Foreign Relations of the United States, 1946, The Far East, Volume VIII

740.00119 P.W./5–1546

Report by the State–War–Navy Coordinating Subcommittee for the Far East¹⁰

undated

secret

Interim Reparations Removal Program for Japan

the problem

1. To prepare for submittal to such inter-Allied reparations authority for Japan as may be appropriate, U.S. recommendations with respect to the categories and amounts of industrial equipment to be subject to removal from Japan under an Interim Reparations Removal Program.

facts bearing on the problem

2. See Appendix “A”.¹¹

discussion

3. See Appendices “B”^11a and “C”.

conclusions

4. In accordance with the recommendations submitted by Ambassador Pauley to the President, with modifications as provided for in SWNCC 236/4,¹² paragraph 5 (c)(1), the action specified below should be taken with respect to facilities identified in the ten listed categories of Japanese industry. Such action, under the Reparations Removal Program, should be taken without prejudice against further removals that may be ordered under a final reparations program.

5. Machine Tool Industry

(Definition: “Plants and establishments primarily engaged in the manufacture of non-portable, power-driven machines designed to shape metal by the progressive cutting away of stock in the form of chips or shavings, or by abrasive action.”)

a. That portion of Japan’s capacity for the production of machine tools that is in excess of a balanced type-size aggregate of 27,000 units annually, should be made available for claim.

6. Army and Navy Arsenals

(Definition: “Plants and establishments owned and operated by the Japanese Army or Navy engaged in the development, production, maintenance, testing, or storage of equipment or supplies for use in war or warlike purposes. (Arsenal as defined herein embraces a broad category of facilities distinguished by their ownership rather than by the nature of the operation and departs from the more usual connotation of ordnance manufacture.)”)

a. All facilities within this category should be made available for claim, subject to the following limitations:

(1) Special Purpose Machinery and Equipment

All machinery, equipment and accessories which by virtue of initial design, construction or major structural change are, as individual items, special purpose in nature and functionally limited to use in connection with equipment or supplies for war or warlike purposes, should be held pending further instructions concerning their disposition.

(2) Shipyards

Shipbuilding and ship repair facilities should be disposed of in accordance with the recommendations contained in paragraph 9.

(3) Non-armament Facilities

These facilities which have been engaged in the production of military supplies essentially similar in character to such consumer goods as textiles, clothing, processed foods, fertilizers, fuels, pharmaceuticals and related and dependent industries should be left for disposal under the final reparations program, and not be made available for claim under the interim program, in order that they may be operated to supply the essential needs of areas under military control, if such is desirable in the judgment of the Supreme Commander for the Allied Powers. (Note: Privately-owned facilities that would fall in this category except for the ownership qualifications will be treated in a separate paper.)

7. Aircraft Industry

(Definition: “Plants and establishments primarily engaged in the manufacture or assembly of finished aircraft, airframes, aircraft engines, and aircraft propellers, or in supplying fabricated materials, semi-finished or finished parts, components, or accessories, (exclusive of arms and armaments, instruments and communication equipment) especially designed for incorporation in finished aircraft.”)

a. All facilities in plants and establishments originally designed, constructed and equipped, or converted through major change in the nature of installed machinery and equipment to serve in this category should be made available for claim.

b. Plants and establishments within this category, other than those covered in a above, the use of whose products by the aircraft industry, represents merely a diversion without major change in character of product from peacetime civil consumption, or in the nature of installed machinery and equipment, should not be made available for claim pending Allied decision as to the final disposition of the industry with which they are normally associated.

8. Ball and Boiler Bearing Industry

(Definition: “Plants and establishments primarily engaged in the manufacture or assembly of complete ball and roller bearings, or their major component parts, namely, balls, rollers, races, and cages.”)

a. That portion of Japan’s capacity for the production of ball and roller bearings that is in excess of 32.5 million yen (based on 1943–1944 average prices) per year, should be made available for claim. Facilities selected for removal should include all plants and establishments whose products are specifically adapted to use in aircraft or other war material.

