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and basic chemical products and the capacities retained in certain other industries.

6. The United Kingdom and the United States Delegations pointed out that the capacities had been carefully estimated by normal methods and that the fixing of the capacities enables a programme to be established for the identification of plants and equipment for removal as reparations as soon as practicable.

7. The three delegations agreed that the measures about to be taken by the United Kingdom and United States commanders, i. e. chief, do not prejudge quadripartite decisions of the Council of Foreign Ministers in respect to the level of industry for Germany as a whole or such industrial limitations as may be imposed by the peace settlement. 8. The French Delegation emphasized the importance which its government attached to having assurances, relating to the progressive character of German rehabilitation mentioned in paragraph 2 above, embodied in a concrete agreement with special reference to the distribution of Ruhr coal and coke, those resources being essential to European heavy industry. The French Delegation has asked that there should be an adjustment of the present arrangements to permit of a greater proportion of coke in the present export allocations and that there should be a review of the sliding scale agreement for Ruhr coal and coke exports with a view to extending it beyond the present figures. On the understanding that the coal available for consumption in the Anglo-American zones of Germany as a result of the present sliding scale would not be diminished, the United Kingdom and United States Delegations have agreed that the French proposals should be discussed forthwith in Berlin.

9. The United Kingdom and United States Delegations stated the reasons why they could not postpone the publication of the plan for the level of industry in the Anglo-American zones of Germany until the conclusion of the discussions referred to above, and informed the French Delegation that the plan would be published in Berlin on August 29th.

10. The French Delegation took note of this statement and gave the reasons why, for its part, it could not withdraw its objections pending a satisfactory outcome of the proposed discussions.

(b) Revised Plan for Level of Industry in the United States and United Kingdom Zones of Germany, August 29, 1947

PREAMBLE

In March, 1946, the four occupying powers, acting through the allied control authority, adopted a plan for reparations and the level post-war German economy. The objectives of the plan were to eliminate Germany's war potential, to provide reparations and yet to leave within Germany the necessary plants and equipment to permit the rebuilding of a viable peaceful economy.

Experience has shown the necessity for revision of the plan which was based on specific assumptions that have not been fulfilled. Neither the bizonal area nor all of Germany can regain economic health

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under the plan as it now stands. Moreover, it has become increasingly apparent that under present conditions Germany cannot contribute her indispensable part to the economic rehabilitation of Europe as a whole.

The revised plan continues to observe the same objectives as the original plan.

Consideration has been given throughout to the necessity for ensuring that the bizonal plan can be assimilated into a plan for Germany as a whole. The offer to the other occupying powers to join the bizonal area in developing a unified German economy still stands. The plan has been developed with due regard to the hope that this offer will be accepted.

I. GENERAL CONSIDERATIONS

The industrial capacity retained under the March 1946 plan was estimated to provide production equal to 55% of 1938, which would have been about 70-75% of 1936 production. The effect of the new plan will be to return sufficient capacity in the bizonal area to approximate the level of industry prevailing in Germany in 1936, a year that was not characterized by either boom or depressed conditions.

A. The old plan provided for very sharp cuts in production capacities in the metals, machinery and chemical industries, from which the bulk of reparations were to be obtained. It is impossible to provide a self-sustaining economy in the bizonal area without materially increasing the levels in these industries. Substantially the entire diffence between the original and revised plan is in these reparations industries since the original plan already provided for maximum, and in some cases unrealistic, levels for the non-reparations industries. Under the revised plan, capacities in the metals, machinery, and chemical industries will be sufficient to permit production at levels averaging about 5 or 10% less than in 1936. As compared with the war year 1944, the proposed level represents a reduction of 55 to 60%. B. It must be borne in mind that the bizonal area already has a population at least six million more than in 1936 and by 1952 it may be expected to have a population from 8 to 10 millions greater than pre-war. On the basis of an expected population of 42 to 44 million in the bizonal area in 1952, the per capita production capacity provided in the new plan would be approximately 75% of 1936.

C. In developing the bizonal plan, the overriding requirement has been to provide the level of industry necessary to make the area selfsupporting. In determing the levels for the specific industries, for example, steel and machinery, the requirements for exports, for the internal needs of the bizonal area and for trade with the rest of Germany have been taken into account. In evaluating the requirements for trade with the rest of Germany and of imports, account had to be taken of removals of capital equipment from the other zones and Berlin. The potential output of particular industries, therefore, allows for the needs of the rest of Germany through trade, and the capacities retained for this purpose represent requirements of the bizonal area. In other words, the bizonal area, in order to be selfsupporting, must obtain the products in which it is deficient either as imports from outside Germany or in trade from the rest of Germany.

II. REQUIREMENT FOR A BALANCED ECONOMY

In addition to pre-war foreign trade, the bizonal area must produce a surplus over its internal requirements for trading with the remainder of Germany; this particularly affects requirements for the industrial capacity of steel and steel products, which are the most needed and, therefore, the most dependable trade commodities required by the rest of Germany in exchange for key products essential to the bizonal

economy.

A. Change in price relationships. World food and raw material prices have increased more rapidly than the prices of manufactured goods since 1936 and this situation seems likely to continue. Consequently, the bizonal area must be prepared to exchange in foreign trade proportionately larger quantities of industrial products in return for necessary food and raw material imports.

