740.00119 PW/12–1748
Memorandum by the Chief of the Division of Northeast Asian Affairs (Bishop) to the Director of the Office of Far Eastern Affairs (Butterworth)
Subject: Japanese Reparations
The attached telegram contains General MacArthur’s comments1 on the tentative State-Army reparations proposals sent him for comment three weeks ago.
General MacArthur’s position, largely as expected since issuance of the stabilization directive last Friday,2 is that
“Now that (stabilization) has formally become a basic and primary allied objective in the occupation of Japan, it would be entirely inconsistent for the United States as sponsoring government to support the removal of any further materials from Japan for the reparations account. For every pound of material so removed is a reduction in the resource available to support the stabilization program and an added burden upon the economy by way of costs incident to preparation and transportation, as well as a strong psychological brake upon the mustering of the Japanese will to support, however onerous it may appear, the American formula for stabilization as prescribed by the interim directive.”
Whereas in Part I of the telegram, prepared before receipt of the stabilization directive, General MacArthur indicates he would be willing to implement a reparations program based on the Johnston retention levels, but not on the levels advanced in the State-Army proposals, his position after receipt of the directive is one of firm opposition to any further reparations whatsoever.
Competent specialists estimate, General MacArthur states, that implementation of the State-Army proposals would entail the packaging and delivery to dockside of close to 600,000 pieces weighing 850,000 tons at an estimated expenditure by the Japanese at existing yen costs of about 15 billion yen. This sum, it is true, is not large in comparison with the total General Accounts budget for the current fiscal year of 400 billion yen (and a Special Accounts budget of approximately 1,000 billion yen). Nevertheless General MacArthur’s argument that the dismantling, packaging and transportation of 850,000 tons of machinery (or whatever portion thereof might actually be claimed), would place a significant added burden on Japan’s strained economy, materially handicapping the stabilization program, and that the reparations burden would therefore in actuality be borne directly or indirectly by the United States, seems irrefutable. It is also [Page 1065] impossible in light of our recent stabilization directive to contest General MacArthur’s thesis that stabilization and recovery must be considered the overriding objective in the coming period to which other objectives must generally be subordinated. While it might still be feasible to carry out a token reparations program involving removals far smaller even than those recommended by the Johnston Mission, the political advantages of this course would not seem great enough to over-balance the boost to Japanese morale, and hence to possibilities of success of the stabilization and recovery programs, which would result from renunciation of any further reparations from within Japan, as proposed by General MacArthur.
It would seem that irrespective of whether we agree or disagree with General MacArthur’s substantive arguments there can be little possibility now of our obtaining the Army Department’s and Congressional leaders’ approval for our proposals. In view of the great importance which the Army Department necessarily attaches to the success of the stabilization program in Japan, it is extremely unlikely to disregard General MacArthur’s position that any reparations program worthy of the name would jeopardize the stabilization objective to which all our efforts must now be bent. To overrule General Mac-Arthur and require significant further reparations would be to invite responsibility, in the face of General MacArthur’s warning, for failure of the stabilization program which he has now reluctantly agreed to undertake and which has a slim chance, at best, of success. Acceptance of his no-further-reparations position would be an earnest to him and to the whole Japanese nation of how seriously we regard the stabilization goal and of how far we are willing to go in supporting his and the Japanese people’s efforts to attain it.
I personally agree with the position General MacArthur has taken not only because of the economic factors but also because of the psychological and political factors which I consider the most important. Selling this position to friendly FEC governments, some of which have received no reparations from within Japan at all, will require political courage and diplomatic skill of a high order. At the same time we should remember that these governments have gone through a conditioning process—the OCI Report, the Johnston Report, and now the stabilization directive whose implementation would obviously be impaired by an extensive reparations program—which must have readied them in considerable degree for the shock. The principal claimant, China, is of course no longer in a position effectively to utilize reparations. If our position on reparations is skillfully presented in the context of our overall policies toward Japan for the coming period, it is quite possible that we could lay this problem permanently to rest without undue disturbance and without impairment of other policy objectives.
[Page 1066]If you approve, NA will prepare a memorandum on the above lines for clearance through E and O before submission to the Acting Secretary. In such a memorandum we would recommend to the Acting Secretary (1) that we proceed with discussions with friendly FEC governments in an effort to obtain all possible support for our position in favor of no further reparations; (2) that in any case we should immediately after such discussions present this position to the FEC and (3) after a reasonable period, not more than two weeks, we should (a) publicly announce that the US Government will approve no further reparations from Japan and (b) issue an interim directive to SCAP rescinding the Interim Directive Regarding Advance Transfers of Japanese Reparations issued on April 4, 1947.