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

CFM Flies: Lot M–88: Box 2234: File–Cabinet Technical Mission Report

Final Report of the Cabinet Technical Mission on Reparations

[Extracts]

secret

Washington, July 1948.

Final Report on Dismantlement of Industrial Plants Located in the Three Western Zones of Occupation of Germany

[This Report was submitted to the Secretaries of the Interior, Agriculture, and Commerce under cover of a brief, undated transmittal letter signed by the members of the Cabinet Technical Mission: Norman H. Collisson, Chairman, Frank J. Baumis, Julius E. Graf, and Edward Falck. A copy of the Report was transmitted to Secretary of State Marshall under cover of a brief letter of July 22 from the Secretary of the Interior, not printed (740.00119 EW/7–2248).

In the source text, the Report consisted of 33 typewritten pages and an Appendix (not printed) consisting of 71 pages of tables.]

introduction

The President appointed the Secretaries of the Departments of Interior, Agriculture and Commerce as a committee to re-examine, with relation to the European Recovery Program, the scheduled dismantlement of German industrial plants for reparations.¹ This committee thereafter appointed a four-man Technical Mission, composed of industrialists and engineers, for the purpose of making a survey and study of the industrial plants located in the three western zones of occupation of Germany which might be technically equipped to produce critical items in world-wide short supply, and to recommend which, if any, of such plants should be retained for production in Germany in order best to achieve the objectives of the European Recovery Program.

The Technical Mission made a careful study of the technical and economic factors affecting the program of dismantlement, including an examination of the voluminous material, data and statistics compiled by the various governmental departments, and in addition thereto, devoted some six weeks to travel in Europe and to field inspections of German industrial facilities during the months of April and May 1948.

The civil and military authorities in the three zones made available to the Mission the mass of data and statistics related to the reparations problem. The findings and reports of other committees on this same subject as well as other related subjects were utilized by the Mission. Each of the military governments of the three western zones prepared, at the request of the Mission, a considerable volume of original data dealing with this problem.

It is recognized that factors and considerations other than those of a technical and economic nature are pertinent to the reparations problem. These other factors, such as political and security considerations, were regarded by the Mission as being outside of the terms of its reference and were, therefore, not taken into account in arriving at the recommendations and conclusions contained in this report.

status of dismantlement

An evaluation of the reparations program required a preliminary review of the status and extent of dismantlement as it existed in April 1948, and an understanding of the “level of industry” concept, which was a basic consideration in the formulation of the present reparations program.

In March 1946 the four occupying powers, acting through the Allied Control Authority, adopted a Plan for Reparations and the Level of Post-War German Economy. The stated “objectives of the plan were to eliminate German war potentials, to provide reparations and yet to leave within Germany the necessary plants and equipment to permit the rebuilding of a viable and peaceful economy.”^la

Throughout the following year it became increasingly apparent that under the restrictions of this original level of industry Germany could not contribute her indispensable part to the economic rehabilitation of Europe as a whole. Thereupon, as of August 1947, the Occupation Government authorities of the United Kingdom and the United States zones adopted an upward revision of the existing levels of industry. Under this revision specific production levels were set for each of the major industrial classifications, and plants whose output was determined to be surplus to those levels were declared available for dismantlement and reparations by the bizonal authorities.

A brief resume of the April 1948 status of dismantlement in each of the three western zones follows:

U.S. Zone of Occupation

Here dismantlement has proceeded at a rapid rate. On a basis of manhour requirements, the occupying officials estimate that as of April 1, 1948, approximately 81 per cent of the work of dismantlement had been completed. The Technical Mission, however, found in numerous instances that the term “complete dismantlement” as used in this zone meant only that the equipment item had been detached, raised from the foundation, electrical and hydraulic connections severed, and the equipment coated with a preservative oil. Under such a dismantlement procedure the productive output of the plant is stopped immediately and potential production is lost thereafter.

