Foreign Relations of the United States, 1949, The Far East and Australasia, Volume VII, Part 2

740.00119 PW/3–349

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

secret

Washington, April 9, 1949.

My Dear Mr. Secretary: With reference to your letter of March 3, in which you advance two alternative proposals for settlement of the Japanese reparations problem, this matter has been further considered in the Department of State and a position arrived at substantially as in your second proposal. This position, in outline, is that the United States should:

1. Rescind the Advance Transfers Directive of April 4, 1947 (JCS Directive No. 75),¹ except for allocations already processed under that directive.

2. Withdraw its proposal of November 6, 1947, on reparations shares.²

3. Announce to the FEC and publicly that it has no intention of using its unilateral powers to make possible additional industrial reparations removals.

4. Announce to the FEC and publicly its views:

a. That all industrial facilities, including so-called “primary war facilities,” presently designated as available for reparations which can contribute to Japanese recovery should be utilized as necessary, except for scrapping, in Japan’s peaceful economy for recovery purposes.

b. That with regard to “primary war facilities,” all of which were some time ago stripped of their special purpose equipment and thus of their “war facilities” characteristics, SCAP, under the authority granted in paragraph 10 of the FEC decision on Reduction of Japanese Industrial War Potential, should as rapidly as practicable require the dismantlement, dispersion or other action for the utilization in Japan’s peaceful economy of such of these facilities as are required to meet the needs of the occupation, which needs prominently include economic recovery. Under paragraph 10 SCAP may develop a suitable system for using such facilities, individually or collectively, upon notification and explanation to the Allied Council for Japan. Pursuant to the above-mentioned FEC decision requiring their “impounding,” remaining “primary war facilities” should continue to be protected, in the sense of preventing loss or scrapping of individual items. Impounding does not, however, include requirement that the facilities be kept in their present locations or that the Japanese or the occupation authorities devote resources to preserve their value or maintain them in working order.

c. That there should be no limitation on Japan’s production for peaceful purposes or on levels of Japanese productive capacity in industries devoted to peaceful purposes.

5. Submit to the FEC proposals, regardless of likely unfavorable reception, for the rescission or amendment of existing and pending FEC reparations and “levels-of-industry” policy papers so as to bring them in as close conformity as possible with U.S. policy that there should be no further industrial reparations removals from Japan and no limitation on levels of Japanese peaceful productive capacity; and prevent action by the FEC contrary to U.S. policy.

Admitting that no proposal can fully meet all desiderata, the outstanding advantages of this position are that it violates no earlier commitments of this Government, while at the same time affording maximum support to the Japanese stabilization and recovery objectives. Although it will undoubtedly occasion criticism by other claimant countries, it will be difficult for these countries to attack us merely for refusing to exercise our powers of unilateral action to solve the reparations problem. Our announcement that we propose no further unilateral action to overcome the apparently insoluble shares stalemate, plus the evidence of our position in point 4, should afford the Japanese business community assurance it now lacks that it is highly unlikely that any further reparations removals will take place and, accordingly, that they may rehabilitate their plants in confidence.

With reference to your desire that the position selected be considered by the Department of State as the “final settlement” of the Japanese reparations question, there is unfortunately no way in which a final settlement of this problem can be assured before the peace settlement. It is believed, however, that the position set forth above will for all intents and purposes be final, and that it will be recognized as such in this country and in Japan. Modifications of this position in an attempt to render it more unquestionably final could be only partially effective at best and would expose this Government, in my view unnecessarily, to charges of illegality and failure to live up to its international commitments.

Both of the alternative proposals advanced in your letter provide that the United States should direct SCAP to arrange for the return to the Japanese economy in a fully normal status of all assets in Japan heretofore considered available or potentially available for reparations, and for the cessation of custodial and maintenance costs borne by the Japanese Government in connection with such assets.

Although this Department fully shares your desires on this point, it feels that, so far as primary war facilities are concerned, this Government is without power to direct SCAP as you propose in view of the explicit provision in the FEC policy decision on “Reduction of Japanese Industrial War Potential” that primary war facilities shall be “impounded”. SCAP is empowered, however, by paragraph 10 of this decision to except temporarily (which could well be for the duration of the occupation) from the impounding and other requirements of that policy decision and to permit the use of any primary war facilities deemed necessary for needs of the occupation, which needs now prominently include economic recovery. In so far as other reparations facilities are concerned, it is my understanding that there is no FEC decision requiring SCAP to impound or maintain such facilities and that he is already empowered to permit the Japanese full use, short of scrapping, of such facilities. It is believed that these powers on the part of SCAP, coupled with the course of action set forth in paragraph 4 of the proposed position of the United States, will effectively accomplish our common purpose without requiring this Government to direct SCAP contrary to an earlier FEC decision.

If it should prove to be desirable or necessary, I would be willing to discuss or to have a State Department representative discuss this matter with the Chairmen of the Foreign Affairs, Appropriations and Armed Services Committees of Congress. I feel, however, that such discussion may not be necessary in view of the position we propose to take.

I am enclosing³ copy of a proposed policy statement on Japanese reparations for incorporation in NSC 13/2, “Recommendations with Respect to U.S. Policy Toward Japan”. If you will advise me at your earliest convenience whether the statement is satisfactory to you, I will submit it to the National Security Council as a joint State-Army proposal. After approval of the statement by the NSC and the President, I or a high officer of the Department will invite representatives of the friendly FEC nations to the Department to advise them of our position and to explain the considerations underlying that position in the context of our overall policies toward Japan.

Following these discussions General McCoy will be instructed to read an appropriate statement of our position to the Far Eastern Commission, which will immediately thereafter be released to the press. A copy of a proposed statement is enclosed for your approval.

We are also considering the desirability of having a spokesman take occasion in the near future in a public address to clarify further the view of this Government that no more industrial reparations should be exacted from Japan and that there should be no limitations on Japanese peaceful industry.

There is enclosed a recapitulation of U.S. international commitments and SCAP obligations respecting Japanese reparations. It is requested that at the time you forward the NSC decision to General MacArthur you also send him a copy of this document in order that he may be in a position to suggest any further action which he feels might be taken, within the framework of our legal commitments, to meet the situation in Japan.

Sincerely yours,

Dean Acheson

1. Foreign Relations, 1947, vol. vi, p. 376.
2. See letter by Assistant Secretary of State Saltzman to the Under Secretary of the Army (Draper), November 14, 1947, ibid., p. 439.
3. Enclosures not attached to file copy, but see annexes to memorandum of April 12, p. 704.