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

740.00119 PW/12–2748

Memorandum by the Legal Adviser (Gross) to the Assistant Secretary of State for Occupied Areas (Saltzman)¹

[Washington,] December 27, 1948.

Subject: Legal Obligations of the United States With Respect to Japanese Reparations.

1. A legal opinion is requested concerning the extent of United States obligations with respect to Japanese reparations, under the policy decisions of the Far Eastern Commission.

2. The obligations of the United States with respect to Japanese reparations have their inception in the agreement of the executive heads of the United States, China, and Great Britain taken at Potsdam on July 26, 1945, and subsequently adhered to by the Union of Soviet Socialist Republics. Paragraph 10 of the Potsdam Proclamation provides that “Japan shall be permitted to maintain such industries as will sustain her economy and permit the exaction of just reparations in kind, but not those which would enable her to rearm for war”. The most that this declaration accomplished, as far as concerns reparations, was to establish, through the Japanese acceptance of its terms on August 14, and the unconditional surrender of September 2, the making of “just reparations in kind” as one of the obligations of Japan under the Terms of Surrender. These “reparations in kind” were apparently conceived either as reparations out of current production of industries which the Japanese were to be permitted to retain, or as reparations out of the transfer of industries which Japan was not to be permitted to retain.

3. The Agreement of the Foreign Ministers of the Union of Soviet Socialist Republics, the United Kingdom, and the United States, taken at Moscow on December 27, 1945, with the subsequent concurrence of China, established the Terms of Reference of the Far Eastern Commission, composed of the representatives of eleven nations, and with the function of formulating the policies, principles, and standards in conformity with which the fulfillment by Japan of its obligations under the Terms of Surrender might be accomplished. As the making of reparations was one of the obligations of Japan under the Terms of Surrender, the formulation of policy regarding reparations fell within the functions of the Far Eastern Commission.

4. The Far Eastern Commission, in its’ Basic Post-Surrender Policy for Japan of June 19, 1947 (FEC 014/9) reaffirmed the principle of reparations out of goods, existing or to be produced, but developed particularly the principle of reparations through the transfer of existing Japanese capital equipment and facilities. Paragraph 4 provides:

“Reparations. For acts of aggression committed by Japan and for the purpose of equitable reparation of the damage caused by her to the Allied Powers and in the interests of the destruction of the Japanese war potential in those industries which could lead to Japan’s rearmament for waging war, reparations shall be exacted from Japan through the transfer of such existing Japanese capital equipment and facilities or such Japanese goods as exist or may in future be produced and which under policies set forth by the Far Eastern Commission or pursuant to the Terms of Reference of the Far Eastern Commission should be made available for this purpose. The reparations shall be in such a form …² which would not prejudice the cost of the occupation and the maintenance of a minimum civilian standard of living.”

Through the formulation of this policy decision by the FEC and its transmission as a United States directive to the Supreme Commander, the United States Government stands committed to the exaction of reparations from Japan either through the transfer of existing goods or of goods which may be produced in the future, or through the transfer of existing Japanese capital equipment. This provision of the Potsdam Declaration that the Japanese shall be permitted “to maintain such industries as will sustain her economy” becomes more narrowly defined, by the clear implication of the policy decision that the Japanese are to retain only such of their industries as will enable them to defray the costs of the occupation and to maintain “a minimum civilian standard of living”. The standard of living had presumably already been set by a previous FEC policy decision (FEC 106/1, January 23, 1947), by which the Commission had determined as a matter of policy that “the peaceful needs of the Japanese people should be defined as being substantially the standard of living prevailing in Japan during the period of 1930–1934”.

