740.00119 EW/9–3045
The United States Representative on the Allied Commission on Reparations (Pauley) to the United States Deputy Military Governor for Germany (Clay)
In connection with the Berlin Protocol, there are certain matters of interpretation as regards reparations which may prove to be of assistance to you and the Control Council.
First of all, although the Protocol contemplates that removals for reparations shall be conducted on a zonal basis in the sense that Russia and Poland shall receive reparations from the Eastern Zone and all other nations only from the Western Zones, it was not intended that this division of reparation shares should prevent the operation of Germany as a single economic unit. As a matter of fact paragraph 14 of the Economic Principles of the Berlin Protocol provides specifically that:
“During the period of occupation Germany shall be treated as a single economic unit. To this end common policies shall be established in regard to:67
. . . . . . .
(f) reparation and removal of industrial war potential.
. . . . . . .
As I view it this means that the Allied Control Council should make every attempt to arrange for reparation removals throughout Germany on a uniform basis both as to type, kind, and extent of such [Page 1252] removals. Obviously unless this policy be followed, serious deficiencies are likely to occur in some zones while others may have a surplus. Such inequalities would inevitably make for wide difference in the standards of living between the zones and might place undue burdens on manpower in one zone and cause unemployment in another. Moreover, if too much be removed from some zones, it may result in the removal of too little from other zones in order to pay for imports which would not be required under a unified program of removals applied to Germany as a whole.
A second matter on which interpretation may prove helpful relates to Paragraph 4 of the reparations section of the Berlin Protocol which provides in part:
“4. In addition to the reparations to be taken by the USSR from its own zone of occupation, the USSR shall receive additionally from the Western Zones:
(a) 15 per cent of such usable and complete industrial capital equipment, in the first place from the metallurgical, chemical, and machine manufacturing industries, as is unnecessary for the German peace economy and should be removed from the Western Zones of Germany, in exchange for an equivalent value of food, coal, potash, zinc, timber, clay products, petroleum products, and such other commodities as may be agreed upon.”
The commodities to be delivered under the foregoing arrangements may be used for a variety of purposes. They may be used by the occupying forces. They may be delivered as reparations to some of the claimant nations. They may be sold for export. They may be used for consumption within the zone to which they are shipped. Indeed, it would seem to be only a matter of common sense that if any of the zones receiving deliveries of the foregoing commodities proved to be deficient in any of these items, it would be better to use them within such zones rather than to import them. I stress the flexibility of the arrangements. It is left to you or the Control Council to decide whether the commodities which the Soviets agree to deliver should be used in the Western Zones, or exported for the reparations account of countries entitled to reparations, or exported, or treated as exports, for which payment must be made in acceptable currency to pay for necessary imports.
There is still another question upon which some interpretation may be useful. This relates to the valuation of both the capital equipment removed from the Western Zones and the food and materials delivered from the Soviets. Since the removals of capital equipment from the Western Zones must be completed in approximately 2½ years, while the period of deliveries of commodities from the Soviets may be extended over five years, it is essential that fluctuations in [Page 1253] quantities due to changes in world prices be avoided. The pricing formula originally suggested by USSR at the Crimea Conference was based on the average prices for the year 1938 plus 15%. This seems quite satisfactory to me provided it is applied to all deliveries both from the Western Zones and from the Soviets throughout both periods of such deliveries.
I would add one more thought. Inasmuch as the Berlin Protocol requires that the determination of the total amount of removals from the Western Zones shall be made within six months and that interim deliveries may be made even sooner, it is my view that procedures must be provided immediately to invite all nations entitled to reparations from the Western Zones to submit the amount and character of their claims. These other nations have a right equal to that of the USSR to select and receive reparation deliveries, including interim deliveries. I am making every endeavor to provide means whereby all nations may have an equal opportunity to secure suitable reparations regardless of whether their claims be large or small. Until these means are perfected, it would appear that great care should be exercised in allowing any particular nation to remove any substantial quantity of capital equipment before the needs of all nations have been made known.
- Omissions indicated in the original.↩