894.60/7–2247
The Assistant Secretary of War (Petersen) to the Assistant Secretary of State (Hilldring)
Dear General Hilldring: In acknowledgment of your memorandum of 15 July 1947, on the above subject, I am forced to express [Page 415] surprise at some of the questions you raise. From our previous conversations on this subject, I was under the impression that we had reached substantial agreement as to what we both desire to have accomplished and the reasons therefor.
Since your memorandum reopens matters I had considered closed, I feel it necessary to refer in some detail to previous discussions and matters of record. You will recall, I am sure, our agreement that we should comply with General MacArthur’s request that an “audit” be made of the plant selections his headquarters has made for reparations purposes and agree to his suggestion that he make no statement of “assured capacity levels” for Japan until the audit of plant selections had been completed, since the former is so closely related to the decisions regarding plant removals.
Accordingly, since Mr. Clifford S. Strike had headed a mission to Japan in January of this year, I asked him to consult with me about the possibility of obtaining the services of competent engineers to go to Japan to perform the services requested.
In discussion with the Secretary of War and myself, Mr. Strike and Colonel Cheseldine, CAD, pointed out the fact that no “audit” of plant selections already made could be certified by independent engineers unless and until the engineers were satisfied with the basis upon which the selections had been made. This, accordingly, would require a review of the industrial surveys made by SCAP and the Japanese technicians plus such independent surveys as the engineers might deem necessary to enable them to render independent opinions. Obviously, such review and survey must go to the basic questions of the level of industry to remain in Japan under policies of the U.S. government. The Secretary of War agreed to the value of independent analysis to support any action taken by the United States. He further stated his belief that independent conclusions should be of value to U.S. representatives at a peace conference. He then requested Mr. Strike and Colonel Cheseldine to discuss the matter with you before proceeding further.
Mr. Strike and Colonel Cheseldine did confer with you and I am informed they discussed in some detail the method of procedure advocated by Mr. Strike. The question of possible unilateral action in the interest of prompt results and decisions was explored and, I am told, you agreed that there were occasions when such action was necessary pointing to the proposed whaling expedition as an example.
Mr. Strike reported to me your agreement with the War Department’s desire to secure as much independent factual data as possible both for the purpose of expediting the reparations program and to strengthen the position of the U. S. delegation to the peace conference.
[Page 416]Acting upon the assumption that you were thoroughly acquainted with what was proposed, a contract was signed with Overseas Consultants, Inc., copies of which have been furnished your office, and the cable mentioned in your memorandum was sent to General MacArthur.
I am somewhat surprised that you read into that cable the need for the alarm mentioned in your memorandum and that you take exception to its statements. I have been under the impression that you have agreed that, unless prompt action was taken by FEC upon the State-War agreed paper on the final level of industry for Japan, the United States would issue a unilateral directive to General MacArthur to proceed to carry out its provisions. We had agreed to a twenty-one day FEC consultation period (see my letter to you dated 12 May 1947) and on 29 May 1947 you wrote to me that “when a decision had been reached on these proposals (amendments to the paper on ‘Reparations Removals from Japan’) an instruction will be given General McCoy to seek action on the original paper, as amended by the instructions, within twenty-one days. At the conclusion of that period the question of the issuance of a unilateral directive will be decided by the Secretary of State in the light of the situation at that time.” The amendments referred to were accepted by the War Department and communicated to General MacArthur in a letter from the Secretary of War dated 27 June 1947. A copy of this letter was furnished your office and receipted for by the State Department on 1 July. It has seemed to me, therefore, that you and I have been in substantial agreement on the question of unilateral action on reparations for sometime and I am therefore at a loss to account for the objection you now raise to the statement in the quoted cable that the State Departmen shares the War Department view. I had assumed that the twenty-one day period had begun.
It is also difficult for me to understand how you can refuse to indorse the program outlined in the quoted cable. Assuming, as I did, your approval of possible need for unilateral action on reparations following FEC failure to act, the economic recovery program would follow as a natural corollary. If these were put in motion, it would naturally follow that the United States would have begun to establish its position on these matters which it would support at the peace conference. This is the only possible construction which can be placed upon the statements in the quoted cable. I fail to see wherein such a plan is in any way “obviously inconsistent with our engagement to participate fully in the operations of the Far Eastern Commission.”
The work of Overseas Consultants, Inc., under the terms of the contract is to provide factual data, conclusions and recommendations. It is obviously not a policy-making organization. Such data as it produces [Page 417] for the reparations and retention programs will be of value in consideration of an economic recovery program, if properly used. Such use, therefore, could be of assistance in the preparation of the United States position on a peace treaty. This is the only manner in which the corporation report could be considered “as extending to any subject other than reparations removals and permanent plant retentions.” The report will be made available to the State Department. It is hoped that the State Department will find it of some value.
The War Department does not recommend that the State Department should wait for the Corporation’s report before proceeding with a recovery program and preparation of a position on a peace treaty. We do feel, however, that the report will supply data to assist in those activities. It had been hoped that much of the data to be supplied could be available before final conclusions are reached and, since the State Department has indicated a desire to convene a preliminary conference in August, every effort will be made to expedite the flow of information from Japan for whatever use may be made of it. Since the War Department still has the obligation of implementation in Japan of any policies established by either the FEC or the United States government, it has a deep interest in any proposals for an economic recovery program as well as the reparations program and, consequently, hopes by the use of this independent engineering group to be able to make vital contribution to such joint studies and conclusions as may be undertaken by the State and War Departments.
In addition to the reasons for this contract as stated in the introduction thereto, I am attaching a copy of a press release19 relating to the contract.
I have gone into considerable detail herein to explain the War Department’s position in this matter in anticipation of the conference you proposed in your memorandum. I will be most happy to discuss these questions at any time which suits your convenience.
In this connection, an early conference is believed important because I have already received inquiries about the possible effect of the proposed peace conference20 upon the completion of our contract. The publicity already given to your retirement and mine, the retirement of Judge Patterson,21 and the sudden impact of the proposal for a peace conference have caused some people to assume that there may be a change in policies and decisions. So acute has this matter become that member firms of Overseas Consultants, Inc., are speculating as to the [Page 418] possibility of cancellation of their contract. I desire to assure them at the earliest possible date that such action is not contemplated either now or in the future.
Sincerely yours,