740.00119 PW/4–2749: Circular airgram

The Secretary of State to Certain Diplomatic Offices 1


There is quoted below the text of a statement on Japanese reparations and “level of industry” for reading by General McCoy to the Far Eastern Commission and subsequent release to the press.2 The statement is based on an agreed State–Army policy position on these matters now before the National Security Council. The statement should be held in strict secrecy pending the receipt of further telegraphic instructions.

“The Japanese reparations problem has been one of the most important and pressing questions with which the Far Eastern Commission and its member countries have had to deal. The United States, on its part, has taken a long and continuing interest in this problem and has been keenly aware of the interest of the other FEC countries in finding a reasonable solution to it. It is to be regretted that this controversial issue which for such a long time has proved incapable of solution by this Commission continues to retard the achievement of economic self-support by Japan, which is so greatly in the interest of our common objectives with respect to that country.

“In our discussions of the matter here in the Commission we have proceeded from the agreement contained in the Potsdam Declaration that reparations would be exacted from Japan and that they should be in a form which would not impair the ability of the Japanese people to support themselves. From the earliest days of the Far Eastern Commission the United States has been guided by a desire that the victims of Japanese aggression receive as reparations such of Japan’s resources as was possible without jeopardizing Japan’s ability to meet its own peaceful needs. The United States has felt, further, that in order that the nations devastated by Japan might receive reparation while their need was greatest, in order that there might be removed from the mind of the Japanese Government and people uncertainty [Page 717] regarding the reparations question, and in order that as many as possible of Japan’s post-war obligations might be disposed of during the period of the occupation, a reparations program should be worked out and put into effect at the earliest practical moment.

“These factors led the United States Government to take the initiative in making a number of policy proposals to the Far Eastern Commission. In April, 1946, the United States submitted to the Far Eastern Commission a pattern of proposals providing that there should be made immediately available for reparations designated quantities of industrial facilities which were at that time considered to be clearly surplus to Japan’s peaceful needs. Between May and December of that year the Commission adopted a series of Interim Reparations Policy decisions based upon these U.S. proposals, but the subsequent inability of the Commission to agree on a schedule of shares for division of the facilities among the claimant countries prevented implementation of the decisions. In April, 1947, the U.S. Government offered further proposals, which would have had the effect of making known to Japan precisely, and on a final basis, what industrial capacity should be considered by that country to be immune from removal as reparations and what should be eligible for removal. In the same month, the U.S. because of its desire to work toward a settlement of this matter issued a unilateral interim directive, under authority granted in paragraph III, 3, of the Terms of Reference of the Far Eastern Commission, instructing the Supreme Commander to effect delivery to four of the FEC countries of 30 percent of the facilities which the Far Eastern Commission itself had previously determined in the Interim Removals decisions to be available for reparations removal. Issuance of this directive was motivated in part by a desire to assist those countries which had in the course of fighting against Japan’s aggression on their own territories suffered most grievously, but it was also motivated by a desire to prompt FEC countries to agree upon a reparations program from which all eleven countries might benefit.

“In November, 1947, the United States Government took the initiative once more in an effort to end the stalemate within the Commission on the question of reparations shares, a stalemate which continued to make it impossible for any of the Commission’s decisions on the reparations problem to take practical effect. This U.S. proposal contained the provision that if the Far Eastern Commission countries would accept the schedule of percentages which had been worked out by the U.S. Government—on the basis of prolonged exchanges of views among Commission members as to the equities involved—the U.S. Government, on its part, would make available virtually all of its own share for distribution among the countries which could accept the U.S. proposal as a whole. Sixteen months have passed and this proposal has not been accepted by the Commission.

“I should like to emphasize at this point that the action of my Government, and, it is assumed, of the other Member Governments, in participating in the policy decisions which have been taken by the Commission on the question of reparations was predicated upon two basic assumptions, namely, that the resources to be removed from Japan as reparations were clearly excess to the peaceful needs of a self-supporting Japanese economy, and that there would be a shares schedule acceptable to and agreed upon by the Far Eastern Commission [Page 718] countries which would determine in what proportions available reparations should be divided.

