Your 374. [1] Japanese Reparations.

Our approach is based on following principles:

(a) We are opposed to any action to by-pass F.E.C. jurisdiction
and to depart from the Moscow Agreement;

(b) We feel that original proposal for reparations conference
outside F.E.C. machinery but subject to F.E.C. ratification of
decisions [2] was soundly based on reasoning that F.E.C. machinery
is too cumbersome for speedy decisions;

(c) It seems to us that proposal for that conference should be
pressed to a vote on F.E.C. It is not sufficient that the
bilateral U.S.A. Soviet discussions reached a deadlock;

(d) Decision by F.E.C. on level of economic life should precede
detailed discussion on reparations.

2. We are therefore giving consideration to authorising the
Australian F.E.C. representative to proceed on following lines:

(a) Press for F.E.C. decision on level of Economic Life as matter
of urgency in advance of any further discussion on reparations;

(b) Press for F.E.C. to vote on proposal for a reparations
conference. This should be done in such a way that if Soviet
should veto inclusion of external assets within the scope of
detailed discussion of reparations it will not prevent the
implementation of the next stage. In that event external assets
can be dealt with as a separate issue at diplomatic level.

(c) Propose for F.E.C. discussions the following broad plan for
allocation of internal assets:

(i) A proportion of the total to be set aside to cover costs of
occupation. This amount would be divided among the countries
providing occupation forces in the proportion of troops
contributed by each.

(ii) The remaining quantity to be divided among all claimant
countries including those not members of F.E.C.

(d) If the broad plan set out in (c) should be approved a
conference of all F.E.C. member countries under F.E.C. aegis
should then proceed to determine the percentages to be allotted to
each claimant country.

3. This approach is considered to be substantially in agreement
with views expressed in your paragraph 2. With reference to your
paragraph 5 however we consider that we should not indicate our
attitude on the question of co-operation with the U.S.A. in the
preparation of interim directives outside F.E.C. until the Soviet
attitude has been fully established in F.E.C. We regard purely
bilateral negotiation outside F.E.C. jurisdiction as most
undesirable.