694.001/3–851: Telegram
The Acting Secretary of State to the Embassy in the Philippines
2048. For Ambassador from Dulles. Your personal judgment desired on Phil reaction to fol propositions concerning Reparations which might be included in Jap Peace Treaty. In each case indicate what PI reaction wld be (a) in case they were included as original member of a Pacific Security Pact, (b) if they were not so included, and (c) if there is no Pact.
Plan A: Treaty wld admit Jap liability for reparations and occupation costs but wld recognize inability of Japan to make full compensation; in consideration of agreement by Allies not to press claims for reparations, U.S. wld renounce claim for repayment approx $2 billion occupation costs; Allies wld get no Treaty right to compensation for loss or destruction of their property in Japan; reparations wld be deemed to have been satisfied by Jap external assets taken by Allies and by advance transfer program.
Plan B: Provide for reparations from current production on model of Italian Treaty, with safeguards which wld ensure no interference with econ reconstruction of Japan (including the servicing of Jap public and private debt incurred subsequent to September 2, 1945) and no imposition of additional burdens on other Allied or Associated Powers; Japan to pay compensation to Allies and Associated Powers for loss or destruction of their property in Japan; Jap external assets go to respective Allies where located.
Plan A above has the advantage of promptly and finally settling the reparations problem with consequent favorable results to the Jap economy. Having the Treaty make no provision for compensation for Allied property in Japan restores moral position of US, which wld be chief recipient of any such compensation. Plan B, while nominally making possible reparations payments, wld, in view of safeguards, probably result in little or no actual benefit to Philippines. Experience under Italian Treaty has demonstrated that, with the exception of Greece, which has recd only a small amount, no other countries benefitted. However, by making at least nominal provision for some payment, it remains possible to provide for compensation for Allied property lost or destroyed in Japan.
Neither Plan A nor Plan B shld be discussed in any fashion with Filipinos at this time. Your comments are requested soonest.