Dispatch 1/46 (extract) WASHINGTON, 7 January 1946
[matter omitted] 
The view put by many commentators and endorsed by the Secretary of State is that American interests are safeguarded. This seems to be based on the assumption made that the United States, with MacArthur as Supreme Commander, is in occupation, that a certain policy has been decided on and directives issued, and that as there is a veto in the Far Eastern Commission agreement, no change can be made unless the United States agrees. The matter is not quite so simple. There is no specific validation of the pre- existing policy or directives.
The Moscow agreement was certainly intended to arrange for a sharing of control. The terms of reference of the Far Eastern Commission  contemplate that the Commission will formulate the policy for Japan in order to accomplish the terms of surrender, and give any member the right to review any directives issued involving policy decisions within the jurisdiction of the Commission. Nothing can, however, be done without a concurring vote of the four powers. If this veto were freely exercised, the Far Eastern Commission would be a dead letter. In the event of this possible stalemate, what is the position? This depends on the terms of reference of the Control Council , by Clause 5 of which the Supreme Commander is given authority to issue all orders for the implementation of the terms of surrender and occupation and control and directives supplementary thereto, subject only to the power of a member under Clause 6 to reserve questions concerning a change in the regime of control, fundamental changes in the Japanese constitution structure and a change in the Japanese Government as a whole for decisions by the Far Eastern Commission.
This power seems wide but it is worthwhile examining exactly how far it goes.
(1) The power of the Supreme Commander to act relates to the implementation of the surrender terms. Whether the words 'occupation and control and directives supplementary thereto' extends this or gives any blanket authority is doubtful.
(2) There is a limitation of this power of the Supreme Commander by Clause 6 in the three instances mentioned. It will be noticed, however, that these three exceptions are made only to the implementation of policy decisions of the Far Eastern Commission.
If the Far Eastern Commission has made no decisions on these questions, what is the position? (3) To the legal mind, a further complication is caused by Clause 7 which treats the changing of individual Ministers or the filling of vacancies as emergency matters. This was surely unnecessary if the Supreme Commander had general powers.
(4) The authority of General MacArthur is confirmed as Chief Executive so that any necessary powers incidental to his office would be his.
It is not necessary for me to pronounce an opinion on these points but unless obstruction develops, MacArthur's position should be fairly satisfactory to him. He can go on with the present policy of carrying out the surrender terms. In doing this, he would presumably act under United States Government orders. The powers on the Commission can discuss decisions under the agreement, in which they may or may not reach decisions. If, however, the parties pursued violently conflicting policies in the discussions in the Commission and vetoed freely, there would be much ill feeling, and if each party had a substantial part of the occupying force, the situation would be difficult. There will have to be a lot of give and take and if the United States put up a stubborn resistance to any revision of previous orders, there is likely to be trouble from the other powers while if they make concessions too easily, critics in the United States will make trouble.
Another contingency which might occur is that the present policy might break down. It might be impossible to carry out the terms of surrender, say through the complete breakdown of the Japanese Government or its failure or refusal to carry out the orders. In this case, an entirely new policy would have to be devised and a different kind of occupation would be necessary. The Far Eastern Commission would then be compelled to formulate a policy and if it failed through the veto, there would be a chaotic situation.
In commenting on the terms of the agreements, I would finally draw attention to the fact that by the first clause of the Far Eastern Commission agreement, a Commission is said to be established between the ten countries named.  As this was only between four governments, it could not bind the others. They are to be invited under the last clause. I am told that these invitations have been issued. I presume that you will decide whether you will accept.
Australia's position is far worse than under the previous Commission , and the complications I have noted show the impracticable element introduced into everything by the veto.
F. W. EGGLESTON