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    "title": "Memorandum from Edwin Pauley to President Harry S. Truman",
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    "ocrText": "TOP SECRET\nNEGOTIATIONS CONCERNING\nGERMAN REPARATIONS\nPART I - YALTA THROUGH POTSDAM\nResearch Project No. 143\nFebruary 1950\nDivision of Historical Policy Research\nOffice of Public Affairs\nDepartment of State\nDECLASSIFIED\nE.O. 12065 SEC. 3-402\nSTATE GUIDELINE 6-12-79\nBy MCT.NL NARS, Date 12-20-79\nTOP SECRET\nThis project was undertaken at the request\nof the Officer in Charge, German Economic\nAffairs. The work was done by Russell Fessen-\nden of the Foreign Policy Studies Branch, RE.\n- 1 -\nTOP SECRET\nNEGOTIATIONS CONCERNING GERMAN REPARATIONS\nPART I - - YALTA THROUGH POTSDAM\nResearch Project No. 143\nFebruary 1950\nDivision of Historical Policy Research\nDepartment of State\nTOP SECRET\n- iii -\nTOP SECRET\nCONTENTS\nPage\nI. SURVEY OF NEGOTIATIONS\nA. The Yalta Conference\n(February 3-11, 1945)\n1\nB. Formulation of American Policy\n(February-June 1945)\n23\nC. Moscow Meeting of the Allied\nReparations Commission (June 11-\nJuly 14, 1945)\n33\nD. The Potsdam Conference (July 17-\nAugust 2, 1945)\n36\nII. SPECIAL TOPICS\nA. The Standard-of-Living Clause\n64\nB. Relation of Reparations to\nEconomic Unity\n67\nC. The First-Charge Principle\n72\nD. Current Production\n84\nE. External German Assets\n92\nF. Shares of German Enterprises\n102\nG. Gold\n107\nH. War Booty\n110\nI. Restitution\n117\nJ. The Ruhr\n123\nK. The Soviet Share from the West\n128\nL. Reciprocal Deliveries\n136\nM. Determination of Level of Industry\nand Reparations Availabilities\n145\nN. Advance Deliveries\n152\n0. Reparations for Poland\n159\nP. Reparations for Other Nations\n164\nQ. Use of Allied Property as\nReparations\n171\nR. German Labor as Reparations\n174\nS. German Merchant Marine and Navy\n179\n10P SECRET\n_V_\nfor SECRET\nForeword\nDisagreement over German reparations,\nparticularly in the Council of Foreign Ministers,\nhas been one of the chief obstacles to the German\npeace settlement. An understanding of this sub ject\nis accordingly necessary for a grasp of the present\nstatus of the German problem.\nA divergence of views on reparations first\nbegan to appear as far back as the Yalta Conference\nin February 1945, and by the end of the Potsdam\nConference in August 1945 the essential lines of the\npresent disagreement had already become clear. If,\ntherefore, one is to understand the current impasse,\nit is important to have information on how these\ndifferences arose during the period prior to Potsdam.\nThe present study seeks to provide such information\nby describing the reparations negotiations at the\nYalta and Potsdam Conferences and related negotia-\ntions. Primary attention has been given to\nnegotiations at the Conferences themselves, since\nall major decisions were made at these meetings.\nBriefer treatment is also given to two developments\nbetween Yalta and Potsdam: (1) policy formulation\nwithin the United States Government in March, April,\nand May of 1945 and (2) the meetings of the Allied\nReparations Commission in Moscow in June and July\n1945.\nThe study is divided into two parts. The first\nconsists of a chronological survey of negotiations\nfrom Yalta through Potsdam. Only the main issues\nare considered in this part, with primary emphasis\non the American-Soviet disagreement over the basic\napproach to the reparations problem. The second\npart describes the negotiations concerning special\ntopics, such as reparations from current production,\nGerman external assets, the \"first-charge\" principle,\nand many other issues. The treatment in the second\npart is more detailed than that in the first.\nSix main sources were used in the preparation\nof this study:\n(1) The\nTOP SECRET\n- vi -\nTOP SECRET\n(1) The minutes of the meetings of the Heads\nof Government and of the Foreign Ministers at the\nYalta Conference. These minutes, which were pre-\npared by the United States Delegation, comprise a\nfull record of the discussions which took place\nAnnexed to the minutes are some of the key documents\nof the Conference, including most of the draft pro-\nposals submitted by the various delegations. A set\nof the Yalta minutes, classified Top Secret, is\nlocated in the Executive Secretariat of the Depart-\nment of State. In this study, footnote references\nto the meetings of the Heads of Government are\nindicated by the symbol HG (Yalta) and footnote\nreferences to meetings of the Foreign Ministers by\nthe symbol FM (Yalta).\n(2) The minutes of the meetings of the Heads of\nGovernment and of the Foreign Ministers at the Potsdam\nConference. These minutes, which were prepared by the\nUnited States Delegation, comprise a full record of the\ndiscussions at Potsdam, but contain only a few of the\ndocuments of the Conference. In addition to all\nregular meetings, the minutes also record the dis-\ncussions at various special meetings of the American\nand Soviet Foreign Ministers and Heads of Government\nwhich took place while the British Delegation was\nbeing changed in the midst of the Conference. A set\nof the Potsdam minutes, classified Top Secret, is\nlocated in the Executive Secretariat of the Department\nof State. Footnote references to meetings of the\nHeads of Government are indicated by HG (Potsdam) and\nfootnote references to meetings of the Foreign\nMinisters by FM (Persdam):\n(3) The papers collected at Potsdam by\nMr. Emilio G. Collado of the United States Delegation.\nThis collection contains most of the important economic\nand reparations documents circulated at Potsdam. Since\nthere was no systematic issuance of documents at the Con-\nference, the Collado papers comprise a very valuable\nsource for basic documentation. Some of the papers in\nthe Collado collection are marked Top Secret; others\nare not marked with any classification. These unmarked\npapers\nTOP SECRET\n- vii-\nSECRET\npapers must be considered Top Secret, however,\nsince Top Secret appears to be the standard\nclassification for all materials of the Potsdam\nConference. The only existing set of the Collado\npapers is a numbered set temporarily located in\nthe files of the Division of Historical Policy\nResearch.\n(4) The papers collected at Potsdam by\nAssistant Secretary of State William Clayton. This\ncollection is similar to the Collado collection,\nbut is not as complete. It is chiefly valuable\nbecause it contains a few documents not to be found\nin the Collado papers. Although some of the Clayton\npapers are not so marked, all of them should be\nregarded as Top Secret. The only existing set of\nthese papers is a numbered series temporarily\nlocated in the files of the Division of Historical\nPolicy Research.\n(5) The Report of the United States Delega-\ntion to the Allied Reparations Commission prepared\nin September, 1945. This report contains on account\nof reparations negotiations through September, 1945,\nand also includes a collection of over forty docu-\nments concerned with reparations and related matters.\nThe cover of the report, which is bound, has been\ndowngraded from Secret to Restricted, although many\nof the documents still bear a Secret classification.\nThe report may be obtained from the Department of\nState Library. Footnote references to the report\nare indicated by the symbol ACR Report.\n(6) Documents of the Informal Policy Committee\non Germany. These documents were prepared by the\ninter-departmental Informal Policy Committee on\nGermany, which formulated a United States policy on\nGerman reparations in the spring of 1945. The\nCommittee's documents were classified Secret. Copies\nof the documents referred to in this study may be\nfound in the Executive Secretariat of the Department\nof State.\nSECRET\n- viii -\nTOP SECRET\nof State. The symbol IPCOG, followed by a document\nnumber, is used in this study to refer to the\nCommittee's documents\nNumerous other sources in addition to these six\nhave been used in the preparation of this study.\nFootnote references to these others are intended to\nbe self-explanatory, with some indication as to where\nthe document can be found and the security classifica-\ntion it bears.\n20P\nSECRET\nSECRET\nI. CHRONOLOGICAL SURVEY OF NEGOTIATIONS.\nFOP SECRET\nTOP SECRET\n- 1 -\nA. THE YALTA CONFERENCE (FEBRUARY 3-11, 1945).\nAt Yalta, the reparations problem was discussed\nby both the Heads of Government themselves and the\nForeign Ministers. The Heads of Government were the\nmain negotiating body and as such made the final\ndecisions. The Foreign Ministers aided the Heads of\nGovernment by giving preliminary consideration to\nsubjects and by seeking solutions to problems on\nwhich the Heads of Government could not agree.\nPreliminary Discussion by the Foreign Ministers\nThe reparations problem was first discussed at\nYalta by the American Secretary of State, Mr. Stettinius,\nand by the Soviet Foreign Minister, Mr. Molotov. When\nMr. Stettinius raised the subject of economic problems\nin general, Mr. Molotov stated that \"the Soviet Govern-\nment expected to receive reparations from Germany in\nkind and hoped that the United States would furnish the\nSoviet Union with long term credits. \"1 Secretary\nStettinius replied that \"his Government had studied\nthe question\" (it is not clear whether \"the question\"\nreferred to reparations or long-term credits). He\nstated that he personally was ready to discuss it at\nany time with Mr. Molotov\", adding that it could be\ndone at Yalta \"as well as later either in Moscow or in\nWashington\". 2\nIt should be noted in the above that Mr. Molotov\nlinked the questions of reparations and the long-term\ncredit which the Soviet Union hoped to receive from\nthe United States. The questions were probably raised\ntogether by the Soviets because they considered both\nto be essential in the reconstruction of the Soviet\neconomy. The matter of the American loan was not dis-\ncussed further at the Yalta Conference.\nFirst\n1 FM (Yalta), Feb. 5, 1945, 1:30 p.m., p. 5.\n2 Ibid.\nTOP SECRET\nSECRET\n- 2 -\nFirst Consideration by the Heads of Government\n(February 5, 1945).\nPresident Roosevelt introduced the subject of\nreparations at the second formal meeting of the Heads\nof Government on February 5, 1945. He observed that\nthere was first of all \"the question of the desires\nand needs of the principal allies and then sub-\nsequently that of the smaller countries, such as\nBelgium, Holland, Norway, etc. \"I He proposed that\nthe heads of government also consider Soviet desires\nin regard to the use of German manpower as repara-\ntions.\nThe Soviet reparations expert, Mr. Maisky, then\nbriefly outlined the Soviet proposals for reparations\nfrom Germany. The Soviets wanted to remove a total of\n$20 billion in reparations. The sources would be\nGermany's national wealth and annual deliveries from\ncurrent production.\nMr. Maisky explained that the figure of $20\nbillion had been arrived at after consideration of\ntwo objectives: (1) Soviet reconstruction needs and\n(2) the requirements of security against future\nGerman aggression. He stated that, in order to\naccomplish these aims, \"it would be necessary to\nreduce German heavy industry by 80,5\". 2 The term\n\"heavy industry:, Mr. Maisky explained, included the\niron and steel, electrical power, and chemical\nindustries. He stated that \"specialized industry\nuseful only for military purposes\" should be 100\npercent removed. This latter category would include\n\"all aviation factories, synthetic oil refineries,\netc. Mr. Maisky added that \"with 20% of her heavy\nindustry\n1 HG (yalta), Feb. 5, 1945, 4:00 p.m., p. 14.\n2\nIbid., p. 15.\nTOR SECRET\nTOP SECRET\n-- 3 -\nindustry Germany would be in a position to cover the\neconomic needs of the country. \"1\nThe Soviet proposals, as outlined by Mr. Maisky,\nwere not specific regarding reparations from current\nproduction. No indication was given as to the amounts\nor the kinds of commodities contemplated.\nThe Soviet proposals contained a fairly specific\nprocedure for implementing the reparations plan. In\nthe first place, there would have to be Anglo-Soviet-\nAmerican control over the German economy \"which would\nlast beyond the period of reparations payments. In\naddition, \"all German enterprises which could be used\nfor war purposes should be placed under international\ncontrol with representatives of the Three Powers sitting\non the boards of such enterprises. 112\nThe Soviet position concerning the allocation of\nreparations among the Allies, according to Mr. Maisky,\nwas that the material losses of all the Allied nations\nhad been so large that no reparations plan could\npossibly compensate each of them in full. For this\nreason, the Soviets proposed establishing a system of\npriorities, based on two factors: (1) the proportional\ncontribution of any one nation to the winning of the\nwar and (2) the material losses suffered by each nation.\nNations which contributed most to winning or which\nsuffered the most damage would have first priority in\nreceiving reparations, while all other nations would\nhave second priority. 3\nPrime Minister Churchill immediately raised an\nobjection to the $20 billion figure. Although he\nrecognized that \"the suffering which the Soviet Union\nhad\n1\nIbid.\n2\nIbid.\n3\nIbid., p. 16.\nTOP SECRET\nTOP SECRET\n- 4 -\nhad undergone in this war had been greater than any\nother power\", he also felt that \"the Soviet Union\nwould get nowhere near the sum \"which it proposed\".\nHe remarked also that there would be no victorious\ncountry so burdened in an economic sense as Great\nBritain and that, therefore, if he could see any\nbenefit to Great Britain in large reparations from\nGermany, he would favor such a course. 1\nPresident Roosevelt stated that the American\nposition was conditioned by the mistakes of the last\nwar. During the 1920's the United States had loaned\nover $10 billion to Germany and had lost a great deal\nof money as a consequence. He recalled also that we\nhad mistakenly returned German-owned factories in\nthe United States to their German owners after the\nlast war. This time, he stated, he would seek \"the\nnecessary legislation to retain for the United States\nall German property in America\". As to the United\nStates share of reparations in Germany, President\nRoosevelt announced \"the Germans had no capital,\nfactories, or other equipment that the United States\nneeded\".\nRegarding the Soviet share, however, the\nPresident stated that he \"would willingly support any\nclaims for Soviet reparations since he felt that the\nGerman standard of living should not be higher than\nthat of the Soviet Union\". He added that just as the\nUnited States was planning to help the United Kingdom\nexpand her export trade, we would also help the Soviet\nUnion \"retain the reparations in kind which she required,\nas well as German manpower to reconstruct the devastated\nregions\". On the other wide, however, the President\nlisted several arguments against the large figure\nproposed by the Soviets:\n(1) Reparations\n¹Ibid.\n²Ibid., p. 17.\n*ECRET\nTOP SECRET\n- 5 -\n(1) Reparations should not be such that\nGermany would be so impoverished as to become \"a\nburden on the world\".\n(2) The United States in particular, in view\nof its experiences during the last war, did not\nwish to be the nation which would have to support\nthe Germans.\n(3) Reparations could not begin to cover the\ntotal cost of restoring the devastated areas in the\nSoviet Union, Great Britain, France, and elsewhere.\nThe President concluded that he was in favor of\n\"extracting the maximum in reparations from Germany\nbut not to the extent that the people would starve\" 1\nMr. Maisky sought to refute some of the American\nand British arguments. First, concerning the\nexperience of the last war, he pointed out that the\nSoviet proposal was based upon reparations in kind,\nwhich would eliminate the transfer problem on which\nthe reparations policy of World War I had been\nfounded. Second, the Soviet representative pointed\nout that the $20 billion total was not large in\ncomparison with the American and British budgets.\nFor instance, the amount was only 10 percent of the\ncurrent United States budget and equivalent to six\nmonths of the current British expenditures for war,\nor equal to 1-1/2 times the United States peacetime\nbudget or 2-1/2 times the British peacetime budget.\nFinally he defended the Soviet proposal by stating\nthat \"there was no intention to force Germany into\nstarvation\". He added, however, that he did not feel\nthat the Germans \"had a right to a higher standard of\nliving than that of Central Europe\".\nPrime\n]. Ibid., p. 18.\nSECRET\nTOP SECRET\n- 6 -\nPrime Minister Churchill then proposed referring\nthe question of reparations to a commission which\nwould \"consider the claims of other countries who\nbore the facts of Nazi aggression as well\".