311 Embassy in Washington to Department of External Affairs
Cablegram 558 WASHINGTON, 28 June 1949, 6.31 p.m.
1. The views outlined in your telegram 333  have been informally presented to the State Department.
2. It is quite clear that there is little hope of influencing the United States to modify the general position outlined in McCoy's statement. It is a firm position arrived at after a long period of indecision within the United States Government and ultimately made at the highest level after weighing all considerations. Having publicised the decision and received almost universal public support for it the United States is not likely to waver from the bold stand they have taken. Furthermore one important factor behind the United States position and in the way in which it was announced was the contribution towards economic stabilisation by indicating to the Japanese with an air of finality where they stand on the question of plant removals. Any apparent willingness of the United States to backtrack now would destroy this psychological effect and create another air of uncertainty in the Japanese economy.
3. The following is a summary of detailed comments made by Bishop, Chief of the Office of Far Eastern Affairs on the points made in your cable 333.
4. Paragraph 1 .
In general the United States case is fundamentally sound and should stand as it has been presented. The only further proposals which the United States envisages presenting to F.E.C. would be in the form of seeking re-decision or amendment of existing policies, e.g. interim reparations removals programme, to conform with the United States position., We have learned unofficially, however, that it is doubtful whether the United States will actually do even this.
5. Paragraph 2.
The United States has now renounced the principle of reparations.
Has consistently supported this principle as embodied in the Potsdam Declaration and the basic policy. Along with this principle, however, should also be considered the principle of establishing Japan on self-supporting basis as soon as possible.
Extraction of reparations must not strip Japan of resources needed to make her self-supporting. All Japan's present resources needed to this end.
6. Paragraph 3.
As to factor (a) the State Department has always accepted the 1930-34 standard laid down by F.E.C. The United States, like Australia, is not concerned with raising the economic level above the accepted standard. As to factor (b), the United States maintains that Japanese economy is deficit overall and will require all existing facilities. Japan will need to develop a wholly new pattern of trade. While there is admittedly excess capacity in particular sections of industry, e.g. shipping and steel, this is more than counterbalanced by an overall deficit.
Japan has to rationalise its structure of production and can possibly utilise excess capacity in certain industries for alternative production.
7. Paragraphs 6 and 8.
On the general question of reparations, Bishop criticised strongly the meaningless F.E. C. policy decisions and the complete inability shown by F.E.C. to draw up the first essential, i.e.
shares schedule. Without United States initiative in proposing advance transfers no country would have received any reparations at all. Countries with the strongest claims had received some benefit in this way. Japan had been obliged to give up more than any other country in history by loss of all overseas assets in Korea, Formosa, China, etc. Japan could not be expected to give up 'one more resource'.
8. In answer to an enquiry as to what assurance there was that Japan would not progress beyond the self-supporting stage and again become a threat to security he said that Japan could only become strong if.- (a) The United States and her friends permitted it; or (b) If U.S.S.R. and her friends permitted it.
It could be argued that this was so as long as the present world position held but even if there should be a change Bishop thought a self-supporting Japan would be less likely to threaten war than a depressed Japan. This he thought was of greatest importance to Australia because if Japan ever broke out again it would certainly not be in the direction of California. In each case Japan was a country without resources of petroleum and iron ore and the supply of these resources to Japan could be controlled.
9. Paragraph 7.
While the United States did not consider the factor of the heavy cost of the occupation the paramount consideration, the United States hoped that Australia and other F.E.C. countries would appreciate the necessity of reducing the burden as far as possible.
10. We are forwarding by airmail a more complete account of conversations.
11. Commonwealth colleagues here are convinced that little can be done to influence the United States to modify its overall position or to attempt to prove its case before F.E.C. The best that can be done is to ask specific questions on points which are illogical or obscure, as the United Kingdom has already done, e.g. the United States has still left the door open on ship-building and external assets and there may be some faint chance of success by concentrating attention on these.