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

740.00119 PW/8–3148

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

top secret

Washington, 31 August 1948.

Dear General Marshall: I am in receipt of your letter of August 26 in which you state you are prepared to accept the Department of the Army’s proposal for settlement of the Japanese reparations problem subject to certain revisions which you suggest. The Department of the Army concurs in General MacArthur’s suggestions. Insofar as they constitute recommendations for amendments in the Army proposal, they have been incorporated in the revised draft of the reparations paragraph inclosed herewith. I agree that the detailed program be discussed jointly by our Departments and accordingly accept your suggestion that State and Army representatives meet at once to develop recommendations as to any particular industries for which levels proposed by the Johnston Committee can be demonstrated to mutual satisfaction as unnecessarily high. As you know, the Army position rests squarely on the industrial capacity to be retained and we could not agree to any appreciable reductions. Our proposal also contemplated that SCAP would determine the specific plants to be retained, and gave him as a yardstick a general instruction that the reparations removals should not be “in excess of quantities which Overseas Consultants, Inc., or the Johnston Committee, recommend to be available.” The proposal also permits SCAP overriding authority to retain particular plants which are essential for the purposes of the occupation. I would not think it desirable to change these general principles and so prevent the contemplated flexible handling by SCAP.

My suggestion, in answer to your question as to whether any negotiating latitude is to be permitted, is that the present Army proposal be presented to the friendly FEC governments, with the explanation that this is what we intend to place before the FEC, but that we wish to receive their informal comments before making the actual submission to that body. These comments could be taken into account and minor modifications could then be applied to the original Army proposal before presentation to the FEC. The minor modifications to which I refer would be those to which our representatives agree in the discussions you have suggested.

However, I do not see how I could agree as suggested in your paragraph five on page three, if I understand you correctly, to withhold our proposals from the FEC if the preliminary conversations indicate that the essentials of our present proposals are not acceptable.

The effect of what I have suggested above is that a certain amount of negotiating latitude would be retained during the discussions with the friendly FEC governments, but when our proposal was actually made to the FEC itself, and publicly announced, we would not be prepared to vary since the views of other friendly FEC countries will have already been considered. One of the main purposes of the entire proposal would lose its force if the Japanese people and the owners and the workers in the various industries were not informed of the maximum reparations which we were prepared to remove. Economic recovery in Japan depends to a considerable degree on eliminating the present uncertainty with respect to reparations removals and only a finalized American position can accomplish this result in the absence of final FEC agreement. The course of economic recovery in Bizonal Germany since the definite list of plants to be retained was published about a year ago clearly substantiates this position.

I believe it should be stated both in the preliminary discussions and when the proposal is presented to the FEC that this Government is prepared, if no agreement is reached after a reasonable period of consideration, to issue an interim directive to SCAP embodying the proposals. I believe it essential that this interim directive be issued if FEC agreement is not forthcoming in order to fulfill our Potsdam commitment that there should be reparations from Japan and in order that the reparations matter may be settled. When issued this directive should stipulate the percentage shares listed in the inclosure to your letter with which I concur.

I urge that we formally withdraw our earlier shares proposal and also all previous reparation proposals, and rescind our advance transfer directive, as soon as possible and certainly no later than the date the new proposal is presented to the FEC. I am willing to meet your wishes as expressed in paragraph eight and to eliminate the requirement for a quit-claim by the recipient countries. However, I would suggest that the announcement regarding the finality of our position be made publicly along with the reparation proposal itself at the time the proposal is submitted to the FEC, rather than later when the interim directive is given to SCAP.

If you agree with the above, I suggest that Mr. Saltzman and Mr. Draper arrange for the necessary discussions immediately, although I would suggest that we allow two weeks, if necessary, for the discussions in view of the present Berlin negotiations which are taking much time in both Departments.¹ As soon as the scope of negotiating latitude has been agreed by both Departments, the revised reparations paragraph should be incorporated in the policy recommendations now before the National Security Council and urgent approval should be requested. The discussions you propose with friendly FEC member governments should follow immediately on such approval, and after any appropriate modification has been made in the final proposal as a result of these discussions, the proposal should be presented to the FEC.

While I have every desire to resolve this question at the earliest possible moment, only about a week remains before the FEC meeting on September 9. I do not see how the necessary discussions between the two Departments, approval by the National Security Council, and discussions with the friendly FEC governments could possibly take place within that length of time. However, subject only to the Berlin discussions, I am prepared to give this matter highest priority in this Department and will do everything possible to expedite its conclusion.

Sincerely yours,

Kenneth C. Royall

[Enclosure]

Revised Draft on Japanese Reparations

top secret

(Army Position)^*

august 1948

The United States should rescind the Japanese reparations interim directive ( JCS Directive No. 75) on advance transfers and allocation procedures except that Directive No. 75 should remain in effect with respect to allocations of assets which have already been processed under that directive. Thereafter After that directive has been rescinded, the United States should announce publicly the following position and should submit this position to the Far Eastern Commission with the information that the United States will not agree to any policy on Japanese reparations incompatible with this proposed program. Prior to public announcement and submission to the Far Eastern Commission, this U.S. position should be appropriately brought to the attention of the other member governments ot the Far Eastern Commission by the Department of State.

2. The aforementioned United States position in the Far Eastern Commission should be that (a) Title to Japanese external assets located in territories of Allied nations at the time of the Japanese surrender should be transferred to the governments of these respective nations, (b) SCAP should be directed to determine, announce and make available for reparations claims, categories and quantities of industrial facilities and equipment which are not needed for the economic recovery of a peaceful Japan and which are not in excess of quantities which Overseas Consultants, Inc., or the Johnston Committee recommended to be made available. Appropriate substitutions may be made as SCAP may determine. SCAP should use his discretion in determining particular assets to be made available for reparations claims. Industrial facilities and equipment to be determined available for reparations claims should not include buildings or, in general, accessory equipment. SCAP should be given an overriding authority to retain particular plants in Japan whether or not they are on reparations removals lists, if he considers their retention essential for purposes of the occupation. The United States Government should request SCAP to announce publicly, within 30 days after submission of this position to the Far Eastern Commission, the facilities and equipment which would be made available for reparations claims upon adoption of this policy, (c) SCAP should be directed to receive reparations claims from Far Eastern Commission countries and should determine the final date for submission of such claims but this date should not be earlier than for a period of ninety days subsequent to adoption by FEC of this position as the final reparations decision, (d) Allocations of available and claimed reparations should be made by SCAP in accordance with national percentage shares determined by the Far Eastern Commission. In making such allocations, consideration should be given by SCAP in such allocations 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 adoption of this position as the final FEC reparations decision 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 year of date of adoption of policy by FEC within eighteen months subsequent to the adoption of this position as the final reparations decision.

3. If, after frank diplomatic discussions with Far Eastern Commission member nations and after reasonable consideration in the Far Eastern Commission, this position cannot be agreed upon in the Far Eastern Commission, then the United States should consider issuance of a unilateral directive to make the above proposal legally effective.

1. See vol. ii, p. 867.
2. The underlining represents additions to, and the “strike-thru’s” indicate deletions from the position of the Army as sent to SCAP in WAR 84232, dated 18 June 48. [Footnote as in the original, telegram under reference not printed.]