894.50/10–1548
The Under Secretary of the Army (Draper) to the Assistant Secretary of State for Occupied Areas (Saltzman)
Dear Mr. Saltzman: Your letter of 13 September 1948, on the subject of “Restoration of Japan to Self-Support” has been given careful consideration by the Department of the Army. While it is agreed that “Restoration of Japan to Self-Support” is unquestionably a major objective of U.S. Foreign Policy there are, it is believed, serious obstacles to achieving this objective through the program outlined in the referenced letter.
The program suggested by your letter proposes that full responsibility for the operation of an approved Japanese economic recovery program, including the combined objectives of Prevention of Disease and Unrest and Economic Rehabilitation, be shifted from SCAP to the Japanese Government. SCAP’s responsibility would change from one of control of the Japanese economy to one of inspection and report. Occupation costs under the proposal would be put on a pay-as-you-go basis. A Japanese Aid Program based on net dollar deficit less receipts from occupation costs would be formulated in such a manner as to relate the amount of aid to “the caliber of Japanese economic performance”.
[Page 1034]In commenting on your proposals we have divided the principal points under two headings, A Pay as You Go and B Shift of Responsibility to the Japanese Government.
- A.
- Pay as You Go: The State Department proposes the adoption of a Pay-as-you-go policy in Japan so that (1) the net amount of U.S. aid after deduction of occupation costs can be made clear; (2) a policy can be developed relating such net amount of U.S. aid to Japan’s economic performance under an approved Recovery Plan; (3) the Japanese will not be able to “depreciate the significance of U.S. aid by indulging in loose allegations concerning the heavy countervailing burden of occupation costs”; (4) future appropriation requests for aid to Japan, as distinct from requests to meet occupation costs, can be reduced. This, State Department feels, would diminish the antagonism felt by other Far Eastern countries toward our policy of rebuilding Japan.
- Occupation costs in Japan are estimated by the Japanese to be
approximately $333,000,000 per year, based on the assumption
that one-third of the Japanese national budget of approximately
$1,000,000,000 is earmarked for costs of occupation.
- 1.
- Pay-as-you-go Occupation costs would be chargeable to the Military Functions Budget of the Department of National Defense, since Army, Navy and Air are all involved in the occupation of Japan. The FY 1950 ceiling for Military Functions has been set at $15,000,000,000. A reduction of this sum by $333,000,000 (see above) involves the question as to whether at this time such an amount should not rather be programmed for primary military requirements.
- 2.
- Under the terms of the Armistice, Japan, an enemy of the United States as distinct from a liberated country, is responsible for occupation costs. A unilateral change in this agreement prior to a peace treaty raises the problem of probable Congressional objection. It is believed that there would be much unfavorable Congressional reaction if a pay-as-you-go policy is adopted in Japan at this time or in the near future.
- 3.
- Even though the participation of Russia, Great Britain and France in the occupation of Japan is a minor matter, it should be noted that they have refused to participate in the pay-as-you-go procedure in Austria, and it is not believed that they would join in a similar proposal for Japan. This opinion is reinforced by the recent refusal of the British Commonwealth Occupation Forces to pay for Japanese personal servants, despite a SCAP directive to the contrary.
- In light of the foregoing the Department of the Army does not now concur with the pay-as-you-go proposal.
- B.
- Shift of Responsibility to the Japanese Government: This
appears to be a matter of degree rather than of principle. Para.
15 of NSC 13/21 setting forth a policy on economic
recovery seems to be
[Page 1035]
the pertinent broad policy guidance. In approaching this problem
the following points have been raised in the Department of the
Army.
- 1.
- GARIOA funds have been appropriated directly to the Department of the Army for the purpose of preventing disease and unrest prejudicial to the Occupation Forces and for initiating industrial recovery. The Congress holds the Department of the Army responsible for these expenditures. As regards the GARIOA appropriation which rests on U.S. legal responsibility under International Law, there may arise a conflict between State Department proposals which may envisage direct control of all U.S. aid in the hands of the Japanese Government, and the practical problem of fulfilling our responsibility without having direct control of sufficient funds to do the job.
- 2.
- The operation of OJEIRF (formulated pursuant to FEC policy) and the loan arranged under this credit with the Export-Import Bank and private banks have been made on the basis of SCAP responsibility.
- 3.
- In the operation of the Natural Fibers Revolving Fund (PL 820, 80th Congress) the Secretary of the Army is designated as the responsible official.
- 4.
- There is a definite limitation to the power of the economic club held over Japan so long as our occupation forces remain there, and hence the U.S. is unable to divest itself of responsibility for the prevention of disease and unrest.
- 5.
- It does not appear that the Executive Branch of the Government could take action to transfer full responsibility for operations under the various appropriations and Government actions indicated above, even if it desired to do so, without prior consultation with and approval by the Congress.
- It is agreed that it would be very desirable for appropriate officials of the State and Army Departments to consult in the immediate future on this matter of the shift of responsibility to the Japanese Government.
Colonel, USA
Assistant to the Under
Secretary of the Army