“As I have already stated, and as the Commission well knows, the second of these assumptions has not been realized and there seems little prospect of its being realized. As regards the first assumption, that reparations removals should be limited to facilities clearly excess to the needs of a self-supporting Japanese economy, successive studies during the past eighteen months of Japan’s future industrial requirements have necessitated progressive upward adjustments of earlier estimates of these requirements. The first of these studies was that of Overseas Consultants, Incorporated, whose report was made available to the Commission on March 2, 1948, and the second was that of the so-called Johnston Committee, whose report was made available to the Commission on May 19, 1948. Both of these reports came to the sober conclusion that the quantity of capital equipment in Japan which could be properly considered in excess of Japan’s peaceful needs had been greatly overestimated. Both reports indicated that for a variety of reasons the Japanese economy was continuing to operate at a heavy deficit even though living standards remained at a level, and that the end to these deficits is not in sight. The evidence contained in these reports, and the common knowledge of all Far Eastern Commission countries, leads to the inescapable conclusion that the Japanese economy can be made to bear additional economic burdens, beyond those directly related to meeting its own requirements, only by prolonging or increasing the staggering costs borne by the American taxpayer.

“The United States has, since the time of the Japanese surrender, carried the burden of preventing such disease and unrest in Japan as might jeopardize the purposes of the occupation. The critical economic conditions with which, it is now apparent, Japan is faced, and the prospect of continuing deficits in Japan’s international payments for some years to come, render measures of Japanese economic recovery of utmost importance. It is inescapable that if the basic purposes of the occupation are to be achieved, the Japanese people must be enabled to support themselves at a tolerable standard of living. No one could reasonably suggest that Japan should be abandoned to economic despair. So to abandon Japan would be to undo the costly victory in the Pacific.

“I am sure that other Commission countries agree with my Government that the Japanese people themselves must exert maximum efforts for the attainment of recovery. For some months the U.S. Government has explored means whereby this objective could best be achieved. In issuing its directive of December 10 regarding Japan’s economic stabilization, the U.S. Government took a major step towards requiring the Japanese people to exert their utmost energies in stabilizing their economy and reducing their dependence for subsistence on foreign subsidy. Under present circumstances in Japan the cost of dismantling, packing, and transporting reparations facilities would conflict with the program of Japan’s economic stabilization and would constitute an additional financial burden upon the U.S. Government. I do not wish to emphasize this point unduly, but the U.S. Government would be lacking in candor if it did not point out that the resources at its disposal to meet demands from all parts of the world are limited.

“Japan today has no resources surplus to its peaceful needs. Thus, it is now apparent to the U.S. Government that the first as well as the [Page 719] second of the two basic assumptions mentioned earlier, assumptions which underlay the policy decisions of the FEC having to do with reparations and are a precondition for an FEC reparations program, has not been realized. This fact has led my Government to several conclusions. Before stating them, however, I wish to emphasize that the U.S. Government maintains fully and categorically its support of the principle adopted by the Far Eastern Commission that Japan’s war-making capacity should be eliminated. As you know, all of Japan’s specialized war-making facilities have been destroyed. The U.S. Government believes that all other equipment used for war purposes in the past should, if retained in Japan, be fully converted to the purposes of and utilized in Japan’s peaceful economy. Where this cannot be done, the U.S. Government believes that such equipment should be scrapped. The U.S. will not permit difficulties in reaching a solution of the reparations problem to be a means whereby Japan’s war capacity might re-emerge.

