Foreign Relations of the United States: Diplomatic Papers, 1945, European Advisory Commission, Austria, Germany, Volume III

740.00119 EW/10–1045

The Secretary of State to the United States Political Adviser for Germany (Murphy)

Washington, October 10, 1945—1 p.m.

638. For your information Clayton has addressed a letter³³ to McCloy (copy being sent you by air pouch) stating Depts position on the treatment of Allied and neutral property in Germany in the course of reparation and economic disarmament programs. Briefly, this position, revised in the light of the failure of the Financial Directorate to agree on any but the first sentence of the original U.S. proposal on this subject,³⁴ is to withdraw the matter from negotiation in the Control Council and to submit a fresh proposal in the Allied Commission on Reparation when that body reconvenes. This proposal would retain the initial provision regarding neutral property³⁵ but would provide for compensation to affected Allied owners through their Governments as reparation from Germany. It would further make clear that Allied or neutral property should only be removed or destroyed when necessary to accomplish reparation or economic disarmament programs, i.e. not when the purposes of these programs could be served equally well by removal or destruction of German-owned plants.³⁶

Dept rejects Russian thesis reported in your 579 of Sept 21³⁷ that all foreign-owned business enterprises in Germany should be eliminated since they had contributed to German war potential. The United States and other countries, unlike Russia, engage in foreign private investment as a normal form of international economic intercourse. The incidental advantages which were thereby conferred upon the German war economy are no more deserving of criticism than those arising out of other forms of foreign intercourse with Germany, including ordinary commercial trade. Specifically pre-war investment in Germany by U.S. firms constituted in principle no greater contribution to German war potential than Russian trade with Germany during the pre-war period, or for that matter during the period of the war up to June 1941.³⁸ Incidentally, while Russian proposal to compensate Allied owners by means of reparation from Germany is consistent with principle proposed above for application in a more limited sphere, their proposal to compensate neutral owners out of German deposits in neutral countries (understandable in view of their having waived any claim to such deposits) obviously could not be accepted by this Government.

Byrnes

33. Dated October 10, not printed.
34. The first sentence read as follows: “Ownership by Nationals of United Nations or Neutral Nations shall not impede the carrying out of Paragraph 11 of the agreement on the Political and Economic Principles to Govern the Treatment of Germany in the Initial Control Period.” For text of paragraph 11, see Conference of Berlin (Potsdam), vol. ii, p. 1504. The text of the first sentence is contained in War Department telegram CC 16262, September 17, from Berlin, not printed. (Copy obtained from the Department of the Army files.)
35. In the letter from Mr. Clayton to Mr. McCloy, October 10, the United States position was stated as follows: “With respect to neutral property in Germany removed or destroyed in the course of the reparation and economic disarmament programs, we shall instruct the U.S. Representative on the Allied Commission on Reparation to advocate our original proposal, namely that compensation should simply be paid in Reichsmarks for the benefit of the neutral owner.” (740.00119 EW/10–1045)
36. On October 21, Assistant Secretary of War Patterson informed Mr. Clayton that General Clay had been instructed in telegram War 75546, October 12, to withdraw the U.S. proposal from discussion in the Control Council and to indicate that a fresh approach would be made in the Allied Commission on Reparations (740.00119 EW/10–2145).
37. Not printed.
38. Hostilities between Nazi Germany and the Soviet Union commenced on June 22, 1941.