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.