No plants or equipment, other than “War Plants,” have been declared available as reparations to the Allied Control Authority since June 1946. However, shipments of plants submitted to ACA prior to that date are currently going forward.

U.K. Zone of Occupation

Because of the concentration of industry in this area, the dismantlement and shipment of plants declared to be surplus has not approached the state of completion found in the U.S. zone. On a basis of estimates supplied by the zonal authorities, approximately 7 per cent of the total number of plants listed for dismantlement have been completely dismantled and in some 250 additional plants dismantlement has reached varying percentages of completion. It is estimated that from an overall standpoint the dismantlement in this zone approximates something less than 33 per cent. The U.K. zonal authorities permit a plant scheduled for dismantlement to continue in production until orders on hand have been completed.

French Zone of Occupation

The number of plants scheduled for dismantlement in this zone is appreciably greater than the number listed for dismantlement in the U.S. zone, but approximates only 50 per cent of the number of plants scheduled for dismantlement in the U.K. zone. On the basis of the data submitted by the zonal authorities, approximately 30 per cent of the program has been completed. Plants scheduled for dismantlement are permitted to continue in production until such time as dismantlement is actually started.

Under the Potsdam Agreement, 25 per cent of the plants determined to be surplus and available for reparations in Western Germany were to be allocated to the USSR. In return for this allocation of capital items to the USSR, the Soviet was required to make return shipments “in agreed installments within five years of the date thereof”² of certain specific commodities to the value of 60 per cent of the capital shipments made to Russia. As of April 26, 1948, capital industrial equipment has been shipped to the USSR from the three western zones of Germany valued at RM 70,979,300. In return, as of the same date, the USSR had delivered commodities valued at RM 4,831,546.

basic assumptions

The program of plant dismantlement had been under way for nearly three years and it became necessary for the Mission to accept certain factors without further and independent investigation. The following assumptions am, therefore, pertinent to the conclusions and recommendations of the Mission.

War Plants

“War Plants” are defined as those capable of manufacturing war materials, including, but not limited to, arms, ammunition and implements of war, as well as all types of aircraft, specific war chemicals and gases. The Mission recognizes that in time of national emergency every plant might be characterized as a “war plant;” that the line of demarcation between war plants and peace-time plants is, in fact, a broad and poorly defined division line; and that any technical group might come to somewhat varying conclusions with respect to those plants now defined as “war plants.” Nevertheless, the Mission accepted as conclusive the listing of specific plants by the zonal authorities under the category of “war plants.”

Prohibited Industries

Documents furnished to the Mission by the zonal authorities included a listing of industries which were prohibited by the “Plan for Reparations and the Level of German Post-War Economy of March 1946.”³ The Mission has accepted these designations. However, an exception⁴ provided that facilities for the production of synthetic gasoline and oil, synthetic ammonia and synthetic rubber and ball and taper roller bearings are to be retained to meet domestic requirements in Germany until the necessary imports are available and can be paid for. The Mission has, therefore, examined prohibited facilities in the light of this exemption.

Restricted Industries

In the data supplied by the occupational authorities of the western zones of Germany, all plants scheduled for dismantlement and not included in the above described categories of “War Plants” and “Prohibited Industries” are classified as “Restricted Industries.” The Mission understands that by this latter classification is meant those plants whose production is considered surplus to the established level of industry provided in that specific zone or zones.

Progress of Dismantlement

The zonal authorities at the request of the Mission supplied data as to the status of dismantlement with respect to each of the plants under consideration. The Mission recognized the impracticability of further consideration with respect to the possible retention of an individual industrial plant whose physical dismantlement had been certified as either wholly or in greater part completed.

Allocations to Allied Control Authority and Inter-Allied Reparations Agency

The Technical Mission requested and subsequently received from each of the zonal authorities specific information as to the action, if any, taken by ACA or IARA with respect to each individual plant on the dismantlement list for each of the zones of occupation. Where the facilities of a specific plant had been officially submitted to either ACA or IARA for subsequent allocation as reparations such action was accepted by the Mission as final.

