740.00119 P.W./12–2846
Ambassador Edwin W. Pauley to the Secretary of State
My Dear Mr. Secretary: I have reviewed a document by SCAP apparently under the date of September 26, 1946, entitled “Comments on Ambassador Pauley’s Report to the President”. Comparison of the comments in this document with my comprehensive report shows that there are only three cases of what I would call marked disagreement with my recommendations. In seven cases SCAP proposes some increases of the capacities which I recommended to remain in Japan. Most of them are not large in magnitude or are in relatively small sectors of war potential industries. Much of the discussion relates either to interpretation or repeats my own recommendations in somewhat different language. In about ten cases SCAP either comments that my findings are premature or arbitrary or otherwise indicates that a decision should not yet be made.
In most cases where SCAP requests delaying a decision I would recommend that a decision be made subject to revision should it become necessary. In preparing my report, I anticipated that changes would be made from time to time and most scrupulously avoided referring to my program as a “final reparations program”. Instead I have called it a comprehensive reparations program in order to distinguish it from my Interim Program which already has been substantially approved by SWNCC and by the FEC.
In addition to this, the second and third paragraph of my report points out that the information on which it was based came primarily from information furnished by the Japanese government and turned over to my Mission after analysis by SCAP. Where matters could not be determined with arithmetical definiteness, my recommendations have been based upon the judgments of well qualified members of my Mission. While a decision may be made more easily and surely [Page 602] at a later time, I believe sufficient qualified judgment is available to make decisions at this time on all matters covered by my report. A decision on a matter of policy aids in making other decisions and would remove some uncertainties about which SCAP has complained.
For example, SCAP comment on my recommendation for a Merchant Shipping limit of 1,500,000 gross tons is that any reduction below 2,000,000 is inconsistent or at least premature “under present uncertainty as to participation in world trade to be allowed Japan …”59 I feel no uncertainty as to Japan’s proper participation in world trade and have recommended where she should participate and to what extent. My conclusion was based on data which I understand has not been modified substantially and upon advice obtained from U. S. Navy authorities in Japan by members of my staff. The immediate effect of my program would be to make some ships larger than 5,000 gross tons (which SCAP agrees should be prohibited to Japan) available as reparations as soon as salvage and repair activities would bring the total shipping above the limit. This would allow settlement of the shipyard capacity question which SCAP also wishes to delay. Both these items are needed for reparations and the claimants are entitled to know what to expect.
SCAP’s comments emphasize the necessity for exporting sufficient products to pay for required imports. In support of this a plea is made on the grounds of the need for consumer goods in the remainder of Asia. I have spent considerable time both in Japan and in other parts of the Far East and realize full well both needs. However, having been both places, I realize the necessity for not allowing my concern for the export-import balance of Japan to blind me to the fact that most of the remainder of Asia is in no position to pay for imports from Japan or from anywhere else not able and willing to extend credit. The trade balance of the remainder of Asia wherein our Allies are struggling for existence without the help of a unified, powerful, and wealthy agency will also be unfavorable until industry is rehabilitated and expanded far beyond its previous levels. This is a pragmatic fact; the conviction that something should be done to correct it may be “utopian”. Possibly it is also “utopian” to be as concerned about our long term security in the Far East as with our immediate material problems.
SCAP fears the economic vacuum which might be created by removal of industry from Japan. The economic vacuum already exists and has existed since before the end of the war. We can allow filling of this vacuum by restoring the subsidized industrial economy of Japan or by the more difficult but more permanent relief obtainable by encouraging in all Asia industries able to live in a competitive world.
[Page 603]SCAP is concerned that “Large masses of people in Asiatic and Pacific areas will simply go without such basic needs as textiles, fuel, building materials and other similar items unless they can be produced by existing plant capacity, most of which is in Japan”. Heretofore SCAP has contended that Japanese textile capacity was inadequate for home needs. As I urged early last summer, the best help that can be given the fuel situation in China is to move some electric generating equipment into the coal mining areas of Manchuria to replace that removed by the Soviets. As for building materials, most of them are bulky, cheap commodities which cannot be shipped any great distance and be sold profitably at a reasonable price. The exceptions are lumber and steel. The former is in short supply in Japan. The latter can not be made economically in large quantity in Japan because of the necessity for importing raw materials to the extent of about four tons for each ton of steel produced. Economic conditions other than the reparations program will limit the exports of these commodities.
As for delays in the reparations program, I share SCAP’s concern. However, with physical and economic conditions as they are in Japan, I am far from confident that in a few years sufficient production could be secured to create a surplus greater than the production that could be obtained by moving facilities from Japan if prompt action is allowed to follow the year that has been wasted to date. Further delays, including some delays urged by SCAP, could nullify many of the objectives of our policies and could lose attainments which victory has put into our grasp.
In one other place SCAP expresses concern about the remainder of Asia. SCAP fears that the remainder of Asia will become dependent on Japan for spare parts and for replacements of equipment obtained as reparations when it is worn out. The possibilities of dependency upon Japan for spare parts and replacements was given serious consideration by my staff, but under the circumstances were considered to be not controlling. The most important category of reparations which would be concerned is machine tools. If machine tools were available to the recipient countries, they could make their own replacement parts and would not have to import them from Japan. If Japan’s productive capacity for machine tools was reduced to about her own requirements, she could not export sufficient to suppress the manufacture of machine tools in the recipient countries. We should remember furthermore than many Japanese machines are copies of U. S., British and German machines. Replacements of a copy by an original should not be hard to sell.
All the other significant comments of SCAP are for a more liberal treatment of the Japanese economy. These include a number of specific [Page 604] recommendations for higher levels to be retained in certain industries; SCAP proposes no reductions.
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Most of the remainder of SCAP comments relate to the relevancy of certain portions of my report to the subject of reparations. For example, my recommendations on agriculture and food are criticized as being “too far removed from reparations” and are characterized as “relative superficial observations”. As a matter of fact my Mission made a careful study utilizing the years of experience in the Far East of some of the members. I early realized the importance of a maximum food production to the reparations program because food will represent the largest category of imports. Increasing food production in Japan should do more to bring about a balance of imports and exports than any other program requiring the same amount of effort. The reparations program in turn can be made effectively complete when the trade balance is restored.
The levels of operation actually achieved by industries in Japan will not be limited by lack of capacity for some time, except, of course, in those industries which are prohibited entirely. Japan will have excess capacities under my program and reparations will not affect recovery of the economy except psychologically. Much of the psychological difficulty will be removed when a comprehensive assured retention program is adopted. While many SCAP comments can be taken as a word of caution, they doubtless reflect concern over something that if it happened at all could only happen some years hence.
In total, I cannot object to most of SCAP recommendations as seriously impairing the reparations program. I do not agree with many of them as exemplified above, but at this point I am concerned more with delays than I am over a move to shave down the quantities of goods to be available for reparations.
Sincerely yours,
- Omission indicated in the original.↩