B. Imports in the general way. The bizonal area accounted for the whole of Germany pre-war food deficit, as the remainder of Germany was about self-sufficient in food stuffs. It is estimated that imports of food, seed and fertilizer sufficient to make possible an essential diet will amount to 1.00 to 1.25 billion dollars at current prices.

1. Industrial imports from the other countries to the bizonal area were approximately RM 1.5 billion, in 1936, which represents at least 1.0 billion dollars at current trade prices. But the altered character of German trade will make it possible to reduce this figure.

2. The invisible items in Germany's foreign trade were approximately balanced before the war. The present calculations, which make no provision for invisibles on either side of the account, may be optimistic.

3. The foregoing considerations lead to the conclusion that the total bizonal requirements from outside of Germany will approximate at least 2.0 billion dollars at current prices. Repayment of advances by the occupying powers would be an addition to these estimates.

C. Exports. The 1936 exports from the bizonal area were approximately RM 2.6 billion, which is estimated to represent about 1.75 billion dollars at current prices.

1. These estimates, therefore, indicate that, in addition to trade requirements for the rest of Germany, the bizonal economy will need to export to other countries at least 15% more in volume than in 1936. Since trade between the bizonal area and the rest of Germany is subject to greater uncertainty than former internal trade, the result may be to increase still further the need for trade with other countries. 2. Before the war, the broad fields of metals, machinery, and chemicals accounted for two-thirds of the total exports. Production of textiles, ceramics, and consumer goods can be raised, but the extent to which additional sales above pre-war levels can be sold on the export markets is difficult to predict. Exports from the unrestricted industries would need to be increased approximately 90% if the higher export requirements were provided entirely from the unrestricted industries, which is obviously impracticable. Therefore, the level of exports from the restricted industries will need to be greater than

pre-war.

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The following determinations have been reached with respect to the industries restricted under the original level of industry plan: (Note: All figures stated in reichsmarks refer to 1936 prices.)

A. Steel. Under the March, 1946, level of industry plan, steel capacity for all of Germany is limited to 7.5 million tons, with actual production in any single year not to exceed 5.8 million tons. Careful calculations show that this level would be clearly insufficient even to support the level of industry contemplated in the original plan, and it is far too low to provide for the needs of the economy under the revised plan. It has been determined that in order to support the revised level of industry in the bizonal area and to permit that area to become self-supporting, the limit of annual steel production in the bizonal area shall be fixed at 10.7 million ingot tons per annum and sufficient capacity to produce that tonnage shall be retained. B. Mechanical engineering industries:

1. Heavy machinery industry. Sufficient capacity will be retained to produce RM 500 million, which is about 80% of pre-war production. This leaves 35% of the present capacity to be removed as reparations as against 60% under the previous plan.

2. Light machinery industry. The capacity in the bizonal area is estimated at about RM 1,195 million. Capacity will be retained to produce RM 916 million, which is 119% of pre-war production.

This leaves 23% of present estimated capacity available for reparations, as compared with 33% under the old plan.

3. Note. Grouping heavy and light machinery, the revised level is 105% of pre-war production.

4. Fine mechanics and optics. In the field of precision optics, no plants will be made available for reparations. The capacity is to be retained to provide for internal needs and to attain exports of the same products equal to those from the bizonal area in 1936.

In the case of photo-technics, no plants are to be made available for reparations and the retained capacity will be used to attain 150% of pre-war exports in this field from the bizonal area as well as to provide for internal requirements.

In the watch making industry, one plant, which had been converted to war use, will be made available for reparations.

Capacity in excess of pre-war will be retained in the field of precision mechanics. However, all plants, which had been built for or substantially modified to war use, will be made available for reparations. 5. Machine tools. The March, 1946 level of industry plan permits the production of RM 74 million in all of Germany, or 11.4% of 1938 output. The bizonal area, before the war, produced about 43% of Germany's millions. It has been determined that capacity sufficient to produce RM 170 millions must be retained in order to support the revised level of industry. This will leave about 35% of present capacity for reparations.

C. Agriculture and road tractors. Estimated bizonal capacity for agriculture and road tractors is 16,500. This is inadequate to meet bizonal requirements, which are estimated to be 19,500. Consequently, there will be no reparations in this industry.

D. Transportation industries: Automotive industry. Capacity will be retained for the production of 160,000 passenger cars and 61,500 commercial vehicles. This compares with 40,000 passenger cars and 38,000 commercial vehicles allotted to the bizonal area under the old plan.

E. Electrical engineering. The present capacity of the electrical industry in the bizonal area is required with the exception of three war-time plants. Capacity is estimated to be about one-half greater than pre-war. This increase is necessary because pre-war requirements of the bizonal area were in large part met from capacities in Berlin, which have been almost totally dismantled. Under the old plan, almost one-quarter of present bizonal capacity would have been removed.

F. Chemicals:

1. Approximately the 1936 capacity will be retained in the chemical industry which is about 42% more than that provided in the old plan. However, a large number of explosive and other chemical plants were developed for war purposes. Between 40 and 50% of the total chemical capacity, including war explosives will, therefore, be removed as reparations or destroyed. More than three quarters of such removals represent war explosive plants that have already been offered for reparations or declared for destruction.

2. For the plastics industry, capacity somewhat larger than pre-war will be retained. Approximately one-quarter of existing capacity will be made available for reparations.

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