Foreign Relations of the United States, Diplomatic Papers, 1945, General: Political and Economic Matters, Volume II

740.00119 Control (Germany)/11–1245: Telegram

The Acting Secretary of State to the Ambassador in the United Kingdom (Winant)

Washington, December 21, 1945—9 p.m.

11022. With ref to proposed note to neutrals transmitted Dept’s 5257 Nov 9 [10], to Paris,⁶⁶ Dept’s 5468 Nov 23 (45 for Angell) and 10216 to London commenting on Angell’s 44 (Paris 6556 Nov 12⁶⁷), this Govt considers it essential that full agreement be reached by Brit, Fr and US, prior to negotiations, on use of sanctions against those neutrals which do not satisfy us in proposed negotiations. While this Govt is hopeful that negotiations can proceed without requiring any threat of such sanctions, it is basic to negotiations that if they do reach stage where any neutral country does not concur with our basic proposals as set forth below, that negotiators slid be in position to state to neutrals steps which will be applied by Brit, Fr, US and other Allied Nations, in event negotiations do finally fail.

Regarding legal justification of Vesting Decree and our request for recognition of its extraterritorial effects, this Govt shares the Brit view that legal argumentation with neutrals shd be avoided if possible. However, in view of fact that neutrals already have raised legal issue—some of them by expressing desire to know what our legal justification was and others by flatly refusing to recognize ACC as having right to act as Govt of Germany—it might become unavoidable to come out with statement explaining legal basis on which we are proceeding.

As matter of fact, present situation in Germany is unprecedented. Hence, no terminology of international law writings or of applicable court decisions can be used to describe it. However, neutrals must recognize that with surrender of Germany, then existing govt in Germany has ceased to exist. Whether transfer of governmental power to victorious powers was implied by act of surrender or whether vacuum was created which had to be filled to avoid chaos, four occupying powers have “assumed supreme authority with respect to Germany, including all powers possessed by the German Government” according to declaration made at Berlin on June 5, 1945.⁶⁸ Under terms of surrender, Germany agreed to give effect to any orders or decrees issued by occupying powers. Hence, Law No. 5, “Vesting and Marshalling of German External Assets”, is of no less binding force than would be any law enacted by former German govt.

As to contents of law, there can be no question about right of a govt, to marshal and to take over foreign exchange assets. Number of precedents were established during recent years, not only by former German govts but also by other govts. Justification for such laws has been up to now economic self-defense of the particular country. In case of law in question, reason for its promulgation was self-defense of whole civilized world.

Then-remaining question is whether exercise of such legislative power slid be granted extraterritorial effect. This basically rests on question as to whether, under well recognized principles of comity, it will be granted such effect unless acceptance of such legislation as having extraterritorial effect is held to be contrary to policy or public interest of foreign govt. On basis of issues of morality as well as practical issues involved neutral govts would be fully justified in stating that granting of extraterritorial effect to Vesting Decree is not against their policy or public interest. Morality issues have been fully explored in Rubin memo.⁶⁹ With ref to practical issues it can be pointed out that by recognizing Vesting Decree and by negotiation on disposition of assets, purchaser of an Axis interest in neutral countries will be in position to obtain clear title. On other hand in event that neutrals do not recognize Vesting Decree, title to German assets located in neutral territory will be subject to future contesting claims.

In considering those sanctions which are available and which will be effective, this Govt believes possible use of such sanctions in negotiations shd be brought into use only if neutrals fail to agree: 1) that ACC Vesting Decree applies to all German assets in neutral countries; 2) that all German assets shall be made available to ACC for reparation purposes. With ref to second criteria, this Govt would during course of negotiations consider, if necessary, reduction of second standard to permit neutrals to receive satisfaction of their pre-war claims out of German assets located in neutral country provided, of course, that effective job is obtained with respect to uncovering and turning over to ACC all German external assets. Obviously, however, such satisfaction could not be on 100% basis since many claims are founded on such investments as Dawes bonds,⁷⁰ Young bonds,⁷¹ etc., concerning which obviously only small percentage satisfaction would be justified. Exact proportion can be determined after such claims have been reviewed, and also on basis of effectiveness of neutrals in cooperating in marshalling German assets. Initially, however, all funds would be given to ACC which would then pay out agreed to percentage to neutrals.

Sanctions to be applied against neutrals can be divided into two categories:

I. Inducement to neutrals by way of certain steps which would be taken by Brit, Fr and US and other United Nations to remove certain existing controls, shd neutrals satisfy us on above two basic points and shd execution of agreement reached with neutrals prove satisfactory.