“It may not be amiss at this point to recall that Japan has already been deprived not only of all of its overseas territorial possessions, but also of substantial quantities of real property of Japanese ownership and origin in the former possessions and elsewhere abroad. This property constitutes a large payment which the Japanese have already made towards satisfaction of their reparations obligations. Unfortunately, from the standpoint of equity, some countries have benefited more than others in the reparations that they have obtained in this form. However, from the standpoint of Japan, the loss of these properties, whatever the proportions in which they happen to have been distributed, drastically reduces Japan’s ability to support even at a minimum level the needs of its people.

“In view of the above considerations, the United States is forced to the following conclusions:

The deficit Japanese economy shows little prospect of being balanced in the near future and, to achieve eventual balance, will require all resources at its disposal.
The burden of removing further reparations from Japan could detract seriously from the occupation objective of stabilizing the Japanese economy and permitting it to move towards self-support.
There is little or no prospect of Far Eastern Commission agreement on a reparations shares schedule despite the repeated initiatives by the United States over the past three years to assist the Commission in reaching such an agreement. Without agreement on a shares schedule the existing Far Eastern Commission policy decisions regarding reparations are incapable of implementation.
Japan has already paid substantial reparations through expropriation of its former overseas assets and, in smaller degree, under the Advance Transfer Program.

“In light of these conclusions the United States Government is impelled to rescind its interim directive of April 4, 1947, bringing to an end the Advance Transfer Program called for by that directive. It is impelled also to withdraw its proposal of November 6, 1947, on Japanese reparations shares, and I am so informing the Secretary [Page 720] General. Finally, the U.S. Government takes this occasion to announce that it has no intention of taking further unilateral action under its interim directive powers to make possible additional reparations removals from Japan.

“I earlier stated my Government’s belief that maximum efforts should be exerted by the Japanese themselves for their economic recovery. It is the view of the United States that all facilities, including so-called ‘primary war facilities’, presently designated as available for reparations which can contribute to Japanese recovery should be utilized as necessary in Japan’s peaceful economy for recovery purposes.

“With regard to ‘primary war facilities’, all of which as I earlier stated were some time ago stripped of their special purpose equipment and thus of their ‘war facilities’ characteristics, it is the view of the U.S. that 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. Remaining ‘primary war facilities’ should continue to be protected, in the sense of preventing loss or scrapping of individual items, pursuant to the above-mentioned FEC decision requiring their ‘impounding’. Impounding does not, however, include requirement that the facilities be kept in their present locations or that the Japanese devote resources to preserve their value or maintain them in working order.

“The United States, it will be recalled, has repeatedly clarified its understanding that the ‘level of industry’ proposals before the Commission, excepting those levels which will lapse by FEC decision on October 1, 1949, had application only to the question of the quantities of industrial facilities which could be spared for reparations, and had no bearing on the matter of future levels of industrial capacity in Japan. Turning now to this latter question, I have already emphasized my Government’s support of the principle that Japan’s capacity to make war should not be permitted to re-emerge. It is the considered view of the United States Government that this objective does not require that Japan’s production for peaceful purposes be limited or that limitations be imposed on levels of Japanese productive capacity in industries devoted to peaceful purposes. This belief, coupled with the evidence of Japan’s present economic plight and the difficult problems Japan will face in future in attaining levels of industrial production and foreign trade sufficient to support its people even at minimum levels, render it clearly advisable in my Government’s view that Japan be permitted to develop its peaceful industries without limitation. The problem facing us is not one of limitation of Japan’s peaceful industries but of reviving these industries to provide the people’s barest wants.

“The U.S. Government plans shortly to submit to the FEC proposals for the rescission or amendment of existing and pending FEC reparations and ‘levels-of-industry’ policy papers so as to bring FEC policies on these matters into conformity with the position which I have announced.”

  1. At Canberra, Canton, London, Manila, Moscow, New Delhi, Ottawa, Paris. The Hague, and Wellington.
  2. Slightly revised, this statement was presented to the FEC on May 12 and released to the press; text in Department of State Bulletin, May 22, 1949, p. 667.