611.94/2–2552: Telegram

No. 530
The United States Political Adviser to SCAP (Sebald) to the Department of State

secret
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1776. Info SecDef. CX 64258. This is Sebald’s 1776 rptd SecDef. Number 42 from Rusk. Believe Dept should have certain statements to be made in minutes1 connection old Art 23 on expenses. Biggest problem arose from fact that, in computing $155 million Jap contribution, basic data and figures were those taken from TOW procedures and included Jap taxes. In approving this amount Jap budget, SCAP authorities had before them breakdown of figures showing tax element approximately 900 million yen. Same amount showed up on revenue side Jap budget. Budget was approved and submitted Diet this basis and commitment made that this amount was all Jap would be asked to contribute first year under admin agreement. When we raised question tax exemption, Japs had to insist that we either pay taxes of amount included, or reduce total by same amount. Alternative would be effort change budget in difficult stage budget action by Diet. Japs also felt our [Page 1193] raising this question was contrary assurances re size of contribution.

This problem exists only for first year, but is one on which US was committed. Minutes will try to straighten out tangle thereby created. Our solution is that during period when Japs are making disbursements, pending legislative authority for US Forces to do so, Japs will pay bills including tax element as with TOW. After we make disbursement direct, Japs would remit to us their contribution less tax element and we would procure with same exemptions as with other funds. Net result is that contribution first year is about $2½ million less than we thought in Wash, but is same as agreed in Tokyo between us and Jap budget people.

Fol are texts statements to be made in minutes:

“(By Okazaki): It is my understanding that the yen fund provided in para 2 (b) shall be transferred to a US special account by the Jap Govt on a quarterly basis. The obligation program shall also be on a quarterly basis and shall be prepared in concert with the Jap Govt. With respect to receipts, obligations and cash payments of the special account, monthly reports (including reports for shorter periods, if necessary) shall be promptly transmitted to the Jap Govt to facilitate necessary adjustments on subsequent transfers. Disbursements from this account shall meet standard requirements as agreed by both parties along the line of standards required by the General Accounting Office, US Govt, with due consideration given to the standard practices in Japan, and Jap members of the Joint Committee may audit the special account with the assistance of government experts and with the cooperation of US authorities.

“(By Rusk): I understand that disbursement of this fund will be made by the US. However, enabling legislation will be required of the US Congress before such disbursement procedure can be placed in effect. As an interim measure, I understand that disbursement of these funds shall be made by Jap disbursing officers but that such disbursements will be made under the programming procedures which you have described.

“(By Okazaki): I agree. Inasmuch as payment of taxes is the normal established practice of the Jap Govt, the Jap currency referred to in para 2 (b) provided by means of a Jap Govt appropriation includes an element for payment of taxes. It is therefore understood that the 1952–53 appropriation for defense expenses includes taxes.

“(By Rusk): I understand that as a budgetary practice your defense appropriations may include an element for taxes. However, as a principle governing international relations it is basically inappropriate for one govt to pay taxes to another govt in matters pertaining to joint and mutual defense efforts. Therefore, I believe that such funds appropriated by the Jap Govt should not be depleted by the payment of direct taxes, since such depletion would require an increase in the contribution of the US to offset such payments without adding to the joint and mutual defense effort. It is recognized, however, that the computation for the Jap contribution [Page 1194] for 1952–53 did include a tax element and therefore should include the payment of taxes. In succeeding years it is agreed that both parties will adhere to the general principle of relief from taxation and future estimates will be so computed. Such funds as are turned over to the US from the Jap appropriation for 1952–53 disbursement by the US shall be reduced by the amount of the agreed tax element”.

Minutes will also contain fol statement as requested by Dept:

“(By Rusk): It is understood that nothing in this agreement shall prevent the US from utilizing for the defrayment of expenses which are to be borne by the US under this agreement, dollar or yen funds lawfully required by the US.”2

Info copy furnished Ridgway.

Sebald
  1. Full text of these statements is included in the Official Minutes of the Tenth Joint Meeting for the Negotiation of the Administrative Agreement, held Feb. 26. (611.94/2–2652)
  2. In the document cited in footnote 1 above, the word “acquired” replaces “required” in this sentence.