Foreign Relations of the United States: Diplomatic Papers, The Conference of Berlin (The Potsdam Conference), 1945, Volume II

740.00119 EW/9–2045

No. 980
The Representative on the Allied Commission on Reparations (Pauley) and the Associate Representative on the Allied Commission on Reparations (Lubin) to the President¹

[Extract]

secret

[Washington, September 20, 1945.]

Report on German Reparations to the President of the United States, February to September 1945

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part v. tripartite conference at berlin (july 16 to august 2, 1945)

The decision to submit the question of a reparations plan and reparation policies to the Berlin Conference was clearly forecast in the letter of the US Representative on the Allied Commission on Reparations of July 3, 1945 addressed to the Soviet Representative.² (See Appendix 17³)

Ambassador Pauley left Moscow for Berlin on July 14. He was accompanied by Minister Isador Lubin, J. R. Parten, Chief of Staff, J. Howard Marshall, the General Counsel, and Dr. Luther Gulick, Advisor on Governmental Organization. Upon arrival in Berlin a series of meetings were commenced with Assistant Secretary of State Clayton and his advisors, Mr. Emile Despres and Mr. Emilio G. Collado, as to the best means of submitting to the Big Three the reparations problem—both that part of the reparations program which had been agreed upon and those parts of the program upon which agreement had not been reached.

It was concluded that definitive United States proposals on reparations should be included as part of the United States Proposed Agreement on the Political and Economic Principles to Govern the Treatment of Germany in the Initial Control Period.⁴ Accordingly, there was attached to the proposed agreement Annex I on German Reparations⁵ which included the seven principles upon which the Allied Commission on Reparations had agreed together with the eighth proposed principle containing the prior charge of imports on exports with an argument in support of such principle; the agreed upon division of shares between the USSR, UK and US; and the agreed upon procedure for divisions of reparation shares among countries other than the UK, US, and USSR. In addition there was included proposed definitions of restitution, war booty and reparations, as follows:

[Here follows the text of attachment 2 to document No. 894.]

On these latter points of definition, of course no agreements had been reached in the Allied Commission on Reparations and in connection therewith it was stated in Annex I “the United States Government feels that the definition of restitution, war booty, and reparations are so interrelated with the formulae for allocation of reparations that agreement must be reached on all of these matters simultaneously.”

The following should particularly be noted in the Annex above referred to:

“The Commission has failed to reach agreement on the underscored last clause of an eighth principle:

‘After payment of reparations, enough resources must be left to enable the German people to subsist without external assistance. In working out the economic balance of Germany, the necessary means must be provided for payment of imports approved by the governments concerned before reparation deliveries are made from current production or from stocks of goods.’⁶

“The United States Government fully concurs in these principles and must insist that such necessary imports as are approved by our governments shall constitute a first charge against exports from Germany of current production and stocks of goods. To do otherwise will lead either to a repetition of our mistakes at the end of the last war, or leave us unable to bring about the desired industrial disarmament of Germany.”⁷

Thus Annex I on reparations became a part of the US proposal for Germany at the first meeting of the Big Three.⁸

The so-called economic principles of the US proposal including the annex dealing with reparations, were referred by the Big Three to the Committee of Foreign Ministers. The Foreign Ministers in their turn referred these matters to an economic sub-committee.⁹ This subcommittee was headed, insofar as the US Delegation was concerned, by Assistant Secretary of State Clayton. Included also was Ambassador Pauley sitting in a dual capacity both as the American Representative on the Allied Commission on Reparations and as a personal advisor to the President on economic matters. Minister Isador Lubin likewise attended the meetings of this Economic Sub-Committee as the Associate of Ambassador Pauley on Reparations and certain members of the US Delegation on Reparations, usually Mr. Parten and Mr. Marshall, attended. Sir Walter Monckton, Sir David Waley, and Mr. Mark Turner attended the meetings of the Economic Sub-Committee and spoke for the British. These three had been in Moscow as part of the British Delegation on the Allied Commission on Reparations. Mr. Maisky and Mr. Sabourov together with the various other advisors attended the meetings of the Economic Sub-Committee and spoke for the Soviet Union. These representatives likewise had represented the USSR on the Allied Commission on Reparations in Moscow.

The Economic Sub-Committee of the Council of Foreign Ministers tried in vain to resolve the question of approved imports as a “first charge” on exports. The question was referred to the Committee of Foreign Ministers where, likewise, no agreement was reached.

