740.00119 EW/7–1445

No. 376
Memorandum by the Delegation to the Allied Commission on Reparations 1
top secret

Supplement to Progress Report

Allied Commission on Reparations

summary

On July 3 Ambassador Pauley asked for clarification of certain reparation problems before the meeting of the heads of governments. (Appendix AA2)

1.
Relative shares of participating governments: agreement reached July 13 (Appendix A).
2.
Procedures for determining minor nation claims: agreement reached and recommended to governments on July 13 (Appendix D).
3.
The definition of reparation, restitution and war booty: no agreement due to Soviet unpreparedness to discuss war booty.
4.
Interim reparations: no agreement, though respective proposals not far apart.
5.
General principles of the Reparations Settlement: agreement reached on all principles except the status of necessary exports as a prior charge against reparations: decided to place this issue before the heads of governments.

program on certain aspects of the reparations settlement

On July 3, 1945, Ambassador Pauley wrote to Mr. Maisky proposing that the Reparations Commission either reach an agreement on certain specified points or, failing to agree, be in a position to present the points of disagreement to the heads of the three governments during their forthcoming meeting. The following sets forth the present position on the points raised by Ambassador Pauley in his letter:

1.
To arrive at an agreement between the Big Three as to the relative shares, expressed in percentages, to which each is entitled in the form of reparation payments from Germany. Full agreement on this point was reached at a meeting of the Steering Committee on July 12, 1945. (Appendix A3)
2.
To agree on procedures whereby the percentages of other claimant nations may be determined.
a.
The British delegation presented a proposal to the Steering Committee on July 7. (Appendix B)
b.
The U. S. delegation presented a revised version of the British paper on July 11. (Appendix C)
c.
A further revision was circulated by the Soviet delegation on July 13.
d.
At the Steering Committee meeting on July 13, the Soviet proposal was accepted and recommended to the respective governments[.] (Appendix D4)
3.
To define reparation, restitution, and war booty.
a.
Restitution.
(1)
After a preliminary discussion in the Steering Committee on July 5, the British delegation presented a paper on July 7th. (Appendix E5)
(2)
U. S. concurrence with the British paper was communicated to the Steering Committee on July 11th.
(3)
A Soviet paper, differing drastically from the British and U. S. views, was circulated on July 13th. (Appendix F)
(4)
At the Steering Committee meeting on July 13, tentative revisions to paragraphs 1, 2, and 3 of the Soviet paper were discussed, but the U. S. Representative stressed the necessity of concurrent consideration of definitions for restitution, war booty, “trophies”, etc.
b.
War booty.
(1)
Soviets agreed on July 5 to present a paper on war booty by July 11.
(2)
Soviet paper was not received and the U. S. presented a paper on July 11. (Appendix G) (Appendix S of Status Report)
(3)
At the Steering Committee meeting on July 13, the Soviet Representative stated that he was not prepared to discuss the proposed U. S. definition nor any other aspect of the problem at the present time.
c.
Reparation.
(1)
No discussion has taken place, but U. S. staff memorandum points out certain problems involved. (Appendix H)
4.
To provide a speedy program of interim reparations to all countries entitled thereto.
a.
Tentative U. S. proposal circulated on July 7th and presented to Steering Committee in amplified form on July 9th[.] (Appendix I)
b.
Tentative British and Soviet points of view were expressed at Steering Committee meeting on July 10th.
c.
At the Steering Committee meeting on July 13, this matter was only touched on, with the UK Representative indicating unwillingness to agree to an interim program until the main issues of a permanent settlement are agreed.
5.
To agree on general principles to govern the reparations settlement and its future administration.
a.
U. S. proposed formal adoption of general principles at first Steering Committee meeting on June 22nd. (Appendix J)
b.
After prolonged discussion at several meetings of the Steering Committee, an agreement was reached on July 6th, subject to approval of the participating governments[.] (Appendix K6)
c.
U. S. and British governments accepted the principles as agreed.
d.
At a Steering Committee meeting on July 12th, the Soviet delegation announced its reservation with respect to the last sentence of principle 8 which provides for payment for necessary imports into Germany as a prior charge before reparation exports.
e.
On July 13th, Ambassador Pauley communicated with Mr. Maisky, explaining his position with respect to necessary German imports. (Appendix L)
f.
At the Steering Committee meeting on July 13th, final agreement was reached on the language of Principle 6. An impasse was reached on the last sentence of Principle 8 and it was agreed to present the issue to the heads of governments.