9. Shipbuilding Industry

(Definition: “Shipyards, including all facilities, plants and establishments located within their confines, primarily engaged in the building, repair, or maintenance of steel ships over 100 gross tons”). The term “merchant shipping” when used in this report should be construed to include steel cargo and passenger vessels and tankers over 100 gross tons.

a. All facilities located in naval shipyards whether publicly or privately owned, that were originally organized or were converted through major change in the original structure or in the size and volume of installed machinery and equipment to build, service, or repair naval combat vessels or specialized naval auxiliary ships should be made available for claim under the Interim Reparations Removal Program subject to the following limitations:

(1) Special Purpose Structures, Machinery and Equipment

All structures, machinery, equipment and accessories which by virtue of initial design, construction, or major structural change are, as individual items special purpose in nature and functionally limited to use for purposes of an exclusively military nature, should be held pending further instructions concerning their disposition.

(2) No facilities should be made available pending certification by the SCAP that they are not necessary for purposes of the occupation.

b. That portion of Japan’s shipbuilding capacity, located in shipyards other than those covered in a. above, in excess of that necessary to build 150,000 gross tons of merchant shipping annually and to service and repair a merchant fleet aggregating 3.0 million gross tons, should be made available for claim subject to the following limitations:

(1) No facilities should be made available for claim until such time as Japan’s merchant fleet is restored to a level which, in the judgment of SCAP, is sufficient to meet the needs of the occupation and Japan’s immediate merchant vessel requirements.

(2) Two 20,000 ton dry docks should be retained for purposes of servicing foreign ships touching at Japanese ports.

10. Iron and Steel Industry

(Definition: “Plants and establishments primarily engaged in the production of pig iron or steel ingot.”)

a. That portion of Japan’s capacity for the production of steel ingot that is in excess of 3.25 million metric tons annually should be made available for claim.

b. That portion of Japan’s capacity for the production of pig iron that is in excess of 1.75 million metric tons annually should be made available for claim.

11. Light Metals Industry

(Definition: “Plants and establishments primarily engaged in the production of alumina, primary or secondary aluminum and magnesium, and in the rolling and drawing of aluminum and magnesium and their alloys.”)

a. All facilities identified within this category should be made available for claim, subject to the following limitations:

(1) No facilities engaged in smelting light metal scrap into secondary ingot should be made available for claim.

(2) In cement plants converted to produce alumina from clays or shales, only the equipment introduced to effect such conversion should be made available for claim.

12. Thermal Electric Power Industry

(Definition: “Plants and establishments primarily engaged in the production of electric energy through the use of fuel (coal) as the basic energy source.”)

a. That portion of Japan’s installed thermal electric generating capacity that is in excess of 2.1 million kw, should be made available for claim.

13. Sulphuric Acid Industry

(Definition: “Plants and establishments primarily engaged in the production of sulphuric acid.”)

a. That portion of Japan’s capacity for the production of sulphuric acid that is in excess of 3.5 million metric tons annually, should be made available for claim. All facilities made available for claim should be of the contact process type, as distinguished from the lead chamber type, but should not include any contact plants, when they are serving as integral functional units in

(1) a non-ferrous metal smelting plant;

(2) a fertilizer manufacturing establishment in which the contact process plant is not supported by a lead chamber plant of at least equivalent capacity.

14. Soda Ash, Chlorine, and Caustic Soda Industry

(Definition: “Plants and establishments primarily engaged in the production of soda ash (sodium carbonate), chlorine and caustic soda (sodium hydroxide).”)

a. That portion of Japan’s capacity for the production of chlorine and caustic soda in electrolytic plants which is in excess of about 60,000 metric tons of chlorine and about 66,000 metric tons of caustic soda, should be made available for claim.

b. That portion of Japan’s capacity for the production of soda ash that is in excess of 500,000 metric tons, should be made available for claim. Removal of this excess soda ash capacity should be accomplished by seizure of one large modern soda ash plant, together with its integrated facilities for conversion of soda ash to caustic soda.

