307 United States Embassy to Department of External Affairs

Aide-memoire CANBERRA, 11 May 1949

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It is of essential importance to every nation interested in the attainment of economic and political stability in the Far East that the stabilization program now being inaugurated in Japan succeed and that a firm basis for Japanese economic self-support be established. The peaceful attitudes and democratic institutions which we have emphasize that the United States maintains fully and categorically its support of the principle that Japan's war-making capacity should be eliminated. All of Japan's specialized war- making facilities were some time ago destroyed. The United States Government believes that all other equipment used for war purposes in the past should, if retained in Japan, be fully converted to purposes of and utilized in Japan's peaceful economy. Where this cannot be done, the United States Government believes such equipment should be scrapped.

Its review of the Japanese reparations question leads the United States Government to the following conclusions:

1. Japan in the best of circumstances faces the extremely difficult task of maintaining a larger population than it has ever possessed before on the meagre resources of the Japanese homeland alone. Facing this task it has no resources surplus to its peaceful needs.

2. Current deficits in Japan's economy are being borne by the United States. Resources removed from Japan in present circumstances are in the last analysis contributed by the United States taxpayer. The United States Government would find it impossible to defend before the American people and the Congress a program of further reparations from a destitute Japanese economy whose deficits are being made up by the United States.

3. Further reparations from Japan would jeopardize the success of the Japanese stabilization program to which the Japanese people and Government have been directed to bend all their efforts and on which the success of our common occupation objectives and the progressive reduction of the United States aid burden in Japan depend.

4. Japan has already paid substantial reparations through the expropriation of its former overseas assets and, in a smaller degree, under the advance transfers program.

5. Japan's industrial war-making capacity can and should be effectively eliminated through conversion to peaceful purposes or scrapping of all equipment not already destroyed which was previously used for war purposes.

In the light of these conclusions, the United States Government has decided that it must rescind its interim directive of April 4, 1947, thereby bringing to an end the advance transfers program. It has also decided to withdraw its proposal of November 6, 1947 on Japanese reparations shares. Finally, the United States Government must make known that it has no intention of taking further unilateral action under its interim directive power to make possible additional reparations removals from Japan.

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The United States Government's support of the principle that Japan's capacity to make war should not be permitted to re-emerge has already been emphasized. It is the considered view of the United States that that objective does not require that Japan's production for peaceful purposes be limited or that limitations be imposed on levels of Japanese productive capacity in industries devoted to peaceful purposes. This belief, coupled with the evidence of Japan's present economic plight and the difficult problems Japan will face in the future in attaining levels of industrial production and foreign trade sufficient to support its people even at minimum levels, render it clearly advisable in the view of the United States that Japan be permitted to develop its peaceful industries without limitation. The problem facing us is not one of the Imitation of Japan's peaceful industries but of reviving these industries to provide for the people's barest wants.

The United States Government earnestly hopes that the Australian Government will appreciate the considerations which have caused the United States Government to adopt the position herein described on the Japanese reparations and level of industry questions and will be able to concur in proposals which the United States plans shortly to submit to the Far Eastern Commission for revision or amendment to existing and pending far eastern policy papers to bring these papers into conformity with the position here set forth.

A statement on the above lines will be made to the Far Eastern Commission by the United States Representative at an early date, possibly the regular meeting of the Commission on May 12. [1]

1 The statement was read by McCoy on 12 May l949.

[AA: A1838/2, 479/3/1, iii]