740.00119 PW/11–1648

Memorandum by the Chief of the Division of Northeast Asian Affairs (Bishop) to the Director of the Office of Far Eastern Affairs (Butterworth)


In your attached memorandum of November 4 you raise the question of whether the rapid deterioration of the military situation in China [Page 1047] might not necessitate revision of our reparations proposals, and, if so, what specific changes should be made.1

It would seem that the answer to the first question must be sought primarily in two other questions, namely: (A) Is it important from the point of view of our China policies that Japanese reparations facilities allocated to China under our present proposals not fall into Communist hands?; and (B) Is there serious danger that this may happen if we proceed on the basis of our present proposals?

Question “A” involves the whole problem of this Government’s future policies toward a Communist-dominated government in China, a problem on which a number of other questions affecting Japan beside reparations (for example, Chinese representation on the FEC) will depend. The conclusions of NSC 34, “U.S. Policy Toward China”,2 providing that we should make our decision regarding recognition of a new Chinese Government “in the light of the circumstances at the time”, indicate that this major policy issue has not yet been decided, and probably will not be decided until after such a government has been formed. Although question “A” cannot, therefore, now be answered, our clear course until this issue has been decided is to avoid entering into any agreement with China which might obligate us to turn over reparations facilities allocated to that country after it had become apparent that those facilities might fall into Communist hands.

There seems to be little possibility, turning to question “B”, that we could find ourselves so obligated under our present reparations proposals. If the National Government disappears and we do not recognize a new government, any reparations agreement previously concluded with the National Government will of course no longer be binding on us or on SCAP, and deliveries can be stopped. If the present National Government is reorganized as a coalition government under Communist domination but we continue our recognition of it, or if the National Government is replaced by a new government which we decide to recognize and whose representative we agree to seat in the FEC, it may be presumed that we will not be unwilling for the reconstituted National Government or the new government to receive the reparations allocated to China, if it can transport them in the limited period allowed. Should there be doubt in our minds whether reparations should be delivered to the reconstituted or the new government that factor may be expected to enter into the decision whether we should recognize it or not. The only possibility which need be a cause for concern, therefore, is that reparations facilities turned over to the National Government before the military and political [Page 1048] situation stabilizes may be put down in territory from which the Nationalists are later ejected by the Communists and thus fall into their hands.

The chances of this occurring do not seem great, however. It will be recalled that the claimant governments must under our proposals transport reparations facilities from dockside in Japan to the point of destination in their own vessels and at their own expense. It seems unlikely in the straightened [straitened] circumstances in which the National Government will find itself when deliveries begin, if it is still in existence at that time, that it will allocate its limited shipping facilities to transport reparations to China which it would be in danger of losing to the Communists and having used against it. Such a possibility is rendered even more remote by the fact that the bulk of the reparations equipment can for the present be put to effective use only in North China and the Yangtse Valley, which it appears will soon be completely lost to the National Government.

At the same time it must be recognized that a possibility of part or all of the facilities falling into Communist hands does exist in certain circumstances. If, for example, the National Government, deciding to continue the fight from the South, brings in reparations facilities to aid it in that fight but is later overrun, the facilities will come into the possession of the Communists. The answer to question “B” would therefore seem to be that although the danger of Japanese reparations ending up in Communist hands under our present proposals are not great, it does exist.

In considering how our proposals might be altered to reduce or remove this danger, it will be recalled that the advance transfer directive of April 4, 1947, provided that reparations assets “should be delivered to a recipient country only after it has supplied evidence acceptable to the Supreme Commander for the Allied Powers …3 that the immediate and useful employment of such assets is practicable”. The State Department’s reparations proposals sent SCAP by the NSC for comment last June contained a similar provision, but SCAP rejected it on the grounds that he had “no way of investigating or verifying such evidence”, and that there was “no limit to the amount and kind of such evidence that could be submitted”. The provision was accordingly omitted from our present proposals. There would seem to be no valid reason, however, why a similar provision, empowering SCAP to withhold delivery of allocated facilities to any nation which in his judgment no longer possesses the capacity to make effective use of them, should not be reinserted in our proposals, it being made clear to SCAP that he would be expected to exercise this power only to [Page 1049] meet the danger here considered and on the advice of this Government. Such a provision might read as follows:

SCAP shall be empowered to withhold delivery of reparations facilities allocated to a claimant country when in his opinion conditions within that country would prevent immediate and effective use of the facilities.”

A provision which involves obvious objections but which is more specifically adapted to the purpose at hand might read:

SCAP shall be empowered to withhold delivery of reparations facilities allocated to a claimant country when in his opinion those facilities might, if delivered, fall into hands other than those of the government of that country party to the reparations agreement.”

The principal advantage of the latter proposal is that it would have greater appeal for Congressional leaders and would facilitate their approval of our proposals. The disadvantage is that it would occasion resentment on the part of the National Government and other claimant governments, and, if invoked, would be a slap at a Communist-dominated government which we might later have cause to regret if we decided to recognize that government. I would therefore recommend insertion of the first of the above two drafts in our reparations proposals, with the possibility of substituting the second during the conversations with Congressional leaders if this appears advisable.

Should it be necessary before a final reparations agreement is signed, or under the above draft provision after it has been signed, to exclude China from the list of reparations recipients, it will of course be necessary to decide whether China’s share should be held for it to collect later in the 18 months delivery period, if that seems feasible, or to allocate part or all of it on a pro-rata basis to the other claimants.

We shall keep this question under constant review and will coordinate with CA as our policies toward developing conditions in China unfold.

This whole problem is further evidence, if any were needed, of the desirability of a “Pacific Policy” such as you have suggested.

  1. Memorandum not printed.
  2. PPS/39, September 7, subsequently sent to the National Security Council; vol. viii, p. 146.
  3. Omission as indicated in the original.