15. Preference for Zaibatsu Facilities

a. Among the criteria to be employed in the selection of individual plants and items of equipment for removal should be the principle of reinforcing the occupation objective of destroying Zaibatsu wealth and influence.

16. Assured Production Capacity Levels

a. A program of assured production capacity levels for the ten industrial categories cited above, should be drawn up by SWNCC for submittal to, and approval by the appropriate inter-Allied authority.

b. Such a program will be designed to provide authorization for SCAP to designate specific plants among those retained in Japan under the Interim Program that will not be subject to removal, even under the final reparation program. The purpose of such designation will be to eliminate the threat of removal and thus contribute to restoring the initiative of Japanese industrialists, the flow of capital into these enterprises, and the production of goods necessary to support the peacetime economy.

c. The assured production capacity levels so established should be in all cases below the capacity levels now under discussion in the United States Government for retention under the final program.

recommendations

17. It is recommended that:

a. The State–War–Navy Coordinating Committee, after securing the comments of the Joint Chiefs of Staff from a military standpoint, approve the “Conclusions” in paragraphs 4 through 16.

b. This report be transmitted for information to the Joint Chiefs of Staff, State, War and Navy Departments, and the United States representative on the Far Eastern Commission for his information.

c. The “Conclusions”, paragraphs 4 through 15,¹³ with supporting data from Appendix “B” of this report, (to be put into appropriate form by the State Department) be transmitted to the appropriate inter-Allied reparations authority, when constituted, for action as a matter of priority.

d. No parts of this document be made available for public release.

[Annex 1]

Appendix “C”

Comparison of the Conclusion Presented in This Report With the Recommendations Made in Ambassador Pauley’s Report to the President (SWNCC 236/2/D)¹⁴

1. This report, in essence a slightly modified translation into operating directive terms of Ambassador Pauley’s Report to the President is designed

a. To assure complete understanding and acceptance of the “basic document” with such modifications as are deemed necessary, by the U.S. Departments of State, War, and Navy; and

b. To provide recommendations with supporting evidence for submittal to the proposed Inter-Allied Reparations Commission.

2. The conclusions presented in this report agree with the recommendations made in the Pauley report both in principle and in fact, except for a few essentially minor modifications. Such modifications may be accounted for largely by the facts that during the period of review, access was had to a considerable volume of information not available to the Pauley Mission while in Japan, and that data supplied by the Japanese have, in some cases, proven to be misleading or inaccurate in the light of subsequent appraisal.

3. Following is a comparison of the recommendations of the Pauley Report with those of the present report.

4. Machine Tool Industry

a. Pauley Report: Half of the capacity for the manufacture of machine tools should be made available.

b. Present Report: That portion of capacity for the production of machine tools in excess of 27,000 units annually should be made available (equal to one-half of estimated present capacity).

c. Comments: No apparent divergence.

5. Army and Navy Arsenals

a. Pauley Report: All tools and equipment located in Army and Navy arsenals should be made available, except for equipment useful solely for making arms, ammunition, and implements of war which should be destroyed. Estimate 70,000 machine tools will be made available.

b. Present Report: In agreement with the “basic document” except that

(1) special purpose equipment be held pending Allied decision as to its ultimate disposal rather than be destroyed;

(2) certain facilities producing goods essentially similar in character to civilian consumer goods should be retained;

(3) machine tools that will be made available are estimated at between 50,000 and 60,000 rather than at 70,000.

c. Comments: The discussion in Appendix “B” makes clear the reasons underlying the slight change in (1) above. The exception noted in (2) above is based on discussion with staff of the Pauley Mission and is entirely consistent with the intent of the “basic document.” The lower estimate of machine tools that will be made available is accounted for largely by losses from bomb damage.