Relation of German Production to the Post-War Recovery of Western Europe

The Technical Mission recognizes as a fundamental consideration the necessity for increased production in Germany and the primary importance of such increased production to European recovery. The Mission recognizes and accepts that “the whole economy of Europe is inter-linked with German economy through the exchange of raw materials and manufactured goods. The productivity of Europe can not be restored without the restoration of Germany as a contributor to that productivity”.⁵

Facilities of Negligible Value

The zonal authorities supplied data reflecting the estimated residual value of equipment in each of the plants scheduled for dismantlement. It was recognized that in the solution of a problem of the magnitude of the dismantlement program, facilities or equipment having a negligible value would have little effect on the economic recovery of Europe. The Mission defined a plant of negligible value as one having a residual value of RM 50,000 or less.⁶ The Mission did not, however, accept this as a hard and fast definition, recognizing that in specific instances the critical world short supply of the end product to be derived from this equipment would override its lack of monetary value.

recommendations

The Technical Mission makes the following recommendations with respect to the dismantlement program in the western zones of Germany. For convenience and clarity these recommendations have been segregated so as to apply individually to each of the three western zones.

U.S. Zone of Occupation

The Technical Mission makes the following recommendations and comments with reference to the 186 plants currently scheduled for dismantlement in the U.S. Zone:

1. The Mission recommends that 15 of these plants⁷ be retained for production in Germany in order best to achieve the objectives of the European Recovery Program.

2. The Mission recommends that 1 plant⁸ be retained in Germany for the reasons set forth under “Conclusions” of this report.

3. The Mission makes no recommendation for the retention in Germany of 169 plants,⁹ classified as “War Plants”, “Prohibited Industries”, “Plants which have either been allocated or over 80 per cent dismantled”, and 1 plant¹⁰ which is not required to be retained in Germany in order best to achieve the objectives of the European Recovery Program.

UK Zone of Occupation

The Technical Mission makes the following recommendations and comments with reference to 495 plants currently scheduled for dismantlement in the UK Zone:

1. The Mission recommends that 165 of these plants¹¹ be retained for production in Germany in order best to achieve the objectives of the European Recovery Program.

2. The Mission recommends that 11 plants¹² be retained in Germany for reasons set forth in the “Conclusions” of this report.

3. The Mission makes no recommendation for the retention in Germany of 296 plants,¹³ classified as “War Plants”, “Prohibited Industries”, “Plants which have been either allocated or over 80 per cent dismantled”, “Plants with a residual equipment value of RM 50,000 or less”, and 23 plants¹⁴ which the Mission has determined are not required to be retained in Germany in order best to serve the objectives of the European Recovery Program.

French Zone of Occupation

The Technical Mission makes the following recommendations and comments with reference to the 233 plants currently scheduled for dismantlement in the French Zone:

1. The Mission recommends that 88 complete plants¹⁵ be retained for production in Germany in order best to achieve the objectives of the European Recovery Program.

2. The Mission also recommends the retention of 2 part plants¹⁶ for the same reasons.

3. The Mission recommends acceptance of the voluntary offer made by the French authorities that an additional 35 complete plants¹⁷ and 14 part plants¹⁸ be retained in Germany.

4. The Mission makes no recommendations for the retention in Germany of 81 plants,¹⁹ classified as “War Plants”, “Prohibited Industries”, “Plants which have been either allocated or over 80 per cent dismantled”, “Plants with a residual equipment value of RM 50,000 or less”, 14 part plants²⁰ and 14 plants²¹ which the Mission had determined are not required to be retained in Germany in order best to achieve the objectives of the European Recovery Program.

