Office of the Historian

740.00119 EW/7–148

Memorandum by the Assistant Secretary of State for Occupied Areas (Saltzman) to the Secretary of State 1

top secret
[Washington,] July 1, 1948.

The Problem

To determine what action should be taken with reference to the preliminary draft report of the Technical Mission on Reparations.2

[Page 775]

Discussion

A preliminary draft of the Technical Mission’s report signed by all the members of the Mission has been made available to the Departments of State, Army, Interior, Commerce, and Agriculture and to the Economic Cooperation Administration. Mr. Krug stated to Mr. Lovett at the Cabinet meeting on June 253 that this draft report had been examined by himself and the Secretary of Commerce and that they considered that it should now go to the President in its present form. Mr. Lovett subsequently informed Mr. Krug, however, that the Department of State did not agree that the report was acceptable and desired an opportunity to discuss it with the Cabinet members concerned and the Economic Cooperation Administrator.4 Accordingly, with your approval, a conference has been scheduled after the Cabinet meeting on Friday, July 2, 1948, with the following to be in attendance: Secretaries Marshall, Krug, Sawyer, Brannan and Royall and Administrator Hoffman.

You will recall that on February 16, 1948, you recommended to the President and his Cabinet that the dismantling program, as based upon the revised level of industry of August, 1947 be approved, subject to a re-examination of the lists of plants scheduled for removal, to determine which plants, if any, should be retained because they could, if left in Germany, make a substantial contribution to the world supply of critical items (Tab A).5 The President and the Cabinet members present approved your recommendations. Subsequently, the five Cabinet members concerned appointed representatives on a Working Committee to carry out this re-examination, and its terms of reference were agreed upon (Tab B).6

It was later considered desirable to form a Technical Mission to conduct a field investigation in Germany, and this Mission was given terms of reference which were in line with purpose stated in your February 16 proposal to the Cabinet (Tab C).7 You will note that these terms of reference confined the scope of the examination to plants which were technically equipped to produce critical items in worldwide short supply. These terms of reference were discussed with British and French representatives in London who were advised that, [Page 776] subject to the limited re-examination required thereunder, the United States would support the completion of the reparation removal program as represented by the then existing plant lists.

Prior to the departure of the Technical Mission from Washington, the Departments concerned agreed upon a list of items which were considered to be in critical world-wide short supply. This list was discussed by the Technical Mission with British and French representatives in London, and the Zone Commanders subsequently furnished to the Technical Mission lists of plants in their respective zones which were technically equipped to produce these items, under the presumption that the Mission’s study would be confined to these plants.

The draft report of the Technical Mission recommends the retention of 316 whole plants and 15 part plants representing more than one-third of all the plants which have been removed or were listed for removal. Most of the plants recommended for removal are war plants from which only general purpose equipment is made available and plants which have already been allocated.

If accepted, these recommendations would have the effect of nullifying the February 16th decision of the President and the Cabinet which gave general approval to the program and would require a major revision of the Bizonal Level of Industry Agreement announced in August 1947 by the US, and UK Zone Commanders. It will be recalled that the United States approved this agreement after lengthy discussions arising from the protests of the French Government.

It is not believed possible to obtain the agreement of the British and French Governments to retain anything approaching 329 plants and part plants. Ambassador Douglas has stated that he does not believe that he can negotiate an agreement to retain more than 60 plants. The British and French Governments have also informed the US that they do not regard the recent agreements at London on other phases of the reparations program as binding upon them if the retention of a large number of plants is sought by the US (Tabs D and E).8

