Foreign Relations of the United States, 1952–1954, China and Japan, Volume XIV, Part 2

NAC files, lot 60 D 137

¹

No. 686
Memorandum by the National Advisory Council Staff Committee to the Council²

confidential
NAC Document No. 1528

[Washington,] September 15, 1953.

Subject:

• Settlement of Postwar Economic Assistance to Japan

The United States has given Japan economic assistance since World War II amounting to $2,045.6 million, of which about $42.3 million relates to surplus property type claims. These data are the best available, but they do not represent strictly accurate accounting data. Furthermore, there are possible deductions from these amounts which may be negotiating points.

The legislation making the GARIOA funds available did not require repayment and there has never been a formal undertaking by the Japanese with respect to compensating the United States for this assistance. On occasion, the Departments of States and Defense informed the Congress that repayment from the Japanese would be sought, but there has been no commitment with respect to the amount and terms of the settlement. For that reason any settlement of these United States claims will need to be discussed with the appropriate Congressional Committees. The Department of State considers that settlement should take the form of an executive agreement.

The Department of State has consistently followed the policy of negotiating surplus property settlements on the basis of 100% of sales value, and feels it necessary to follow the same policy in the Japanese case. Accordingly, it is proposed that after the total payment to be made by Japan on account of postwar economic assistance is determined and agreed with the Japanese, two agreements be written, one along surplus property terms covering the obligation of about $42 million, the other covering the remaining major portion of the claim.

The terms of settlement with Japan have been the subject of occasional discussions interdepartmentally for more than two years. It was, for instance, discussed in the NAC on October 17, 1951, along with the German problem.³ Two major interdepartmental differences have prevented agreement being reached as yet, namely, the amount which Japan shall be obligated to repay and the relation of the settlement to the defense program of Japan. When the Treaty of Peace with Japan was negotiated, the United States contended that Japan could not pay reparations without putting a burden on the United States. The Treaty, as executed, provided for reparation payments in the form of services supplied by Japan. Reparations settlements under the Treaty have not been accomplished with any country, and the problem constitutes an obstacle to expanded Japanese trade with Southeast Asia.

The German settlement is likely to become a precedent with respect to the amount of the proposed settlement with Japan. Total claims against Germany amounted to approximately $3.2 billion. The total obligation assumed by Germany under the agreements was $1.2 billion, of which about $200 million represented surplus property sales, and the balance other claims arising from postwar economic assistance. The surplus property portion was settled on the basis of the full amount on terms similar to other surplus property settlements, i.e., 30 years at 2 3/8 percent. The major portion of the settlement, however, was funded over a period of 35 years at an interest rate of 2 1/2 percent. A 5–year grace period on repayment of principal applied to both portions.

If the claim on Japan were to be settled on similar terms, the principal amount would be about $750 million, with annual payments of interest and amortization amounting to about $35 million. It seems probable that the longer the GARIOA settlement is postponed the weaker the United States position will be. It is appropriate to proceed at this time inasmuch as the Japanese have suggested that the whole range of economic problems between the two countries be discussed during the visit of Mr. Hayate Ikeda starting about September 17. These problems, in addition to post-war assistance, include defense, trade, reparations and U.S. aid. This provides an opportunity to discuss this subject and other economic problems in their relation to each other, and at the same time provide for the possibility of an early settlement of post-war economic assistance.

1. File of documents of the National Advisory Council on International Monetary and Financial Problems for the years 1945–1958, as maintained by the Bureau of Economic Affairs of the Department of State.
2. Accompanied by an attached “Recommended Action”, identical in wording to NAC Action No. 647, included in the minutes, infra.
3. The Council, which did not meet on Oct. 17, 1951, discussed this subject at its 184th Meeting held Oct. 24, 1951. Minutes of the meeting, not printed, are in lot 60 D 137. For discussion of the substance of the meeting, see Hemmendinger’s memorandum to McClurkin, Oct. 26, 1951, in Foreign Relations, 1951, vol. vi, Part 1, p. 1384.