Foreign Relations of the United States, 1948, The Far East and Australasia, Volume VI

740.00119 PW/8–3148

The Secretary of State to the Secretary of the Army (Royall)

top secret

Washington, September 10, 1948.

Dear Royall: I have received your letter of August 31 replying to mine of August 26 on the Japanese reparations problem. It is evident from your letter that although progress has been made in reconciling subsidiary differences in our respective proposals for the solution of this problem, certain of the major points at issue remain unsettled. We are evidently not yet in agreement on the following six points, which the Department of State feels are essential to an effective, reasonably acceptable reparations proposal:

1. The State and Army Departments should agree, before presentation of our proposals to friendly FEC Governments, upon such adjustments in the levels of industry proposed by the Johnston Committee as would make our proposals more defensible from an economic and negotiating point of view.

My reasons for considering that these adjustments should be made were stated in my letter of August 26. You state in your reply, however, that the Department of the Army “could not agree to any appreciable reductions” in the Johnston levels. Nevertheless I believe it essential that adjustments be made, and enclose with this letter my specific recommendations for amendment of the Johnston levels¹ before their use as a basis for new U.S. reparations proposals. Since this Department considers the Johnston levels without these amendments to be indefensible from an economic and negotiating point of view, it would in my view be inadvisable for it to present to friendly FEC governments new U.S. reparations proposals based on the Johnston levels if these had not been amended at least to the extent indicated.

2. The U.S. Government must be prepared to take into account, and to meet if at all possible, reasonable counterproposals as to particular industrial retention levels made by individual countries, acceptance of which would considerably reduce their opposition to our overall program.

My reasons for making this proposal were also stated in my earlier letter. Your counterproposal provides that the only modifications which could be made would be those agreed to by the State and Army Departments prior to our presenting our proposals to the various governments. Since modifications in the Johnston levels arrived at prior to the discussions with other governments obviously could not anticipate the points made by individual governments in the discussions, and since the levels to be presented by us in the diplomatic discussions may produce such violent reactions as to jeopardize the prospect of our securing even partial international agreement to our proposals, it would be impossible for the Department of State to accept this counterproposal.

3. The U.S. Government should be prepared to review its entire reparations proposals in the event that such extremely strong opposition to those proposals is encountered as would make it clearly unwise to persist with them in the light of our overall foreign policy interests.

You state in your letter that the Department of the Army cannot agree to this point. I feel that there must be some misunderstanding here, because it would seem to me unthinkable that this Government should commit itself, as among its own component parts, to persist in a course of action even though it should become apparent that that course of action was contrary to the national interest.

4. The U.S. Government should remain free to accept further minor amendments to its proposals in the course of FEC negotiations.

This stipulation was implied although not specifically stated in my letter of August 26. You propose in your letter, on the other hand, that once our proposal has actually been submitted to the FEC no changes whatsoever should be accepted. While I of course agree that this Government should give every appearance of submitting a well considered and firm position to the FEC, it seems to me contrary to our own interest to bind ourselves at the outset of the FEC discussions to accept no proposed modifications even though those modifications might render our proposal more acceptable to other FEC countries. It would also seem an anomaly to submit a proposal to an international negotiating body without being willing to accept reasonable amendments to that proposal.

5. No public announcement of the U.S. position on reparations should be made until the program is embodied in an FEC or U.S. directive to General MacArthur.

This was the position taken in my letter of August 26. In your reply, however, you suggest that the U.S. publicly announce its reparations proposal at the time it is submitted to the FEC in order to eliminate present uncertainty in Japan with respect to reparations removals. Public announcement of the U.S. position at the time of submission of our proposal to the FEC, however, would advance this assurance to the Japanese by only one or two months at most. The price we would pay for this advantage, moreover, would be serious complication of our negotiating task. Public announcement of our proposal before the FEC had had opportunity to consider it would arouse additional antagonism to the proposal, and would provoke other FEC nations to make public announcements in response, from which domestic pressures would make it most difficult for them to withdraw.

I note that you propose in your letter that this Government state, not only in the preliminary discussions with friendly governments but also in presenting our proposals to the FEC, that we are prepared, if no agreement is reached after a reasonable period of consideration, to issue an interim directive to SCAP embodying our proposals. It would seem to me that in order to maximize chances of acceptance of our proposals by the largest possible number of FEC member nations, and considering that the friendly FEC governments will already have been advised of our intention to issue an interim directive in these circumstances, it would be better not to state this, intention in submitting our proposals to the FEC.

6. General MacArthur should scrupulously carry out the directive on reparations availabilities which is given him.

This was assumed in my earlier letter to you, but you suggest in your reply that SCAP determine the volume of facilities to be retained having as a yardstick only a general instruction that the reparations removals should not be “in excess of the quantities which the Overseas Consultants, Inc. or the Johnston Committee recommend to be available”, and that he have “overriding authority” to retain particular plants which were essential to the purposes of the occupation. As indicated in Point 1, above, the Department of State considers that the directive to General MacArthur should embody specific industrial retention levels. It is our view, also, that General MacArthur should be required to adhere to those levels, and to make available for delivery, and deliver when claimed, facilities in excess of the levels. As to his overriding authority to retain particular facilities, referred to in your letter, SCAP already has authority from the FEC to retain temporarily particular facilities on a showing to the Allied Council that their retention is necessary for the purposes of the occupation. This authority would seem fully adequate in view of the very restricted program of removals to be proposed by this Government.

