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b. The achievement of a fair balance between:

(1) The general preferences of reparations claimants for plants, machinery, equipment and other facilities

(a) Of modern and efficient design and manufacture.

(b) In good working condition and capable of being removed from Japan with minimum loss of value and efficiency

(c) In consolidated or integrated units

(d) Of special value or need to claimant countries, and (2) The legitimate needs, as determined by the Far Eastern Commission, of Japan's peacetime economy for similar equipment having due regard for the geographical location of individual plants in reference to markets, raw materials, manpower, fuel supply, and complementary facilities; for variations in specific products as among types, sizes and other variable characteristics; and for the feasibility of repair and rehabilitation in Japan.

c. The occupation policies of dissolving large industrial and banking corporations which have exercised control over a great part of Japanese trade and industry.

d. Consistent with the provisions of paragraph a, b, and c, the following order of preference in the selection of particular plants, machinery and equipment for removal:

(1) Plants and equipment owned by the "Zaibatsu" concerns and other big industrial and financial concerns and companies (2) Plants and equipment owned by other Japanese nationals, the Japanese Government, and by nationals and Governments of the countries which were allies of Japan

(3) Plants and equipment owned by nationals and Governments of the neutral countries.

2. Property of nationals of Members of the United Nations should be dealt with in accordance with FEC-226/1 (Destruction or Removal of United Nations' Property in Japan, Serial No. 76, approved 24 April 1947.) 1

214. EXAMINATION OF MATTERS RELATING TO JAPANESE REPARATIONS

(a) Statement by the Department of State, January 5, 1948 (Excerpt) 2

In response to requests for information regarding commitments made to other nations as to reparations from Japan, the Department of State can state categorically that the United States has made no secret agreements or commitments.

The question of the division of Japanese industrial facilities declared available for reparations has been under consideration in the Far Eastern Commission for nearly two years. During that period numerous suggestions by many members, including the United States, have been made in an attempt to arrive at a solution. None of these suggestions has been adopted.

In the hope of helping to reach an agreed international solution, the Department of State has proposed several specific schedules of

1 Department of State Bulletin of May 18, 1947, p. 986.

* Department of State Bulletin of January 18, 1948, pp. 92–93.

percentage awards for all FEC members, to apply to the distribution of available industrial assets from within Japan. These schedules have reflected the general political judgments of the Department of State as to the over-all contribution to victory over Japan, and losses suffered due to Japan's aggression, by each member country. All of these proposals have been rejected and therefore do not constitute commitments of the United States.

During 1946 the Far Eastern Commission declared certain industrial capacity in Japanese munitions and war-supporting industries to be clearly surplus to the peaceful needs of that country and to be available for removal as reparations. In view of the prolonged delays in reaching any decision at all on the distribution of Japanese reparations and in recognition of the urgent need for assistance in relief and rehabilitation in devastated Far Eastern countries, the United States Government in April 1947 directed the Supreme Commander for the Allied Powers to distribute 30 percent of the initially available reparations pool to the four principal war-devastated countries as follows:

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This unilateral directive constitutes the only United States policy now in force as to the distribution of Japanese reparations shares at this time.

(b) Report on the Economic Position and Prospects of Japan and Korea and Measures Required to Improve Them (Johnston Report), April 26, 1948 (Excerpts)2

REPARATIONS

Reparations policy toward Japan has been in the process of development since the surrender in August 1945. Reports of the Pauley Committee, the National Engineers Council, the Special Committee on Japanese Reparations (Strike Report), the Economic Analysis of the State Department, reparations studies of SCAP, studies made by the members of the Far Eastern Commission and finally the comprehensive report of Overseas Consultants, Inc., all of which have contributed to a better understanding and clarification of the problem. These reports differ in many respects, yet all are in agreement on these two premises:

(1) Japan's industries must be so demilitarized as to prevent it ever again becoming a threat to the peace of the world.

(2) Japan should be left sufficient industrial capacity so that it will have an opportunity to develop an economy which will provide a tolerable standard of living.

In seeking to determine the amount and character of industrial plants required to meet the objective stated in (2) above, various estimates were offered. The earlier estimates differed so widely that the occupying authorities decided that there was need for an allinclusive and detailed analysis of the Japanese plant and its potential.

1 Department of State Bulletin of April 13, 1947, p. 674.

'Department of Army press release, May 19, 1948.

Consequently, in June 1947, Overseas Consultants, Inc., an organization of eleven distinguished industrial engineering and appraisal companies, was formed and engaged by the Secretary of War to make such an analysis.

Its report, presented on February 26, 1948, consisted of two major sections described as follows in letter of transmittal:

"Section A presents designations of those plants and facilities which should be retained and those which should be made available for reparations under terms of State-War-Navy Coordinating Committee 236/43, together with estimates of the value of the facilities available for reparations. These designations were based upon a literal interpretation of original instructions, as amended, establishing the productive capacities in certain industries to be retained in Japan, outlined in State-War-Navy Coordinating Committee 236/43. In this section we express no opinions in regard to the adequacy of such retained capacities for achieving a self-sustaining civilian economy.

"In Section B, we make recommendations and name plants and productive capacities which, in our opinion, should be retained. These are the results of a study of economic conditions in Japan, made by our representatives, based upon data made available to us by the Economic and Scientific Section, (hereinafter referred to as ESS), the Natural Resources Section and other divisions of SCAP, and by various Japanese agencies, and upon our analysis of basic requirements of food, clothing and raw materials, the need for rehabilitation of industrial plants and utilities, and the restoration of areas damaged during the war."