[Appendix B]
British Proposals for Determining Share of Minor Claimants
secret
1.
The Allied Commission on Reparations will send a communication as soon as possible through the Governments of the UK, USA and USSR inviting all the United Nations that have been at war with Germany to submit within one month to the Allied Commission on Reparations through their Diplomatic Representative in Moscow, or otherwise, statements showing data for establishing their reparation claims against Germany and the value of German pre-war assets in their territory.
2.
The data for establishing reparation claims should be laid down by the Commission and should in the first instance be few and simple; for example, [Page 541]
(i)
shipping losses in gross tons and 1938 replacement value.
(ii)
destruction and partial destruction of private residences, factories and other buildings, plant and equipment, in number and 1938 replacement value. Damage to forests and agricultural land. Any other physical damage and losses in terms of 1938 replacement value.
(iii)
man-years served in armed forces including full-time Resistance Movements.
(iv)
fatal casualties in armed forces while carrying on war against Germany.
(v)
any other simple basic statistical data which the claimant government desires to put forward for consideration. Note In all cases the data should exclude those relating to the war against Japan.
3.
The Allied Commission on Reparations would decide as a basis for discussion on a provisional list of countries entitled to receive reparation and on the percentages to be allotted to each.
4.
The United Nations whose claims to receive reparations were approved would be approached individually and informally through diplomatic channels in an attempt to persuade them to accept as fair the percentage provisionally suggested for each of them.
5.
The Allied Commission on Reparations would then through the Governments of the UK, USA, and USSR address a further communication to these United Nations inviting them to take part in a discussion in order to reach agreement on reparation percentages. This discussion might take the form of
(i)
these Nations becoming associated with the Allied Commission on Reparation in its final stage or
(ii)
the creation of a semi-permanent inter-Allied Commission for executing the Reparation Plan of which all the United Nations entitled to reparation would be members, the semi-permanent Commission being empowered to reach agreement on reparation percentages and
(iii)
a separate ad hoc Conference of Ministers.
6.
At the same time a further communication would be sent through the same channel to the United Nations whose claims to receive reparation were not approved, informing them that their claims had been examined but that it was considered that
(a)
they were not entitled to receive reparation because their losses and war effort had been too small in comparison with the losses and war efforts of others, or
(b)
that their share of reparation would be covered by the German assets in their territories or a portion of those assets so that they were not entitled to share in other deliveries, or
(c)
such other explanation as might be appropriate.
[Page 542]
[Appendix C]
U. S. Proposals for Determining Shares of Minor Claimants
secret

[Editor’s Note.—Paragraphs 1, 5, and 6 of this proposal, except for minor editorial differences, are identical with paragraphs 1, 5, and 6 of appendix B, supra. The new or amended language proposed for paragraphs 2, 3, and 4 is as follows:]

2. The form and content of data submitted by each nation for establishing its claims should be determined so as to reflect its war burdens, its war losses, and its contributions toward organizing the victory. For the sake of uniformity, losses should be stated in physical units, as far as possible, and in 1938 replacement values. Indices of burdens and contributions toward the victory might for example include, without excluding other elements, such items as budgetary expenses, man-years in fighting forces, man-years in war production for use against Germany, and any other simple basic statistical data which a nation desires to put forward for consideration.

In all cases the data should relate to the war against the European Axis Powers and exclude those relating to the war against Japan.

3. On the basis of the material submitted, the Allied Commission on Reparations would prepare decide as a basis for discussion on a provisional list of countries entitled to receive reparation and on the, for purposes of discussion, tentative percentages to be allotted to each.

4. The United Nations whose claims to receive reparations were thus approved set forth would be approached individually and informally through diplomatic channels in an attempt to persuade them to accept as fair the percentage provisionally suggested for each of them.

[Appendix F—Translation]
Restitution and Replacement
1.
Restitution covers all property which can be identified as having existed at the moment of enemy occupation of the territory from which this property was removed, as well as property which came into existence on the said territory during the period of enemy occupation if this can be established and irrespective of the manner in which it fell into the hands of the enemy.
2.
As regards property which was destroyed by the enemy or utilized or lost value as a result of enemy action, the right is retained to replace it by similar or comparable property. This applies to [Page 543] objects of unique character such as works of art, historical objects, libraries, unique installation, etc.
3.
The injured country retains the right to make claims to restitution in respect of property removed by the enemy which is found in any third country.
4.
It is moreover agreed that all questions of restitution will be dealt with on behalf of the injured property owners by the country of which they are citizens.
[Appendix G]
U. S. Staff Proposal on Definition of War Booty
secret

War booty shall consist of all finished war material, but shall not include equipment used to produce war material. What constitutes war material shall be defined by Military representatives of the three powers represented on the Allied Commission on Reparations.

[Appendix H]
Mr. Abram Bergson, of the Delegation to the Allied Commission on Reparations, to the Chief of Staff of the Delegation to the Allied Commission on Reparations ( Parten )
secret

Subject: The Territorial Question in the Reparations Settlement.

