740.00119 PW/7–2848
The Secretary of State to the Secretary of the Army (Royall)
Dear Royall: I have received your letter of July 281 enclosing General MacArthur’s reply2 to our telegram requesting his comments [Page 997] on the State and Army Departments’ proposals for settlement of the Japanese reparations problem.
After reviewing all aspects of this problem in the light of General MacArthur’s cable, I am prepared to accept the Department of the Army’s proposal, possibly amended as suggested by General MacArthur, if the proposal is revised to incorporate the amendments set forth below and subject to the understanding that the detailed program will be worked out jointly by the State and Army Departments. I believe that these amendments will render the plan more susceptible of practical implementation without reducing its effectiveness.
- 1.
- It is noted that the Army plan provides that in submitting its reparations proposals to the FEC the U.S. should state that it “will not agree to any policy on Japanese reparations incompatible with this program”. It is not clear whether this means that the other countries are to understand that they must take our plan entirely without change, or whether a certain amount of negotiating latitude is to be permitted. It would seem essential in our discussions with other governments and in the FEC that some negotiating latitude be permitted, and that we not antagonize the other countries by flatly stating that they must accept our proposal exactly as it is or not at all.
- 2.
- You will recall that the Department of the Army’s proposal forwarded to SCAP provided that reparations removals should not be “in excess of quantities which Overseas Consultants, Inc., or the Johnston Committee, recommend to be available”. In his reply SCAP states that the capacity retained in Japan “would approach more realistically” the recommendations of the Johnston Committee. It would appear that the basis of determination of the precise retention levels in each industry from which reparations are to be taken requires clarification. The Department of State, moreover, has, as you know, consistently maintained on the basis of its own economic studies that the individual capacities stated by OCI and the Johnston Committee to be required for Japan’s future peaceful needs are in certain cases far too high. In view of the apparent need for clarification of this aspect of the Army proposal, the belief in this Department that certain of the OCI and Johnston retention levels are unnecessarily high and should be adjusted, and the fact that SCAP goes no further than to maintain that the capacity to be retained in Japan “would approach more realistically” the recommendations of the Johnston Committee, I suggest that State and Army Department experts meet at once to prepare recommendations as to whether in each particular industry the capacity level above which facilities should be made available for reparations should be the OCI level, the Johnston Committee level or some new level where it can be demonstrated to mutual satisfaction [Page 998] that the OCI and Johnston Committee levels are unnecessarily high and untenable from an economic and negotiating point of view.
- 3.
- It seems to me essential in the light of our overall foreign interests that we endeavor to minimize the expected strong opposition of the claimant nations to our proposal by any available means which do not impair the essentials of our program. It is to be expected that during the diplomatic discussions with friendly FEC governments the governments consulted will take particular exception to certain retention levels in the U.S. proposal (for example the British with respect to shipbuilding) which would deny them facilities which they greatly desire from Japan and which have a domestic political complexion, and that their opposition to our overall proposal could be considerably reduced if we would agree to make downward adjustments in those particular levels. This government must be prepared to take into account, and to meet if at all possible, requests of this type before announcement of the final program. Failure to meet reasonable counter-proposals would in fact create augmented opposition.
- 4.
- In the diplomatic discussions with friendly FEC governments, it would seem advisable that our representatives state that it is this Government’s intention to submit its proposals to the FEC for consideration as soon as possible after the FEC reconvenes from its summer recess. Our representatives should further state that if after a reasonable period of consideration the FEC should be unable to adopt the essential elements of our proposals this Government intends to issue an interim directive to SCAP embodying the proposals.
- 5.
- The possibility must be envisaged that the substance of the U.S. proposals will meet with extremely strong opposition from friendly FEC countries. In such circumstances it might be clearly unwise to proceed on the basis of the present proposals, and I assume that this Government would review its proposals in the light of developments before submitting them to the FEC or before issuance of an interim directive. It should be made clear in the discussions with FEC governments, however, that this Government will withdraw its proposal for solution of the shares stalemate, including the offer to divide 18 of our 23 percent share among the other claimants, and intends no further proposals on this or any other aspect of the reparations problem, if the essentials of our present proposal are not accepted.
- 6.