General Recommendations

1. The Mission considered the Foreign Assistance Act of 1948 and the requirements of the countries participating in the European Recovery Program under that Act. The retained industrial capacity would contribute to the economic stabilization of Germany and thus effectively serve the purpose of European recovery. It is recommended that this report, as approved, be made available to the Administrator for Economic Cooperation and the Secretary of State in order that the bilateral and multilateral agreements, required by Section 115 (f) of Public Law 472, will provide:

“that such capital equipment as is scheduled for removal as reparations from the three western zones of Germany be retained in Germany if such retention will most effectively serve the purposes of the European Recovery Program.”²²

2. This report is classified as “Secret” in accordance with the terms of reference of the Technical Mission. Downgrading to “Not Classified” is recommended.

summary of recommendations

A recapitulation of the above recommendations and comments indicates that of the total of 914 plants currently listed for dismantlement in the combined western zones of Germany, the Mission recommends the retention of 315 whole plants,²³ and 16 part plants,²⁴ as sources for the manufacture of critical items in world wide short supply.

The Mission has determined that of the 914 plants, 34 plants²⁵ are not required from a technical standpoint to be retained in Germany in order best to achieve the objectives of the European Recovery Program.

The Mission has made no recommendations for the retention in Germany of 549 plants,²⁶ classified as “War Plants”, “Prohibited Industries”, “Plants which are either allocated or over 80 per cent dismantled”, “Plants with a Negligible Value of RM 50,000 or Less”, and 15 part plants.²⁷

Detailed listing of the specific plants in the three zones will be found under appropriate headings in the Appendix hereto.

[Here follows a section, comprising fourteen pages in the source text, entitled “Fundamental Considerations”.]

implementation

The Mission recognizes that technical considerations alone are not controlling in the decision as to the plants which should be removed from the dismantlement list. The Mission again emphasizes that political and security considerations are outside of the terms of its reference.³²

The Mission recommends the retention of 323 plants in the three zones of Germany. In the majority of cases, the factors influencing the decisions were evaluated on the basis of categories. Obviously, the reasons for such retentions are much more compelling in some cases than in others. The Mission, therefore, concludes that a classification of the 323 plants recommended for retention would assist in reaching a final determination. In list 8, Appendix, the Mission groups these 323 plants into the following classifications:

Class A.³³ Plants, the product of which the Mission considers vital to the European Recovery Program and upon which the evidence for retention is conclusive from the technical point of view.

Class B.³⁴ Plants whose end product categories justify inclusion in Class A above, but concerning which additional technical information on an individual plant basis may be desirable.

Class C.³⁵ Plants whose retention would have less effect on the European Recovery Program. This listing contains, for example, plants having a relatively low residual equipment value; plants whose end products are not as critically in world short supply; and plants whose productive reestablishment in Germany is dependent upon variables and, hence, less certain.

To assist in the implementation of this report the Mission makes the following recommendations:

1. Plants not recommended for retention be submitted to the Department of State for appropriate action.

2. The Economic Cooperation Administrator, through the Secretary of State, obtain agreements for immediate suspension of dismantlement and allocation of all plants which are recommended for retention.

3. The Economic Cooperation Administrator shall make, upon request, an independent investigation with respect to any of the plants recommended for retention which investigation shall include, but not be limited to, the following factors:

(a) Examine data submitted with the application of the recipient country, if any.

(b) Conduct a survey of the plant in its present location, developing all necessary information concerning facilities, power supply, labor and raw materials availabilities, transportation, etc.

(c) Examine the order boards of the plant to establish the specific industries which were normally supplied by the plant under consideration.

(d) Consult the zonal authorities and the Department of State on the subject of international agreements, military security and other non-economic factors as they relate to the plant under consideration.

(e) Examine evidence submitted or independently developed as to the possibility of productive reestablishment of the plant in its present location.

(f) Make an independent survey of the possibility of prompt re-establishment of the plant in the recipient country, taking into consideration the availability of manpower, raw materials, electric power, transportation, factory sites, and the demand for the end product.

(g) Investigate the practicability of cannibalization of the plant facilities, evaluating the costs involved in complete dismantlement as compared with the costs involved in cannibalization, and the relative effectiveness of both programs.