-\nPresident Roosevelt proposed that the commission be\ncomposed of the representatives of the Three Powers\nonly, to which Premier Stalin and the Prime Minister\nagreed. Mr.Churchill then urged that France be\nincluded on the Commission, but Premier Stalin was\nfirmly opposed to the idea. He stated that the Three\nPowers \"had made the most sacrifices and had been the\norganizers of victory\" and that France did not rank\nwith them in these respects. He pointed out that\nFrance \"had suffered less than Belgium, Yugoslavia,\nor Poland\" and had only eight divisions in the field,\nwhereas Yugoslavia had twelve and the Lublin Polish\nGovernment thirteen.²\nPremier Stalin then proposed that the Heads of\nGovernment agree on the basic principles of the\nreparations plan so that the commission would have\nsome guidance for its work. He proposed that\nGermany's post-war resources should be taken into\nconsideration in calculating German capabilities,\nsince \"all factories and farms would work not for\nwar but for peace. As for the American share of\nreparations, Premier Stalin pointed out that, although\nthe United States did not need \"machine tools\", it\nmight want raw materials and could also take over\nGerman property in the United States.\nAfter President Roosevelt expressed general\nagreement with these views, it was decided to refer\nthe question of reparations to the Foreign Ministers,\nwith instructions to report back to the Conference\nafter making a detailed study.3\nConsideration\n1 Ibid., p. 19.\n2 Ibid., pp. 19-20.\n3\nIbid., p. 20.\nTOP SECRET\nTOP SECRET\n- 7 -\nConsideration by the Foreign Ministers\n(February 7-10, 1945)\nThe Foreign Ministers held several lengthy\nsessions on German reparations between February 7\nand February 10. During these meetings the Soviet,\nAmerican, and British views were presented in\nconsiderable detail.\nThe discussion began in the February 7 meeting\nwhen Mr. Molotov presented the full text of the\nSoviet proposal:\n\"1. Reparations are to be received\nin the first instance by those countries which\nhave borne the main burden of the war and have\norganized victory over the enemy.\n\"All other countries are to receive repara-\ntions secondly.\n\"2. Setting aside for the moment the use\nof German labor by way of reparations, this\nquestion to be considered at a later date,\nreparations in kind are to be exacted from\nGermany in the two following forms:\n\"(a) Removal in a single payment at the\nend of the war from the national wealth of\nGermany located on the territory of Germany\nherself as well as outside her territory\n(equipment, machine-tools, ships, rolling stock,\nGerman investment abroad, shares of industrial,\ntransport, shipping and other enterprises in\nGermany, etc.), these removals to be carried\nout chiefly for the purpose of military and\neconomic disarmament of Germany.\n\"These removals are to be completed within\ntwo years of the end of the war.\n\"(b) Annual\nTOP SECRET\nTOP SECRET\n- S -\n\"(b) Annual deliveries of commodities\nduring 10 years after the end of the war.\n\"3. The total of German reparations\nin the form of removal from her national\nwealth as well as in the form of annual\ndeliveries of commodities after the end\nof the war is fixed at 20 billion dollars.\nThis amount shall be distributed as follows:\n\"(a) USSR - 10 billion dollars,\n\" (b) United Kingdom and U.S.A. -\n8 billion dollars,\n\"(c) All other countries -\n2 billion dollars. \"1\nMr. Maisky explained certain details of this\nproposal. He stated, in the first place, that the\n$20 billion total was to be divided equally between\nremovals from the national wealth of Germany and\nannual deliveries of commodities. He also gave a\nfuller explanation of how the figures had been\narrived at. Respecting the $10 billion in removals\nfrom the national wealth of Germany, he indicated\nas follows:\n\"The national wealth of Germany at\nthe beginning of the war amounted to 125\nbillion dollars. It was figured that\nthis national wealth would be reduced by\n40% or less during the course of the war.\nThus, the national wealth of Germany at\nthe termination of the war would amount\nto 75 billion dollars. An analysis of\nthe national wealths of the more highly\nindustrialized countries had shown that\nthe mobile part of this wealth which could\nbe transferred abroad amounted to\napproximately 30% or in the case of\nGermany to 22-23 billion dollars. The\nSoviet\nlattached to FM (Yalta), Feb. 7, 1945, 12:00\nnoon.\nTOP SECRET\nTOP SECRET\n- 9 -\nSoviet Government proposed to remove\n10 billion dollars of this mobile wealth.\nThe remainder would be left to Germany which\nwould secure for that country living standards\ncomparable to those prevailing in Central\nEurope. These were lower than in Germany\nbut quite decent. \"1\nAs to the annual deliveries from current production,\nhe gave this explanation:\n\"It had been figured that the national\nincome of Germany before the war amounted\nto 30 billion dollars annually. The war\nwould lower this income by 30-35 percent\nand would bring it to the neighborhood of\napproximately 18-20 billion. The Soviet\nGovernment proposed to take one billion\ndollars annually, or 5-6% from the German\nnational income. This was not a large sum\nand could be supported by Germany. #2\nWhen the Soviet proposal was discussed by the\nForeign Ministers, the British Foreign Secretary,\nMr. Eden, proposed a change in the criteria for nations\nentitled to receive reparations. The Soviet proposal\nhad stipulated that reparations were to be received\n\"in the first instance\" by nations which met two\nrequirements: (1) those which \"have borne the main\nburden of the war\", and (2) those which \"have\norganized victory over the enemy\". The British\nForeign Secretary proposed that those nations which\nhad \"suffered the heaviest losses\" also be included\namong\n¹FM (Yalta), Feb. 7, 1945, 12:00 noon, p. 6.\n2 Ibid.\nTOP SECRET\nTor SECRET\n- 10 -\namong the recipients of reparations in the first\ninstance. 1 The other Ministers agreed to add words\nto this effect.\nSecretary Stettinius did not accept or reject\nthe Soviet proposal when it was first presented,\nindicating only that his Delegation would require\nmore time to consider the matter. He added that,\nas the President had stated at the plenary session,\nthe United States was not interested in large\nreparations for itself, \"except with respect to\nGerman Foreign investments and perhaps raw\nmaterials\". 2 Mr. Stettinius also inquired whether\nthe use of German labor as reparations would be\ndiscussed at Yalta. Mr. Molotov replied that the\nquestion was \"very complicated\", that the Soviet\nGovernment needed further time for study, and that\nthe Soviet Delegation was not prepared to discuss\nthe matter at the Conference. He added, however,\nthat German labor should be made a topic for dis-\ncussion by the reparations commission.\nThe Soviet Foreign Minister then read a second\nproposal, dealing with the establishment of a repara-\ntions commission:\n\"The Allied Reparations Committee [sic]\nshall be set up on the following basis:\n\"1. The Committee shall consist of\nthree representatives, one from USSR, the\nUnited Kingdom, and U.S.A. Each representa-\ntive shall be entitled to call in to assist\nin the work of the Committee any number of\nexperts.\n\"2. The\n1\nIbid.\n2\nIbid., p. 7.\n3\nIbid.\nTOP SECRET\nTOT SECRET\n- 11 -\n\"2. The function of the Committee\nshall be to work out a detailed plan for\nexaction of reparations from Germany\naccording to the principles adopted at\nthe Crimean Conference of the Three Powers.\n\"3. The Governments of USSR, U.S.A.,\nand the United Kingdom shall determine the\nmoment when the representatives of other\nAllied Powers will be invited to participate\nin the Allied Committee as well as define\nthe forms of participation of these Powers\nin the Committee.\n\"4. The activities of the Committee\nshall proceed in strict secrecy.\n\"5. The Allied Reparation Committee\nshall be established in Moscow. \"1\nMr. Stettinius stated that the United States Govern-\nment \"was prepared to accept the statement on the\nunderstanding that it had not yet agreed on the\nprinciples mentioned in it\".2 The British Foreign\nSecretary asked whether the reparations commission\n\"should not also be authorized to study German\nindustry in connection with future security and\ncontrol\". Mr. Molotov replied that the commission\nwould deal with German industry \"only in connection\nwith reparations\" He added that the question of\nsecurity \"would always be kept in mind although it\nwas not the principal task of the commission\".\nMr. Stettinius pointed out that \"as a practical\nmeasure\" the Control Council would have the\nresponsibility for the control of German industry\nfor\n1 Attached to FM (yalta), Feb. 7, 1945, 12:00 noon.\n2 FM (yalta), Feb. 7, 1945, 12:00 noon, p. 7.\n3 Ibid., p. 8.\nTOP SECRET\nTOP SECRET\n: 12 =\nfor security purposes. He added that the repara-\ntions commission should, of course, coordinate its\nwork with the policy of the Control I Machinery and\nshould W establish liaison with it\".\nAt the February 9 meeting of the Foreign\nMinisters, Mr. Stettinius presented an American\ndraft proposal on reparations. The first two para-\ngraphs of the American proposal were identical with\nthe first two numbered paragraphs of the Soviet\nproposal. 2 The third paragraph, however, was quite\ndifferent in that it mentioned the figure of $20\nbillion only as something to be considered by the\nreparations commission:\n\"The total of German reparations in\nthe form of removal from her national wealth\nas well as in the form of annual deliveries\nof commodities after the end of the war shall\nbe the first subject of study by the Moscow\nCommission. In this study the Commission\nwill take into consideration the effect of\nwhatever common steps ought to be taken for\nthe elimination or reduction of output of\nvarious important German industries, from\nthe standpoint of the total decentralization\nof Germany. The Commission should take into\nconsideration in its initial studies the\nSoviet Government's suggested total of twenty\nbillion dollars for all forms of reparations. 113\nMr. Maisky pointed out that this paragraph should\nbe \"more fully clarified\". He repeated the Soviet\nproposal that the reparations commission \"accept the\ntotal of $20,000,000,000 'as a basis' for its studies\",\nindicating that the final figures arrived at by the\nCommission\n1 Ibid.\n2 See above, pp. 7-8.\nFM (yalta), Feb. 9, 1945, 12:00 noon, p. 10.\nTOP SECRET\nTOP SECRET\n- 13 -\nCommission might be a little more or less than\n$20,000,000,000\".1\nThe British Foreign Secretary commented that\nthe Prime Minister was \"strongly against stating a\nfigure in the basic principles, even as a basis\".\nMr. Stettinius proposed that the question of setting\na figure be left to the commission. He added, how-\never, that he \"of course could not commit the United\nStates\" but stated that he felt that \"Mr. Maisky's\nfigure was reasonable\"\nAs a compromise, the Soviet Foreign Minister\nproposed that only the $10 billion to go to the\nSoviet Union be specified in the statement on\nreparations principles. Mr. Stettinius suggested\nas a counter-proposal that no fixed total be\nmentioned, but that it be specified that 50 percent\nof reparations should go to the Soviet Union.\nMr. Molotov replied that he \"did not object\" to\nthis suggestion and that the exact percentage might\nbe a little more or less than 50 percent of the\namount collected. He again urged, however, that\na total figure also be included in the instructions\nof the Yalta Conference to the reparations commission.\nThe Soviet and American Delegations then agreed\nupon the following wording: \"The Moscow Reparations\nCommission should take in its initial stages as a\nbasis for discussion the suggestion of the Soviet\nGovernment that the total sum of reparations in\naccordance with the points (a) and (b) of paragraph 2\nshould be 20 billion dollars and that 50 percent of\nit should go to the USSR\" 3 The British Foreign\nSecretary\n1\nIbid.\n2 Ibid.\n3\nIbid, pp. 11-12.\nToΓ SECRET\nTOP SECRET\n- 14 -\nSecretary, however, stated that he would be obliged\n\"to await instructions from his Government\" 1\nThe Foreign Ministers were therefore unable to\nagree on the basic reparations principles. They also\ndiscussed but did not agree upon two special aspects\nof the problem: the price basis for reparations and\nthe effect of the dismemberment of Germany on repara-\ntions. Mr. Molotov proposed using 1938 prices, with\nadditions of \"15 or 20\" percent (according to the\nminutes) or \"10 to 15\" percent (according to the\nMinisters' report) 2 As to the effects of dismember-\nment, he pointed out that any plans for splitting\nGermany probably would not affect removals from the\nnational wealth of Germany, but might affect annual\ndeliveries. His Government, however, \"had taken\nthis into consideration in drawing up its report\".\nThe American and British representatives did not\ncomment on this statement.\nAt the meeting on the next day (February 10)\nForeign Secretary Eden presented the British repara-\ntions principles, as follows:\n\"1. The\n1\nIbid., p. 12.\n2\nThe 15-20 percent figure appears in FM (Yalta),\nFeb. 9, 1945, 12:00 noon, p. 11. In the \"Report to\nthe Plenary Session of the Foreign Ministers'\nMeeting February 9, 1945\" which is attached to FM\n(Yalta), Feb. 9, 1945, 12:00 noon, the figure has\nbeen changed to \"10 and 15\" percent, with the follow-\ning wording: \"The Soviet Delegation stated that\nreparations payments would be based upon 1938 prices,\nhaving possibly in mind increases of 10% to 15% on the\nprices of the items delivered\".\nTOP SECRET\nTOP SECRET\n- 15 -\n\"1. The proportions in reparation allotted\nto the claimant countries shall be determined\naccording to their respective contributions to\nthe winning of the war and the degree of the\nmaterial loss which they have suffered. Account\nshall be taken of deliveries made to the claimant\ncountries by other enemy countries.\n\"2. Reparation is to be exacted from\nGermany in the three following forms:\n\"(a) Removals within two years from the\nsurrender of Germany or the cessation of\norganized resistance, from the national wealth\nof Germany located on the territory of Germany\nherself as well as outside her territory. These\nremovals to be carried out chiefly for the\npurpose of destroying the war potential of\nGermany. Subject to the fulfilment of these\naims Germany's industrial capacity will not be\nreduced to a point which would endanger the\neconomic existence of Germany and the execution\nof such obligations as may be imposed on her.\n\"(b) Annual deliveries from current pro-\nduction for a period to be considered.\n\"(c) Use of German labor and lorry service.\n\"3. In fixing the amount of reparation to\nbe exacted under paragraph two above account\nshall be taken of any arrangements made for the\ndismemberment of Germany, the requirements of\nthe occupying forces, and Germany's need to\nacquire from time to time sufficient foreign\ncurrency from her exports to pay for her\ncurrent imports and the pre-war claims of the\nUnited Nations on Germany. \"1\nMr. Eden\n¹Attachment No. 4 to FM (Yalta), Feb. 10,\n1945, 12:00 noon.\nTOP SECRET\nTOP SECRET\n- 16 -\nMr. Eden pointed out that the Soviet proposal\ncontained two objectives which were difficult to\nreconcile - the immediate removal of Germany's\nmanufacturing capacity and the demand that Germany\nmake large deliveries of manufactured goods at a\nlater date. 1 It was for this reason that the\nBritish proposal contained the following safeguards:\n(1) no commitment in advance as to the reparations\ntotal; (2) no stipulation that annual deliveries\nwould have to continue over ten years; (3) assurance\nthat reparations would be \"chiefly for the purpose\nof destroying the war potential of Germany\";\n(4) assurance that capital removals would not\ndepress the German economy to a point where it\nwould not be able to carry out other obligations;\nand (5) express assurance that the reparations plan\nwould take into account plans for the dismemberment\nof Germany, the needs of the occupying powers, and\nthe necessity for Germany to pay for current imports\nand the pre-war claims of the occupying powers out\nof exports. This last provision was the first\nstatement of what later came to be known as the\n\"first-charge\" principle, which was to become an\nimportant feature of British and American repara-\ntions policy.\nThe British reparations proposal differed from\nthe Soviet in other respects as well. First, as\nnoted in the quotation above, the British wanted\naccount to be taken of reparations received from\nother enemy countries in determining each recipient's\nshare. Such a condition would take account of Soviet\nreparations from Rumania, Hungary, and Finland.\nSecond, the British wanted France to participate in\nthe work of the proposed Moscow reparations commission.\nThird, they wanted reparations arrangements to be made\n\"without\n1 FM (yalta), Feb. 10, 1945, 12:00 noon, p. 5.\nTOP SECRET\nTOP SECRET\n- 17 -\n\"without prejudice to the restitution of looted\nproperty\". 