During the past week we have held series of detailed talks with
British Commonwealth colleagues on your proposed reparations plan.

All are impressed with the need for a vigorous effort to solve
reparations shares deadlock. Since it is now beginning to dawn on
some for the first time that a level of industry decision can be
rendered meaningless unless divisions of shares decided, and
equipment taken away. Revival of Aluminium Industry has pointed up
this problem.

Division of shares of reparations is now being se[en by] [1]
Commonwealth representations as of lesser importance to meet needs
of reparations claimants than as a means by which decisions on
reducing Japan's industrial war potential can be made to have any
force. In the light of present circumstances they consider much to
be said for seizing initiative from United States.

1 (A) All are agreed that this needs f[urther] [2] clarification.

Several interpretations have been made but most common is that, by
implication, SC 242/19 and C.2.297 [3] must be decided by 31st
July, 1948.

United Kingdom representative attaches considerable importance to
avoiding as much as possible linking the question of reparations
with level of industry (see United Kingdom statement page 9 of
Steering Committee 13th April), and has some misgivings about the
implications of paragraph 1 (A) from that point of view.

1(B) Distribution.

While praising this as a commonsense approach, certain amount of
scepticism has been expressed as to the possibility of success of
this plan. They consider this would be acceptable to Soviet only
if Soviet attitude to date has been based on questions of
prestige.

Certain difficulties are also seen in connection with expert body
and they are anxious to know what its composition would be. United
Kingdom representative points out that it would be diff[icul]t [4]
for United Kingdom Government to accept this system. Although
United Kingdom has always made it clear that its share is on
behalf of itself, Burma, Malaya etc. United Kingdom would probably
wish to insist that it should not be asked to surrender the right
to decide how its share would be distributed among the various
British Colonies in the Far East and Burma.

Similar difficulties, authorities consider, might arise with
United States and U.S.S.R. over South and North Korea.

Indian representative envisages so many difficulties over the
appointment of expert body that he would prefer to see devastated
countries themselves work out distribution of the 67%. He feels
that if they could work without existence of any veto they could
very rapidly arrive at a solution.

United Kingdom and Indian representatives strongly opposed to
having ECAFE even in advisory capacity associated with the
settlement. United Kingdom representative points out that this is
quite unnecessary since ECAFE reports of devastation in the Far
East are available to all Governments.

2. Shipping.

The Indian Government feels very strongly that shipping should be
distributed in accordance with proven losses only in the war
against Japan. Others still have an open mind as to what will
prove the most equitable and practicable method of distribution
until they are more certain of the size of the pool.

3. Japanese Gold and Precious Metals.

It is not clear to Commonwealth representatives whether this is
intended to settle the occupation costs problem once and for all.

They are interested to know what is basis of figures 83% and 15%
but presume it takes account only of factor of having provided
occupation forces.

United Kingdom in particular desires to continue to give formal
recognition to the existing policy decision which says gold should
be made available as reparations.

Canada has misgivings since Canada would not have opportunity to
share in distribution.

4. Reparations from Current Production.

While all Commonwealth representatives agree that it would be most
helpful to finalise this question, it may still prove difficult
for countries to make this admission. It is better they argue to
manoeuvre countries into the position of accepting SC 242/19 which
would be tacit admission that there would be no reparations from
current production.

5. External Assets.

All Commonwealth members were considerably impressed by the merits
of this approach.