Foreign Relations of the United States, 1948, Germany and Austria, Volume II

740.00119 EW/1–1248

Memorandum Prepared by the Department of State¹

secret

[Washington,] January 20, 1948.

Subject: The Position of the Administration with Respect to Dismantling of German Plants as Reparation.

The Problem:

To determine Administration policy on the following points:

1. Whether the plant removals program should be temporarily suspended, in whole or in part, during the period of Congressional enquiry into the program.

2. Whether the dismantling program for the US/UK Zones represented by the list of 682 plants published on October 16, 1947,² should continue to be re-examined and possibly revised in connection with the European Recovery Program.

3. Whether deliveries of German plants to the USSR should be indefinitely suspended in view of the Soviet attitude at London on the German problem.

4. Whether, if deliveries to the USSR are indefinitely suspended, deliveries to the Soviet satellites members of IARA should also be halted.

5. Whether to bring economic pressure on the UK and France designed to force them to join with the US in acting under (2), (3) and (4) above.

Discussion of the Problem:

1. House Resolution 365, and the Senate debate on the Bridges Rider (Congressional Record, December 19, 1947, pp. 11893–11816) [11680–11692],³ demonstrate that important elements in the Congress are hostile to the program of plant removals as reparation from Germany because: (a) removals are regarded as economically “senseless”; (b) removals interfere with the resumption of German production, essential to European recovery; (c) agreements regarding reparation have not been approved by the Congress; (d) the program is based on the “Morgenthau Plan”;⁴ (e) Western Germany should not be unduly weakened industrially in view of the present world situation: (f) the Soviet Union should not benefit further from plant deliveries from Western Germany. Senator Vandenberg in marshalling Senate opinion against the Bridges Rider stated his opposition and that of the Department of State to further deliveries to the Soviet Union. This statement has not removed all hostility to the plant removals program. The intentions of both Houses are to examine the Programs in detail in connection with the ERP hearings.

Certain elements in the Congress have gone farther and taken the position that all dismantling should be suspended pending Congressional enquiries regarding the plant removals program (see final question asked by HR 365). Senator Vandenberg has intimated in debate his belief that dismantling operations were in fact being slowed down. The Secretary of the Army in a confidential letter to Senator Vandenberg on this point expressed General Clay’s view that it would be extremely unwise to defer dismantling in the US Zone during the proposed Congressional investigations, pointing out that a serious internal political problem would be created in Germany if dismantling should subsequently be resumed after such a suspension. The letter added that in November, 1947, General Clay gave instructions that the dismantling of all plants on the new list should proceed as quickly as possible. The Department concurs in General Clay’s views and in addition foresees serious political reactions on the part of the IARA nations in the event of such an interim suspension. Moreover, since Congressional consideration may take place over several months, suspension of dismantling for such an uncertain length of time would substantially hamper the economic planning of the potential recipients and reduce the value of the plants to them. These points were made briefly by the Secretary of State on January 8, and by the Secretary of the Army on January 14 and 15, 1948, in testimony before the Senate Committee on Foreign Relations.⁵

2. Heretofore, spokesmen for the Administration have defended the plant removals program based on the August, 1947 Level of Industry on the grounds:

a. The plants to be removed under the Revised Bizonal Level of Industry represent industrial capacity which in major part was created for the support of German aggression and which cannot be utilized iii Germany during; the next four or five years, because of shortages of fuel, raw materials and manpower, whereas they could be put to good use during the same period if removed to other countries;

b. The amount of manpower, materials and transport required for the execution of the plant removals program has a negligible effect upon the present German economy;

c. The United States is committed by the Paris Agreement on Reparation to provide for a plant removals program based on the delivery of capacity in excess of that determined by some defensible level of industry.

d. The removal of plants as reparation is the best solution, all factors considered, for meeting the demands of devastated countries for reparation in a definitive manner, in a short time, at no cost to the United States, and without repeating the errors of the reparation settlement which followed World War I.