1\nThe Soviets strongly objected to the position\ntaken by the British. Mr. Maisky stated that the\nBritish proposal was \"very disappointing\" and that\nits \"whole spirit was to take from Germany as little\nas possible. The Soviet representative again urged\nthe British to \"accept the formula agreed upon by the\nAmericans and Russians yesterday as the basis for\ndiscussion and to raise the British proposals in\nMoscow on this basis. If He then made the significant\nstatement that the Soviet-American formula 'did not\ncommit the Allies to the exact figure. \"2 He asserted\nthat, even \"taking into account all considerations\nadvanced by Mr. Eden\", it was still true that the\n\"British could easily agree to the formula. \"3\nMr. Eden, however, did not agree and instead\nraised further objections to the Soviet-American\nproposals. For one thing, the British wanted a much\nshorter period - five years - for deliveries of\ncommodities from current production. To this\nMr Stettinius replied that \"the ten year period\nwas merely mentioned as a basis for discussion\",\nadding that \"it might result that all the capital\nmovements [sic] could be effected in seven years \"\nHe further stated that \"the Soviet Government was\nnot committing itself to ten years or twenty billion\ndollars.\" When Mr. Eden asked why this time limit\nshould then be put in the formula, Mr. Maisky replied\nthat \"it was desired as a basis for discussion. \"4\nThus it appears that neither the Soviet nor the American\nrepresentative regarded the $20 billion total and the\n10-year time limit as definitely fixed by the wording\nof the Soviet proposal.\nFurther\n1\nIbid.\n2 Ibid., p. 6.\n3 Ibid.\n4\nIbid.\nTOP SECRET\nTOP SECRET\n- 18 -\nFurther Consideration by the Heads of Government\n(February 10, 1945)\nThe Foreign Ministers reported their disagreement\non reparations to the Heads of Government on February\n10.\nPrime Minister Churchill opened the discussion\non that date by stating that he had received explicit\ninstructions from the War Cabinet not to agree to any\ntotal reparations figure. President Roosevelt also\nobjected to making a commitment regarding the total\namount of reparations. He expressed concern that, if\nany figures were mentioned, \"the American people would\nbelieve that it involved money. \"1\nPremier Stalin replied that the $20 billion\nfigure \"was only the expression of the value of the\nreparations in kind.' The monetary figure was a yard-\nstick, not an absolute figure in money. Premier Stalin\npointed out that there was precedent for this because\nthe value of reparations in kind had been definitely\nstated in the armistice agreements with Finland,\nRumania, and Hungary. Since the British could not\nagree to a figure, however, Premier Stalin proposed\nthat the following statement be made concerning the\ndecisions taken by the Conference: \"(1) that it was\nagreed in principle that Germany should pay repara-\ntions and (2) that the Reparations Commission to sit\nin Moscow should fix the amount and should take into\nconsideration the American-Soviet proposal that there\nshould be twenty billion dollars of reparations, with\nfifty percent to the Soviet Union. \"12\nPresident\n¹HG (Yalta), Feb. 10, 1945, 4:00 p.m., p. 7.\n2\nIbid.\nTOP SECRET\nTOP SECRET\n- 19 -\nPresident Roosevelt objected to the word\n\"reparations\", since \"the people in America would\nthink that it meant reparations in cash. A proposal\nwas made1 that the term \"compensation for damages\"\nbe substituted in order to eliminate this difficulty.\nPresident Roosevelt, agreed that this phrase should\nbe used in place of \"reparations\" in the report to\nbe issued by the Three Powers.\nPrime Minister Churchill, however, continued to\nobject to any mention of the $20 billion total figure\nfavored by the Soviets. Premier Stalin replied that\n\"there was no commitment involved\" in connection with\nwhat he called \"the American proposal\"; he stated\nthat it might merely be said that the Commission\nwould \"take as material for discussion the American-\nSoviet formula. \"\"2 The Prime Minister, however,\noutlined in detail the reasons why the British\ncould not accept any figure. The British felt that\nno figures should be agreed to until an investigation\nhad been conducted on the spot by the Reparations\nCommission. The British also felt that, in any case,\n$20 billion was an excessive amount. The sum was\n\"equal to Germany's export trade in time of peace\"\nand was \"beyond the capacity of Germany to pay. The\nPrime Minister emphasized that reparations in the\namount proposed by the Soviet Union \"would more than\ncover German imports\" and that \"if these imports were\nnot given a priority ahead of reparations it would\nmean that the other countries would be paying for\nGerman reparations to those countries receiving them. \"3\nPremier Stalin, however, persisted in urging\nacceptance of the Soviet figure. He stated explicitly\nthat \"all they were preparing was a figure to be used\nas a basis for discussions; it could be reduced or\nincreased\n1\nThe minutes do not indicate who made this\nproposal.\n²Ibid., p. 8. It is to be noted that Stalin used\nthe word \"material\" rather than \"basis\".\nIbid.\nfor SECRET\nTOP SECRET\n- 20 -\nincreased by the Commission in Moscow. 11 The British\nForeign Secretary replied that \"rightly or wrongly,\nthe British Government felt that even the naming of\na sum as the basis of discussion would commit them. \"\nPrime Minister Churchill then flatly stated that \"no\nagreement had been reached as to the mention of a\nsum. \"1\nAt the final meeting of the Yalta Conference,\nPremier Stalin expressed to Prime Minister Churchill\nhis disappointment over the unsatisfactory nature of\nthe reparations settlement. He said that he \"feared\nto go back to the Soviet Union and tell the Soviet\npeople they were not going to get any reparations\nbecause the British were opposed to it. 112 The Prime\nMinister replied that, on the contrary, he \"very much\nhoped that Russia would receive reparations in large\nquantities. If He recalled, however, the last war when\n'they had placed the figure at more than the capacity\nof Germany to pay. 11 Premier Stalin proposed that the\ncommuniqué issued by the Conference contain \"some\nmention of the intention to make Germany pay for the\ndamage it had caused the Allied Nations, and also some\nreference to the Reparations Commission. \" The Prime\nMinister and the President agreed, and the following\nparagraph was approved for inclusion in the communiqué:\n\"We have considered the question of the\ndamage caused by Germany to the allied\nnations in this war and recognized it as\njust that Germany be obliged to make compensa-\ntion for this damage in kind to the greatest\nextent possible. A commission for the\ncompensation of damage will be established.\nThe commission will be instructed to consider\nthe question of the extent and methods for\ncompensating\n1\nIbid., p. 8.\n2 HG (Yalta), Feb. 10, 1945, 9:00 p.m., p. 2.\nTOP SECRET\nTOP SECRET\n- 21 -\ncompensating damage caused by Germany to\nthe allied countries. The commission will\nwork in Moscow. \"1\nIn addition to the communiqué, the Heads of\nGovernment approved the following unpublished\nprotocol:\n\"1. Germany must pay in kind for the\nlosses caused by her to the Allied nations\nin the course of the war. Reparations are\nto be received in the first instance by\nthose countries which have borne the main\nburden of the war, have suffered the\nheaviest losses and have organised victory\nover the enemy.\n\"2. Reparation in kind to be exacted\nfrom Germany in three following forms:\n\"a) Removals within 2 years from the\nsurrender of Germany or the cessation of\norganised resistance from the national\nwealth of Germany located on the territory\nof Germany herself as well as outside her\nterritory (equipment, machine-tools, ships,\nrolling stock, German investments abroad,\nshares of industrial, transport and other\nenterprises in Germany etc.), these removals\nto be carried out chiefly for purpose of\ndestroying the war potential of Germany.\n\"b) Annual deliveries of goods from\ncurrent production for a period to be fixed.\n\"c) Use\n¹It was apparently in deference to President\nRoosevelt's wish that the word \"reparations\" was not\nused in this statement.\nfor SECRET\nSECRET\n- 22 -\n\"c) Use of German labour.\n\"3. For the working out on the above\nprinciples of a detailed plan for exaction\nof reparations from Germany an Allied Repara-\ntion Commission will be set up in Moscow. It\nwill consist of three representatives - one\nfrom the Union of Soviet Socialist Republics,\none from the United Kingdom and one from the\nUnited States of America.\n\"4. With regard to the fixing of the\ntotal sum of the reparations as well as the\ndistribution of it among the countries which\nsuffered from the German aggression the Soviet\nand American delegations agreed as follows:\n\"The Moscow Reparation Commission should\ntake in its initial studies as a basis for\ndiscussion the suggestion of the Soviet Govern-\nment that the total sum of the reparation in\naccordance with the points (a) and (b) of the\nparagraph 2 should be 20 billion dollars and\nthat 50% of it should go to the Union of Soviet\nSocialist Republics.'\n\"The British delegation was of the opinion\nthat pending consideration of the reparation\nquestion by the Moscow Reparation Commission no\nfigures of reparation should be mentioned.\n\"The above Soviet-American proposal has\nbeen passed to the Moscow Reparation Commission\nas one of the proposals to be considered by the\nCommission. \"1\nB. FORMULATION\n1 This is the text of the Protocol as it appears\nin the signed original, which is to be found in the\noffice of the Assistant for Treaty Affairs, Legal\nAdviser's Office, Department of State. This same text\nwas later released to the press on March 29, 1947, as\nPress Release number 239.\nSECRET\nTOP SECRET\n- 23 -\nB. FORMULATION OF AMERICAN POLICY\n(FEBRUARY - MAY 1945)\nBetween the Yalta and Potsdam Conferences, steps\nwere taken to formulate a United States Government\npolicy on German reparations. An Informal Policy\nCommittee on Germany (IPCOG) was formed, with repre-\nsentatives from several Government agencies. Assistant\nSecretary of State Clayton was appointed chairman, and\nmembership included representatives of the State,\nTreasury, War, and Navy Departments, the Foreign\nEconomic Administration, and the Office of Strategic\nServices. The Committee held many meetings during\nMarch, April, and May 1945, and produced a policy\nstatement on German reparations which was approved by\nthe President on May 18, 1945. The statement, which\nbecame the guide for the United States representative\non the Allied Reparations Commission, is as follows:\n\"1. It was agreed at the Yalta\nConference that Germany must pay in kind\nfor the losses caused by her to the Allied\nNations in the course of the war. The\nprimary purpose of the Reparation Commission\nshould be the formulation of a general pro-\ngram for the exaction of substantial\nreparation and the establishment of the\npolicies under which this program is to be\nimplemented.\n\"2. It is and has been fundamental\nUnited States policy that Germany's war\npotential be destroyed, and its resurgence\nas far as possible be prevented, by removal\nor destruction of German plants, equipment\nand other property.\n\"While\n¹IPCOG 2/1..\nTOP SECRET\n302 SECRET\n- 24 -\n\"While cooperating with the other powers\nin implementing the basic purposes of the\nYalta Agreement, the U.S. representative will\nbear in mind that whatever plan is formulated\nby the Reparation Commission (hereinafter\nreferred to as the Reparation Plan) should be\nin conformity with the economic and security\nobjectives of this country with respect to\nGermany. The position of the United States\non the various issues involved in this respect\nis summarized in the following paragraphs.\n\"3. In determining the size and\ncharacter of reparation in accordance with\npoints a and b of paragraph 2 of the Repara-\ntion Protocol and the allocation thereof among\nthe various claimant nations the following\nprinciples are advocated by this Government:\n\"a. The Reparation Plan should assist the\nelimination of industrial capacity in Germany\nconsidered to be dangerous to the security of\nthe United Nations.\n\"b. The Reparation Plan should aid in\nstrengthening and developing on a sound basis\nthe industries and trade of the devastated\nnon-enemy countries of Europe and of other\nUnited Nations, and in raising the living\nstandards of these countries.\n\"c. The reparation burden should be\ndistributed in so far as practicable so as to\nimpose equality of sacrifice upon, and result\nin an equal general standard of living for the\nGerman populations of each of the zones under\nthe control of the respective occupying nations.\n\"d. This Government opposes any repara-\ntion plan based upon the assumption that the\nUnited States or any other country will finance\ndirectly\nTOP SECRET\nTOP SECRET\n- 25 -\ndirectly or indirectly any reconstruction in\nGermany or reparation by Germany.\n\"e. The Reparation Plan should not\nmaintain or foster dependence of other\ncountries upon the German economy.\n\"f. The Reparation Plan should not be\nof such a nature as to promote or require the\nbuilding up of German economic capacity.\n\"g. To the maximum extent possible,\nreparations should be taken from the national\nwealth of Germany existing at the time of\ncollapse, with primary emphasis upon the\nremoval of industrial machinery, equipment\nand plants, particularly the shipbuilding,\nmetallurgical, machine tool producing,\nelectrical machinery, and chemical industries\n(including all industries producing oil and\noil products, synthetic nitrogen and synthetic\nrubber), ships, rolling stock, patents, copy-\nrights, and German foreign exchange assets\nincluding investments abroad. Capacity for\nthe production of component parts that enter\ninto the production of the industries noted\nabove should also be eligible for removal.\nReparation in kind should not include arms,\nammunition, and implements of war. (This\nGovernment favors the inclusion of German\nocean-going merchant tonnage in the shipping\npool until the end of the war against Japan\nand its division on some fair basis there-\nafter, and negotiations with other governments\nare in progress on this subject.)\n\"h. To the extent that for political\nreasons it may become necessary in the negotia-\ntions to agree that reparations be collected in\nthe form of deliveries of goods from current\nproduction over a period of years, such goods\nshould be of such a nature and in such amounts\nas\nSECRET\nTOP SECRET\n- 26 -\nas not to require the maintenance of the\nGerman war potential or the continued\ndependence of other countries on Germany\nafter reparations cease. Accordingly,\nrecurring reparations, over a period of\nyears, should be:\n\"(1) As small as possible in relation\nto the reparations to be paid in the form of\nindustrial plants and equipment; and\n\"(2) Primarily in the form of raw\nmaterials and natural resources, and to the\nsmallest extent possible in the form of\nmanufactured products.\n\"i. The removal of plants and equipment\nshall take p'ace regardless of the fact that\nthey are Owned in whole or in part, directly\nor indirestly, by United Nations nationals.\nWhere plants or equipment which are owned in\nwhole or in art by a United Nations national\nare to be SO removed arrangements shall be\nmade, If practicable and desired by the\ngovernment of such national, for the owner\nto retain his interest in such plant and\nequipment after removal. If not practicable\nor so desired, Germany shall furnish to the\ngovernment of such national adequate repara-\ntion to cover the interest of such national.\n\"j. It will be inevitable that the\nGerman standard of living will be adversely\naffected by the carrying out of the Reparation\nPlan. However, the reparation exactions\nshould be held within such limits as to\nleave the German people with sufficient means\nto provide a minimum subsistence standard of\nliving without sustained outside relief; but\nunder no consideration should this limitation\noperate to require the retention in Germany of\nmeans\nTOP SECRET\nTOP SECRET\n- 27 -\nmeans to support basic living standards on\na higher level than that existing in any\none of the neighboring United Nations.\n\"k. The Reparation Plan should not\nput the United States in a position where\nit will have to assume responsibility for\nsustained relief to the German people.\n\"4. It was agreed at Yalta that repara-\ntion in kind is to be exacted from Germany,\npartly through the 'use of German labor'. In\nnegotiations on labor reparation with the other\npowers in the Reparation Commission, the United\nStates representatives will be guided by the\nfollow principles:\n\"a. The United States will not accept\nreparation in the form of labor services.\n\"b. Both compulsory and voluntary labor\nservices furnished as reparation should be\nused outside of Germany only for reconstruc-\ntion and repair of war damage and not for\ncurrent production operations except for fuel\nand food.