Foreign Relations of the United States, 1947, The Far East, Volume VI

740.00119 PW/7–2947

The Legal Adviser (Fahy) to the Assistant Secretary of State (Hilldring)

[Washington,] July 29, 1947.

Use by Occupying Powers, of Japanese Goods Designated for Reparations, To Defray Occupation Costs

1. A legal opinion is requested on the effect of the adoption by the FEC of FEC–032/25, July 23, 1947, Interim Import-Export Policies for Japan,²⁶ on the availability of Japanese stocks of gold, silver, other precious metals, precious stones and jewels, for application to occupation costs.

2. The general policy of the FEC regarding the relationship between reparations and costs of occupation was laid down in FEC–014/9, June 20, 1947, Basic Post-Surrender Policy for Japan,²⁷ and in FEC–219/7, May 9, 1947, Division of Reparations Shares.²⁸ The two policy decisions are identical, and establish that reparations shall be exacted from Japan through the transfer of “such existing Japanese capital equipment and facilities or such Japanese goods as exist or may in future be produced and which under policies set forth by the Far Eastern Commission or pursuant to the Terms of Reference of the Far Eastern Commission should be, made available for this purpose.” The same policy decisions also establish the additional proposition that the reparations shall be in such a form “which would not prejudice the defraying of the cost of occupation and the maintenance of a minimum civilian standard of living”. The net result of the two provisions would seem to give to the occupying powers a prior right to apply to cost of occupation such Japanese capital equipment, facilities or goods as may be made available for reparations.

3. FEC–032/25 (par. 16.0) designates Japanese stocks of gold, silver, other precious metals, precious stones and jewels, or the value thereof after their liquidation for the purpose of acquiring foreign exchange, for ultimate disposal as reparations. It is believed that the intent of the paragraph is to add Japanese stocks of precious metals and stones to the categories of Japanese property referred to in FEC–014/9 as available for reparations under policies of the Far Eastern Commission. This, without more, would seem to subject this new category to the accompanying provision that reparations shall be in such form as not to prejudice the defraying of the cost of occupation.

4. The difficulty with this interpretation lies in the fact that the paper in question, as originally drafted (FEC–032/24), contained an express reservation: “provided this would not prejudice the defraying of the costs of occupation and the maintenance of a minimum standard of living, in accordance with the principles of FEC–219/7”. This provision, on objection of the United Kingdom, was struck out in the Steering Committee, and the United States reserved its position on the amended paragraph. On consideration before the FEC General McCoy withdrew his reservation, stating the understanding of the United States that “the disposition as reparations of stocks of gold, silver, et cetera, referred to in paragraph 16.c should be in accordance with “the quoted provision of FEC–014/9” This would probably have served to clarify the issue had not Mr. Graves of the United Kingdom then stated that “in view of the United States interpretation just recorded by General McCoy” he would point out that it was the understanding by his Government “that FEC–032/25 would provide for the ultimate disposition of stocks of gold as reparations, and that while being preserved for this ultimate disposition, they would not be available for a trading account”. Although he later stated that “his only desire had been for assurance that stocks of gold or their equivalent would not be dissipated by trading operations”, he left standing his position that the stocks of gold or their equivalent in acceptable currency would be “ultimately disposed of as reparations”. This raises serious doubt as to whether the United States and the United Kingdom agree in their interpretation of FEC–032/25.

5. If it is seriously expected that the occupying powers may need to use the Japanese stocks of gold et cetera, or their value after conversion into currency, for application to occupation costs, it would seem to Le highly desirable at this time, if possible, to secure a clear admission by the representative of the United Kingdom that he did not intend to dispute its applicability to occupation costs, or at least for the United States to state more clearly and unequivocally its understanding that FEC–032/25 would not prevent the application to occupation costs of the Japanese stocks of precious metals and stones, or their value after liquidation.

Charles Fahy

26. For FEO policy decision of July 24, see Department of State, Far Eastern Series No. 29: The Far Eastern Commission, Second Report by the Secretary General, July 10, 1947–December 23, 1948 (Washington, Government Printing Office, 1949), p. 31.
27. June 19, Activities of the Far Eastern Commission, p. 49.
28. May 8; ibid., p. 80.