5. The Potsdam Declaration had suggested, as stated above, that Japan would not be permitted to maintain industries which would enable her to re-arm for war. The Basic Post-Surrender Policy of the Far Eastern Commission developed this concept further by providing that reparations would be exacted through the transfer of existing Japanese capital equipment and facilities “in the interests of destruction of the Japanese war potential in those industries which could lead to Japan’s rearmament for waging war”. As a matter of fact, this feature of reparations had already been provided for by an earlier formulation of policy by the Far Eastern Commission, “Reduction of Japanese Industrial War Potential”, FEC 084/21, 18 August 1947. In this directive to the Supreme Commander, it was provided that all special purpose industrial machinery and equipment functionally limited to use in connection with combat equipment end products should be destroyed, but that “all other industrial machinery and equipment in primary war industries, and such other industrial facilities in secondary war industries and war-supporting industries as may be in excess of the peaceful needs of the Japanese economy should be made available for claim as reparations”. By this policy decision of the FEC and consequent United States directive to the Supreme Commander, the United States stands firmly committed to the distribution of reparations of all industrial machinery and equipment (not made subject to destruction) in primary war facilities, as defined in FEC 084/21, and in secondary war industries and war-supporting industries, also as so defined, in excess of the peaceful needs of Japan by which is meant the needs of the Japanese people in order to maintain the standard of living prevailing in Japan during the period of 1930–1934.

6. So far as concerns all other existing Japanese capital equipment and facilities, the Basic Post-Surrender Policy decision provides for the transfer as reparations of only that part “which under policies set forth by the Far Eastern Commission or pursuant to the Terms of Reference of the Far Eastern Commission, should be made available for this purpose”. In accordance with this basic principle, the Far Eastern Commission has formulated a series of policy decisions under the general heading of “Interim Reparations Removals”, each of which provides either (a) that all facilities within a certain category should be made available for claim as reparations, or (b) that a certain portion of Japan’s capacity for production within a certain category should be made available for such claims. Under classification (a) fall:

1) Army and Navy arsenals, as defined in FEC 059³ (excepting certain special purpose machinery and equipment, shipyards, non-armament facilities, and fertilizer and fuel facilities);

2) Aircraft industry, as defined in FEC 059,⁴ except plants the use of whose products by the aircraft industry represents merely a diversion during the war without major changes in character of product from former peacetime civil consumption;

3) Light metals industry, as defined in FEC 059,⁵ except facilities engaged in remelting light metal scrap into secondary ingot, and certain rolling and drawing equipment for the production of fabricated aluminum (see below);

4) Privately-owned munitions plants, as defined in FEC 059/15,⁶ except certain special purpose machinery and equipment;

5) Naval shipyards, as defined in FEC 059/4,⁷ except certain special purpose structures, machinery, and equipment;

6) Synthetic oil industry, as defined in FEC 059/21,⁸ subject to a temporary reservation of plants designated as suitable for conversion to the manufacture of sulphate of ammonia for fertilizers;

7) Synthetic rubber industry.

Under classification (b) fall:

1) Fabricated aluminum industry—rolling and drawing equipment in excess of that required to handle 15,000 metric tons per annum;

2) Machine tool industry, as defined in FEC 059/4,⁹ capacity in excess of a balanced type-size aggregate of 27,000 units annually;

3) Sulphuric acid industry, as defined in FEC 059/4,¹⁰ capacity in excess of 3.5 million tons annually;

4) Shipbuilding industry, as defined in FEC 059/4,¹¹ other than naval shipyards (see above), capacity in excess of that required to build 150,000 tons of merchant shipping annually, and to service and repair a merchant fleet aggregating 3 million gross tons;

5) Ball and roller bearing industry, as defined in FEC 059/6,¹² capacity in excess of 32.5 million yen (based on 1943–1944 average prices) per year;

6) Iron and steel industry, as defined in FEC 059/14,¹³ capacity for the production of steel ingot in excess of 3.5 million metric tons annually, and of pig iron in excess of 2 million metric tons annually;

7) Thermal electric power, as defined in FEC 059/14,¹⁴ in excess of Japan’s requirements after the reduction of the industrial capacity in accordance with the remainder of the program, subject to certain limitations necessary to ensure at all seasons the distribution of sufficient electric power in each supply area;

8) Soda ash, chlorine, and caustic soda industry, as defined in FEC 059/14,¹⁵ capacity in excess of about 75,000 metric tons of chlorine and 82,500 metric tons of caustic soda;

9) Steel rolling industry, as defined in FEC 059/29,¹⁶ in excess of a balanced annual output of 2,775,000 metric tons of rolled steel products.

Most of these policy decisions specify that action under the “Interim Removals Program” should be taken “without prejudice to further removals that may be ordered under a final reparations program”. The United States stands committed to the “Interim Reparations Program”, as set forth above.

