Foreign Relations of the United States, 1948, The Far East and Australasia, Volume VI

740.00119 PW/10–2848

The Acting Secretary of State to the Secretary of the Army (Royall)¹

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Washington, October 28, 1948.

Dear Mr. Secretary: I am informed by Mr. Kennan that he and Mr. Draper have reached substantial agreement on the enclosed revised policy statement on Japanese reparations. I have reviewed the statement and, though seriously concerned over the expected undesirable consequences for our foreign relations of the successive revisions in the original State proposals, am prepared to urge the statement’s immediate adoption by the National Security Council.

I understand further from Mr. Kennan, however, that the Department of the Army now wishes to defer submission of the statement to the NSC until it has been possible to consult Congressional leaders in the matter after the elections. It is the view of this Department that the present proposal amply protects our domestic, even if not our foreign, interests, and should be implemented at this time as an executive responsibility. Therefore, although I am willing to agree that action in the NSC be deferred until the consultations desired by the Army have taken place, I feel that I must clarify the Department of State’s position in the matter to the NSC through the enclosed statement for reading to the Council at its next meeting.

I assume that the Department of the Army will take the initiative in arranging the proposed consultations with Congressional leaders, but would appreciate being advised of the arrangements when concluded so that the Department of State may be adequately represented. I strongly urge that the consultations be held at the earliest possible moment following the elections, or before the elections to the extent feasible, and suggest that the enclosed revised policy statement be presented to the Congressional leaders as the long considered view of the State and Army Departments on this highly complicated problem.

The revision of paragraph 9 of NSC 13/1,² dealing with the Far Eastern Commission, which was proposed by the Department of the Army (copy enclosed) is satisfactory to this Department, and I am advising Admiral Souers, Executive Secretary of the Council, to that effect.³

Very sincerely yours,

Robert A. Lovett

[Enclosure 1]

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Long Army Proposal on Japanese Reparations for Incorporation in NSC 13/1

20. Japanese Reparations

a. After prior diplomatic discussion with friendly FEC nations the United States should submit the following proposals on Japanese reparations to the Far Eastern Commission, unless such extremely strong opposition is encountered in the diplomatic discussions as to indicate the need for review or withdrawal of the proposals. The Japanese reparations interim directive on advance transfers and allocations procedures (JCS Directive No. 75) should be rescinded simultaneously with the submission of the proposals to the Far Eastern Commission, except that it should remain in effect with respect to allocations of assets which have already been processed under the directive.

b. The aforementioned United States proposals to the FEC should be that:

(1) Japanese external assets located within the territories of Allied nations on September 2, 1945, or in former Japanese territories to be transferred to Allied nations by international agreement, should be retained by such nations and their value taken account of as reparations.

(2) SCAP should be directed to determine, announce publicly and make available for reparations claims, within 30 days after receipt of a directive on this subject, categories and quantities of industrial facilities and equipment specified below:

Industry	Unit
Pig Iron	M.T.	700,000
Steel Ingot	M.T.	1,400,000
Steel Rollins:	M.T.	400,000
Shipbuilding	G.T.	300,000
Nitric Acid	M.T.	82,000
Synthetic Rubber	M.T.	750
Aluminum and Magnesium Fabricating	M.T.	50,000
Magnesium Reduction	M.T.	480
Primary War Facilities		All, except as noted below.
All other		None, except as substituted for primary war facilities.

SCAP should use his discretion in determining particular assets to be made available for reparations claims in accordance with the quantities specified above. Industrial facilities and equipment to be determined available for reparations claims should not include buildings, nor, in general, accessory equipment not an integral part of facilities made available for reparations claims nor accessory equipment essential to the operation of facilities to be retained in Japan. SCAP may, if necessary, exercise authority granted him by the FEC in FEC 084/21 to retain particular plants declared available for reparations. However, all machinery and equipment (including thermal power units) in primary war facilities (army and navy arsenals, privately-owned munitions plants and aircraft plants) should be made available for reparations claim, excepting that such of this machinery and equipment as may, within 30 days after his receipt of a directive on this subject, have been designated by SCAP as required for the purposes of the occupation may be retained within Japan and SCAP should furnish wherever practicable in the light of occupation requirements replacements as closely similar as can be provided from the general inventory of Japanese industrial facilities which otherwise would be retained in Japan. It is the view of this Government that this provision should be deemed the final application of paragraph 10 of FEC 084/21 so far as it applies to primary war facilities.