\n\"c. This Government is strongly of the\nview that persons other than those specified\nin d below as deserving of punishment should\nnot be called upon to perform compulsory labor\nservice outside Germany.\n\"d. Compulsory labor service should be\nrequired only from those judicially convicted\nas war criminals, including individuals deter-\nmined by appropriate process to be members of\nEuropean Axis organizations, official or\nunofficial, which themselves have been adjudi-\ncated to be criminal in purpose or activities.\n\"e. Agreement\nTOP SECRET\nfor SECRET\n28 I 1\n\"e. Agreement should be sought along\nthe following lines with regard to compulsory\nlabor service:\n\"(1) Except for persons tried for\nspecific crimes, and convicted and sentenced\nto lifetime punishment, the period of\ncompulsory labor service should be limited\nto a definite span of years.\n\"(2) The standard of living and condi-\ntions of employment should conform to humane\nstandards.\n\"(3) The Reparation Commission or Agency\nshould periodically survey the living and\nworking conditions of compulsory workers and\nthe uses made of their services.\n\"f. Apart from persons deserving of\npunishment as defined above, German labor for\nreparations should be recruited only on a\nvoluntary basis.\n\"g. The net value of the services of\nboth types of labor shall be included as\nreparations.\n\"5. The first charge on all approved\nexports for reparation or otherwise (other\nthan removals of existing plant and equipment)\nshall be a sum necessary to pay for approved\nimports. Accordingly, to the extent necessary\nto pay for such minimum German imports as may\nbe determined to be essential, recipient\ncountries should be required to pay for German\nexports, except removals of existing plant\nand equipment. Imports for which payment\nwill be sought shall include supplies imported\nby the occupying forces for displaced persons\nand German civilians.\n\"6. Without\nTOP SECRET\nTOP SECRET\n- 29 -\n\"6. Without the approval of an\nappropriate Allied body there shall be no\nre-export to third countries of goods\nreceived on reparation account.\n\"7. In order to prevent the treatment\nas war booty or as reimbursement for\noccupation costs of exports from Germany\nwhich should properly be considered as\nreparations deliveries, agreement should be\nsought on the scope of war booty and reim-\nbursement for occupation costs. Agreement\nshould also be sought on the scope of\nrestitution in relation to reparation.\n\"8. The governments participating in\nthe Reparation Commission will retain\ncontrol over the disposition of German\nproperty located within their respective\nborders. These nations will seek agreement\nwith other countries in which German assets\nare located designed to eliminate continued\nGerman control of such assets and prevent\ntheir eventual return to Germans.\n\"9. The United States will expect to\nassert a claim for reparations before the\nReparation Commission in accordance with the\nprinciples of the Yalta Protocol in order to\npreserve its rights to its proper share of\npayment for losses caused to it by Germany\nin the course of the war. Pending the\nfurnishing of a more exact claim at a later\ndate the United States representative shall\nreserve the right to claim delivery of\nreparations in a total amount to be deter-\nmined. The United States will desire to\nreceive as much as feasible of its share of\nreparations in the form of foreign exchange\nassets including German investments abroad.\n\"10. As an interim program, pending the\nformulation of more definitive arrangements,\nthis Government would favor formulation of an\nimmediate\nTOP SECRET\nFOP SECRET\n- 30 -\nimmediate program by the Reparation\nCommission along the following lines:\n\"a. During the initial period follow-\ning the collapse of Germany each of the\nfour occupying powers - Great Britain,\nRussia, France and the United States - may\nremove from its zone of occupation in Germany\nplants, equipment and materials (including\ncurrent output) of such a nature and not in\nexcess of such amounts as may be determined\nby the Reparation Commission. It shall be\nour policy to press for inclusion in such an\ninitial removal schedule the categories of\nplant, equipment and materials (excluding\nocean-going merchant tonnage) described in\nparagraphs 30, 31 and 32 of the 'Directive\nto the Commander in Chief of the United\nStates Forces of Occupation Regarding the\nMilitary Government of Germany' and in\nparagraph 3 g above.\n\"b. The decision as to whether or not\nthe removal of particular plants, equipment\nor materials out of a zone in Germany is\nconsistent with the purposes of occupation\nwould be made by the commander of such zone,\nsubject to the following conditions:\n\"(1) There would be constant consulta-\ntion between zone commanders.\n\"(2) In making a decision as to removal\nthe zone commander would be responsible for\ncarrying out any relevant agreed policies which\nmay be formulated from time to time by the\nControl Council.\n\"(3) The Control Council would have an\nopportunity to consider any particular removal\nand could veto it.\n\"(4) Regular\nTOP SECRET\nTOP SECRET\n- 31 -\n\"(4) Regular reports should be made to\nthe Control Council of transfers for repara-\ntion account and the Control Council should\nkeep appropriate Allied agencies currently\ninformed.\n\"c. During this initial period any one\nof the four occupying powers could allow, if\nit so desired, any other United Nation\nentitled to reparations in the form of\nremovals from Germany to take out of its zone\nplants, equipment and materials of such a\nnature and not in excess of such amounts as\nmay be determined by the Reparation Commission.\nSuch removals would be subject to the policy\nand conditions specified in sub-paragraphs a\nand b above.\n\"d. Records should be kept of all\ndeliveries made on reparations account under\nsuch interim arrangements and such deliveries\nshould be made without prejudice to the final\nallocation of reparation shares. The Repara-\ntion Commission should determine the principles\nfor valuation of such deliveries.\n\"11. The Reparation Plan should include\nprovision for the early establishment of a\nreparation agency including representatives of\nsuch governments as have suffered devastation\nor substantial damage. This agency, after\ndetailed study of Germany's capacity to pay\nand examination of claims to reparation by the\nvarious claimant nations, shall develop a long\nterm plan for the delivery of reparations. This\nplan shall set forth a description of the\nreparations to be delivered and their physical\nallocation to the various claimant nations. It\nshall contain a time schedule indicating the\nrate at which deliveries are to be made to the\nseveral governments over a stated period of\nyears. The reparation agency should be given\ncontinuing\nTOP SECRET\nTOP SECRET\n- 32 -\ncontinuing responsibility for drawing up at\nregular intervals detailed schedules of the\namounts and kinds of reparations items to\nbe delivered and should have authority to\ndetermine the allocation of specific items\namong claimant governments.\n\"In lieu of the establishment of the\nreparations agency referred to above the\nReparation Plan may provide that the Repara-\ntion Commission, appropriately expanded by\nthe addition of representatives of other\nclaimant governments, may be continued in\nexistence and utilized for the same purpose.\n\"The occupation authorities should be\nresponsible for the execution of the plan\nwithin Germany. In the execution of the plan,\nthe Control Council should have the authority\nto withhold from transfer as reparations\nspecific items the removal of which in its\njudgment would reduce the available economic\nmeans below the minimum required to meet the\nother purposes of the occupation. After\nreview by the Control Council and in the\nabsence of agreement, the zone commander if\nhe believes that any specific item should be\nretained within his zone may with the specific\ndetermination of his government that such item\nis essential for the purposes of the occupation\nwithhold the removal of such item. The zone\ncommander may, of course, withhold the removal\nof such items pending such determination.\n\"The long term plan referred to above\nshould not be approved by the U. S. representa-\ntives on the Reparation Commission or Agency\nuntil it has been submitted to and approved by\nthe United States Government.\n\"The Control Council should advise the\nReparation Agency (or Commission) from time to\ntime as deliveries are made. The Reparation\nAgency\nToΓ SECRET\nOF SECRET\n- 32a -\nAgency (or Commission) should keep a record\nof all such deliveries, and should place\nappropriate values on the respective amounts\ndelivered.'\nIn addition to the internal policy formulation\nundertaken by IPCOG, informal discussions with the\nBritish also took place in early April. The British\nmade known their continuing opposition to the Soviet\nplan for extracting a total of $20 billion, with $10\nbillion in capital removals and $10 billion in current\nproduction. The main points of the British position,\nas expressed during discussions with the American\nAmbassador to London, were as follows:\n(1) It would be impossible for Germany to\ndeliver the required $10 billion in current produc-\ntion within ten years\n(2) The removal of $10 billion in capital\nequipment in two years would make it all the more\ndifficult for Germany to produce reparations from\ncurrent production.\n(3) To produce for current reparations in the\nscale proposed by the Soviet Union would require the\nbuilding up of German industry to a degree which\nwould conflict with the security objective of\nreducing Germany's man potential.\n(4) No total figures should be decided upon\n1\nuntil the exact boundaries of Germany were determined.\nThe strong position taken by the British in these\ndiscussions may have influenced the formulation of\nAmerican policy.\nThe meetings\n1\nTelegram No. 1453 from London, Apr. 7, 1945.\nfor\nSECRET\nTOP SECRET\n- 33\nC. THE MOSCOW MEETINGS\nOF THE ALLIED REPARATIONS\nCOMMISSION, JUNE-JULY, 1945\nThe meetings of the Allied Reparations Com-\nmission held in Moscow from June 11 to July 14\nwere the second development between the Yalta and\nPotsdam Conferences. Delays and debates over\nprocedural problems interfered with progress at\nthis session of the Reparations Commission. At\nthe first meeting, the U. S. Representative presented\nthe views of the United States Government, as em-\nbodied in the IPCOG papers described above. The\nSoviet Representative also presented his Government's\nproposal, which was virtually idential with the $20\nbillion plan which the Soviets had presented at\nYalta.\nThe Reparations Commission accepted the Soviet\nproposal as the basis for discussion. At the same\ntime, the Soviets promised to submit supporting\nstatistics, revealing how the $20 billion total had\nbeen arrived at and how it would be broken down.\nAlthough continuing to insist on the $20 billion\nfigure, the Soviets repeatedly postponed presentation\nof these supporting statistics The United States\nDelegation took the view that it was unwise to fix\na total sum until a thorough study had been made\nFurthermore, the United States began to incline to\nthe view that any evaluation in dollar terms should\nbe avoided, if possible After the Commission\nappeared to be getting nowhere in its work, agreement\nwas fi ally reached at the last meeting on seven of\neight basic principles proposed by the United States.\nThese principles were as follows:\nI. Removal:\nSECRET\nTOP SECRET\n- 34\n\"I. Removal of property for reparations\nshall be primarily such as to assist in bring-\ning to an end the war-making power of Germany\nby eliminating that part of Germany's industrial\ncapacity which constitutes war potential.\n\"II. Reparations shall be such as will\nspeed recovery and reconstruction in countries\ndevastated at German hands.\n\"III. For the purpose of making a\nreparations plan, Germany will be treated as a\nsingle economic unit.\n\"IV. Any plan of reparations shall be\navoided which necessitates external financial\nassistance either to enable reparations\ndeliveries to be made or to facilitate economic\nreconstruction required for reparation purposes,\nor which might, in the opinion of the Govern-\nments concerned, prejudice the successful\nexecution of the task entrusted to the Armies\nof Occupation.\n\"V. To a maximum extent reparations shall\nbe taken from the existing national wealth of\nGermany. While for convenience claims may be\nstated in money, it is necessary to bear in\nmind that in contrast to reparations after\nWorld War I which were assessed and exacted in\nmoney, this time reparations will be assessed\nand exacted in kind in the form of things, such\nas plants, machines, equipment, stocks, foreign\ninvestments, etc.\n\"VI. In order to avoid building up German\nindustrial capacity and disturbing the long term\nstability of the economies of the United Nations,\nlong run payments of reparations in the form of\nmanufactured products shall be restricted to a\nminimum.\n\"VII. In\nTOP SECRET\nTOP SECRET\n- 35 -\n\"VII. In justice to those countries\noccupied by the enemy, reparations shall be\ncalculated upon the basis that the average\nliving standards in Germany during the\nreparation period shall not exceed the average\nof the standards of living of European countries.\nEuropean countries means all European countries\nexcluding UK and USSR. \"\nBecause of Soviet objections, no agreement was reached\non the eighth principle, which was as follows:\n\"VIII. After payment of reparations enough\nresources must be left to enable the German\npeople to subsist without external assistance.\nIn working out the economic balance of Germany,\nthe necessary means must be provided for payment\nof imports approved by the governments concerned\nbefore reparation deliveries are made from\ncurrent production or from stocks of goods.\"\nAgreement was also reached on a percentage formula for\ndistributing reparations among the major powers. It\nwas agreed that 22 percent of the total would go to\nthe United States, 22 percent to the United Kingdom,\nand 56 percent to the Soviet Union.\nIt was also agreed that the shares of other\nnations would be met by each of the three powers giving\nup from its share in the ratio that its share bore to\nthe total. 1\nThese seven agreed principles and the formula for\ndistributing reparations were submitted by the Repara-\ntions Commission to the Heads of Government when the\nlatter convened at Potsdam on July 17, 1945.\nD. THE\n1\nACR Report, Part IV, p. 9.\nTOP SECRET\nTOP SECRET\n- 36 -\nD THE POTSDAM CONFERENCE\n(JULY 17 - AUGUST 2, 1945)\nAt Potsdam, the reparations problem was discussed\nat three different levels: by the Heads of Gover ment,\nby the Foreign Ministers, and by the Eco omic Sub-\nCommittee. The Heads of Government, accompanied by\ntheir Foreign Ministers, did the important negotiating\nand made all final decisions. The Foreign Ministers,\nmeeting separately, supplemented the work of the Heads\nof Government. When the Heads of Government failed to\nagree, the problem would be referred to the Foreign\nMinisters, who would seek to work out a solution\nthrough detailed consideration. The Economic Sub-\nCommittee, which was subordinate to the Foreign\nMinisters, gave preliminary, detailed consideration\nto economic problems to be taken up later by the\nForeign Ministers and the Heads of Government.\nIn addition to the meetings of the regular bodies\ndescribed above, there were several special meetings\nof the American Secretary of State and the Soviet\nForeign Minister at which the British Foreign Secretary\nwas not present. One reason why the British were not repre-\nsented at these meetings was that the British election\nresults were made known in the midst of the Conference,\nwith the result that there was some delay while\nMr. Attlee and Mr. Bevin replaced Mr. Churchill and\nMr. Eden. A second reason for the American-Soviet\nmeetings appears to have been a desire on the part of\nthe American Secretary of State, Mr. Byrnes, to work\nout a solution to the reparations problem through\nintimate negotiations with Mr. Molotov. Yet another\nspecial type of meeting was held on July 29, when\nPresident Truman met with the American and Soviet\nForeign Ministers.\nThe problem of German reparations was one of the\nmost difficult and complex of these problems discussed\nat the Potsdam Conference. In order to understand the\ndetails\nmor\nSECRET\nTOP SECRET\n- 37 -\ndetails of these discussions, it is necessary first\nto understand the basic issues involved.\nThe central issue arose out of a difference in\nthe approach to the reparations problem. The Soviets\ninsisted upon determining in advance a total sum of\nreparations which would be extracted from Germany as\na whole and divided on a percentage basis. The\nUnited States, on the other hand, proposed an entirely\nnew \"zonal\" approach, whereby each occupying power\nwould look to its own zone for its share of repara-\ntions.