6. Aircraft Industry

a. Pauley Report: All tools and equipment located in the aircraft industry of Japan—(estimated at 220,000 machine tools) and in all plants manufacturing aircraft engines, shall be made available.

b. Present Report: Treats aircraft industry and aircraft engine plants together. Makes all tools and equipment available, except for a small portion identified with plants whose connection with the aircraft craft industry was temporary and whose normal products have a legitimate place in the peacetime economy. Machine tools to be made available estimated at 95,000.

c. Comments: The exception made for tools and equipment in certain plants is consistent with the intent of the basic document. The fact that a smaller number of tools will be found to be available is accounted for largely by

(1) exclusion of certain facilities, reported by the Japanese under aircraft, that more properly belong in other categories. These included the manufacture of such products as arms, armaments, torpedoes, electric meters, and gauges;

(2) exclusion of the plants noted in b above as having legitimate peacetime uses.

7. Ball and Roller Bearing Industry

a. Pauley Report: All tools and equipment located in plants manufacturing ball and roller bearings shall be made available.

b. Present Report: That portion of Japan’s capacity for production of ball and roller bearings that is in excess of 32.5 million yen (1943–44 price level) per annum, should be made available. (This will release about 90 percent of estimated present capacity.)

c. Comments: The divergence here is essentially a question of policy rather than of fact. Discussion in Appendix “B” gives the consideration on which the conclusion of this report is based. In brief, it is certain that Japan’s post-war economy will require ball and roller bearings, that her trade balance position is unfavorable for imports, and that since this is an interim program, the facilities retained may be disposed of under the final disarmament or reparations program if it is advisable.

8. Shipbuilding Industry

a. Pauley Report: All equipment and accessories in 20 shipyards to the extent that it is not needed for the repair of shipping essential to the occupation shall be made available.

b. Present Report:

(1) All facilities located in naval shipyards whether publicly or privately owned …¹⁵ should be made available, subject to release by the SCAP as not essential for the purposes of the occupation.

(2) That portion of Japan’s merchant shipbuilding capacity in excess of that necessary to build 150,000 gross tons of merchant shipping annually and to service and repair a merchant fleet aggregating 3.0 million gross tons, should be made available for claim subject to the limitations: that no facilities should be made available for claim until such time as Japan’s merchant fleet is restored to a level which in the judgment of the SCAP is sufficient to meet her immediate merchant vessel requirements; and that two 20,000 ton dry docks should be retained for purposes of servicing foreign ships.

c. Comments: No proper comparison can be made between these two recommendations because of the difference in approach, i.e., shipyards as distinguished from tonnage capacity. It is believed, however, that no substantial difference in end results will be manifested.

9. Iron and Steel Industry

a. Pauley Report: All steel making capacity in excess of 2,500,000 tons per year and all capacity for the production of pig iron in excess of 500,000 tons per year shall be made available.

b. Present Report: All steel making capacity in excess of 3.25 million metric tons per year and all capacity for the production of pig iron in excess of 1.75 million metric tons per year should be made available.

c. Comments: Discussion in Appendix “B” presents the considerations underlying this divergence. In brief it is felt that for purposes of the Interim Program, the “Basic Document” cuts somewhat below the “obvious excess” in both cases and does not provide an economic ratio between steel and iron capacity. Further, Japan’s immediate need for these products to rehabilitate her industrial economy may impose demands somewhat heavier now than will be the case in the future. After meeting such immediate demands and when Allied decision has been reached as to disposition to be made of steel consuming industries, the steel and iron capacities may then be further reduced.

10. Light Metals Industry

a. Pauley Report: All facilities for the production of magnesium, for the preparation of alumina and reduction to aluminum, other than those required for processing scrap, and all machinery and equipment exclusively for finishing magnesium and aluminum such as strip mills, rolling mills, and extrusion presses shall be made available.

b. Present Report: As above.

c. Comments: No divergency.