II. Sanctions which would be imposed over and above maintenance of existing controls.

In case of inducements, following would be included:

1. Deletion from PL and S Lists⁷² of German-owned or controlled firms and subsidiary organizations upon liquidation or sale of such firms to satisfaction of Brit, Fr and US and neutrals involved.

2. Institution of procedure for defrosting blocked neutral assets in US, UK and Fr and other United Nations.

3. Quick removal, wherever possible, of all special licensing procedures covering financial and trade transactions.

4. Some satisfaction of pre-war claims as outlined above.

With respect to imposing of new sanctions on neutrals, (Standard II) this Govt considers that the threat of concerted use of all available sanctions shd be available to negotiators. This Govt considers following sanctions are now available:

1. Modification of existing freezing controls over assets and funds of neutrals or neutral nationals in Brit, Fr and US and other United Nations. This would include, for example, withdrawal of general licenses now available to neutrals in favor of institution of specific licensing procedure.

2. Withholding from neutrals of all surplus property located abroad in which they may be interested.

3. Withholding of shipment of certain allocated products (such as coal) to neutrals from US, UK and Fr as well as general embargo on trade with Germany. In addition, US would be prepared through use of specific licensing procedure referred to in 1, above, to use such licensing procedure in such way as to restrict neutral purchases in Brit, Fr and US. In this connection, consideration can be given to withholding of certain shipping facilities in order to insure satisfactory execution of any trade restrictions that may be imposed, if such is found necessary and feasible to implement trade sanctions.

4. Refusal to neutrals of admission to Allied organizations such as European Coal Organization, etc.

5. Exclusion of neutrals from International Bank and International Monetary Fund proposed at Bretton Woods.

6. In addition, willingness of neutrals to comply with above demands could be considered with ref to their admission to membership in UNO.⁷³

Shd Brit and Fr suggest additional available sanctions this Govt is anxious to be so advised and would give them favorable consideration.

In presenting this proposal to Brit and Fr, you are instructed to point out to them that this Govt considers satisfactory conclusion of proposed negotiations with neutrals to be of highest importance, justifying, if necessary, the concerted use of above-described sanctions. Agreement on sanctions would merely constitute agreement to means of assuring execution of External Vesting Decree which was promulgated by Brit, Fr and US. Moreover, this Govt is of opinion that by having full agreement on use of such sanctions prior to negotiations and availability of sanction argument during course of negotiations, negotiators will be placed in better position of achieving our objectives without, in fact, having to resort to use of any or all of the above sanctions. Moreover, in event some neutrals satisfy us during course of negotiations, it is considered necessary that non-agreeing neutrals, shd not receive same treatment as those neutrals who satisfy us. At such time as the imposition of sanctions may become necessary with respect to any neutral, the decision on the extent to which we will apply such sanctions will naturally take into consideration then existing political and economic conditions with respect to that neutral.

London and Paris are therefore requested to inform Brit and Fr of this Govt’s recommendations as set forth above, and to report to Dept on their reactions and on progress of your discussions.^73a

Sent to London as 11022; rptd to Paris as 6003 for Angell as NR 53; and to Berlin as 1129 for Murphy and Clay.

Acheson

66. Same as telegram 9901 to London, p. 912.
67. Telegram 6556 not printed; see footnote 44, p. 915.
68. Reference is to the Declaration Regarding the Defeat of Germany and the Assumption of Supreme Authority in Germany, signed at Berlin, June 5, 1945; for text, see Department of State Treaties and Other International Acts Series No, 1520, or 60 Stat. (pt. 2) 1649. For documentation, see Foreign Relations, 1945, vol. iii, pp. 717 ff.
69. For substance of the Rubin memorandum, see telegram 8411, August 20, 7 p.m., from London, p. 896.
70. See British Cmd. 2105 (1924): Reports of the Expert Committees Appointed by the Reparation Commission. For documentation on United States interest in the Dawes Plan, see Foreign Relations, 1924, vol. ii, pp. 1 ff.
71. See British Cmd. 3343 (1929): Report of the Committee of Experts on Reparations. For documentation on United States interest in the Young Plan, see Foreign Relations, 1929, vol. ii, pp. 1025 ff.
72. Reference is to the Proclaimed List and Statutory List.
73. United Nations Organization.
74. In a memorandum dated January 22, 1946, the British Embassy registered the opposition of its Government to the United States proposals on the use of sanctions and inducements in the forthcoming Safehaven negotiations on the ground’s that they were unnecessary and impractical (800.515/1–2246). Subsequent efforts by the United States and French Governments to induce the British Government to change its position proved unsuccessful. As a result, no preliminary tripartite agreement was achieved on the threat to use sanctions in the event tha discussions with the neutrals broke down.