The Reparations Settlement necessarily will have to be worked out and administered on the basis of a definition of the territory of Germany to be subject to reparations. Not only is it necessary that the territory subject to reparations be defined in advance, but it is of the utmost importance that this territory correspond as nearly as possible to the area that will be left to Germany when her boundaries are finally determined, and thus that probable territorial cessions be at least tentatively agreed upon so that they can be taken [into account?] and, from the outset, in its administration.

The reasons for this are as follows:

(a)
Any calculation either of a total reparations bill in money terms or of the amounts of goods to be paid in physical quantities necessarily will have to refer to a specified territory. But territorial changes made after the Reparations Settlement was reached might cause such dislocations in the German economy as to necessitate a complete recalculation of Germany’s capacity to pay. No general formula could be found that would define in advance the effects on Germany’s capacity to pay of all major territorial changes that are possible.
(b)
The nature of the policies which must be adopted for economic disarmament purposes depends on the extent and character of disarmament that is accomplished by way of territorial dismemberment.
(c)
It is contemplated that interim reparations will go into effect as soon as possible. For the purposes of the administration of such reparations, it is essential that the territories from which plant and equipment are to be removed, and recurring reparations drawn, must be known in advance. To carry out removals from territories that ultimately would be transferred to United Nations obviously might be unwise, and in the case of the territories claimed by Poland might, in any event, be administratively impracticable.
(d)
Ultimately, and for the same reasons, the work of the Reparations Agency would be severely handicapped, if not made impossible, if the territories subject to reparations had not been determined in advance with some finality.
(e)
The likely territorial cessions in certain instances might alone yield to a reparations claimant more than its total reparations share. In these cases, it probably would be desirable to assure from the outset that this claimant did not receive any payments in the form of capital and recurring reparations from other sources.

[Appendix I]
Tentative Draft on Interim Deliveries and Removals—for Discussion
secret
1.
An orderly flow of deliveries and removals from Germany should begin at the earliest possible date to achieve the earliest possible relief of devastated areas in the United Nations. Deliveries and removals shall be made in accordance with the principles and policies already agreed upon by the Allied Commission of [on] Reparations.
2.
Pending the establishment of a permanent allied reparations agency, interim deliveries and removals should be based upon the urgency of need for rehabilitation purposes and should not be designated initially as reparation, restitution (British question) or for purchase of the recipient nations. (Soviet question?)
3.
With respect to interim deliveries and removals of capital goods to all United Nations, the following procedure should be adopted:
a.
Immediate establishment of a sub-commission of the Allied Commission on Reparations to be situated in Berlin and to be composed of representatives of the nations participating in the Allied Commission on Reparations. This sub-commission should keep in constant consultation with the Control Council and should keep the Control Council informed of its activities.
b.
The Allied Commission on Reparations will transmit to its sub-commission a list of industries from which interim deliveries and removals of equipment will be allowed.
c.
Interim deliveries and removals of capital equipment from those industries up to an agreed limit of the movable assets, expressed in physical terms, may be made upon the approval or recommendations of the sub-commission. Shipping documents covering such interim deliveries and removals shall include notification to the receiving country that in the final accounting such deliveries and removals may be deemed by the Allied Commission on Reparations to be on account of reparations or restitution.
d.
Each of the occupying powers may remove or permit to be removed from its zone of occupation plant and equipment from any industry in such list, subject to the following conditions:
(1)
With respect to any removal by an occupying power for its own account the respective zone commander shall notify the sub-commission of the contemplated removal. If the sub-commission recommends that such removal shall not be made, it shall so notify the Allied Commission on Reparations which shall make such representations to the governments as it deems appropriate. Pending the decision of the governments, the contemplated removal shall be suspended.
(2)
With respect to any removal from the zone of one occupying power for the account of another United Nation (whether or not such United Nation be an occupying power) such removal shall be permitted upon the approval or recommendation of the sub-commission.
4.
With respect to interim deliveries and removals to all United Nations of raw materials out of current production or stocks of goods and manufactured goods out of stocks, such deliveries and removals may be made upon the approval or recommendation of the sub-commission on the basis of the need of the claimants after due regard to the supplies available and the requirements of the occupation forces. Shipping documents covering such interim deliveries and removals shall include notification to the receiving country that in the final accounting such deliveries and removals may be deemed by the Allied Commission on Reparations to be on (1) export account to be paid for in acceptable currencies, (2) reparation, or (3) restitution. (Soviet question on last clause; British question on “restitution”).
5.
Adequate and uniform accounting controls shall be instituted with respect to all deliveries and removals affected under the above proposed procedures.
6.
The governments concerned should be notified of the establishment of the foregoing procedures for effecting urgently needed interim deliveries and removals.
7.
As a condition precedent to the movement of any interim deliveries or removals, it shall be mutually agreed that each of the occupying powers shall submit, within six weeks of the date hereof, a statement of all property removed from Germany since its invasion.
[Page 546]

(Questioned by Soviet; British and U. S. position believe it an important point but willing to discuss under “war booty”.)