(3) SCAP should be directed to receive reparations claims from Far Eastern Commission countries within a reasonable period and should determine the final date for submission of such claims. This date should not be earlier than 90 days subsequent to his receipt of a directive on this subject.

(4) allocations of available and claimed reparations should be made by SCAP in accordance with national percentage shares, substantially as herein stated, and in accordance with the provisions set out in Part B of JCS Directive No. 75 to the extent that such provisions are not inconsistent with the policies adopted herein.

(5) Actual allocations and deliveries should be made by SCAP as soon as possible after issuance of the directive embodying this position in order that recipient nations may have the benefit of facilities and equipment as soon as possible and in order that reparations deliveries may be completed within eighteen months after issuance of the directive.

(6) Claimant countries should be required to enter into agreements with SCAP establishing specific schedules for the removal of allocated reparations facilities. SCAP should be instructed to arrange these schedules with a view to minimizing the possibility of dismantlement being rendered useless by any failure of recipient countries to remove equipment from Japan. Should any country fail to remove facilities on schedule, SCAP shall be empowered to revise or suspend schedules for dismantling and delivery to dockside of facilities previously allocated that country.
Although claimant governments should be informed that no reparations deliveries will be permitted after the eighteen months period, SCAP should have discretion to determine whether assets delivered to dockside in accordance with the above-mentioned agreements but not removed within this period should be delivered or returned to the Japanese economy.

c. An FEC or U.S. interim directive to SCAP embodying the above proposals should be accompanied by a U.S. Government public announcement that in its view Japanese reparations should be limited to the relinquishment of title to and ownership of external assets outside Japan on 2 September 1945 and to the removal of the quantities of industrial facilities and equipment from Japan specified in the directive.

d. If, after reasonable consideration in the Far Eastern Commission, the position in subparagraph b above cannot be agreed upon in the Commission, the United States should consider the desirability of issuing a unilateral directive to SCAP. The desirability of issuing such a directive should be considered in any event not later than February 1 if the Commission has by that time been permitted at least one month’s consideration of our proposals.

e. Industrial reparations under the above proposal should be made available to member countries of the Far Eastern Commission in accordance with the following schedule of percentage shares. The United States Government for its own part should hold 18 of its 23% share of industrial facilities for redistribution among those Far Eastern countries which approve the schedule and which desire increments to industrial facilities which they are entitled to receive by their share. The United States Government should allow a period not to exceed one month for negotiation among countries wishing to participate in the redistribution of this 18%, in which these countries can seek a mutually acceptable redistribution of that share. If no agreement is reached within this period, the said 18% for redistribution should be divided among participating countries in proportion to the percentage shares shown below.

Australia	8%
Canada	1
China	30
France	2½
India	5
Netherlands	5
New Zealand	1
Philippines	8
USSR	4
United Kingdom	12½
United States	23

[Enclosure 2]

Statement by the Acting Secretary or State to the National Security Council on Japanese Reparations

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The Council will recall that it was decided at the Council meeting on September 30⁴ that the State, Defense and Army Members should attempt to resolve the remaining differences of view regarding the action on Japanese reparations in NSC 13/1, “Recommendations with Respect to U.S. Policy Toward Japan”, and to present an agreed draft for consideration by the Council.

I wish to report that the Department of State has informed the Department of the Army, following consultations between representatives of the two Departments that it is willing to accept the Army amendments to paragraph 20 of NSC 13/1, with minor modifications understood to be agreeable to the Army, in order that a definite reparations policy may be decided upon and implemented without further delay. The amendments were accepted with greatest reluctance because of the anticipated unfortunate consequences of the revised policies on our foreign relations. It is understood, however, that the Army Department now wishes to postpone final action on the Japanese reparations problem until it has been possible to consult Congressional leaders in the matter after the elections. It is the view of the Department of State that the present State–Army proposal amply protects our domestic, even if not our foreign, interests, and should be implemented at this time as an executive responsibility. The Department of State is nevertheless willing, having thus clarified its position to the Council, to defer action until the consultations desired by the Army have been held, urging that they be held with the minimum possible additional delay.

1. Copy transmitted to the Secretary of Defense (Forrestal) in reply to his letter of October 26 (not printed).
2. See memorandum of September 24, p. 853.
3. See letter of October 28 with enclosure, p. 879.
4. See memorandum of October 1, p. 1030.