In view of the wide differences remaining on the above essential points I believe it will be necessary after all for us to meet again to discuss the matter. If acceptable to you I propose that the meeting be at a mutually convenient time on Monday, September 13, and that we plan at that meeting to arrive at a final solution of this problem if at all possible.

I am enclosing for your consideration before the meeting a proposed redraft of the section on reparations² for insertion in NSC 13, “Recommendations with Respect to U.S. Policy for Japan”, and, as stated above, the statement of changes which this Department considers would have to be made in the Johnston industrial retention levels before they could form a suitable basis for a new U.S. reparations proposal.

Faithfully yours,

G. C. Marshall

[Enclosure 1]

Proposed Modifications in Johnston Retention Levels

top secret

The following modifications in the industrial levels set in the Johnston report should be made prior to the undertaking of diplomatic talks with friendly FEC countries:

1. Primary “War Facilities. All machinery and equipment (including thermal power units) in primary war facilities (army and navy arsenals, privately owned munitions plants and aircraft plants) should be made available for reparations claim. The Johnston report would limit the facilities available for reparations in this category to those in army and navy arsenals.

2. Shipbuilding. All machinery and equipment (including thermal power units) in excess of 400,000 gross tons of annual capacity for building steel ships of over 100 gross tons each should be made available for reparations claim. The Johnston committee recommends that Japan be allowed to retain capacity for building about 650,000 gross tons of steel ships annually. Estimated existing capacity is approximately 800,000 gross tons annually.

3. Iron and Steel. All machinery and equipment (including thermal power units) in excess of 5.0 million metric tons of annual capacity for the production of steel ingots should be made available for reparations claim. Proportionate levels should apply to blast furnace and steel rolling capacity. The Johnston committee recommends that no iron and steel capacity be made available for reparations. Estimated existing steel ingot capacity is approximately 6.4 million metric tons.

[Enclosure 2]

Japanese Reparations

top secret

1. The United States should rescind the Japanese reparations interim directive (part A of JCS Directive No. 75) on advance transfers except that part A of Directive No. 75 should remain in effect with respect to allocations of assets which have already been processed under that directive. After prior diplomatic discussion with friendly FEC nations the United States should submit the following proposals on Japanese reparations to the Far Eastern Commission, unless such extremely strong opposition is encountered in the diplomatic discussions as to indicate the need for review or withdrawal of the posposals.

2. The aforementioned United States proposals should be that (a) Japanese external assets located within the jurisdiction of Allied nations at the time of the Japanese surrender should be retained by such nations and their value credited to reparations; (b) SCAP should be directed to determine, announce and make available for reparations claims, categories and quantities of industrial facilities and equipment which are in excess of the levels finally agreed to by the State and Army Departments. Industrial facilities and equipment to be determined available for reparations claims should not include buildings. SCAP may, if necessary, exercise authority granted him by the FEC in FEC 084/21 to retain temporarily particular plants declared available for reparations.³ The United States Government should request SCAP to announce publicly, within 30 days after his receipt of a directive on this subject, the facilities and equipment which would be made available for reparations claims; (c) SCAP should be directed to receive reparations claims from Far Eastern Commission countries within a reasonable period; (d) Allocations of available and claimed reparations should be made by SCAP in accordance with national percentage shares, substantially as herein stated. In making such allocations, consideration should be given by SCAP to items already delivered pursuant to the U.S. advance transfers directive (JCS Directive No. 75); and (e) Actual allocations and deliveries should be made by SCAP as soon as possible after issuance of the directive embodying this position in order that recipient nations may have the benefit of facilities and equipment as soon as possible and in order that reparations deliveries may be completed within eighteen months thereafter.

3. If, after reasonable consideration in the Far Eastern Commission, this position cannot be agreed upon in the Far Eastern Commission, the United States should consider the desirability of issuing a unilateral directive to SCAP.

4. Industrial reparations under the above proposal should be made available to those member countries of the Far Eastern Commission which can approve the following schedule of percentage shares. The United States Government for its own part should hold 18 of its 23% share of industrial facilities for redistribution among those Far Eastern countries which approve the schedule and which desire increments to industrial facilities which they are entitled to receive by their share. The United States Government should allow a period not to exceed one month for negotiation among countries wishing to participate in the redistribution of this 18%, in which these countries can seek a mutually acceptable redistribution of that share. If no agreement is reached within this period, the said 18% for redistribution should be divided among participating countries in proportion to the percentage shares shown below.

Australia	8%
Canada	1
China	30
France	2½
India	5
Netherlands	5
New Zealand	1
Philippines	8
USSR	4
United Kingdom	12½
United States	23

1. Enclosure 1, p. 1009.
2. Enclosure 2, p. 1009.
3. For FEC–084, August 14, 1947, see The Far Eastern Commission, 2d report, p. 25.