Foreign Relations of the United States, 1952–1954, China and Japan, Volume XIV, Part 2

033.9411/9–3053: Telegram

No. 694
The Secretary of State to the Embassy in Japan¹

top secret

Washington, October 1, 1953—7:09 p.m.

797. Your 614,² 738,³ 832, 833.⁴ After discussion with Diehl following appear main problems negotiations with Ikeda.

1. Japanese prepared discuss defense plans ranging somewhere between NSA and Ministry Finance plans. Except possibly for Navy plan falls short US goals but after negotiations may provide basis understanding on US military assistance. Ikeda will probably take position to be acceptable to Japanese Diet and people plan would have to be solidly based on understanding re planned withdrawal US ground forces. If attempt made to present defense plan of this order without understanding on both US assistance and reduction US ground forces, Government would fall with probable strengthening left Socialists. Yoshida and Ikeda would both be seriously discredited.

US forces expected to be in Japan over balance this fiscal year 2 1/3 to 3 1/3 divisions. Existing US plans call for increasing to four divisions when forces can be taken from Korea. This not generally known to Japanese and would most seriously disturb. Under existing US thinking commencement reduction US forces below four divisions would be considered at earliest only when Japanese ground forces reached about 200,000 which is most Japanese now prepared discuss as five year goal.

Main problem for US therefore whether prepared plan reduce present forces progressively as Japanese develop ground force of 180–200,000. Alternative such US undertaking could be Japanese refusal adopt new defense plans, increase anti-Americanism and increase political strength parties opposed cooperation with US. Would it be in our interest in promoting Japanese defense buildup to state frankly Japanese will have to raise sights considerably to afford basis US withdrawal?

Appreciate foregoing may be too categorically stated. Do you see basis reconciling Japanese plans with US concept requisite forces in Japan?

Other problems will be whether Japanese defense expenditures adequate justify proposed US aid, and whether OSP major items such as aircraft feasible. On budget inclined to think Japanese will have to expend overtly or otherwise total of at least 180 billion yen for next fiscal year to justify US aid.

2. Ikeda expected admit inflationary threats and announce plans avert along lines Ikeda–Diehl conversation September 9. US will strongly indicate necessity contain inflation and suggest in all relevant contexts that US willingness help will be conditioned by Japanese internal policies. Direct link to US special expenditures not immediately practicable however. Expenditures individual soldiers cannot be limited without serious morale problem. Impossible use procurement Korean rehabilitation as bargaining weapon because intend expend where best for Korea and do not know in advance to what extent Japan will prove most advantageous source supplies. That leaves various types procurement by FEC for military use in area. Exercise requisite control over expenditures various services is formidable task, doubtful if feasible turn orders on and off. Attempt runs danger discouraging procurement in Japan which Defense directives over period have sought develop. Effort exercise policy control this class expenditure should be pursued, and should give US some bargaining power in future particularly in relation OSP under MSP. Not usable for Ikeda talks except in general terms.

3. State-Treasury consensus that notwithstanding considerations set forth your 738⁵ preferable seek GARIOA settlement along straight financial lines. If in course negotiation it appears requisite to prompt settlement consideration can be given some form of your proposals D and E in terms statement US intention but not commitment over whole period repayment. Doubt that Japanese would agree 10 year repayment without stronger commitment on use proceeds than we are prepared to make. Agree discussion should be in terms lump sum rather than ratio and propose small part be available student exchange under Fulbright Act by funding on surplus property terms.

4. Foregoing raises question what Ikeda may be able to take back with him which will strengthen pro-American elements. Would appreciate your comments on importance to US policy in Japan that negotiation be successful from standpoint personal fortunes Yoshida and Ikeda. Apart from defense negotiation and possible understanding on military assistance following appear only positive possibilities:

a) Eximbank $60 million cotton loan. Unconnected Ikeda mission but may be possible while here.

b) Closing IBRD power loans. Political capital already dissipated.

c) Some encouragement on additional $60 million IBRD loans when projects worked out, but nothing definite enough for announcement.

d) Small grant agricultural commodities under section 550 MSA. Conceivable but undesirable because would have to come out of military assistance funds.

e) Continued high-level special earnings.

f) Possible increase OSP military end-items.

This message being distributed but not cleared other agencies.

Dulles

1. Drafted in NA and approved for transmission by Robertson.
2. Document 684.
3. Dated Sept. 21, not printed. (033.9411/9–2153)
4. Both dated Sept. 30, neither printed. (794.5/9–3053 and 033.9411/9–3053, respectively)
5. Dated Sept. 21. (033.9411/9–2151) In this lengthy telegram the Embassy argued strongly against the recent decision of the NAC to negotiate with Japan on the basis of the German formula, partly because such a straight financial settlement would be difficult to distinguish from reparations and would be for a higher proportion of the claim (37 1/2 percent) than any of the reparations terms the United States was suggesting Japan negotiate with third countries. The Embassy suggested that instead the United States start with a fixed sum to be computed under some formula other than a percentage of the assistance rendered, that the payments be accelerated but interest-free, that the United States undertake to convert perhaps half the payments into yen to be spent in Japan (Embassy’s proposal D), and that most of the remaining half be used for U.S. developmental loans in Japan and in Southeast Asia (Embassy’s proposal E).