\nIn addition to this basic disagreement, there\nwere differences on a number of subsidiary issues.\nThe Soviets opposed the \"first charge\" principle,\nwhich was felt to be essential by the American and\nBritish Delegations. There was also disagreement\nbecause the Soviets wanted to obtain a fixed percent-\nage of Germany's foreign assets and of the shares of\nGerman enterprises, no matter where such foreign\nassets and German enterprises were located. The\nSoviets also demanded a share of the gold which the\nNazis had looted and which the United States Army had\nfound.\nDisagreement likewise arose over the broad\ninterpretation placed by the Soviets on the term \"war\nbooty\". The United States felt that Germany's capacity\nto pay reparations was being seriously impaired because\nthe Soviets were removing large amounts of equipment\nunder the general heading of \"war booty\". The United\nStates and Great Britain also felt that the turning\nover to Polish administration of a large section of\nEastern Germany greatly reduced Germany's capacity to\npay reparations. These two factors - Soviet removals\nof \"war booty\" and the transfer of German territory to\nPoland were the principal reasons why the United\nStates proposed abandoning the plan for dividing on a\npercentage basis a large fixed sum of reparations.\nEven after the Soviets had accepted the zonal plan,\nhowever, serious disagreement arose over the special\nshare\nTOP SECRET\nTOP SECRET\n- 38 -\nshare of reparations to be received by the Soviet\nUnion from the Western Zones.\nTwo special topics closely related to repara-\ntions were discussed at the Conference: the control\nof the Ruhr and the disposal of the German naval and\nmerchant fleets. The Soviet Union used the discussion\nof the Ruhr as a source of reparations as an opportunity\nfor introducing a proposal that Soviet occupation\nauthorities participate directly in the administration\nand control of the Ruhr industrial area. Although\nthe German merchant and naval fleets were not con-\nsidered to be a source of reparations, nevertheless\nthe negotiators at Potsdam tended to link the disposal\nof the fleet with reparations.\nMeetings of the Economic Sub-Committee\n(July 17-24, 1945)\nThe reparations problem was first considered by,\nthe Economic Sub-Committee of the Foreign Ministers.\nThe first important development was the presentation\nof the Soviet definition of \"war booty\", which was\nsubmitted to the Sub-Committee on July 21. The Soviets\nproposed that \"war booty\" include \"all supplies and\nequipment used by the enemy to satisfy his military\nneeds and captured by the Allies before the end of the\nwar on territories where military operations were\nconducted\" 2 Under this exceedingly broad definition,\nthe Soviet\n1 ACR Report, Part V, p. 4.\n2 Soviet Delegation (Potsdam), \"Definition of war\ntrophies\", July 21, 1945. (This document is to be\nfound in the 1945 Records of the United States Embassy\nat Moscow. It is contained in a folder numbered 711.9\nand labeled \"Germany, Reparations, Restitution, etc.\")\nTOP SECRET\nTOB SECRET\n- 39 -\nthe Soviet Government would have considered such\nequipment as textile mills, shoe factories, and coal\nmines to be war booty if at any time they had been\nused to supply the military needs of the German armed\nforces. The Soviet representatives on the Economic\nSub-Committee readily admitted that this definition\nwould have left very little for reparations if\nstrictly applied. 1\nFollowing the presentation of the Soviet defini-\ntion of war booty, the United States Delegation came\nto the conclusion that an overall percentage alloca-\ntion of shares of reparations as among the three major\npowers was no longer feasible If the Soviets were\ngoing to strip the Eastern Zone of all potential\nreparations, then the Western Zones would have to bear\nthe main burden of reparations. Some method would have\nto be devised whereby the powers could act more or less 2\nindependently of one another in extracting reparations.\nAccordingly, the United States Delegation submitted\nto the Economic Sub-Committee the following proposal for\na new \"zonal\" reparations plan:\n\"Except as otherwise directed by the\nAllied Control Council each of the four Powers\noccupying Germany - the United Kingdom, the\nUnited States, the U.S.S.R. and France - may\nremove or permit to be removed from its zone\nof occupation capital equipment, current\nproduction, and stocks of goods either to pay\nfor necessary approved imports not otherwise\npaid for or after such payment for imports has\nbeen effected for its own account or for the\nreparation account of any other United Nation\nentitled to reparations.\n113\nAttached\n1 ACR Report, Part V, p. 4.\n²Ibid., p. 5.\n3U.S. Delegation (Potsdam) \"Proposal on\nReparations and Related Matters\" July 24, 1945.\n(Collado Papers, No. 17)\nTOP SECRET\nTOP SECRET\n- 40 -\nAttached to the United States proposal was an informal\nstatement proposing a form of reciprocal deliveries:\n\"Industrial equipment, with emphasis on\nsteel capacity, would be made available to\nthe Soviet Union from the Ruhr area at the\nsame time that agricultural products and\nraw materials, including liquid and solid\nfuels, timber, and potash are made avail-\nable for western Europe (including the\nwestern zones of Germany) from Eastern\nEurope (including the Eastern zone of pre-\nwar Germany).\nThe American proposal contained no suggestions as to\nthe amounts involved in such an exchange, but stated\nmerely that \"the basis for such an exchange will be\nworked out between the governments concerned\" 1\nSpecial Meeting of the American and Soviet\nForeign Ministers (July 23, 1945)\nSecretary Byrnes urged acceptance of the new\nAmerican plan at a special meeting with the Soviet\nForeign Minister on July 23, 1945. Mr. Byrnes stated\nbluntly that Soviet support of Poland's claims to\nEastern German territory and the broad Soviet defini-\ntion of war booty rendered the $20 billion reparations\nplan which had been considered at Yalta no longer\nfeasible. The Secretary affirmed that \"the United\nStates did not intend to pay out money to finance\nimports to Germany and thus repeat the experience after\nthe last war when in fact the United States funds had\nbeen used to pay reparations to others' 2\nThe reaction of the Soviet Foreign Minister was\nimmediately unfavorable. After stating that Premier\nStalin\n¹u.s. Delegation (Potsdam), \"United States Position\non Reparations\", July 23, 1945. (Collado Papers, No. 17.)\n²FM (Potsdam), July 23, 1945, 10:30 a.m., p. 2\n(British not represented.)\nTOP SECRET\nTOP SECRET\n- 41 -\nStalin \"strongly favored an overall plan for repara-\ntions\", he submitted a Soviet proposal which was\nmerely a more detailed version of the $20 billion\nplan proposed by the Soviets at Yalta. The $20\nbillion total was to be divided first into two\nequal parts: $10 billion in \"once-and-for-all\"\nremovals from the national wealth of Germany, to be\nremoved within two years after the capitulation;\nand $10 billion in annual deliveries in kind, to be\nremoved within ten years after the capitulation.\nOnce-and-for-all removals from the national wealth\nof Germany were to be broken down into the following\ncategories:\nBillions of Dollars\nWar and chemical industries\n2 - 2.2\nIron and Steel, non-ferrous\nmetals, engineering, coal\npower stations\n2.3 - 2.7\nBuilding industry, textiles,\nfood industry, printing,\ntransport (including water\ntransport), communications\n(radio, telephone, telegraph),\nequipment of ports, warehouses,\netc\n1.8 - 2.0\nForeign investments and claims\nof Germany\n1.1 - 1.4\nShares of German enterprises\n(railways, ports, canals,\netc.), foreign currency,\nprecious metals\n1.9 - 2.3\nMiscellaneous\n0.9 - 1.2\n1\n10.0 - 11.8\nThe Soviet\n1 Soviet Delegation (Potsdam), \"Plan of Repara-\ntions from Germany\", July 24, 1945. (Collado Papers,\nNo. 11.)\nTOP SECT ET\nTOP SECRET\n- 42 -\nThe Soviet proposal added that \"for the purpose of\nremovals\" German property should be that \"situated\non the territory of Germany in its 1937 frontiers\nas well as German property abroad\" 1\nAs for deliveries in kind, the Soviet Delega-\ntion proposed that the $10 billion total be paid\nin annual installments of $1 billion over a ten-\nyear period and that the following products be used\nas the sources: coal and brickets; chemicals,\nincluding drugs, dyes, potassium, etc.; machinery\nand tools; cement and building materials; timber\nand paper; sugar; cattle and agricultural products;\nceramics; medical instruments; optical apparatus;\nand river shipbuilding.² The basis of calculation\nwas to be 1938 prices, plus 15 percent on equipment\nand 10 percent on raw materials and finished goods,\nand the rate of exchange was to be one dollar equal\nto 3.5 marks.\nMeeting of the Foreign Ministers\n(July 23, 1945)\nIn discussing the American proposal, the Foreign\nMinisters began with a consideration of the \"first-\ncharge\" principle. The American position, as stated\nby Secretary Byrnes, was that there could be no\nreparations in kind from the American Zone until\nnecessary imports into the zone were paid for. 3\nNecessary imports were to be the sole \"first charge\"\non the proceeds from exports. Foreign Minister\nMolotov, however, opposed the first-charge principle,\narguing that necessary imports and reparation should\nhave an equal status, with neither having priority\nover\n1 Ibid.\n2 The Soviet proposal was not clear as to what\nwas meant by \"river shipbuilding\": i.e., whether it\nmeant ships or shipbuilding equipment.\n3 FM (Potsdam), July 23, 1945, 11:30 a.m., p. 5.\nTOP SECRET\nTOP SECRET\n- 43-\nover the other. If a reduction in one were necessary,\nthere should be a proportionate reduction in the\nother. I No agreement could be reached during the\ninitial discussion of this problem.\nSecretary Byrnes then raised the crucial question\nof defining \"war booty\", a problem which had been one\nof the underlying reasons for the new American pro-\nposal on reparations. Secretary Byrnes raised two\nmajor points: (1) The Soviet definition was so\nbroad that it could be interpreted to include all\nsupplies and equipment, including plants and other\nmaterials. (2) The Soviet authorities were reported\nto have already removed vast quantities of supplies\nand materials from their zone, far beyond 2 what was\nenvisaged under any reparations plan.\nThe Soviet Foreign Minister made an effort to\nmeet the objections on war booty in such a way that\nthe American Delegation would abandon its advocacy\nof a new \"zonal\" reparations plan and accept the\nSoviet fixed-sum plan. To accomplish this,\nMr. Molotov submitted a revised and slightly less\nsweeping definition of \"war booty\". 3 He also admitted\nthat \"a certain quantity of property had been removed\"\nby Soviet authorities in the Eastern Zone of Germany\nand offered to compensate for this by making small\nreductions in the $20 billion total proposed in the\nSoviet plan. 4 Secretary Byrnes and Foreign Secretary\nEden\n1\nIbid.\n²FM (Potsdam), July 23, 1945, 4:00 p.m., p. 2.\n3 See below, p. 113.\n4\nFM (Potsdam), July 23, 1945, 4:00 p.m., p. 2.\nAt first, the Soviet Foreign Minister proposed reduc-\ning the figure to be received by the Soviet Union by\n$300 million. He later proposed a reduction of $1\nbillion.\nTOP SECRET\nTOP SECRET\n- 44 -\nEden did not accept these concessions on the ground\nthat, even after such changes were made, an\nimpossible reparations burden would still be imposed\non Germany - a burden which would mean indirectly a\nsevere economic drain on the United States and the\nUnited Kingdom.\nThe American and British representatives also\nraised the question of ceding territory to Poland.\nThey pointed out that the transfer of Germany's\n\"bread basket' to Polish administration at Potsdam -\nnot envisaged at Yalta - meant that the Western\nZones would be deprived of much of their food supply.\nAn additional burden of support was thereby placed\non the American and British Governments which made\nit less advisable than ever to attempt to extract\nsuch a large fixed sum as the $20 billion proposed\nin the Soviet plan. The American and British repre-\nsentatives also cited the sudden and unanticipated\ninflux of population into the American and British\nZones as a still further reason why a large amount\nof reparations should not be determined in advance.\nThese arguments did not influence Mr. Molotov\nto abandon his insistence upon extracting a fixed\nsum of reparations from Germany as a whole. He\noffered to lower the total figure even further,\nproposing at one point to reduce his Government's\ndemands from $10 billion to $8-1/2 or even $8 billion.\nHe also proposed that a compromise might be reached\nby agreeing that the Soviet Union would get a fixed\namount of equipment from the Ruhr, suggesting at one\npoint equipment valued at $2 billion. These proposals\nwere not accepted by Secretary Byrnes, who continued\nto press for the American \"zonal\" plan of reparations\nunder which there would be no predetermined total. 1\nMeeting\n1 Ibid.\n10P SECRET\nTOP SECRET\n- 45 -\nMeeting of the Foreign Ministers\n(July 27, 1945)\nWhen the reparations question next came before\nthe Foreign Ministers, Mr.' Molotov accused the United\nStates of violating the Yalta Agreement. He insisted\nthat it had been definitely agreed at Yalta that the\n$20 billion figure would be accepted as the \"basis\nfor discussion\" and he charged that the Americans\nwere now withdrawing their previous approval of this\nproposal.\nThere followed the first of many disputes over\nthe interpretation of the Yalta Agreement. Secretary\nByrnes eplied that he \"wanted no misunderstanding\";\nthat in accepting the figure of $20 billions as a\nbasis for discussion by the Reparations Commission,\nPresident Roosevelt had not made any firm commitment. 1\nWhen Mr. Molotov again pressed the point by asking if\nhe was to understand \"that at Yalta 10 billion dollars\nin reparations had been allocated to the Soviet Union\nbut that now this was considered to be impossible\",\nSecretary Byrnes repeated that \"neither the President\nnor anyone else had agreed to 20 billion dollars\".\nHe added that if \"he were asked for a million dollars\nand he said he would discuss it, this did not mean\nthat he would write a check for it\". Secretary\nByrnes added that the United States had lived up to\nthe agreement to discuss the proposal. The United\nStates had discussed the proposal for thirty-five\ndays at the meeting of the Allied Reparations Com-\nmission at Moscow and for several more days at the\nPotsdam Conference. However, the American reparations\nexperts were now convinced that the proposal was\nunrealistic. Mr. Byrnes summarized four reasons why\nthis was so:\n(1) Since\n1FM (Potsdam), July 27, 1945, 4:00 p.m., p. 6.\n2\nIbid., p. 6.\nTOB SECRET\nTOP SECRET\n- 46 -\n(1) Since the time when the proposal\nhad been made at Yalta, the invading armies\nhad destroyed large amounts of property in\nGermany.\n(2) At Yalta, the discussion had been\nbased on the whole of Germany, but since then\nSilesia and other valuable regions of eastern\nGermany had been transferred to Polish\nadministration.\n(3) The differences of opinion over what\nconstituted war booty meant that the Soviet\nUnion was classifying as booty large amounts\nof equipment that the United States considered\nto be suitable for reparations.\n(4) American officials had observed\nlarge-scale Soviet removals of all types of\nequipment from the American Zone of Berlin in\nadvance of the arrival of American forces. 1\nAll these factors reduced Germany's capacity to pay\nreparations and made it apparent that the $20 billion\nfigure was highly impracticable. The United States\ntherefore proposed a new and more realistic approach\nto the problem.\nThe Soviet Foreign Minister, however, was\nstrongly opposed to this new approach. He was willing\nto discuss a small reduction in the overall figure,\nbut he continued to insist that the reparations plan\nshould specify a fixed total for Germany as a whole.\nNo further progress was made at this meeting.\nSpecial\n¹Ibid., p. 7.\nTOP SECRET\nTOP SECRET\n- 47 -\nSpecial Meeting of the American and Soviet\nForeign Ministers (July 27. 1945)\nIn an effort to reach agreement, Mr. Molotov\nand Mr. Byrnes held another special meeting on\nJuly 27. Mr. Byrnes again argued for the American\nzonal\" plan, and sought to make the plan more\nattractive to the Soviets by proposing that the\nSoviet Union receive, in addition to reparations\nfrom its own zone, a certain percentage of capital\nequipment from the Ruhr area. Mr. Byrnes proposed\nalso that the Soviets compensate for this equipment\nby reciprocal deliveries of raw materials. Mr. Molotov\nstated that these would have to extend over more time\nthan deliveries of industrial equipment from the\nRuhr. Secretary Byrnes agreed that different time\nlimits would have to be provided for. 1\nForeign Minister Molotov was unwilling to\naccept that feature of the American formula which\nstated that the Soviet Union would receive a certain\npercentage of available reparations from the Ruhr.