On numerous occasions during the course of the reparation discussions in this Economic Sub-Committee the Soviet representatives were asked for their definition of “war booty” which they undertook to submit during the latter part of the discussions which had occurred in Moscow. Finally Mr. Maisky submitted late on the evening of July 21 a proposed Soviet definition of war booty which he styled “War Trophies” as follows:

• “1. All military supplies and equipment of Germany, including all supplies and military equipment, which belong, being used or have to be used by the military and para military units of the enemy or by the members of these units;
• “2. All supplies and equipment used by the enemy to satisfy his military needs and captured by the Allies before the end of the war on territories where military operations were conducted.”¹⁰

Obviously section 2 of the foregoing definition was exceedingly broad. In response to specific questions both by Sir Walter Monckton and Ambassador Pauley, Mr. Maisky indicated that the Soviet regarded such equipment as textile mills, shoe factories, and coal mines to constitute war trophies if at any time they were used to supply any of the military needs of the German Armed Forces. Mr. Maisky admitted that this definition would leave little for “reparations” if strictly applied throughout Germany. He suggested, however, that merely because a nation had a right to claim war booty on the foregoing broad basis, it did not mean that the right could not be “waived” which would leave more in the way of capital goods for reparations. Both Sir Walter Monckton and Ambassador Pauley indicated, as the meeting adjourned, that this hardly seemed a satisfactory method of approaching the problem.

Following the presentation of the Soviet’s proposed definition of war trophies the US Delegation to the Allied Commission on Reparations came to the conclusion that an “overall percentage” allocation of shares as between the Big Three was no longer feasible. The division of reparations as applied to Germany as a whole would have to be abandoned for some less controversial method of dividing what would be removed as reparations among the nations entitled to reparations.

The US Representative came to this conclusion because:

1. Already there had occurred a “fait accompli” by which the Poles, with the consent of the Soviets, had occupied a substantial part of Germany lying east of the Oder–Neisse line from which area a substantial amount of reparations had been expected when the 56–22–22 percentage formula had been tentatively agreed upon.¹¹

2. The USSR definition of “war booty” or “war trophies” was so broad that if accepted it would tend toward endless controversies between the Soviet Representatives and the representatives of the Western Powers holding very different views as to what might properly be classified as war booty.

3. Detailed first-hand surveys in the American and British zones of occupation in Berlin as well as in the Russian areas of the city, particularly by Gulick and Marshall, showed conclusively that Soviet removals of plants of both heavy and light industry alike had already taken place or were in the process in Berlin with the result that, if practiced uniformly, little if anything would be left to move from east to west as reparations or to support an agreed German economy.¹²

In the course of the next week the plan was gradually evolved for the division of reparation shares as between claimant nations to be made upon a zonal basis. Throughout the discussion that follows one should bear in mind that the zone plan as evolved and finally adopted did not contemplate separate reparation plans to be applied to a dismembered Germany. Rather it is simply an alternative method of dividing the total amount of reparations among the various nations as a more practical means of division than the agreed percentage formula arrived at in Moscow which was contemplated to apply to the whole of Germany as of 1937 boundaries.

The nature of the plan submitted was based on data submitted by the US Representative. These data were directed to ascertain the percentages of industrial and agricultural resources estimated to exist in the Eastern Zone of occupation (including that part of the Alt Reich lying east of the Oder–Neisse line) and the Western Zones.¹³ The final percentage of so-called “free” deliveries allowed the Soviets from the Western Zones was predicated in a large measure upon these estimates. It was sufficient to allow the USSR approximately 50% of the total removals as reparations to which approximate percentage ever since the Crimea Conference neither the US nor UK ever raised serious objection.

The US proposal for a zonal division of reparation shares was first formally submitted to the Economic Sub-Committee of the Foreign Ministers on July 25th. It had been informally discussed both in this Sub-Committee and between Secretary Byrnes and Mr. Molotov prior thereto.¹⁴ The first draft of the US proposal, to which the British had informally subscribed, was as follows:

[Here follows the second section of document No. 925.]

Subsequently, after considerable discussion and trading back and forth the U. S. proposal was amended by the addition of the following which introduced the idea of USSR and Poland securing additional capital equipment from the Ruhr industrial area in Germany partly in exchange for raw materials to be provided by the Soviet and partly without any obligation to deliver commodities in exchange for capital removals:

[Here follows the text of document No. 966.]

Negotiation between Ambassador Pauley, Mr. Byrnes and Mr. Molotov brought the matter to the point where the Soviet expressed a preference for the right to secure removals both as reparations and in exchange for raw material deliveries not just from the Ruhr but from all of the western zones of occupation. In accordance at the end with the informal agreement of the British it was suggested to modify the US proposal further by adding the following:

“d.¹⁵ Implementing the foregoing programs, the reparations claims of the USSR and Poland shall be satisfied by removals from the zone of Germany occupied by the USSR, plus

• “(a) 12% percent of such industrial capital equipment as is unnecessary for a peace economy, and should be removed from the zones of Germany occupied by the US and UK in exchange for an equivalent value of food, coal, potash, zinc, timber, clay products, petroleum and petroleum products, and such other commodities as may be agreed upon, to be made available to the US and UK by the Soviets.
• “(b) 7½ percent of such industrial capital equipment as is unnecessary for a peace economy, and should be removed from the US and UK zones, to be transferred to the Soviet Government without payment or exchange of any kind in return.

