gov?

ernment, but the Japanese Government was said to

have lodged a strong protest against the embargo. The Australian and the French embargoes will prob?

ably render necessary serious modification of the five-

year plan announced in March for the Japanese iron and steel industry, although in the long run Japan's own financial difficulties may force her to curtail or even abandon that section of the plan which required her to import 9,500,000 tons of iron ore from Australia and southeastern Asia.

It should be noticed that protests against the ban

placed by the Australian Government on the export of iron ore have not been confined to Japan, and within the Commonwealth itself there are those who suggest that embargo will react to the serious disadvantage of Australia. A relatively small section is concerned at the effects of the government's action upon the politi? cal relations between Australia and Japan, already strained by the trade war which followed drastic Aus? tralian tariff action against Japan in 1936. They argue that the embargo aggravates the world problem of raw materials distribution, and gives Japan a real grievance against Australia, and that in the absence of full knowl-

edge of the extent of Australia's iron ore resources and in view of the impossibility of predicting accurately either the volume of consumption or the development of ore-refining technique over a long period there are too many unknowns in the equation upon which the conservation policy is based.

Much more important than the views of this group are the protests that have come from the Labor Govern? ment of the state of Western Australia. Earlier repre- sentations by the Premier, Mr. J. C. Willcock, to the Commonwealth Government having proved unavailing, he submitted late in August, to the State Parliament, a formal resolution emphatically protesting against the

embargo, "in view of its disastrous effects upon the

development of the State," and urging the Common? wealth Government to remove the embargo. In sup- porting this resolution Mr. Willcock estimated that the losses which West Australia would suffer as a result of the embargo during the next fifteen years would amount in all to about ? Al,250,000. He based his cal- culation on the assumption that the export of iron ore from the Yampi field would continue for fifteen years at the rate of 1,000,000 tons per annum, and took into consideration royalties, wages which would have been

paid to West Australian workers, purchases of mining stores, harbor and light dues, and a number of other



298 Japanese Heavy Industries Show Large War Profits December 21

items. He declared that the Japanese ships which would have come to take away the ore could also have carried live cattle to Japan as deck cargo and thus made possible the utilization of the potentially rich cattle country of the Yampi hinterland hitherto un-

developed because of lack of communications. "We have it on the authority of the Japanese people," he

said, "that they are now importing chilled beef from South America, and that it would be, competitively speaking, a much better proposition to import live cat? tle from the North-West from which there would be a direct sea trip of ten or twelve days to Japan, com?

pared with a much longer journey for the chilled beef from the other side of South America." Now that the

embargo had been imposed the iron field of Yampi and the cattle country behind it would remain undeveloped to the great detriment of the state and the nation. He

argued that even admitting the most pessimistic con- tention advanced by the Federal Government, namely, that about 250,000,000 tons of iron ore are available, the

Japanese interests would have taken only 15,000,000 tons in all, and that even if Australia's present con?

sumption of ore were trebled in the future this would mean the loss of only two years' domestic supply.

So far protests of this kind have had no effect on the Commonwealth Government, but a comprehensive and detailed survey of Australia's iron ore resources

has been inaugurated, Federal and State experts cooperating in the work. The expense is being borne

by the Commonwealth. In the course of this survey at least one new large deposit is reported to have been discovered eighty miles north of Meekathara, in West? ern Australia. Meekathara lies some hundreds of miles

inland, and although it is linked by rail to Perth it is

questionable whether the Commonwealth Government would regard the new deposit as "economically ac? cessible." Nevertheless since past surveys have been

very superficial, it is quite conceivable that current

investigations will either reveal further new and more accessible deposits or show known deposits to be more extensive than has hitherto been supposed. In either event there would seem to be no good economic reason for the maintenance of the embargo from the government's point of view. For the moment, however, there is not the slightest evidence that it will be raised or even relaxed.

RELATED ARTICLES IN PREVIOUS ISSUES:

"Manchurian Iron and Steel Output Expanding Rapidly," Nov. 9, 1938; "Australia Cancels Japanese Iron Exploita? tion Contracts," July 13, 1938; "Iron as the 'First Fruits' of the Japanese Advance," Mar. 2, 1938; "German Aid to Japanese Iron Industry," Dec. 1, 1937; "Philippines In? crease Iron Shipments to Japan," June 9, 193/; "Japan Faces Pig Iron Shortage," Feb. 3, 1937; "Australia and Japan Reach Trade Agreement," Jan. 20, 1937; "Iron Mines as a Feature of Japan's 'Southward Drive/ " Sept. 9, 1936.

SIGNIFICANT DEVELOPMENTS

JAPANESE HEAVY INDUSTRIES SHOW LARGE WAR PROFITS

The latest Mitsui survey of business profits in Japan, covering the first six months of 1938, contains interest-

ing data on the way in which war activity has affected various branches of Japanese industry. In general, the

heavy industries and others engaged in the manufac? ture of military supplies have increased their already high profits over the previous period, while the position of industries serving civilian needs and the export trade has somewhat deteriorated. However, even in war? time industries, especially those concerned with fin- ished manufactures, the rapidly rising prices of raw materials and other items entering into production costs have served as a check on the upward trend of

profits. Tax rates, too, have risen steeply in the last

year and a half. A significant by-product of the in?

creasing centralization of control is seen in the fact

that, as a rule, large companies have profited more from war prosperity than small ones, many of which, in fact, have suffered severely.

Commenting in detail on particular industries, the

report, as summarized by the Canadian Assistant Trade Commissioner in Tokyo, says: "Heavy industry as a

whole showed profits, also the chemical and fertilizer industries. In the fibre industries, spinning and weav?

ing were depressed, as was also rayon. The woolen textile industry, however, was active due to speculative demand. The flax industry remained steady due to

army demand. Sugar, in conformity with world de?

mand, was depressed, while the wheat flour, confec-

tionery, and brewery industries were active. Brewery companies failed, however, to show increased profits over the last period, due to increased prices for raw materials. Heavy orders from the army produced profits for the leather and hide industries. Paper mills showed a decrease in profit over the last period owing to high prices of raw materials. In the ceramic indus?

tries, cement suffered due to high prices, while the

glass and brick companies enjoyed fair business. . . .

Commodity exchanges and security markets showed

poor returns, while real estate remained steady. In the

public utiltiy field, power companies, gas companies, and street railways showed fair results. Shipping was

poor, and provincial railways suffered considerably." This is illustrated by the following figures showing



repercussions of the australian embargo on iron ore exports

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