303 Embassy in Washington to Department of External Affairs

Cablegram FEC75 WASHINGTON, 8 May 1948, 3.48 p.m.

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.

1 The text reads 'sent to'.

2 The word in the text reads 'for'.

3 Committee papers on level of economic life in Japan.

4 The text reads 'different'.

[AA:A1838/278, 483/2, iv]