“Removals of industrial capital equipment shall be completed within two years of the date hereof in exchange for products to be delivered within five years of the date hereof. The determination of the amount and character of the industrial capital equipment unnecessary for a peace economy and therefore available for reparation shall be made by the Allied Commission on Reparations with France added working in consultation with the Control Council subject to the final approval of the zone commander in the zone from which the equipment is to be removed.”

As the discussions proceeded at the Foreign Ministers level with respect to the proposal for the division of reparation shares on the basis of the additional 12½ and 7½ percent for the Soviet and Poland, the USSR raised various questions as to the division of German external assets, gold captured by the Allied Armies in Germany and their claim for a share interest in corporate assets of German enterprises like railroads which would necessarily be left in Germany. In consideration of an agreement on the part of the USSR to renounce any interest by way of reparations in the foregoing three types of property the 12½ and 7½ percentages were raised to 15 and 10 percent respectively. At the very last moment a question arose between Mr. Vyshinski and Mr. Gromyko on the one hand and Mr. Clayton and Mr. Pauley on the other when the Soviet draftsman insisted that the USSR had only renounced its claim to German external assets lying west of their zone of occupation. This argument was finally compromised by deciding certain specific countries in which the western powers renounce any claim to German external assets and provided [and by providing?] that the USSR renounce its claim to German external assets in all other countries.

As put forward by Secretary Byrnes the US proposal on the actual percentages of reparations to be delivered to USSR and Poland from the western zones after agreement had been reached in principle, [and?] the USSR [had?] renounced its claim to external assets and gold, follows:

[Here follows the text of document No. 961.]

And Secretary Byrnes also submitted the following as a first draft method of determining the amount and character of industrial capital equipment which should be removed from Germany as reparations:

“The determination of the amount and character of the industrial capital unnecessary for a peace economy and therefore available for reparation shall be made by the Allied Commission on Reparations with France added working in consultation with the Control Council subject to the final approval of the zone commander in the zone from which the equipment is to be removed.”¹⁶

There are certain significant variations between the foregoing first drafts of the proposed language of the reparations plan [and the plan] as it finally appeared in the Berlin Protocol.¹⁷

1. The determination of the amount and character of removals originally proposed to be vested in the Allied Commission on Reparations was changed to provide that this function should be vested in the Control Council.

2. There were omitted the general policies to govern reparation removals, originally included in the plan submitted to the Economic Sub-Committee which were derived from the principles adopted by the Allied Commission on Reparations (with the exception of the first charge) in Moscow. These policies were stricken at the request of USSR on the ground that such policies were already embodied in the economic principles and the Soviet Delegation at the last moment had accepted the principle of imports as a first charge on exports.

3. Although as originally proposed by the USSR the matter of interim or “advanced” deliveries was to be determined by the Allied Commission on Reparations, this was modified in the final discussions with Mr. Vyshinski and Mr. Gromyko in the evening before the Protocol was adopted to provide that the eligibility of capital equipment for advanced deliveries would be determined by the Control Council.

One further important matter should be noted with respect to those provisions of the Berlin Protocol which relate to the fifteen percent of certain capital equipment to be delivered by the USSR, “in exchange for an equivalent value of food, coal, potash, zinc, timber, clay products, petroleum products, and such other commodities as may be agreed upon.”

Although the Protocol does not specify the source of the foregoing commodities in so many words, it should be noted that the obligation to deliver was placed upon the Soviet Union—not upon the Eastern Zone of Germany. The clause in question should be read in the light of the background of discussion at the Potsdam Conference, which preceded its inclusion in the Berlin Protocol. That discussion revolved about ways and means whereby compensation could be provided for the deficit in the German economy resulting from splitting off, on motion of the Soviets, that part of Germany lying east of the Oder–Neisse line.

At one time in the course of negotiations the words “petroleum and petroleum products” were included in the commodities to be delivered by the USSR. These commodities were not included in the Soviet-Polish Trade Treaty.¹⁸ They were originally included in a proposed draft of the Berlin Protocol by Ambassador Pauley as a continuation of his efforts in the Economic Sub-Committee to obtain fifty thousand barrels of crude oil per day from Austria, Hungary and Rumania in order indirectly to increase the supply of petroleum and petroleum products to the US and UK for waging war in the Pacific. Originally it was proposed that this crude oil be supplied by the Soviet Union either on reverse lend lease or for purchase but to this USSR was not ready to agree.¹⁹ The injection of petroleum and petroleum products into the draft of the Berlin Protocol as commodities to be supplied in exchange for capital removals was thought by Ambassador Pauley to be one way of meeting the problem. On the evening before the Protocol was finally adopted Mr. Clayton consented at the request of Mr. Vyshinski to a phrasing which read “petroleum or petroleum products” and later it was agreed to strike the first word “petroleum”, thus leaving “petroleum products.”