4. Upon the completion of the investigation outlined above, the Economic Cooperation Administrator will

(a) request the Secretary of State to obtain the agreement of those countries concerned, in order that the plants and capital equipment the retention of which, in the opinion of the Administrator, will “most effectively serve the purposes of the European Recovery Program” be retained in Germany permanently;

(b) submit the remainder of the plants, if any, promptly to the Department of State for appropriate action.

Upon the Administrator’s request the Mission will furnish such pertinent data as it may have concerning the plants recommended for retention.

conclusions

On the basis of the facts and the available data, the Technical Mission concludes that the dismantlement of plants in Germany as currently scheduled does not “… most effectively serve the purposes of the European Recovery Program”.³⁶ The technical and economic considerations involved argue against a continuation of the dismantlement schedule. The Technical Mission urges that consideration be given to the recommendations contained herein to the end that there be a prompt and final determination of this problem.

With particular respect to steel plants in the United States and the United Kingdom Zones, the Mission has indicated those plants which it affirmatively recommends for retention in Germany.³⁷ Separately indicated are 11 steel plants³⁸ in the UK Zone and 1 steel plant³⁹ in the U.S. Zone which, even under optimum conditions, could not be placed into production within a reasonable period of time. On the other hand, the Mission does not believe that the physical dismantlement and removal of these plants to other countries as reparable facilities will serve any really useful purpose. The size, weight and character of the facilities are such as to make the cost of their dismantlement, transportation and re-erection excessive and their net salvageable gain, therefore, small. It is urged that these facilities be considered in the light of their “cannibalization” value. Individual items of equipment may thus be utilized for repairs, replacements and additions in other plants of the same general type.

The Mission expresses its appreciation for the material contribution of the members of the staff composed of Julius C. C. Edelstein, Department of State; Thomas Hibben, Department of Commerce; Robert Myers, Bureau of Labor Statistics; Thomas Rawlings, Department of Agriculture; O. L. Billingsley; Paul F. Griffin and the secretarial staff.

1. Recommendations of the Secretary of State to the President and Cabinet, dated 2/16/48. [All the footnotes in this document appear in the source text.]
2. Report of Bipartite Board, Approved August 26, 1947.
2. Paragraph 6, Section IV (6) from communiqué published at the end of the Potsdam Conference (2nd August 1945).
3. Inter-Allied Reparation Agency; First report of the Secretary General for the year 1946, page 23.
4. Page 24 of same report noted under Footnote 3.
5. The President’s Economic Mission to Germany and Austria. Report No. 3—Herbert Hoover (1947).
6. 1938 RM value (approximately $15,000).
7. List No. 2, Appendix.
8. List No. 2, Appendix (also see page 29, this report).
9. List No. 1, Appendix.
10. List No. 1, Appendix.
11. List No. 4, Appendix.
12. List No.4, Appendix (also see page 29, this report).
13. List No. 3, Appendix.
14. List No. 3, Appendix.
15. List No. 6, Appendix.
16. List No. 6, Appendix.
17. List No. 7, Appendix.
18. List No. 7, Appendix.
19. List No. 5, Appendix.
20. List No. 5, Appendix.
21. List No. 5, Appendix.
22. Section 115 (f), Public Law 472; 80th Congress.
23. List Nos. 2, 4, 6 and 7, Appendix.
24. List Nos. 6 and 7, Appendix.
25. List Nos. 1, 3 and 5, Appendix.
26. List Nos. 1, 3 and 5, Appendix.
27. List No. 5, Appendix.
32. See page 2 of this report.
33. See List No. 8, Appendix.
34. See List No. 8, Appendix.
35. See List No. 8, Appendix.
36. Section 115 (f), Public Law 472, 80th Congress.
37. Lists No. 2 and 4, Appendix.
38. List No. 4, Appendix.
39. List No. 2, Appendix.