\nHe insisted that the Soviet Union receive a fixed\namount of capital equipment from the Ruhr, such as\n$2 billion worth. Secretary Byrnes would not agree\nto a fixed amount, however, on the ground that the\nBritish, in whose zone the Ruhr was located, were\nnot present and should be consulted. Foreign Minister\nMolotov, however, continued to press for a definite\ncommitment in money value regarding the Soviet share\nfrom the Ruhr. Soviet reports, he said, indicated\nthat the destruction in the Ruhr had actually been\nvery slight: only 10 to 15 percent of Ruhr industries\nhad actually been destroyed. He also inquired whether\nit was \"still the intention of the United States\nGovernment to reduce the production capacity of the\nRuhr as a measure of security\". 2 Mr. Byrnes gave\nassurance\n1 FM (Potsdam), July 27, 1945, p. 3. (Hour not\ngiven British not represented )\n2\nIbid., p. 4.\nTOP SECRET\nTOP SECRET\n- 48 -\nassurance that this was still the intention of the\nUnited States Government and that the only question\nconcerned the amount that was to be extracted from\nthe Ruhr. In conclusion, Mr. Molotov stated that,\nas he understood it, what Mr. Byrnes suggested was\n\"in fact an exchange of reparations between zones\". 1\nSecretary Byrnes replied that this was correct. No\nfurther agreement was reached at this meeting.\nSpecial Meeting of President Truman and the American\nand Soviet Foreign Ministers (July 29, 1945)\nAt a special American-Soviet meeting on July 29,\nForeign Minister Molotov finally stated that he agreed\n\"in principle\" to the American plan for zonal repara-\ntions, plus an additional exchange between east and west\n2\nThis a 3 recment t, however, was qualified, for he\ncontinued to insist on a certain fixed sum from the\nRuhr, expressed either in dollars or in weight of\nequipment. Mr. Molotov stated that a mere percentage\nof an undetermined figure \"meant very little\". Exten-\nsive discussion - but no agreement - followed on\nwhether a percentage or a fixed sum should be used as\nthe basis.\nThe question of what proportion of the total\nreparations should go to the Soviet Union was also\nconsidered. Foreign Minister Molotov argued that\nthe Soviet Union was entitled to 50 percent of the\ntotal, under the terms of the Yalta Agreement.\nSecretary Byrnes replied that this percentage had\nbeen \"no more agreed to except as a basis of discussion\nthan\n1 Ibid.\n2 HG (Potsdam), July 29, 1945, 12:00 noon, p. 3.\n(British not represented.)\n3\nIbid. p. 4. Mr. Molotov mentioned equipment\nvalued at $2 billion or weighing five or six million\ntons.\nTOP SECRET\nTOP SECRET\n- 49 -\nthan had been the actual amounts of reparations\". 1\nPresident Truman, however, stated that \"what they\nwere trying to do here was to fix a workable plan\nfor reparations and that he desired to see the Soviet\nUnion receive 50% of the total\".²\nThe discussion then centered on what proportion\nthe Soviet Union should receive from Western Germany,\nif it were to receive 50 percent of the total. Agree-\nment on this point was not possible because of a\nmarked difference between American and Soviet statis-\ntics as to the economic wealth of the zones. American\nfigures indicated that 50 percent of Germany's natural\nwealth lay in the Soviet Zone of Occupation. This\nmeant that anything extra which the Soviet Union\nreceived from the Ruhr or the Western Zones would be\nin addition to the share to which it was entitled.\nSoviet figures indicated that only 42 percent of the\nnational wealth of Germany lay in the Soviet Zone of\nOccupation. This meant that the additional 8 percent\nwould have to be made up to the Soviet Union from the\nWestern Zones. Secretary Byrnes proposed that the\nSoviet Union receive 25 percent of the equipment\ndetermined to be available as reparations in the Ruhr\nor 12-1/2 percent of the equipment available in all\nthe Western Zones. Once more, however, Mr. Molotov\nsought to pin the Secretary down to an absolute figure.\nSecretary Byrnes pointed out the difficulties of\nattempting to fix a specific value in advance. He\nillustrated by alluding to the proposal, made by\nMr. Maisky at Yalta, that the Western Powers should\nreceive $10 billions in reparations from Germany.\nAmerican experts estimated, however, that there were\nonly three or four billion dollars in reparations\nwhich could be extracted from the Western Zones.\nSecretary\n1\nIbid., p. 5. This statement was incorrect,\nsince the United States had agreed at Yalta that the\nSoviet Union should receive 50 percent of all repara-\ntions extracted from Germany. See above, p. 14.\n2\nIbid.\nTOP SECRET\nTOP SECRET\n- 50 -\nSecretary Byrnes asked what the Soviet Government\nwould say if the Western Powers asked for the balance\nof six or seven billion from the Soviet Zone of\noccupation. 1 Mr. Molotov did not reply to this\nquestion.\nWhen no agreement was obtained on percentages,\nSecretary Byrnes suggested that agreement might\nnevertheless be reached on the principle of the\nAmerican proposal: i.e., that each power would look\nto its own zone for reparations. He urged acceptance\nof the plan mainly because it would eliminate points\nof friction between the occupying powers in the future,\nsince each would act independently of the other. This\ncaused Foreign Minister Molotov to inquire whether\nGermany would still be treated as an economic unit\nwith regard to finance, trade, and transport. Secretary\nByrnes gave assurance that nothing was to be changed\nwith regard to economic unity and the overall treatment\nof finance, trade, transport, and other economic matters.\nOnly reparations would be affected. No further dis-\ncussion of the subject took place at this meeting.\nSpecial Meeting of the American and Soviet Foreign\nMinisters (July 30, 1945)\nAt another private meeting between the Soviet and\nAmerican Foreign Ministers on July 30, the subject was\nfurther discussed, but with very little progress toward\nagreement. 2 Secretary Byrnes made a new proposal\nregarding percentages: that in addition to the 25\npercent from the Ruhr to be received in return for\nreciprocal deliveries, the Soviets should also receive\n15 percent additional from the Ruhr in uncompensated\ndeliveries. This was rejected by Mr. Molotov, who\nproposed 25 percent in compensated deliveries and 25\npercent\n1 Ibid., p. 8.\n2 FM (Potsdam), July 30, 1945, 4:30 p.m., pp. 2-5.\n(British not represented.)\nTOP SECRET\nTOP SECRET\n- 51 -\npercent additional in uncompensated deliveries. This\nwould have meant that one-half of the industrial\nequipment in the Ruhr would go to the Soviet Union -\nan amount which was considered excessive by the\nAmerican Delegation.\nForeign Minister Molotov then raised another\npoint: If a percentage plan were agreed to, who would\ndetermine the equipment available for reparations\nagainst which the percentage would be applied?\nMr. Molotov felt that the determination should be\nmade by the Allied Control Council or the Allied\nReparations Commission. Secretary Byrnes at first\nproposed that the zone commander (i.e., the British\nif the Ruhr were to be used as the sole source for\nSoviet reparations) should make the determination.\nHe then proposed a compromise formula whereby the\nAllied Control Council, operating for all Germany,\ncould determine the general level of the German\neconomy on which the determination of the excess\nmaterial available for reparations would be based.\nAt the same time, however, final authority for the\nactual removal of equipment would rest with the\ncommander-in-chief of the zone from which the repara-\ntions would be taken.\nAlthough the Soviets had previously been\nparticularly interested in the Ruhr as a source of\nreparations, at this point in the discussion\nMr. Molotov interjected that the Soviet share should\nbe extracted from all the Western Zones rather than\nfrom the Ruhr alone. Secretary Byrnes explained that\nthe United States had proposed confining the Soviet\nshare to the Ruhr as a means of simplifying matters.\nAs had been agreed by the Reparations Commission, the\nUnited States would have to meet the claims of other\ncountries from its zone. Mr. Byrnes explained that\nit would be simpler if the Soviet Union did not also\nshare in this already complex division.\nAt this\nTOP SECRET\nTOP SECRET\n- 52 -\nAt this point in the discussion Mr. Molotov\ntook occasion to introduce a proposal regarding the\ninternational control of the Ruhr. He proposed that\na special Allied commission composed of the four\noccupying powers be charged with the task of\nadministering and controlling the Ruhr. Secretary\nByrnes expressed no opinion on the proposal. When\nMr. Molotov alluded to the complete internationaliza-\ntion of the Ruhr, Mr. Byrnes reminded him that \"at\none time President Roosevelt had been in favor of\nthe dismemberment of Germany but had subsequently\nchanged his mind\". 1 He recalled Marshal Stalin's\ntalks with Mr. Hopkins on this point in May 1945,\nat which previous schemes regarding internationaliza-\ntion had been abandoned.\nMeeting of the Foreign Ministers (July 30, 1945)\nThe next meeting of the Foreign Ministers was\nattended by the newly appointed British Foreign\nSecretary, Mr. Bevin, who presented his Government's 2\nproposal regarding the Soviet share from the West.\nThe British were opposed to extracting the entire\nSoviet share from the Ruhr. Instead, they proposed\nthat the Soviets receive 10 percent of the equipment\navailable for reparations in all three Western Zones.\nTo compensate for this low percentage, the Soviet\nUnion would not be required to provide reciprocal\ndeliveries of raw materials. When Mr. Molotov was\nasked which plan he preferred, he replied that the\nAmerican percentages came closer to the wishes of the\nSoviet Delegation, although he favored the British\nproposal that the Soviet share come from all the\nWestern Zones, not just from the Ruhr. However, he\nreturned\n1\nIbid., p. 4.\n²FM (Potsdam), July 30, 1945, 5:00 p.m., p. 4.\nTOP SECRET\nTOP SECRET\n- 53 -\nreturned once more to the familiar point that the\nSoviet Delegation wanted a firm commitment as to\nthe minimum amount, expressed either in dollars or\nin tons, which the Soviet Union would receive. He\nproposed that a guarantee be included to the effect\nthat a minimum of $800 million worth of equipment\n(or two million tons by weight) would be shipped to\nthe Soviet Union from Western Germany. In reply,\nSecretary Byrnes explained that no exact amounts\ncould be determined in advance, since the amount\navailable for reparations was dependent upon the\namount needed to maintain the economy, and this\nlatter had not been determined.\nMr. Molotov then reverted to the problem of\nhow the equipment available for reparations would\nbe determined. The British and American Foreign\nMinisters insisted that the zone commander should\nhave the final say. Mr. Molotov, however, argued\nthat final decision would have to rest with the\nAllied Control Council. The British and American\nForeign Ministers agreed to include the Control\nCouncil among the agencies making the determina-\ntion, but insisted that final authority rest with\nthe zone commander. Mr. Molotov argued for a more\nimportant role for the Control Council or the Allied\nReparations Commission \"so that the Russians can take\npart in the matter. \"1 Mr. Bevin wanted the French\nincluded if the Reparations Commission were to\nparticipate in determining what was available. It\nwas finally agreed as a compromise that the Repara-\ntions Commission, with the French included, should\ndetermine the general policies and programs; that the\nAllied Control Council, working in close association\nwith the Reparations Commission, would determine the\nrequirements of the German economy; and that the\nindividual, 2 zone commanders would have the final\nauthority.\nA further\n1\nIbid., p. 8.\n2\nIbid., p. 9.\nTOP SECRET\nTOP SECRET\n- 54 -\nA further discussion of percentages then took\nplace. Secretary Byrnes stated that the American\nproposals of 25 percent in compensated deliveries\nand 15 percent additional in uncompensated deliveries\nwould need to be halved if all the Western Zones\nrather than merely the Ruhr were used as the source.\nThis meant 12-1/2 percent in compensated and 7-1/2\npercent in uncompensated deliveries. Mr. Bevin\naccepted this figure. Mr. Molotov, however, still\nurging the acceptance of a fixed sum rather than\npercentages, proposed much higher figures. He first\nproposed 20 percent in compensated and 25 percent in\nuncompensated deliveries, both to come from all three\nWestern Zones. He later proposed 25 percent from the\nRuhr in compensated deliveries and 15 percent from\nthe three zones in uncompensated deliveries. Other\npercentages mentioned by Mr. Molotov were equally\nhigh and equally unacceptable to the British and\nAmerican Delegations. Finally, the discussion\nreached an impasse when Mr. Molotov reverted to his\nearlier insistence on a fixed value rather than a\npercentage. He proposed that the whole problem of\nthe Soviet share from the West be referred to the\n1\nBig Three.\nThe Foreign Ministers then turned their\nattention to the first-charge principle. Mr. Molotov\nproposed a formula whereby imports would be a first\ncharge on those exports approved by the Control\nCouncil, whereas reparations would be a first charge\non exports not approved by the Control Council. He\ngave the following illustration of how the Soviet\nproposal would work: \"If the Control Council decided\nthat 500,000 tons of coal should be exported, but one\nmember proposed an additional 200,000, the 500,000\nwould have priority over reparations. With respect\nto the remaining 200,000 priority would be given to\nreparations. \"2\nMr. Molotov\n1\nIbid., p. 11.\n2\nIbid., p. 12.\nTOP SECRET\nTOP SECRET\n- 55 -\nMr. Molotov made another proposal to cover the\nsituation which might arise when production and\nhence export goals set by the Control Council could\nnot be met by the German economy. For such cases,\nhe proposed that imports, internal consumption, and\nreparations should all have equal claim on the\nproceeds of exports. For example, if exports had\nto be reduced 10 percent because of a falling off in\nproduction, then imports, internal consumption, and\nreparations would all be reduced a proportionate 10\npercent. Since, however, the American and British\nDelegations were insistent that imports had to be\nan unconditional first charge on exports, no agree-\nment was reached. 1\nMeeting of the Heads of Government (July 31, 1945)\nThe whole unsolved problem of German reparations\nwas finally referred to the Big Three on July 31.\nSecretary Byrnes presented the case for the American\nreparations proposals. He linked reparations with the\nother two most controversial questions of the Conference:\ni.e., the western frontier of Poland and the voting\nstrength of the Soviet Union in the United Nations. He\nexplained that American concessions with respect to\nPoland and the United Nations had been conditional upon\nacceptance of the American plan for reparations.\nPremier Stalin, however, opposed linking the\nthree questions, since they dealt with different\nsubjects. He said that \"it was for Mr. Byrnes to use\nany tactics he wanted, but that he \"could not under-\ntake to reply with such tactics and the Soviet Delegation\nwould vote separately on these questions. 113 In the next\nbreath, however, Premier Stalin announced that \"the\nprinciple in the American plan that each country exacts\nreparations from its own zone was accepted.\"\nHe\n1\nIbid., p. 13.\n2 HG (Potsdam), July 31, 1945, 4:00 p.m., p. 2.\n3 Ibid., p. 5.\nTOP SECRET\nTOP SECRET\n- 56 -\nHe stated that the Soviet Union \"had agreed not to\nmention a definite figure of reparations but had\naccepted a statement of percentages. 11 He summarized\nthe agreement as follows: \"It was agreed that repara-\ntions from the West should come not only from the Ruhr\nbut from the three western zones. It was agreed that\npart of the equipment to be removed from the Ruhr\ncould be compensated by goods. It was agreed that\nthe Control Commission would determine the equipment\nthat should be removed. All these had been accepted. \"1\nAt the same time that he announced Soviet agreement on\nreparations, Premier Stalin accused the American and\nBritish authorities of carrying out unauthorized\nlarge-scale removals from their zones. Specifically,\nhe charged that the American and British authorities\nhad taken 11,000 railroad cars from the Western Zones.\nHe mentioned this, he stated, \"to show that not only\nthe Russians had sinned but also the British and\nAmericans. 