In addition to the foregoing arguments, it will be possible to make other arguments in favor of the plant removals program, some of which have already been touched upon in Congressional debates and hearings:

a. There is considerable evidence, which can be marshalled, that the dismantling, removal and re-establishment of industrial plants is not “economically senseless”.

b. The moral right of the victims of German aggression to reparation, to the extent economically feasible, is incontestible. To a degree far greater than is justified by its strictly material effects, the dismantling program is, to devastated European countries the symbol of an attitude toward Germany and their future security, the abandonment of which would cause friendly European countries the greatest concern.

c. To get the plants marked for removal under the Revised Level of Industry into production in Germany during the period of the ERP would require allocation to Germany of food, fuel and raw materials greater than presently contemplated and lend plausibility to charges that the United States favors Germany over other participating countries. It will be possible to demonstrate in the course of the ERP presentation that the Revised Level of Industry leaves Germany with ample industrial capacity to achieve self-support and to make the maximum contribution to European economic recovery compatible with an equitable distribution of available food, fuel and raw materials.

3. The U.S. acting independently cannot seriously affect the future of plant reparations from Germany; such action would be little more than a political gesture. All but 146 of approximately 772 plants yet to be removed from western Germany are in the British and French Zones. If the U.S. participates in quadripartite allocation between the Soviet Union and the Inter-Allied Reparation Agency, it will be possible for full deliveries of the Soviet share to be made from the other zones. If the U.S. refuses to participate, it will in effect seek to coerce the British and French by the exercise of a veto and break down the quadripartite reparations machinery. The British have very definitely expressed their opposition to the suspension of deliveries to the Soviet Union. (See British Aide-Mémoire of December 27, 1947, attached as Tab A.⁶) There is reason to believe that the French are of the same view.

This Government has continued delivery to the Soviet Union of plants on the advance list, which was agreed in 1945 before the first level of industry agreement, and of the general purpose equipment from war plants, which are independent of the level of industry. Under these programs there remain to be delivered to the Soviet Union from the U.S. Zone only the “tag-ends” of a ship-building plant (an advance delivery) and of the equipment of two war plants. There are plants of these categories in the British and French Zones, however, which have not yet been allocated, and the United States must decide whether to participate in such allocations by the Allied Control Authority.

Soviet violations of the Potsdam Agreement have removed any obligation on the part of the Western Powers to implement those provisions wholly favorable to the USSR. To continue deliveries from the West would represent deliveries of equipment to which the USSR is probably no longer entitled under the terms of the Potsdam Agreement in view of its excessive removals of capital equipment and the taking of reparation in the form of current production from the Eastern Zone of Germany.

Notwithstanding these considerations, it may be desirable to leave a way open to continue to make at least that portion of deliveries to the Soviet Union for which the Soviet Union is required to compensate by deliveries of commodities.^* It may be that this could be done by announcing, preferably at the time of suspension of deliveries to the Soviet Union, that the US would consider the terms under which it might resume compensated deliveries if the Soviet Union promptly satisfied its obligations now due in this regard. It is contemplated that those terms would include (a) indication by the Soviet Union of willingness to continue making reciprocal deliveries up to the full value of 15% of the total equipment to be removed from the Western Zones, and (b) agreement that none of the commodities delivered by it in return for plants should be drawn from the economy of the Eastern Zone of Germany without effective compensation by the USSR in other goods or services.

There is no assurance, however, that the Soviet Union would continue any reciprocal deliveries under the above proposal, and it is possible that refusal by the Soviet Union would mean a net loss for Western Europe in the recovery period. A study prepared by a member of the U.S. Delegation to the Inter-Allied Reparation Agency (Tab B⁷) indicates that the value of capital reparations remaining to be delivered to the Soviet Union from the Western zones is approximately RM 150,000,000 (1938), and that the value of all reciprocal deliveries is approximately the same. Thus if deliveries to the Soviet Union from the Western zones are stopped, the USSR could very well make no reciprocal deliveries and purport to justify its action by calling them compensation for capital removals denied to the USSR. As an immediate matter, the commodities deliverable by the USSR are needed much worse in Western Europe than the capital equipment, and would tend directly to relieve the financial burden upon the United States under the European Recovery Program.

