740.00119 PW/3–448

Memorandum of Conversation, by the First Secretary of Embassy in the United Kingdom (Drumright)1

secret
Participants: D. F. MacDermot, Head, Japan and Pacific Department, Foreign Office
D. J. Cheke, Japan and Pacific Department, Foreign Office
Edwin M. Martin,2 State Department
Mr. Drumright
1.
Mr. Martin opened the conversation with the remark that the Japanese reparations question was still an open one when he left the United States on February 11, 1948. Prior to his departure U.S. representatives had exchanged views on the subject with U.K. representatives, particularly with regard to the statistical basis of the Chinese claims and allocation. As a result of these exchanges, Mr. Graves of the British Embassy, Washington, had expressed the view and United States representatives had agreed, that nothing productive could emerge from further analysis of the Chinese position.
2.
Mr. Martin went on to say that the situation had changed in one respect since the last discussion with Mr. Dening3 and Mr. MacDermot in December, namely, that prospects for a Japanese peace treaty now appeared more remote. But we were still faced with the problem of getting on with a reparations program. The longer the reparations problem was postponed, the harder it would be to settle. The U.S. Government was now confronted with stronger pressure from U.S. interests regarding reparations, as witness recent developments pertaining to Germany. The sums of U.S. money now being sought for the rehabilitation of Germany and Japan are not inconsequential.
3.
Mr. Martin then stressed the United States desire for a satisfactory reparations settlement. The State Department representatives, he said, had been cudgelling their brains for a solution. Moreover, General McCoy4 had discussed the problem with the Soviets. In this relation, Mr. Martin expressed the view that whereas some compromise [Page 951] might be worked out, he doubted whether the Soviets would for their part give way. In Mr. Martin’s view, the U.S. had given up, or was close to giving up, hopes of obtaining settlement through a general FEC agreement. The alternative, Mr. Martin asserted, was an interim directive within the FEC framework. But the U.S. would be most reluctant to issue an interim directive without 10-country agreement. He thought that effort should be made to reach such an agreement through informal talks.
4.
Mr. Martin said that the new approach on which some U.S. officials had been working quite informally and with a full appreciation that this approach could be sold within the U.S. Government only with great difficulty involved the taking of several per cent off the total U.S. share and U.S. residual share of Japanese reparations, and the division of it into several bits among the three or four countries which had not expressed willingness to go along with the original U.S. proposal. The relinquishment of 5 per cent or 6 per cent of the 10 per cent U.S. residual share would benefit Britain, France, the Netherlands and India. If that sort of solution could be worked out and if the U.K. would support it, there would seem to be a good opportunity of getting a 10-country agreement. If the ten countries reached agreement, there would be a pool of 23 per cent to be divided. Probably the Soviets would not participate and consequently would obtain no share in the pool, although 4 per cent would be held for them.
5.
Having outlined the foregoing proposal, Mr. Martin inquired whether there was any possibility of obtaining U.K. support of it. Mr. Martin stressed that the proposal was tentative, that it had not been cleared with the U.S. Government, and that it was thrown out informally as a possible basis for agreement. Mr. Martin went on to say that Japanese reparations presented a difficult psychological problem, that the U.S. people felt that the Japanese war was their war, and that they had contributed overwhelmingly to the defeat of Japan.
6.
Mr. MacDermot replied that the psychological problem raised by Mr. Martin could be met by showing that other countries recognized the U.S. contribution to the Pacific war. Mr. Martin interjected to say that the U.S. wanted none of the Japanese reparations for its own use, but that it wanted to reserve something for Korea. Mr. MacDermot then said that the U.K. Foreign Office was inclined to agree that further discussions on the Chinese claims meant very little, and that it did not promise to be a likely avenue toward agreement. Mr. MacDermot went on to remark that he agreed that a reparations conference in relation to a peace conference was not a satisfactory way of reaching a settlement for the reason that a peace conference is not likely to be held this year. Commenting on the possibility of the issuance [Page 952] of an interim directive, Mr. MacDermot expressed the view that it is a matter of some urgency to get reparation materials now in Japan moving.
7.
Mr. Martin agreed with this view, adding that what is important is to decide what is to be left in Japan, as well as what is being sent away as reparations. Mr. Martin went on to explain that materials set aside for reparations are deteriorating and losing value daily. If agreement is not reached on the division of these materials, they might eventually be absorbed by the Japanese.
8.
Mr. MacDermot then stressed U.K. obligations to Burma and the colonies. He said that political difficulties might arise if Burma’s interests were not looked after, all the more so in view of the fact that Burma has become independent.
9.
Mr. Martin elaborated at some length on the new U.S. approach. He pointed out that under it, the original U.S. claim would be reduced from 28 per cent to 23 per cent, of which five per cent would be retained and 18 per cent thrown into the distribution pool. Mr. Martin went on to say that the U.S. idea was that the eight recipient countries should agree among themselves as to the formula for distribution of the pool. Agreement might be reached to distribute on a pro rata basis—which China would probably favor—or it might be accomplished on some other basis. Mr. Martin then said the U.S. thought it neither wise nor proper that it should endeavor to allocate the residual shares, but that the recipient countries should undertake this task. In reply to a question, by Mr. MacDermot, Mr. Martin said he thought the U.S. would not wish to specify pro rata distribution, but if the recipient countries could agree to such a formula, he (Mr. Martin) thought the U.S. would not object.
10.
Mr. MacDermot then inquired as to the constitutional or legal basis of a decision by the recipient countries to accept reparation shares. In reply, Mr. Martin said that he was not certain as to the legal basis for such an agreement or as to the procedure to be followed. He was not certain whether distribution could be accomplished by interim directive, by exchange of notes among the powers concerned, or by U.S. directions to SCAP. It was a question which needed study and clarification.
11.
Mr. MacDermot said that he wished to stress one further aspect of the problem. He said that the U.K. decision to claim 25 per cent of Japanese reparations had been reached by the U.K. Cabinet, and that if this decision were to be modified action to that effect must be taken by the Cabinet. Mr. MacDermot then said that if a lower percentage proved acceptable to the Cabinet for purposes of expediting settlement [Page 953] of the current impasse, he thought that a proviso would likely be made that the U.K. reserved the right to claim 25 per cent of any further materials that might be set aside for reparations.
12.
Mr. MacDermot then indicated that the Foreign Office would study the proposals advanced by Mr. Martin. He further indicated that the Foreign Office recognized the desirability of reaching an early settlement of the present impasse, and that the Foreign Office might in these circumstances take steps to urge the Cabinet to modify its original decision to claim 25 per cent of the reparations now available for distribution.
Everett F. Drumright
  1. Copy transmitted to the Department in despatch 574, March 4, from London, not printed; received March 11.
  2. Acting Chief of the Division of Occupied Areas Economic Affairs.
  3. Maberly E. Dening, Assistant Under-Secretary of State, British Foreign Office.
  4. Maj. Gen. Frank R. McCoy (ret), U.S. representative on the Far Eastern Commission and its chairman.