740.00119 PW/2–149

Memorandum by the Secretary of State

top secret

Japanese Reparations

I have studied the papers forwarded to me with the memorandum by Mr. Nitze and Mr. Butterworth dated January 27, 1949, including the memorandum of Mr. Saltzman of the same date. Although I have not examined the primary papers on which these documents are founded, as I understand it, the situation briefly is as follows:

The legal obligations of the United States flow first from an agreement in the Potsdam Conference that Japan should not be permitted to maintain industries “which would enable her to rearm for war.” The FEC agreement of June 19, 1945 [1947] provides that reparations should be exacted from Japan through the transfer of Japanese capital equipment and facilities “in the interest of destruction of the Japanese war potential in those industries which could lead to Japanese rearmament for waging war.” In the FEC document of August 18, 1947 it was required that all special purpose industrial machinery and equipment functionally limited to use in connection with combat equipment end-products should be destroyed. This, I understand, has been done. The same document provides “that all other industrial machinery and equipment in primary war industries” should be made available for claim as reparations. Primary war facilities are those which were “primarily engaged in the development, [Page 641] manufacture, assembly, testing, repair, maintenance or storage of combat equipment end-products and civil aircraft and …1 building merchant vessels above a size to be determined by the FEC.” Apparently in other decisions of the FEC additional industrial equipment was to be made available for reparations, although I do not have citations to the language or the documents.

The machine tools which fall under the description of primary war facilities are general purpose tools. They constitute 225,000 out of a total of 700,000 machine tools in Japan. They are said to be the newest and best in Japan. Already some 14,000 of these tools have been delivered as reparations.

I also understand, and this is important, that there is an overriding provision that such equipment as SCAP determines is necessary for the purposes of the occupation shall be withheld from delivery. I am told that SCAP is presently using 22 percent of the machine tools classified as primary war facilities in the Japanese economy and believes that it could use 44 percent in the near future.

While agreement has been reached in the FEC as indicated above, it has been impossible to reach agreement on the shares which could go to the various claimants. Therefore the United States has put deliveries into effect by itself determining certain shares through an interim directive and in order to facilitate agreement, has offered to waive a large portion of its share in favor of other claimants.

Since the above interim directives were given, the Japanese economic situation has become increasingly serious and the United States has issued a new interim directive directing certain actions looking toward stabilization of the currency, increased production, and other steps to hasten Japanese recovery and self-support. In the meantime, the deficit in the Japanese economy is being borne by the United States.

I understand also that in a telegram of January 22 SCAP believes that he cannot carry out the interim directive on reparations and at the same time successfully achieve the purposes covered by the interim directive on recovery. He, therefore, wishes to cease deliveries. SCAP’s view of the matter seems to be strengthened by the Johnston-Hoffman report which, as I understand it, indicates a belief that more of these tools can and should be used than had been previously estimated and that in many cases these newer tools should be substituted for older ones in other plants.

Under these circumstances, and if I am right in the analysis above, it would seem to me in accordance with obligations undertaken and wise and proper for the United States to withdraw the interim directive on reparations and its offer of shares. The United States should [Page 642] not repudiate the agreements previously made in FEC. It can properly insist that both SCAP’s duty and the interests of the United States as the nation which makes up the deficit, as well as of all the nations parties to FEC, call for the speedy recovery of Japan and the placing of that country on a self-supporting basis. If SCAP and others who have investigated the situation believe that the continued delivery of these tools as reparations interferes with the purposes of the occupation, and in particular the purpose stated in the recovery directive, then I believe that we are warranted in ceasing deliveries and initiating a proposal that the reparations problem be considered at a later date when the full needs arising from the purposes of the occupation can be stated more accurately.

You will see that this memorandum does not fully accord with any of the suggestions made to me. It may be that I have overlooked some factor or that there is some error in the statement. I shall be glad to have the views of the gentlemen who participated in the preparation and also the views of those who are now concerned with the negotiations attempting to settle a similar question in Germany. Does what I have suggested fit in with those talks?2

D[ean] A[cheson
  1. Omission as indicated in the source memorandum.
  2. In separate memoranda dated February 2, forwarding Mr. Acheson’s memorandum to Messrs. Butterworth, Nitze, and Saltzman, the Director of the Executive Secretariat, Office of the Secretary, stated: “It is Mr. Acheson’s view that you not take his memorandum as a directive or as an indication of a course of action to be pursued. On the contrary, he wants his views studied carefully and commented on by FE, O and E on an urgent basis. You should agree among yourselves as to who should take the responsibility for coordinating these views.” (740.00119 PW/2–249)