112\nThus agreement on the basic issues of the\nreparations problem was finally reached near the\nclose of the Potsdam Conference. There remained,\nhowever, a number of details and special problems\nwhich required the time and attention of the Heads\nof Government during the last meeting. First, Premier\nStalin raised the question of setting a time limit for\nthe determination of what would be available for\nreparations. He proposed three months, but a six-\nmonth period was decided upon to meet the wishes of\nthe British Delegation for a longer period. 3 The\nactual percentage figures also had to be worked out\nby the Heads of Government. The Soviets proposed 15\npercent in compensated deliveries and 10 percent in\nuncompensated deliveries. The American Delegation\napproved these figures, but the British held out for\n12-1/2 percent\n1\nIbid.\n2 Ibid.\n3Ibid.,p.6.\nTOP SECRET\nTOP SECRET\n- 57 -\n12-1/2 percent instead of 15 percent. After\nconsiderable urging by Premier Stalin, the British\nagreed to the figure of 15 percent.\nThe problems of how to divide the reparations\nshares of external German assets, shares of German\nenterprises, and German gold were also discussed.\nAt first, the Soviets had wanted a flat 30 percent\nof all German holdings in these three categories,\nwithout regard to the physical location of the hold-\nings. 1 Secretary Byrnes promptly objected to the\nSoviet Union's acquiring former German assets in\nthe United States and Latin America. He also pointed\nout the difficulties that would arise if the Soviet\nUnion acquired a share in German enterprises located\nin the American Zone of Occupation, as would happen\nif the shares of German enterprises were divided\nwithout regard to the location of the enterprises.\nFinally, he stated that all or almost all of the\ngold found by the American Army in Germany was gold\nwhich the Germans had looted from occupied countries.\nThese countries would presumably have first claim\non the gold.\nMeeting of the Heads of Government\n(August 1, 1945)\nIn the closing 24 hours of the Conference agree-\nment was finally reached on all unsettled problems.\nPremier Stalin agreed not to claim any share of the\nlooted gold. He proposed further that, instead of\ndividing the shares of German enterprises on a\npercentage basis, the zonal boundaries should be\ntaken as a demarcation line. Shares of German\nenterprises physically located in a zone would belong\nto the power occupying that zone. With regard to\nexternal assets, he proposed a similar demarcation\nline.\n1\nIbid., p. 7.\nTOP SECRET\nfor SECRET\n- 58 -\nline. German assets located in all countries\noccupied by the Red Army (i.e., Bulgaria, Finland,\nHungary, Rumania, and the Soviet Zone of Austria)\nwould fall to the Soviet Union, and the German\nassets in other countries would fall to the United\nStates and the United Kingdom. 1\nAgreement was also reached on the controversial\nfirst-charge principle. At one point both Premier\nStalin and President Truman agreed to omit all\nreference to the first-charge principle, but the\nBritish were adamant and insisted upon its retention.\nSecretary Byrnes argued that each power should handle\nthe problem in its own way, since each was in control\nin its zone. Foreign Secretary Bevin, however,\nargued that to do so would cut across the agreement\nto treat Germany as an economic whole and would\ndivide Germany into separate zones economically. 2\nAt the very end of the Conference, the British draft\nproposal on the first-charge principle was finally\naccepted.\nOne final question that had to be settled was\nthe disposition of the German merchant and naval\nfleets. At the beginning of the Conference, the\nSoviets had proposed that the German merchant and\nnaval fleets be divided among the Soviet Union, the\nUnited States, and the United Kingdom in three equal\nshares. Prime Minister Churchill, although agreeing\nthat the fleet should be divided among the Allies,\ntook the position that the whole question should be\npostponed until near the conclusion of the Conference,\nafter the other important problems had been solved.\n\"Should a general agreement be reached at this\nConference, and friendly settlement ... be achieved,\"\nMr. Churchill remarked, \"I would not be opposed to a\ndivision\n¹HG (Potsdam), Aug. 1, 1945, 4:00 p.m., pp. 2-5.\n²HG (Potsdam), July 31, 1945, 4:00 p.m., p. 9.\n3HG (Potsdam), Aug. 1, 1945, 4:00 p.m., p. 9.\nTOP SECRET\nTOP SECRET\n- 59 -\ndivision of the German fleet. 111 Accordingly, the\ntopic was not further discussed until the very end\nof the Conference, after agreement had been reached\non the other major issues of reparations, the Polish\nquestion, and the voting strength of the Soviet Union\nin the United Nations. After much discussion, the\nHeads of Government agreed on certain basic principles\nto cover the disposition of the German merchant and\nnaval fleets. These discussions and the principles\nagreed upon are discussed elsewhere in this study. 2\nThe Heads of Government at their final meeting\nreached agreement on the following text which embodied\ntheir agreements on the question of reparations:\n\"In accordance with the Crimea decision\nthat Germany be compelled to compensate to the\ngreatest possible extent for the loss and\nsuffering that she has caused to the United\nNations and for which the German people cannot\nescape responsibility, the following agreement\non reparations was reached:\n\"1. Reparation claims of the U.S.S.R.\nshall be met by removals from the zone of\nGermany occupied by the U.S.S.R. and from\nappropriate German external assets.\n\"2. The U.S.S.R. undertakes to settle\nthe reparation claims of Poland from its own\nshare of reparations.\n\"3. The reparation claims of the United\nStates, the United Kingdom and other countries\nentitled to reparations shall be met from the\nwestern zones and from appropriate German\nexternal assets.\n\"4. In addition to the reparations to be\ntaken by the U.S.S.R. from its own zone of\noccupation,\n1 HG (Potsdam) July 19, 1945, 5:00 p.m., p. 4.\n2see below, p. 179.\nTOP SECRET\nTOP SECRE\n- 60 -\noccupation, the U.S.S.R. shall receive addition-\nally from the western zones:\n\"(A) 15 percent of such usable and\ncomplete industrial capital equipment, in the\nfirst place from the metallurgical, chemical\nand machine manufacturing industries, as is\nunnecessary for the German peace economy and\nshould be removed from the western zones of\nGermany, in exchange for an equivalent value\nof food, coal, potash, zinc, timber, clay\nproducts, petroleum products, and such other\ncommodities as may be agreed upon.\n\"(B) 10 percent of such industrial\ncapital equipment as is unnecessary for the\nGerman peace economy and should be removed\nfrom the western zones, to be transferred to\nthe Soviet Government on reparations account\nwithout payment or exchange of any kind in\nreturn.\n\"Removals of equipment as provided in (A)\nand (B) above shall be made simultaneously.\n\"5. The amount of equipment to be\nremoved from the western zones on account of\nreparations must be determined within six\nmonths from now at the latest.\n\"6. Removals of industrial capital\nequipment shall begin as soon as possible and\nshall be completed within two years from the\ndetermination specified in paragraph 5. The\ndelivery of products covered by 4 (A) above\nshall begin as soon as possible and shall be\nmade by the U.S.S.R. in agreed installments\nwithin five years of the date hereof. The\ndetermination of the amount and character of\nthe industrial capital equipment unnecessary\nfor the German peace economy and therefore avail-\nable for reparations shall be made by the control\ncouncil under policies fixed by the Allied\nCommission\nTOP SECRET\nTOP SECRET\n- 61 -\nCommission on Reparations, with the parti-\ncipation of France, subject to the final\napproval of the zone commander in the zone\nfrom which the equipment is to be removed.\n\"7. Prior to the fixing of the total\namount of equipment subject to removal,\nadvance deliveries shall be made in respect\nof such equipment as will be determined to be\neligible for delivery in accordance with the\nprocedure set forth in the last sentence of\nparagraph 6.\n\"8. The Soviet Government renounces all\nclaims in respect of reparations to shares of\nGerman enterprises which are located in the\nwestern zones of occupation in Germany as well\nas to German foreign assets in all countries\nexcept those specified in paragraph 9 below.\n\"9. The Governments of the United Kingdom\nand the United States of America renounce their\nclaims in respect of reparations to shares of\nGerman enterprises which are located in the\neastern zone of occupation in Germany, as well\nas to German foreign assets in Bulgaria, Finland,\nHungary, Rumania and Eastern Austria.\n\"10. The Soviet Government makes no claims\nto gold captured by the Allied troops in Germany.\"\nIn addition, the Economic Principles agreed to by the\nHeads of Government included three paragraphs bearing\non reparations. These were:\n\"14. During the period of occupation\nGermany shall be treated as a single economic\nunit. To this end common policies shall be\nestablished in regard to:\n*\n*\n*\n\"In applying these policies account shall be\ntaken, where appropriate, of varying local cendi-\ntions.\n\"15. Allied\nTOP SECRET\nTOP SECRET\n- 62 -\n\"15. Allied controls shall be imposed\nupon the German economy but only to the extent\nnecessary:\n\"(a) To carry out programs of industrial\ndisarmament and demilitarization, of reparations,\nand of approved exports and imports.\n\"(b) To assure the production and maintenance\nof goods and services required to meet the needs\nof the occupying forces and displaced persons in\nGermany and essential to maintain in Germany\naverage living standards not exceeding the average\nof the standards of living of European countries.\n(European countries means all European countries\nexcluding the United Kingdom and the Union of\nSoviet Socialist Republics.)\n*\n*\n*\n\"19. Payment of reparations should leave\nenough resources to enable the German people to\nsubsist without external assistance. In working\nout the economic balance of Germany the necessary\nmeans must be provided to pay for imports approved\nby the Control Council in Germany. The proceeds\nof exports from current production and stocks\nshall be available in the first place for payment\nfor such imports.\n\"The above clause will not apply to the\nequipment and products referred to in paragraphs\n4 (A) and 4(B) of the Reparations Agreement.\"\nTOP SECRET\n- - 63 -\nII. SPECIAL TOPICS\nMin\nTOP SECRET\nTOP SECRET\n- 64 -\nA. THE STANDARD-OF-LIVING CLAUSE\nBy the terms of the Potsdam Agreement,\nthe determination of the amount of capital equipment\navailable for reparations is closely related to the\ndetermination of Germany's future standard of living.\nParagraph 6 of the Reparations Agreement refers to\nthe determination of the amount and character of\nindustrial capital equipment \"unnecessary for the\nGerman peace economy and therefore available for\nreparations\". The determination of what is\nunnecessary for the German peace economy is to be\nbased, in turn, on paragraph 15 (b) of the Economic\nPrinciples agreed upon at the Potsdam Conference,\nwhich states that Allied controls should be imposed\non Germany only to the extent necessary:\n\"to assure the production and maintenance\nof goods and services required to meet the\nneeds of the occupying forces and displaced\npersons in Germany and essential to maintain\nin Germany average living standards not exceed-\ning the average of the standards of living of\nEuropean countries. (European countries means\nall European countries excluding the United\nKingdom and the Union of Soviet Socialist\nRepublics. )\nThus the standard of living for Germany must be\ndetermined before the amount available for repara-\ntions can be determined. The discussion at Yalta\nand Potsdam concerning Germany's future standard of\nliving help to explain these clauses.\nYalta\nThe first reference to the future standard of\nliving for Germany appeared in the Soviet proposal\nfor German reparations at Yalta. The Soviets stated\nthat their proposal for extracting $20 billion would\nleave in Germany sufficient industrial equipment\nand goods\nTOP SECRET\nTOP SECRET\n- 65 -\nand goods to \"secure for that country living\nstandards comparable to those prevailing in Central\nEurope\". 1 During the discussion at Yalta Mr. Maisky,\nthe Soviet reparations expert, commented that the\nliving standards of Central Europe were \"lower than\nin Germany but quite decent\", and on another occasion\nhe stated that there was \"no intention to force\nGermany into starvation.\" He added, however, that\nhe did not feel that the Germans had a right to a\n\"higher standard of living than that of Central\nEurope. He explained further that \"Germany can\ndevelop her light industry and agriculture and ...\nsince the Germans would have no military expenditures\nthere was no reason why Germany could not give a\nmodest but decent standard of living to her people. 112\nPresident Roosevelt and Prime Minister Churchill\nboth expressed opposition to lowering the German\nstandard of living to the starvation level.\nMr. Churchill said that he was \"haunted by the\nspecter of a starving Germany\", 3 and Mr. Roosevelt\nsaid that he \"did not wish to contemplate the\nnecessity of helping the Germans to keep from starg-\ning. If The President added, however, that he would\n\"willingly support any claims for Soviet reparations\"\nsince he felt that the \"German standard of living\n114\nshould not be higher than that of the Soviet Union.\nU. S. Policy Formulation\nAfter Yalta, American policy regarding the German\nstandard of living was formulated more precisely, and\nsummarized in the following instructions to the United\nStates Representative on the Allied Reparations\nCommission:\n\"It\n1\nACR Report, Appendix 41, pp. 1-2.\n2 HG (Yalta), Feb. 5, 1945, 4:00 p.m., p. 18.\n3 Ibid., p. 17.\n4\nIbid.\nTOP SECRET\nTOP SECRE\n- 66 -\n\"It will be inevitable that the German\nstandard of living will be adversely affected\nby the carrying out of the Reparations Plan.\nHowever, the reparation exactions should be\nheld within such limits as to leave the German\npeople with sufficient means to provide a\nminimum subsistence standard of living without\nsustained outside relief; but under no condition\nshould this limitation operate to require the\nretention in Germany of means to support basic\nliving standards on a higher level than that\nexisting in any one of the neighboring United\nNations. \"1\nMoscow Meeting of the Reparations Commission\nThis policy was advocated by the American Delega-\ntion to the Reparations Commission.2 At the urging of\nthe United States, the Commission adopted the following\nstatement on July 7, 1945:\n\"In justice to those countries occupied by\nthe enemy, reparations shall be calculated upon\nthe basis that the average living standards in\nGermany during the reparation period shall not\nexceed the average of the standards of living of\nEuropean countries. European countries means all\nEuropean countries excluding the UK and USSR.\nPotsdam\nThis principle was submitted by the Reparations\nCommission to the Potsdam Conference. After making\nsome changes in wording, the Heads of Government\nincorporated the principle in paragraph 15(b) of the\nEconomic Principles.\nThe discussions at Potsdam reveal the intent of\nthe negotiators. The provision } not intended to be\nan undertaking\n¹IPCOG 2/1, para. 3(d).\n2 ACR Report, Appendix 9.\n3ACR, \"Agreed Principles of Reparations\". (Collado\nPapers, No. 2, p. 10.)\nTOP SECRET\nTOP SECRET\n- 67 -\nan undertaking by the occupying powers to guarantee\nto the German people a standard of living equal to\nthe European average. The purpose was rather to\nleave in Germany the necessary productive capacity\nto make such a standard of living available to the\nGermans. Furthermore, it was not the intent of the\nnegotiators that the standard of living of the German\npeople would be frozen indefinitely at a given level.\nIf the general European standard of living rose,\nthen the Allied Control Council would be justified in\nraising the German standard correspondingly. This had\nbeen recognized earlier by the Soviet representative\non the Reparations Commission in the discussions at\nMoscow when he observed that the Allies should not\nobligate themselves to hold the German standard of\nliving down to any set figure. Mr. Maisky remarked\nthat the Germans were an \"industrious and stingy\"\nrace who could be expected to try to raise I their\nstandards above those initially computed.\nB. RELATION OF REPARATIONS TO ECONOMIC UNITY\nParagraph 14 of the Economic Principles of the\nPotsdam Agreement reads in part as follows:\n\"During the period of occupation\nGermany shall be treated as a single economic\nunit. To this end common policies shall be\nestablished in regard to:\n*\n*\n*\n\"(f) Reparations and removal of industrial\nwar potential;\n*\n*\n*\n\"In applying these policies account shall\nbe taken, where appropriate, of varying local\nconditions.'\nYalta\n1 ACR Report, Appendix 41, p. 4.