297 Embassy in Washington to Department of External Affairs

Cablegram 1172 WASHINGTON, 6 November 1948

SECRET

F.E.C. 164.

Your 911. [1] Soviet proposal on Japanese industry.

We find it difficult to accept the conclusion that merely because Soviet proposal is outwardly innocuous and unobjectionable as regards its professed intention it would do no harm to be adopted by the F.E.C. as a statement of policy. The illogical U.S.S.R.

approach to the problem at this stage and the manner in which Panyushkin is manoeuvring in the F.E.C. cast grave suspicions on U.S.S.R. motives. It is still not clear whether there are other motives besides propaganda.

If there had been no previous agreement on the question there might be some merit in accepting the Soviet formula as a broad objective, leaving the definition of 'peaceful industry' and 'war industry' to be worked out subsequently.

However, the general principles have already been stated in the Potsdam declaration, and defined precisely in F.E.C. policy decision 084/21 and FEC 106/1. A further vague statement at this late stage would be a retrograde step and may only tend to confusion. If no change in existing policy concerning reduction of industrial war potential is intended (a position to which U.S.S.R.

has now been pinned down to some extent by being forced to define their terminology in relation to FEC.084/21) a restatement is superfluous. If existing policy is obscure and needs clarification a statement full of generalities will not assist. If a change is proposed the exact nature of the suggested change should be clearly known, presented unambiguously, and the reasons debated and receive concurrence before the change is accepted.

It has never been proposed that there should be restriction on peaceful industry. To agree that a decision against such a restriction must precede decisions on removals of war supporting industries is illogical and only has the effect of diverting the F.E.C. from its main task of considering FEC.242/32. [2]

We see considerable danger in accepting a proposal which may later be held by the U.S.S.R. to supersede previous agreements and which, even with latest Soviet explanations, will certainly require a new process of definition and cross-reference to other documents before it has any real content.

We agree that merely to reject the Soviet proposal might give the appearance that the other countries of the F.E.C. wish to impose restrictions on peaceful industry. However, this need not necessarily be the result. Acceptance of the proposal would almost certainly be painted as a liberalization of policy procured by the U.S.S.R. in spite of F.E.C. obstruction. In fact whatever action is taken in the F.E.C. will not minimize the propaganda value to the U.S.S.R. If F.E.C. countries are concerned over Soviet propaganda on this question the only recourse is to normal counter-propaganda channels.

In short we feel that while we should not reject the Soviet proposal merely because it is a Soviet proposal, equally we should not accept an ambiguous and possibly dangerous proposal merely because it is sponsored by the U.S.S.R.

At this stage it is not necessary for us to commit ourselves definitely in the F.E.C. one way or the other on acceptance of Soviet proposal. It will be necessary, however, to make some preliminary statement in F.E.C. and we are preparing draft outline for your consideration.

1 Document 296.

2 On FEC-242/32 see Document 293.

[AA:A1838/283, 479/3/1/1]