446 Department of External Affairs to Plimsoll

Cablegram 698 CANBERRA, 17 November 1947

SECRET

LEVEL OF JAPANESE ECONOMIC LIFE

1. You should endeavour obtain urgently copy of Commonwealth Relations Office telegrams D.859 and 860 on subject of Japanese merchant shipbuilding and shipping.

2. These indicate that United Kingdom Government is modifying its attitude on Japanese merchant shipping levels, in endeavour to reach agreement with United States and as part of attempt to obtain F.E.C. decision on entire question of interim Japanese economic levels pending final determination by Peace Conference.

Matter is likely to be considered by United Kingdom Ministers in next few days and our comments are urgently required.

3. We have also been approached by New Zealand Government with request for our support in ensuring 'thorough discussion' of Japanese economic levels in F.E.C. with a view to assisting Peace Conference and shortening its work. New Zealand Government is concerned at evidence of constant softening of United States attitude towards Japan, and feels that arguments in favour of leaving fixation of Japanese economic levels entirely to Peace Conference are outweighed by advantages to be gained 'by solving question of level of economic life in Japan now'. It is not clear whether New Zealand Government is anxious for decision on FEC- C2/242 with a view to implementation without waiting for Peace Conference, or merely contemplates effort by F.E.C. to reach conclusions which might in practice serve as recommendations to Peace Conference.

4. Attitude we have maintained hitherto has been reviewed in the light of these developments, and we believe some modification is now desirable. Following considerations are relevant:-

(A) We must continue to insist that Japanese economic levels can be finally determined only by the Peace Conference;

(B) Obvious possibility exists that decisions on these matters reached by F.E.C., even though adopted as interim decisions, might tend to become so established through implementation as to be difficult to alter at Peace Conference;

(C) Nevertheless we think following points cannot be ignored:-

(i) It may prove impracticable for nations represented at Peace Conference, or even at proposed preliminary meeting, to give proper and detailed consideration to mass of undigested technical data required as basis for satisfactory decision on economic levels;

(ii) notwithstanding our efforts to hasten matters, circumstances appear to be continuing to delay final peace settlement; (iii) evidence of softening United States attitude continues to accumulate. (Shaw has heard that MacArthur has expressed opinion that economic conditions set out in State Department draft peace treaty are too harsh); (iv) in absence of any progress by F.E.C., United States may insist on issuing interim directives.

5. Having regard to foregoing considerations we now think we should inform New Zealand Government- (A) That we are instructing our representative on F.E.C. to support New Zealand representative in encouraging discussion of FEC-C2/242 on basis of all available technical data with a view to reaching conclusions which would in practice serve as tentative recommendations to Peace Conference; (B) That any levels of industry decided by F.E.C. must be clearly recognised as interim only and that ultimate decision must be made only by Peace Conference.

6. We would propose at same time to reply to United Kingdom Government in following terms:-

'We have no objection to F.E.C. reaching decision on interim levels on understanding that authority of Peace Conference will not be prejudiced.

Our views on details of your proposed levels can be regarded only as preliminary at the present time. However, we should be likely to agree generally with the levels you have suggested with the following tentative reservations:-

(1) Removals should be made of ships which either exceed 5,000 g.r.t. or have a speed exceeding 12 knots, as this would make a greater volume of shipping available for reparations.

(2) New ships should be of single-deck type only. This would ensure that new vessels would not be readily convertible to trooping.

In placing proposals before F.E.C. It would be of advantage if both United Kingdom and United States representatives could give in detail the basis of their calculation of the various figures in relation to Japan's peaceful needs etc.' 7. Please discuss matter with Minister and endeavour to let us have very early reply. [1]

1 Paper C2-242 was approved by the Economic and Financial Affairs Committee on 11 December and forwarded to the Steering Committee.

A general reservation on the paper was maintained by representatives of Australia, China, the Philippines, the Soviet Union and the United States.

[AA : A1838, 479/3/2/3, iA]