4. To suspend deliveries to the three Soviet satellites which are members of the IARA would be a breach of the Paris Agreement on Reparation, which was signed by the United States as an executive agreement, and would reopen the question of Germany’s reparation obligations to the IARA nations. It would also open the door to insistence that this violation of the agreement be submitted to the International Court of Justice.

5. There is discernible in the Congress a tendency to resort to economic pressure on the UK and France to force them to act in accordance with US policy on the suspension of dismantling and reparations deliveries. The material results of continued deliveries by the British and French are not significant enough to justify such pressure if those countries consider that the desired action would present grave questions for their internal political situations or their foreign relations. Such pressure is incompatible with general US policy and with the basic purpose of the ERP to maintain the participating countries as sovereign, independent entities.

General Clay has recommended that quadripartite allocations be continued, that the delivery of plants on the advance list and general purpose equipment from war plants be continued, and that in concert with the British and French all other deliveries to the Soviet Union be indefinitely suspended and the equipment placed in storage. The continuance of allocations and of the advance and war-plants deliveries would make it technically possible to avoid any breakdown of the allocations machinery of the Allied Control Authority, and would provide another bargaining point in an effort to obtain British and French agreement to the suspension of deliveries to the USSR from the general list.

1. This memorandum appears to have been prepared in the office of Assistant Secretary of State Saltzman. The source text indicates that this is a revision of a memorandum of January 12. The differences between this and the earlier version are not indicated, but a draft memorandum from Assistant Secretary of State Saltzman to Under Secretary of State Lovett, dated January 22, not printed, states that the principal substantive changes in this revision were made in the first two paragraphs of point 3 and in the last paragraph of point 5. Saltzman’s memorandum also indicates that the January 12 version of the memorandum was read by Secretary of State Marshall at the Cabinet meeting of January 16. (EUR Files, Lot 55 D 374, File—Reparations G 400)
2. The list under reference was transmitted to the Secretary General of the I.A.R.A. under cover of a letter of October 14, 1947, from the chief reparations officers in the American and British zones of occupation, Foreign Relations, 1947, vol. ii, p. 1126.
3. Regarding House Resolution 365, see the editorial note, p. 717. Regarding the Senate debate on the Bridges amendment, see footnote 1 to telegram Warx 93723, January 9, to Berlin, p. 703.
4. Documentation on the plan for the post-war treatment of Germany proposed by the then Secretary of the Treasury Henry Morgenthau, Jr. in August and September 1944 is printed in Foreign Relations, The Conference at Quebec, 1944, pp. 86 ff.
5. For the record of the testimony under reference, see European Recovery Program: Hearings before the Senate Foreign Relations Committee, 80th Cong., 2nd sess., on United States Assistance to European Economic Recovery, Part I (Washington, Government Printing Office, 1948), pp. 1, 444, and 467.
6. The “Tab” is not printed here; for the text of the British aide-mémoire, see Foreign Relations, 1947, vol. ii, p. 1137.
7. Under the Potsdam Protocol the USSR was to receive 10% of the total value of removals from the three Western Zones without any countervailing deliveries and another 15% for which the USSR was to pay within five years by reciprocal deliveries of commodities. Those reciprocal deliveries are reparation items apportionable among the other reparation recipients (except Poland). No deliveries have yet been made: they are scheduled to begin soon. [Footnote in the source text.]
7. The study under reference here, prepared by the United States Deputy Delegate to the I.A.R.A., Alexander Daspit, and dated December 31, 1947, is not printed (740.00119 EW/12–3147).