11. Electric Power Industry

a. Pauley Report: Half of the thermal (coal) electric and generating plants of Japan shall be made available.

b. Present Report: That portion of Japan’s thermal electric generating capacity that is in excess of 2.1 million kw, should be made available (about one-half of estimated present capacity).

c. Comments: No divergence.

12. Sulphuric Acid Industry

a. Pauley Report: All contact process sulphuric acid plants, except those necessary to remove waste gases from zinc, lead, copper, and other heavy metal smelters shall be made available.

b. Present Report: That portion of Japan’s capacity for the production of sulphuric acid that is in excess of 3.5 million metric tons per year should be made available—that removals should be limited to contact process plants—that contact plants affiliated with non-ferrous metal smelters should not be made available—that contact process plants serving as an integral functional unit in a fertilizer manufacturing establishment in which the “contact” plant is not supported by a “lead chamber” plant of at least equivalent capacity should not be made available.

c. Comments: On the basis of estimated present capacity the “Basic Document” would make available 800,000 metric tons more capacity than the present report would. Discussion in Appendix “B” presents the considerations underlying this divergence. In brief, the difference can be accounted for by a greater allowance for use of this product in the manufacturing of fertilizer, which is currently critical in Japan. The final determination is largely one of judgment and in keeping with the concept of “obvious excess” implicit in the Interim Program, it is felt this added margin of safety should be maintained.

13. Soda Ash, Caustic Soda, and Chlorine Industries

a. Pauley Report: The most modern large Solvay process, soda ash plant and 20 of the most modern large plants for the production of caustic soda and chlorine, either in diaphragm or mercury cells shall be made available.

b. Present Report: Capacity in excess of 500,000 metric tons of soda ash, 66,000 metric tons of caustic soda, and 60,000 metric tons of chlorine should be made available.

c. Comments: Although a substantially different approach has been used the net result shows no apparent divergence.

[Annex 2]

Appendix “D”

The Comments of the SCAP on Ambassador Pauley’s Report

Paraphrase of telegram Cm–In–4219, Tokyo, February 18, 1946:

“This is in reference to your W 94752. Part I of IV.

It is recommended that Washington directives on reparations removals should indicate proportion of capacity of industry and leave to this Headquarters discretion in the matter of which reparations are to be chosen and when they are to be removed. Shipping, transportation and like economic considerations could best be served in that manner. Industry in Japan has not as yet been evaluated in relation to the country’s economy, and there has been no clear indication as to what Allied policy on Japan’s economic future will be. If purposes of occupation are to be best served it is necessary that the reparations removal program be characterized by the greatest flexibility.

We recommend specifically: (Numbers of paragraphs in the Pauley report correspond with the following numbered paragraphs.)

1. Basic conclusion. With the exception of subparagraph H, we agree in all. The question of Zaibatsu is such a complex financial and legal problem that we believe that it should be considered separately. This problem has been attached [attacked?] in action which Washington has approved, and a Washington mission is now studying the problem in Tokyo.

2. Immediate action program.

• A. (1). One-half machine tool manufacturing capacity removal all right. But do not concur in listing of specific recommendations.
• (2). Agree. Assumption is that Pauley report includes private arsenals for removal of equipment.
• B. Agree.
• C. Of the opinion that until study of immediate needs is completed, removal of ball bearing and roller bearing industry be delayed.
• D. All right.
• (3). Agree with shipyard recommendations but add that no yards with capacity for ships greater than 5000 gross tons be allowed to remain.
• Agree with A (4), (5), (6), and (7). In (7) removal of one half of 4,000,000 kilowatts thermal capacity in Japan at present.
• A. (8). Present capacity of sulphuric acid plants is five million tons per year. Recommend it be reduced by one million tons, and all plants not needed be removed.
• A. (9) and (10). Following removals recommended: Plants not needed to produce more than total 200,000 tons soda ash and 40,000 tons caustic soda yearly. Until study of rayon industry is completed recommend the caustic soda figures be considered tentative.
• Agree in B and C.
• D. That these removals not be connected with Zaibatsu’s dissolution is recommended.