7. Within the amounts of industrial capacity determined by the Far Eastern Commission for removal as reparations, as above noted, the Supreme Commander has been authorized to select specific plants, machinery, equipment and other facilities, in accordance with certain considerations set forth by the Commission in FEC 091/7, Selection of Plants for Reparations Removals (May 22, 1947),¹⁷ and certain procedures have been provided for the Delivery of Reparations Goods in Japan (FEC 094/3, February 18, 1947).¹⁸ The whole process of exacting reparations from Japan, however, has been held up by the failure of the Far Eastern Commission to agree on the reparations shares of the claimant countries. In an attempt to secure agreement on reparations shares the United States, on 6 November 1947, offered to redistribute 18 of its own 28% shares to other claimant countries, if all would agree to a schedule of reparations shares therein set forth (FEC 278). No agreement has been reached, however, and the United States is at liberty to withdraw the offer.

8. Pending FEC agreement on reparations shares, the United States Government, on 4 April 1947, as a matter of urgency, issued an interim directive to the Supreme Commander Regarding Advance Transfers of Japanese Reparations and Reparations Allocations Procedures for Industrial Facilities in Japan (FEC 216/1) ordering the Supreme Commander to effect immediate delivery, in advance payment on account of ultimate reparations shares, to China, Philippines, Netherlands (for Netherlands East Indies), and United Kingdom (for Malaya, Burma and its colonial dependencies in the Far East), of assets in Japan falling within categories of facilities and equipment properly declared as available for reparations transfer by the Far Eastern Commission and designated for removal by the Supreme Commander, not exceeding 5% in quantity or value to each nation (15% to China) out of any single category of assets so made available. The United States stands committed to this Advance Transfer Program, unless and until the interim directive is amended or rescinded by the United States or by the Far Eastern Commission on review.

9. Summary. The United States is committed, as a member government on the Far Eastern Commission, a) to the exaction of reparations from Japan through the transfer of existing Japanese capital equipment and facilities; b) to SCAP’s making available for such reparations all machinery and equipment in primary war facilities (except that designated for destruction); c) to SCAP’s making available for such reparations all industrial facilities in secondary war industries and war-supporting industries as may be in excess of the peaceful needs of the Japanese economy (by which is meant the standard of living prevailing in Japan in 1930–1934); d) to SCAP’s making available for reparations as an “interim reparations removals program” all of Japan’s capacity for production within certain categories and all capacity in excess of certain levels of industry fixed by the Far Eastern Commission in certain other categories; and e) to SCAP’s effecting immediate delivery, as an advance transfer program, to the four designated claimant countries, of not exceeding 5% (15% to China) to each country of any of the designated categories. This last obligation the United States can evade by rescinding its own interim directive, but the preceding obligations can be changed only by action of the Far Eastern Commission. Except for the last obligation, however, the entire series of obligations can be made effective only by an agreement on the part of the FEC on the reparations shares of the claimant countries, an agreement which the United States has hitherto endeavored to bring about by voluntary surrender of a large part of its share, but which the United States can effectively prevent by the exercise of the veto. Such a veto, however, would be entirely inconsistent with the position taken by the United States in the Far Eastern Commission to this date, and a denial of its general obligation to participate in the exaction of reparations through the transfer of existing capital equipment.

1. Memorandum drafted by Brig. Gen. Conrad E. Snow, Assistant Legal Adviser for Political Affairs.
2. Omission as indicated in the original.
3. May 13, 1946, Activities of the Far Eastern Commission, report, p. 68.
4. Ibid., p. 69.
5. Ibid., p. 70.
6. June 20, 1946, ibid., p. 74.
7. May 23, 1946, ibid., pp. 70, 71.
8. September 12, 1946, ibid., p. 75.
9. See FEC–059, May 13, 1946, para. 3 (3), ibid., p. 70.
10. May 23, 1946, ibid., p. 71.
11. Ibid.
12. May 29, 1946, ibid., p. 72.
13. June 12, 1946, ibid., p. 73.
14. Ibid.
15. Ibid., p. 74.
16. December 6, 1946, ibid., p. 76.
17. Ibid., p. 77.
18. See February 13, 1947, ibid., p. 79.