[Appendix J]
General Principles Submitted by U. S. Delegation
secret
1.
That, removals of property for reparations shall be such as to assist in bringing to an end the war-making power of Germany by eliminating that part of Germany’s industrial capacity which remains as a direct war potential.
2.
That, reparations shall be such as will speed recovery and reconstruction in countries devastated at German hands and, at the same time, impose the economic penalty uniformly and fairly upon the German people as a whole.
3.
That, any plan of reparations shall be avoided which results in placing on any other nations the burden of financing German reparations or reconstruction, or which might render other nations dependent on the German economy.
4.
That, to a maximum extent reparations shall be taken from the existing national wealth of Germany such as machines, equipment, plants, products, and foreign investments, and while for convenience, claims against these assets may be stated in terms of money value, care must be exercised not to confuse real values with those monetary values which proved so illusory when considered as reparations after the last war.
5.
That, in order to avoid building up German economic capacity, long run payment of reparations in the form of manufactured products shall be restricted to a minimum.
6.
That, enough must be left, after the payment of reparations, to enable the German people to subsist without sustained outside relief and no reparations plan shall become operative so long as support for the German people from outside their own country continues necessary.
7.
That, living standards in Germany must be kept from rising above those of neighboring countries.
8.
That, reparations shall be fairly distributed among the nations entitled thereto based upon damages sustained at the hands of the enemy and contributions made toward the defeat of that enemy—contributions in blood, work, treasure, and irreplaceable natural resources.
[Page 547]
[Appendix L]
The Representative on the Allied Commission on Reparations ( Pauley ) to the Chairman of the Allied Commission on Reparations ( Maisky )

Dear Mr. Maisky , I want to make my position perfectly clear with regard to the charges against German exports which we discussed yesterday.

Surely we both understand there can be no current annual reparations from Germany except as more goods are shipped out of Germany than are shipped in, that is, there must be a large export balance. An export balance cannot be produced in Germany without some imports, such as food, alloys, cotton, etc. If these indispensable imports (without which there would be no exports of certain highly important types) are not a charge against the exports, then you, or we or some other economy will have to pay for the imports. Neither the USSR, nor the USA can think of recommending to its people a reparations plan which overlooks this elemental fact.

Mathematically it may be stated as follows: Current Separations equal German current Production less the sum of Occupation costs, minimum essential German Consumption and Imports required to achieve the production permitted by the Allies. In symbols this reads:

R=P–(O+C+I)

You say that the Russian people are more interested in “R” in this formula than in anything else. My people, remembering the last reparations settlement, when the final element of this formula was overlooked, insist that we do not forget the “I”, the imports. But we do so in order that the “R” will be true net reparations, and not fictitious reparations which come out of your pockets or ours. When we say that essential imports are a prior charge on exports, this is not because we think that imports are more important than reparations. Quite the contrary. All we are saying is that you must feed the cow to get the milk. The food is a “prior” charge, it comes first in time, but it is not more important.

Without carrying this simile too far could we say that you want a plan which will give lots of milk. We both expect that the cow will lose both horns and will get mighty thin. We want to be sure that the small amount of fodder required will be paid for with some of the milk. Last time we put up the fodder.

If you can think of any way of making this clear in economic language which says just this and will be more acceptable to your people [Page 548] than the words of principle 8,8 I shall be more than happy to agree, as I know that we are pursuing the same objectives.

Sincerely yours,

Edwin W. Pauley
  1. According to part II (not printed) of the PauleyLubin Report (gee vol. ii, p. 940) this supplementary report was presented to Truman at Babelsberg on July 16. The progress report which it supplements is not printed. Concerning the other appendices mentioned in this summary, see the footnotes to the body of the report, infra.
  2. See document No. 364.
  3. This appendix is identical with the body of attachment 3 to document No. 894, printed in vol. ii .
  4. This appendix is identical with attachment 4 to document No. 894, printed in vol. ii , except for minor editorial differences and except that it does not bear the heading “Agreed in the Allied Commission on Reparations”.
  5. This appendix is identical with document No. 906, printed in vol. ii , except that the passages italicized in that document were not emphasized in appendix E.
  6. For the eight principles agreed upon, see document No. 367.
  7. The appendix is so dated, but cf. ante, p. 539.
  8. See document No. 367.