The US Representative also pressed for the adoption of paragraph 18 of the Economic Principles,²⁰ which provides:

“Appropriate steps shall be taken by the Control Council to exercise control and the power of disposition over German-owned external assets not already under control of United Nations which have taken part in the war against Germany.”

After this provision was agreed upon, the US Representative submitted to the President for his signature a memorandum requesting General Clay to press immediately for the adoption of a decree by the Control Council, vesting German external assets. A suggested form of decree was forwarded with the memorandum. The text of the memorandum and proposed decree is contained in Appendix 24.²¹

Articles III and IV respectively of the Berlin Agreement²² contain The Political and Economic Principles To Govern the Treatment of Germany in the Initial Control Period and Reparations From Germany. This portion of the Berlin Agreement is set forth in Appendix 3 hereof.²³ Paragraph 6 of Article IV in part reads:

“The determination of the amount and character of the industrial capital equipment unnecessary for the German peace economy and therefore available for reparations shall be made by the Control Council under policies fixed by the Allied Commission on Reparations, with the participation of France, subject to the final approval of the Zone Commander in the Zone from which the equipment is to be removed.”

Paragraph 7, Article IV, reads as follows:

“Prior to the fixing of the total amount of equipment subject to removal, advance deliveries shall be made in respect of such equipment as will be determined to be eligible for delivery in accordance with the procedure set forth in the last sentence of paragraph 6.”

These quoted provisions, together with the other provisions of Article IV and the provisions of Article III, furnish the basis of the agreed plan of reparations. This plan is to remove all industrial equipment unnecessary for the German peace economy, as determined in accordance with the principles set forth. Many of the “policies fixed by the Allied Commission on Reparations” are contained in the Berlin Agreement. Naturally other policies will be required of the “Allied Commission on Reparations, with the participation of France”, which logically should be undertaken when and as the occasion arises by meetings of the Allied Commission on Reparations in Berlin. This is desirable, though it will require the removal of the seat of this Commission from Moscow, because the closest contact will be required between [with?] the administration of the Allied Control Council in order that the physical facts which it develops will be available to the Commission. This circumstance was the basis for the US recommendation that the Allied Commission on Reparations move its seat to Germany and preferably to Berlin.²⁴

At the request of the Zone Commander the US Representative drafted an interpretive memorandum styled Memorandum on the Provisions of the Berlin Protocol Relating to Reparations,²⁵ and before his departure from Berlin on August 20, 1945, filed a copy of same with the Zone Commander, with a covering letter²⁵ stating that after this draft was gone over with the affected agencies in Washington, a final draft would be drawn and officially transmitted to him. This memorandum has been completed and contains a comprehensive analysis of the reparation plan, together with historical background of the discussions and considerations that led to the several provisions, and is attached hereto as Appendix 30.²⁶

. . . . . . . . . . . . . .

1. This report, drafted and compiled in large part by Gulick and DuBois, dealt with negotiations on the German reparations question from February to September 1945. The only section here printed is part v, which is a summary of the reparations negotiations at the Berlin Conference.
2. Ivan Mikhailovich Maisky.
3. Document No. 364, printed in vol. i.
4. Document No. 852.
5. Document No. 894.
6. The passage here represented by italics was underscored in the source copy.
7. Cf. document No. 894.
8. See ante, p. 52.
9. See ante, pp. 53, 70, 71, 76.
10. Cf. document No. 904.
11. See documents Nos. 894 (attachment 3), 915, 918, and 931.
12. See documents Nos. 929 and 940.
13. See documents Nos. 930–936.
14. See ante, p. 275.
15. See the second section of document No. 925 for paragraphs a–c to which this paragraph d is related.
16. Cf. document No. 962. The chronology of the Pauley–Lubin Report with respect to the last four proposals quoted is at variance with the minutes and the documents circulated at the Conference.
17. Document No. 1383, section iii.
18. See ante, p. 406, footnote 3.
19. See documents Nos. 1316–1326.
20. See document No. 1383, section ii, paragraph 18.
21. See document No. 1003; cf. document No. 998. Only the attachment to document No. 1003 is reproduced in appendix 24 to the Pauley–Lubin Report.
22. i. e., the Communiqué (document No. 1384).
23. Not printed as such. See document No. 1384.
24. See document No. 976.
25. Not printed.
25. Not printed.
26. Not printed.