The report of Overseas Consultants, Inc., in effect advised against the removal of productive facilities (except primary war facilities) which might effectively be used in Japan; this view was derived from the judgment that, only if Japan was permitted to retain all facilities that might contribute to its production and potential trade, could it by its own efforts maintain a satisfactory minimum standard of living. The value to the recipients of the industrial reparations which would result from the new formula recommended by Overseas Consultants, Inc., would be disappointingly small in contrast to that which has been requested and expected by some of the Allied Powers. It must be remembered that much of the industrial plant within Japan was either destroyed or badly damaged by the war and that actual productive excess, except in a very few fields, is correspondingly small. In our opinion, even if the Allied Powers received all the reparations requested from the home islands of Japan, they would gain little because experience has shown that the costs involved in moving plants and equipment from a conquered nation and reestablishing them in a victorious nation are high and that the ultimate usefulness and value of such plants are small, being poorly adapted to needs of the new owners. World War I experience proved that reparations paid out of current production were illusory and most difficult to collect; World War II is proving that reparations paid in the form of plant equipment are also of dubious value.

Japan did have one form of assets of real value as reparations. These assets were investments throughout the world and particularly in Japanese territories and protectorates. They have a value of

many billions of dollars. Both Soviet Russia and China have benefited from the billions in assets, undamaged by war, which Japan invested in Sakhalin, Manchuria, North China and Formosa.

The cost in lives and treasure to bring about the surrender of Japan was enormous. The United States bore a heavy share of that cost. Since victory was achieved, military government and relief costs have been borne almost entirely by the United States. Until the new Japan, shorn of its empire, can become self-supporting it will continue to be a burden. The loss of plants, equipment or machine tools needed to help Japan achieve a self-supporting basis would result in an increased necessity for the United States to make up the deficiency or lessen the chances of attaining economic solvency. Under such circumstances, reparations become a direct charge on the United States.

The United States is also paying a high price for delay in the settlement of the reparations question. As long as uncertainty prevails as to what is to be taken, as reparations it is impossible to plan intelligently for the rehabilitation of Japan's industry. The Congress of the United States is considering an appropriation of some $144,000,000 for the economic revival of Japan, in addition to nearly $400,000,000 for general relief purposes for the fiscal year of 1948-1949. Accordingly, an early definitive and authoritative action on reparations problems is imperative; the success of the entire recovery program will be affected thereby.

During the past two and one-half years, the Far Eastern Commission has agreed to but few policies affecting certain phases of the reparations program. An "advanced delivery program" was adopted by the United States to provide foreign nations with some badly needed equipment. To this date this program has made available 19,032 machine tools and 3,423 pieces of laboratory testing and measuring equipment.

The Committee has given careful consideration to studies and recommendations made by the various groups heretofore, and, after carefully considering on-the-scene data, recommends that:

(1) External assets formerly owned by Japan be formally released to the countries holding jurisdiction over the territories in which these assets were located at the time of the Japanese surrender.

(2) There be made available as reparations from the home islands of Japan the machinery and industrial equipment in all government-owned arsenals except for (a) such equipment as is deemed necessary by SCAP for the Japanese economy or for occupation use, and (b) such non-armament facilities (fertilizer, fuel, oil storage, etc.) as were exempted from the interim reparation program by the FEC policy decision of 13 May 1946.

(3) There be made available for reparations certain other plants and equipment in amounts as listed by industries at the end of this section.

(4) These recommendations be made effective at the earliest possible moment by appropriate directives to SCAP, which directives should include (a) percentage shares of the total to be allotted to each FEC nation or a limiting date prior to which those nations should settle the division between them of the total available items, (b) a limiting date for the acceptance by

each nation of the items allocated to it, and (c) a statement that these directives supersede all previous directives on the same subject.

(5) No industrial equipment in addition to that included in these recommendations be made available for reparations: Provided, however, that SCAP should be authorized to substitute for any item specified in those recommendations any other item of equivalent productive capacity.

If the above recommendations for a final reparations settlement are carried out, the amount of plant equipment and the number of machine tools available for reparations will be reduced below the level recommended by Overseas Consultants, Inc. Our major purpose in recommending this reduction is to retain for the rehabilitation of Japan's peacetime industry a substantial number of machine tools of modern design. Only by retaining such tools can the peace-time industry of Japan quickly be rehabilitated on an efficient basis. In view of the developments of the last two years and the continuing deficit economy, there is, in our opinion, a cumulative urgency for the rapid rehabilitation of Japan's industry.

Paramount to all other considerations is the need for prompt and final action. Further delay in the settlement of the reparation problem will not help the claimant nations and will hurt Japan greatly.

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NOTE. Only those primary war facilities in government owned arsenals should be made available for reparations. Those facilities within the government owned arsenals designated by the Supreme Commander for the Allied Powers, as essential for the rehabilitation of Japan's industrial economy, should be exempted.

215. JAPANESE REPARATIONS AND LEVEL OF INDUSTRY! Statement by Frank R. McCoy, U. S. Representative on the Far Eastern Commission, May 12, 1949

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 Department of State Bulletin of May 22, 1949, pp. 667-670. Made before the Commission on May 12, 1949, and released to the press in Washington on the same date.

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