JAPANESE REPARATIONS

1. Australian Government feels that total amount and distribution
of reparations from Japan should be settled urgently. Nearly three
years have elapsed since surrender. Assets in Japan are
deteriorating; absence of firm decision makes it impossible to
plan future development of Japan along peaceful and stable lines;

and absence of decision is playing into hands of those elements of
U.S. Government which are opposed to reduction in Japanese war
potential. In our view it is therefore more important to get an
early and effective settlement than to secure one that is
mathematically precise and just. Furthermore, it is possible that
the United States may go ahead now and issue an interim directive
on reparations shares which we feel would be undesirable as it
might provide a final break with Russia in the Far East and
prevent all possibility of an eventual Japanese peace settlement
to which all countries concerned would adhere.

2. Australian Government therefore feels it would be desirable to
make a further attempt at securing an overall settlement of
Japanese reparations even though this might involve the
abandonment of some of the principles we have hitherto advocated,
and even though some countries might get less than they deserve
while others might get more. The alternative, we feel, would
probably be no reparations at all from Japan for anyone. The
immediately following cable contains the text of a proposal which
we are considering instructing our representative on F.E.C. to
present to the Commission.

3. The chief difficulty in any proposal is to find a solution
which is acceptable to the U.S.S.R. without giving her an
unreasonably large share. Our suggestion offers some prospect of
achieving this by giving U.S.S.R. some degree of parity with the
U.S.A.

4. It is believed that our proposal would give the British
Commonwealth a satisfactory share of total reparations. In
industrial facilities the British Commonwealth would get an
initial distribution of 15% with a further guaranteed minimum of
8% (being the balance to U.K. and India under the U.S. proposed
schedule), with further consideration to be given to India, Burma,
and devastated British territories in the Far East. In shipping
the British Commonwealth would get a minimum of 15% and the
special claims of the U.K. to a large share of the balance would
be granted. In Japanese stocks of gold and precious metal the
British Commonwealth would get 15% which is more than we consider
likely under any other scheme of distribution; our proposal would
also avoid the difficult question of defining occupation costs and
would be a way out of the clash with the U.S.A. as to the priority
of expenditure on necessary Japanese imports. In external assets
the Australian proposal would not completely satisfy the
conditions which all members of the British Commonwealth have
hitherto insisted upon, but it seems realistic to accept the fact
that these conditions will not be accepted by the U.S.S.R. The
U.S.A. has already expressed the opinion that all Japanese
external assets in neutral countries should be used to defray U.S.

occupation costs, but under our proposal five-elevenths of these
assets would go to the British Commonwealth.

5. We propose that there should be no reparations from Japanese
current production. A clear decision by the Far Eastern Commission
to this effect at this time would appear to us to be a notable
contribution towards achieving the objectives of the Allied
occupation under the provisions of the Potsdam Declaration. Until
the question of reparations from current productions is settled it
is impossible for the Commission to make a decision on levels of
industry in Japan. Informal discussions last August at the British
Commonwealth Conference, particularly in committee, indicated that
all members of the Commonwealth were doubtful about the
possibility of exacting reparations from current production.

6. The Australian Government desires to secure a whaling vessel in
reparations' but realizes that under this proposal the Australian
share of 3% would probably not be big enough to obtain a factory
ship. It is considered, however, that an arrangement could be
reached with the U.K. Government whereby such a vessel might be
transferred to us from the U.K. share under terms agreed upon by
the two Governments.

7. We should be glad of your urgent comments on this proposal. We
believe that the sooner a complete proposal of this nature can be
presented to the Far Eastern Commission the better and that the
proposal should cover all these categories of assets and not be
submitted piecemeal.