- I suggest that the U.S. proposals, and accordingly the directive to SCAP, have as their basis the attached revised U.S. plan for the apportionment of reparations shares.3 The reparations facilities to [Page 999] which these shares should pertain would be those in excess of the industrial retention levels specified in the directive.
- 7.
- In order to avoid the embarrassment which this Government would now be caused by the acceptance by additional claimant countries of our reparations shares proposal submitted to the FEC in November 1947, I further propose that in the diplomatic discussions with friendly FEC governments the U.S. representatives state that that proposal is superseded by the present overall proposal. We should formally withdraw our earlier shares proposal at the time we submit our new proposals to the FEC.
- 8.
- It is noted that the Department of the Army’s plan provides that the claimant nations should be required to give a quit-claim against further reparations when their allotments have been delivered, or, presumably, when the time limit has expired. Such a requirement would seem most undesirable, however, because it would place our proposal in immediate and obvious conflict with the FEC Interim Removals decisions of early 1946,4 which prescribe much lower retention levels than the present proposed program, and with certain provisions of the decision on Reduction of Japanese Industrial War Potential of August 1947,5 which provides that all primary war facilities not destroyed must be made available for reparations—a requirement which would be met by the Overseas Consultants, Inc. recommendations but not by those of the Johnston Committee. While it would be clear in any circumstances that our proposal runs counter to the intent of these earlier decisions, it will be possible, if we specifically refrain from providing in the interim directive that the reparations thereby made available are the last reparations which are ever to be removed from Japan, and if we do not require the claimants to give a quit-claim to further reparations, to argue that we have not contravened the FEC decisions in a technical, legal sense, since the freedom of action of the FEC to bring about further reparations removals will theoretically be preserved. It is believed that the finality of the proposed reparations program can be effectively assured without the disadvantages attaching to a quit-claim requirement if in the discussions with friendly governments, and in submitting its proposals to the FEC, the U.S. Government announces that it will be its position during the remainder of the occupation and at the peace conference that no further industrial reparations should be exacted from Japan. The same announcement should be made publicly at the time the directive embodying our proposals is issued to SCAP.
I am sure that you will agree on the importance of our pressing forward on this matter with the utmost speed. I therefore propose that we proceed according to the following time schedule:
- 1.
- The State and Army experts be required to submit their recommendations on the precise retention levels, and the two Departments reach agreement on all other aspects of the program, within a maximum of one week.
- 2.
- The two Departments’ agreed recommendation on Japanese reparations be submitted immediately thereafter to the National Security Council for incorporation in NSC 13, “Recommendations with Respect to U.S. Policy Toward Japan”, with the request that this paper be approved by the Council as a matter of urgency.
- 3.
- This Government’s proposals for the settlement of the Japanese reparations issue be presented in confidence to all FEC member governments except the Soviet Union in the context of our other Japan policies set forth in NSC 13, exercising discretion as to the material from NSC 13 which should be revealed to different countries, before termination of the Far Eastern Commission’s summer recess on September 9.
- 4.
- In the diplomatic discussions with friendly FEC governments our representatives state that it is this Government’s intention to submit its proposals to the FEC for consideration as soon as possible after the FEC reconvenes from its summer recess. Our representatives should further state that if after a reasonable period of consideration the FEC should be unable to adopt the essential elements of our proposals this Government intends to issue an interim directive to SCAP embodying the proposals.
- 5.
- If there is extremely strong opposition from the majority of FEC countries consulted to the substance of the U.S. proposals, this Government review its proposals before submitting them to the FEC or before issuance of an interim directive. It should be made clear in the discussions with FEC governments, however, that this Government will withdraw its proposals for solution of the shares stalemate, including the offer to divide 18 of our 23 percent share among the other claimants, and intends no further proposals on this or any other aspect of the reparations problem, if the essentials of our present proposal are not accepted.
In view of this Department’s willingness to accept the general concept of the Army Department’s proposal, subject to the qualifications set forth above, it would seem unnecessary for us to meet again on this matter. Instead I suggest that your representative communicate at the earliest possible time with Mr. Wisner, who, in Mr. Saltzman’s absence, will represent me in further discussions on the subject. If, however, you should wish to discuss the matter further with me, I would be glad to meet with you at a mutually convenient time.
Faithfully yours,