Recommendations

1.
It is recommended that you take the position at the conference on Friday that the Technical Mission’s draft report is unacceptable in its present form.9 In addition to the considerations outlined above, the following reasons may be stated:
a.
The draft report is completely general in character. It does not even make a reference to the Mission’s Terms of Reference nor does [Page 777] it mention the list of critical items which was to have been the basis for the Mission’s work. The reasons why particular plants are recommended for retention are not stated and it is thus impossible to analyse the recommendations in detail. No factual basis is provided for discussion with the British and French Governments. It should be noted that 300 of the 316 whole plants recommended for attention [retention] are located in the British and French Zones.
b.
The draft report recommends the retention of all the existing basic steel-making capacity of Western Germany. Steel capacity is the principal element in the German level of industry, maintenance of which is basic to the Ruhr agreement which in turn is an essential element in the entire series of agreements reached in London. Acceptance of the Technical Mission recommendation by this Government would constitute repudiation of the position we took in order to obtain these agreements and would seriously threaten the whole structure of the agreements.
c.
The draft report contains statements and conclusions which are in direct contradiction to the official and considered judgments of the United States and United Kingdom military governors, without citing any evidence in support of the mission’s position. Clearly General Clay must be given an opportunity to comment upon these aspects before any governmental approval is given to the report (General Draper has taken a copy of the draft report to General Clay, whose comments are presently being awaited).
d.
The draft report contains several clearly erroneous statements. For example (page 23–24), it is stated that “if steel producing facilities are to be removed from Germany and re-established in a recipient country, it would follow that iron ore* and coal will have to be exported from Germany to this recipient country because of the critical world-wide short supply of those raw materials.” Germany would have no supplies of iron ore for export, and has traditionally required imports of such ores.
e.
Plants appear to be listed for retention in contradiction to the stated conclusions of the draft report. Although it is stated (page 8) “where the facilities of a specific plant have been officially submitted to either ACA or IARA for subsequent allocation as reparation, such action was accepted by the technical mission as final”, the first plant listed for retention in the US Zone is the Kügelfischer plant, which has been officially allocated by ACA, subsequently subdivided by IARA, and has been almost completely removed. Forty-five plants or part plants with residual values below 50,000 RM are listed for retention, although the draft report (page 9) states that plants below 50,000 RM residual value would in general be excluded from consideration. Twelve of the 16 plants recommended for retention in the US Zone are reported to be 100% dismantled, whereas the report states (page 7–8) that the mission recognizes the impracticality of giving further consideration to plants which have been certified as either wholly or in greater part dismantled.
2.
It is further recommended that you seek the agreement of the other Cabinet Secretaries concerned and, the Administrator to refer [Page 778] the draft report to the Cabinet Working Committee, to which a representative of the Administrator should be added. The instructions to the Cabinet Working Committee should be along the following lines:
a.
To discuss with the members of the Technical Mission the draft report and the factual data upon which it was prepared.
b.
To consider the final report of the Technical Mission and then to prepare a Working Committee report with a view to recommending to the Cabinet Members concerned what position on this matter should be taken by the Executive Branch of the Government with respect to both the Congress and the other Governments concerned. In preparation of this report the Committee will give effect to pertinent considerations not within the items of reference of the Technical Mission and using information from its report and files to the extent that it bears on the problem.
c.
To document as thoroughly as possible on a plant-by-plant basis and in accordance with the purpose of the re-examination as stated in the Cabinet decision, a list of plants which will be recommended to the British and French Governments for retention in their zones, and for governmental decision as to plants to be retained in the US Zone.
3.
In view of the extreme difficulty with which we obtained French ratification of the recent London agreements, any publicity given the draft report of the Technical Mission could be expected to stop the execution of the agreements and would introduce an element of discord at a very critical time in light of the Berlin situation. The report’s contents therefore should not be made known to anyone who is not officially concerned with its consideration in the Executive Branch of the Government.

Charles E. Saltzman
  1. There is no indication on the source text nor any other evidence to confirm that the Secretary received or made use of this memorandum. The ribbon copy cannot he found in the Department files.

    Attachments to the memorandum are not printed.

    ↩
  2. The draft of the Final Report of the Cabinet Mission on Reparations under reference here, not printed, was virtually identical with the later definitive text printed infra. ↩
  3. No record has been found in the Department files of the Cabinet meeting of June 25.↩
  4. In a letter to Secretary of the Interior Krug dated June 28, not printed, a copy of which was sent to the Department of State, Secretary of the Army Royall also expressed dissatisfaction with portions of the Report of the Technical Mission and asked that a meeting be held soon to discuss the problem (740.00119 EW/6–2948).↩
  5. For the text of the recommendations under reference here, see p. 727.↩
  6. For the text of the terms of reference of the Working Group (Working Committee), see p. 729.↩
  7. Tab C consisted of the text of the terms of reference of the Cabinet Technical Mission on Reparations; they are quoted in telegram 1314, April 14, to London, p. 749.↩
  8. Tab D was the text of Foreign Secretary Bevin’s letter of June 15 as transmitted in telegram 2645, June 16, from London, p. 766. Tab E was an excerpt from a memorandum of a conversation between Department officials and representatives of the French Embassy on June 18. The gist of that conversation was reported upon in telegram 2300, June 18, to London, p. 768.↩
  9. No record has been found of the July 2 conference on reparations.↩
  10. Underscoring added [Footnote in source text. Here set in italic].↩