3. Unnecessary to comment.

4. The impression given is shallow and shows lack of real knowledge of Japan and the way it is organized and administered. This headquarters does not concur.

5. Long range program contains important considerations.

• A. In our opinion there is no direct connection between agriculture and the reparations program.
• Agree with B, C, D, and E. However, difficulties in knowing Manchurian plants and equipment amounts is pointed out.
• F. Likelihood of failure of Asiatic and Pacific areas to request large quantities of Japanese removed equipment is agreed. In some cases condition of equipment will make removal impractical and scrapping is advised in this case if war potential is concerned.
• G. Agree.

Part II

We are now going ahead with program for tentative inspection and listing of equipment to be removed. This is in compliance with your W 94752. This equipment to be classified as to its condition, and whether or not it will be available for removal. Entire Army and Navy facilities in laboratories and arsenals plus those in whole aircraft industry are deemed to be available. It is contemplated that further facilities listed in the interim report will be impounded.

Part III

Availability of items marked for reparations and least possible disruption of approved industrial programs being watched in compliance with your W 94752, paragraph B. Part I general recommendations apply.

Part IV

Catalog of equipment and machinery under reparations removal program being prepared in compliance with your W 94752, Paragraph 4 C. When it is complete will advise. In order that claimant nations might submit estimates of equipment claimed, it is recommended that this catalog be made available to them, and further that this headquarters receive claims after proper authorities have screened them. We can then go ahead with evaluation and scheduling on a rough basis. Claimants might send technical teams to Japan to make selection of equipment. Do not consider it advisable for claimant representatives to come before preliminary arrangements are completed. Recommend that we be allowed to settle disagreements where teams from allied nations do not agree as to allocations.”

10. SWNCC 236/10, April 25, as revised April 30, was approved by SWNCC on May 9 subject to qualifying remarks made by the Acting Navy Department member (in SWNCC 236/16) as follows:

    • “3. Before this Government is too firmly committed to a reparations policy, it would appear essential that a reasonably firm estimate of the cost of occupation should be prepared. This cost of occupation, in my opinion, should be presented as a first charge against all available Japanese assets, and this charge should be subtracted before this Government engages in any proceedings of a reparations commission.
    • “4. Certainly as far as the value of capital goods is concerned, this country has little to gain in material value from those available in Japan. We have, however, much to gain in insuring that there is sufficient removal to bring Japan down to a post-war minimum compatible with requirements for adequate demilitarization. We must at the same time insure that Japan has sufficient capacity to support no more than a minimum economy sufficient to relieve us from the possibility of having to assist in supporting her.
    • “It therefore appears that production capacity level for the various industries in Japan should be established as early as possible in the light of requirements for demilitarization, and for the support of a minimum economy.
    • “5. Subject to the above remarks, I approve”.

    In SWN–4214, May 15, the Secretary of State was informed that SWNCC 236/10 as amended had been approved and was being transmitted for information to the Joint Chiefs of Staff, the Departments of State, War, and Navy, and the U.S. member of the Far Eastern Commission (McCoy). (740.00119 PW/5–1546)

11. Not printed.
12. Not printed.
12. January 8, not printed, but see memorandum by the State–War–Navy Coordinating Committee, January 14, p. 472.
13. Paragraph 15 later became paragraph 16; change made in SWN–4357, May 29, to the Secretary of State, not printed.
14. For Ambassador Pauley’s Report of December 18, 1945, to President Truman, see enclosure to his letter of the same date, Reference 1–a, in his Report on Japanese Reparations to the President of the United States, November 1945 to April 1946.
15. Omission indicated in the original.