Your 867. [1] Before making any policy commitments in regard to
reparations from Japan we need more information concerning the
intentions of other countries. These should become clearer when
the Far Eastern Commission meets.

2. Broadly we favour fitting reparations into the context of a
long term economic policy for Japan which would prevent its
revival as a formidable military power but assist the gradual
development of better living conditions for the masses and help to
entrench a more liberal form of Government. Whenever these objects
prove incompatible, the first consideration should prevail.

3. Although new weapons are constantly varying the type of
industry needed for war making potential, certain basic types of
iron, steel and heavy engineering capacity are likely to
constitute the foundation of war industry for a long time hence.

Japanese heavy industry should be reduced to the point necessary
for domestic purposes only. Japan should not be permitted to
retain any capacity for export which could become a reserve of war
potential. All plant in excess of this minimum should be removed
by the Allies as reparations. In particular, the aircraft industry
should be abolished and ship-building limited.

4. As far as possible, without the permanent depression of living
standards to the point of misery and sustained political unrest,
Japan could reasonably be forced to pay some reparations out of
current production for the benefit of areas devastated by the
Pacific War which would otherwise be unable to obtain such goods
because of the lack of purchasing power. Reparations of this
character which would impinge on world trade and alter competitive
conditions amongst the advanced commercial countries should be
rigidly excluded. Care will also have to be exercised to ensure
that reparations of this kind are directed strictly towards relief
and rehabilitation.

5. Reparations in the form of capital equipment should be removed
rapidly as soon as an assessment has been made after which
requisitions should cease and plans be laid for the future. As far
as possible, future control of Japanese economic life should be
exercised indirectly through her overseas trade. This would be
more economical than most methods and less burdensome to the
Allies, but effective because of her dependence on imports. It
would also arouse less long term resentment.

6. Shipping will be a crucial factor. It is vital to Japan for
purposes of peace and war owing to her limited natural resources.

While it would be nonsensical to deprive a maritime nation of its
livelihood we think a strict control should be exercised for many
years and that Japanese Mercantile Marine should be kept well
below its pre-war size.

We are interested in ships as reparations but lack the essential
information on Japanese tonnage remaining, in relation to her
essential needs, to form any accurate judgement.

7. Reparations should be apportioned according to the war effort
of the Allied Countries which can be attributed directly to the
war against Japan as measured by casualties and man-hours expended
in the services and in war industry. Definitions of war industry
should be mutually agreed upon.

8. The specific character of reparations must await fuller
information on availability but we are closely interested in the
following items:-

(a) Knowledge of all Japanese scientific and industrial technique,
processes and patents. We shall desire to send missions of
scientists, technicians, experts and industrialists to inquire
into such matters on the spot and to elicit whatever information
is deemed desirable.

(b) Shipping, auto-plants, machine tools, aircraft and aircraft
factories, textile looms and scientific instruments.

(c) C.S.I.R. are particularly interested in three cyclotrons for
nuclear research, two 40 inch and one 60 inch (especially the
latter) situated in Tokyo and Osaka. As several exist already in
U.K. and U.S. our claim to them should be strongly emphasized.

(d) Japanese assets in territory controlled by the Australian
Government.