F.E.C. 106.

JAPANESE REPARATIONS

1. The views outlined in your telegram 333 [1] 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.