\nTOP SECRET\nTOP SECRET\n- 68 -\nYalta\nThat Germany should be treated as an economic\nunit was not agreed upon until after the Yalta\nConference. On the contrary, it had been tenta-\ntively agreed at Yalta to dismember the German\neconomy. This had caused the British and American\nDelegations at Yalta to express concern that the\nSoviet reparations plan would not take account of\nthe fact that dismemberment would greatly reduce\nGermany's capacity to pay reparations. The Soviets\ngave express assurance, however, that dismemberment\nhad been taken into account in their $20 billion\nplan, although they offered no supporting evidence.\nThere were other discussions at Yalta which\nwere indirectly related to reparations and the con-\ncept of economic unity, as it was later developed.\nThe Soviets, in first presenting their reparations\nplan, argued for a special type of economic control\nover the German economy, expressed in the following\nterms: \"In the interests of the orderly execution\nof the reparations plan and for the security of\nEurope there should be an Anglo-Soviet-American\ncontrol over the German economy which will last\nbeyond the period of the reparations payment. All\nGerman enterprises which can be utilized for war\npurposes will be placed under international control\nwith representatives of the Three Powers sitting on\nthe boards\". I This proposal was not further\namplified, however, nor was it discussed by the\nother powers.\nAnother related question discussed briefly at\nYalta concerned the extent to which the Moscow\nReparations Commission might participate in the\neconomic control of Germany. Foreign Secretary Eden\nproposed at one time that the Reparations Commission\nbe\n1 HG (Yalta), Feb. 5, 1945, 4:00 p.m., p. 15.\nTOP SECRET\nTOP SECRET\n- 69 -\nbe authorized to study German industry in connection\nwith future security and control.1 Mr. Molotov, how-\never, stated that the Reparations Commission would\ndeal with German industry \"only in connection with\nreparations\". Secretary Stettinius proposed that\n\"as a practical measure\" the Allied Control Council\nfor Germany \"should have the responsibility for the\ncontrol of German industry for security purposes.\"\nHe added that \"the Reparations Commission should, of\ncourse, coordinate its work with the policy of the\nControl Machinery and should establish liaison with\nit.\" Foreign 2 Minister Molotov agreed to this pro-\nposal.\nMoscow\nThe United States was responsible for first\nintroducing the concept of economic unity into the\nreparations discussions. At the urging of the United\nStates Delegation, the Reparations Commission agreed\nupon the following statement of principle: \"For the\npurposes of making a reparations plan, Germany will\nbe treated as a single economic unit. 113\nPotsdam\nAt Potsdam the United States continued to stress\nthe importance of the relation between reparations and\neconomic unity. The American proposal of July 24 for\na new \"zonal\" approach to the reparations problem con-\ntained a statement that \"removals should not be such\nas would be inconsistent with the treatment of Germany\nas a single economic unit. 114\nWhen\n1 FM (yalta), Feb. 7, 1945, 12:00 noon, p. 8.\n²Ibid.\n3 ACR, \"Agreed Principles of Reparations\".\n(Collado Papers, No. 2, p. 10.)\n⁴u.s. Delegation (Potsdam), \"Proposal on Repara-\ntions and Related Matters\", July 24, 1945. (Collado\nPapers, No. 17.)\nTOP SECRET\nTOP SECRET\n- 70 -\nWhen the American \"zonal\" plan was first dis-\ncussed by the Foreign Ministers at Potsdam,\nMr. Molotov objected that it would be difficult, if\nnot impossible, to treat Germany as an economic unit\nunder the American plan. Mr. Byrnes, however, gave\nhim express assurance that the overall treatment of\nGerman finance, transport, foreign trade, and other\neconomic matters would not in any way be affected by\nthe American 1 plan for extracting reparations on a\nzonal basis.\nThis point was clarified later in a policy\nmemorandum by the United States Delegation which\nstated that the Allied Control Council was to \"make\nevery attempt to arrange for reparation removals\nthroughout Germany so as not to make it impossible\nfor any part of Germany to make its fair contri-\nbution to Germany as a whole\n112 The memorandum\n...\ndefined the relationship of reparations to economic\nunity as follows:\n\"Obviously, unless such a policy be\nfollowed, serious deficiencies are likely\nto occur in some zones while others may have\na surplus. Such inequalities would make for\nwide differences in the standards of living\nbetween the Zones and might place undue\nburdens on manpower in one Zone and cause\nunemployment in another.\n...\nAccordingly\nthe US Zone Commander has the responsibility\nunder the Berlin Protocol and the policy of\nhis Government to press for over-all import\nand export programs, over-all reparations\nremoval programs and for other over-all\nprograms which will in fact hold Germany\ntogether as a 'single economic unit. 1\"3\nAnother\n1 HG (Potsdam), July 29, 1945, 12:00 noon, p. 5.\n2 ACR Report, Appendix 30, p. 7.\n3 Ibid., pp. 7-8.\nTOP SECRET\nTOP SECRE\n- 71 -\nAnother aspect of economic unity which had a\nbearing on reparations was the problem of the distri-\nbution of commodities among zones. The British and\nAmerican Delegations at Potsdam first proposed that\nthe statement on Economic Principles include the\nfollowing provision: \"Each of the zones of occupa-\ntion, including the Greater Berlin Area, will draw\nits supplies so far as practicable from the areas in\nGermany on which it had drawn before the war. \" This\nwas to be done to produce a balanced economy through-\nout Germany and to reduce the need for imports, as\nprovided in paragraph 15 (c) of the Economic\nPrinciples. The Soviet Foreign Minister opposed\nthis provision. I He felt that heavy wartime damage\nin some areas had radically changed the pre-war\neconomic situation; that the matter should be the\nresponsibility of the Control Council; and that it\nwould be unwise at the Potsdam Conference to write\na general rule regarding the German economy which\nthe Control Council might find impractical in the\nface of real conditions.\nSecretary Byrnes then proposed the substitution\nof a very general statement to the effect that, in\nthe absence of a specific countervailing reason,\nsupplies would as far as possible be drawn from the\nsame areas as before the war. He argued that this\nwould take care of cases in which war damage had\ndecreased the economic wealth of certain zones. He\nalso argued that, if the matter were left completely\nup to the Control Council without any principle for\nguidance, the Council might disagree and send the\nproblem back to the Governments. However, the Soviets\nfirmly opposed any mention of this subject in the\nProtocol, with the result that it was not included. 2\nC. THE\n1\nFM (Potsdam), July 23, 1945, 11:30 a.m.,\npp. 4-5.\n²Ibid., p. 5.\nTOP SECRET\nTOP SECRET\n- 72 -\nC. THE FIRST-CHARGE PRINCIPLE\nThe first-charge principle is expressed in\nparagraph 19 of the Economic Principles of the\nPotsdam Agreement:\n\"Payment of reparations should leave\nenough resources to enable the German people\nto subsist without external assistance. In\nworking out the economic balance of Germany\nthe necessary means must be provided to pay\nfor imports approved by the Control Council\nin Germany. The proceeds of exports from\ncurrent production and stocks shall be avail-\nable in the first place for payment for such\nimports.\n\"The above clause will not apply to the\nequipment and products referred to in para-\ngraphs 4 (A) and 4 (B) of the Reparations\nAgreement.\nYalta\nThe British were responsible for first intro-\nducing the first-charge concept into the reparations\ndiscussions. Their position at Yalta that necessary\nimports should be a first charge, prior to repara-\ntions, was a corollary to their position that no\ntotal reparations figure should be fixed. Prime\nMinister Churchill, in stating the British Govern-\nment's opposition to the $20 billion figure, observed\nthat shipments from current production in particular\nwould exceed the value of Germany's necessary imports.\nHe stated the issue openly: \"If these imports are\nnot given a priority ahead of reparations, it will\nmean that the other countries will be paying for\nGerman reparations to those countries receiving them. \"1\nThe\n¹HG (Yalta), Feb. 10, 1945, 4:00 p.m., p. 8.\nTOP SECRET\nTOP SECRET\n- 73 -\nThe first-charge principle was accordingly\nincluded in the British draft proposal on repara-\ntions at Yalta, as follows: \"In fixing the amount\nof reparations to be exacted from Germany\naccount shall be taken of\nthe requirements of\nthe occupying forces and Germany's need to acquire\nfrom time to time sufficient foreign currency from\nher exports to pay for her current imports and the\npre-war claims of the United Nations on Germany. \"1\nIt will be noted that in the original proposal, the\nBritish wanted to give not only necessary imports,\nbut also occupation costs and pre-war claims a\npriority over reparations. The British proposals\nregarding the first charge were not accepted by the\nother delegations at Yalta, and it was partly for\nthis reason that the British so firmly opposed the\n$20 billion plan advocated by the Soviets.\nU.S. Policy Formulation\nSoon after Yalta, the United States became\nconverted to the first-charge principle. The new\nAmerican policy, as developed by the Informal\npolicy Committee on Germany and approved by the\nPresident on May 18, 1945, was as follows:\n\"The first charge on all approved exports\nfor reparation or otherwise (other than\nremovals of existing plant and equipment)\nshall be a sum necessary to pay for approved\nimports. Accordingly, to the extent necessary\nto pay for such minimum German imports as may\nbe determined to be essential, recipient\ncountries should be required to pay for German\nexports, except removals of existing plant and\nequipment. Imports for which payment will be\nsought shall include supplies imported by the\noccupying forces for displaced persons and\nGerman civilians. \"12\nMoscow\n1Attachment No. 4 to FM (yalta), Feb. 10, 1945,\n12:00 noon.\n²IPCOG 2/1, para. 3(d).\nTOP SECRET\nTOP SECRET\n- 74 -\nMoscow\nAt the meeting of the Reparations Commission\nheld on June 21, 1945, the United States repre-\nsentative sought to implement this policy by\nproposing that the Commission approve the following\nprinciple:\n\"After payment of reparations enough\nresources must be left to enable the\nGerman people to subsist without external\nassistance. In working out the economic\nbalance of Germany, the necessary means\nmust be provided for payment of imports\napproved by the governments concerned\nbefore reparation deliveries are made from\ncurrent production or from stocks of goods. \"1\nAt first the Soviet representative, Mr. Maisky,\ntentatively accepted this proposal. After consulta-\ntion with his Government, however, he reversed his\nposition and expressed the Soviet Government's\nopposition to making necessary imports a first\ncharge on deliveries from current production and\nstocks of goods. 2\nIn a letter to the Soviet representative, the\nAmerican representative, Mr. Pauley, took a strong\nposition:\n\"Surely we both understand there can be\nno current annual reparations from Germany\nexcept as more goods are shipped out of\nGermany than are shipped in, that is, there\nmust be a large export balance. An export\nbalance cannot be produced in Germany without\nsome imports, such as food, alloys, cotton,\netc. If these indispensable imports (without\nwhich there would be no exports of certain\nhighly\n1\nACR Report, Part IV, p. 6.\n2\nIbid.\nTOP SECRET\nTOP SECRET\n- 75 -\nhighly important types) are not a charge\nagainst the exports, then you, or we, or some\nother economy will have to pay for the imports.\nNeither the USSR nor the USA can think of\nrecommending to its people a reparations plan\nwhich overlooks this elemental fact. \"1\nIn his letter, Mr. Pauley went on to point out that\nhe did not mean that payments for necessary imports\nwere more important than reparations; he meant only\nthat they should be a prior charge in point of time.\n\" All we are saying is that you must feed the cow to\nget the milk. The food is a prior charge, it comes\nfirst in time, but it is not more important. #2 He\nsummed up the United States position in a formula:\nreparations equals current German production minus\nthe sum of occupation costs, essential German con-\nsumption, and the cost of necessary imports.\nSince, however, the first-charge principle was\nunacceptable to the Soviet Government, the Allied\nReparations Commission had to report disagreement 3 on\nthe matter to the Heads of Government at Potsdam.\nAdded to the report was a statement by the American\nrepresentative pointing out that failure to make\nnecessary imports a first charge against exports\nfrom current production and stocks of goods would\n\"lead either to a repetition of our mistakes at the\nend of the last war, or leave us unable to bring\nabout the desired industrial disarmament of Germany.\n114\nPotsdam\n1\nIbid., p. 7.\n2\nIbid., p. 8.\n3\nIbid., Part V, pp. 2-3.\n4\nIbid., p. 3.\nTOP SECRET\nTOP SECRET\n- 76 -\nPotsdam\nThe first-charge principle was considered\ninitially by the Economic Sub-Committee at Potsdam.\nThe sub-committee deliberated for several days\nwithout reaching agreement. The American and\nBritish representatives proposed including in the\nsection on Economic Principles the following compre-\nhensive statement regarding the import program and\nthe first-charge principle:\n\"The Control Council shall formulate as\nsoon as possible a program of minimum required\nimports for Germany as a whole. Such a program\nshall include provision for equitable inter-\nzonal distribution of supplies available within\nGermany so as to minimize the net deficit for,\nand imports into, Germany as a whole. Responsi-\nbility for the procurement and financing of\napproved imports for Germany as a whole shall\nbe shared on a basis to be negotiated in the\nControl Council. Reimbursement for all net\nadvances made for approved imports into\nGermany shall be a first charge against the\nproceeds of both exports of capital equipment\nand of current production and stocks of goods\nfrom Germany. \"1\nIt will be noted that this went even further than\nprevious proposals, for it sought to make the first-\ncharge principle apply not only to the proceeds from\nthe export of current production and stocks, but also\nto the proceeds from the export of capital equipment\nas well. In other words, nearly all types of repara-\ntions would be subject to the first-charge principle.\nThe Soviet member of the Economic Sub-Committee\ndid not accept the American-British proposal and\nexpressed the view that \"reparations deliveries should\nhave priority and that imports into Germany should, if\nnecessary,\n1 Economic Sub-Committee (Potsdam) \"Report to the\nForeign Secretaries\" July 20, 1945. (Collado Papers,\nNo. 5.)\nTOP SECRET\nTOP SECRET\n- 77 -\nnecessary, be confined to the amount that can be\npaid for by exports from Germany after reparations\nschedules have been met.\"1\nOn July 24, 1945, the United States repre-\nsentative presented in the Economic Sub-Committee\nthe new \"zonal\" approach to the reparations problem.\nThe first-charge principle was an integral part of\nthe plan, as revealed in the following extract:\n\"After removals are effected enough\nresources must be left to enable the German\npeople to subsist without external\nassistance. The necessary means must be\nset aside for payment for imports approved\nby the Governments concerned before any\nremovals. 112\nThe American proposal also described in detail the\nrelationship between the zonal reparations plan and\nnecessary imports:\n\"Except as otherwise directed by the\nAllied Control Council each of the four\nPowers occupying Germany ... may remove or\npermit to be removed from its zone of\noccupation capital equipment, current pro-\nduction, and stocks of goods either to pay\nfor necessary approved imports not other-\nwise paid for or after such payment for\nimports has been effected for its own account\nor for the reparation account of any other\nUnited Nations entitled to reparations.\nRemovals shall not be such as would be\nincompatible with the production and\nmaintenance of goods and services required\nto meet\n1\nIbid.\n2 U.S. Delegation (Potsdam), \"Proposal on Repara-\ntions and Related Matters\", July 24, 1945. (Collado\nPapers, No. 17.)\nTOP SECRET\nTOP SECRET\n- 78 -\nto meet the needs of the occupying forces\nand to maintain in Germany the approved\nstandards of living, including such exports\nas are required to pay for approved imports\nfor the occupying forces and the population\nof Germany. \"1\nIt is to be noted that in the zonal plan the United\nStates continued to maintain the position that\nnecessary imports should take precedence over\nremovals of capital equipment as well as over ship-\nments of current production and stocks of goods.\nAfter the Economic Sub-Committee failed to agree\non the first-charge problem, the matter had to be\nreferred to the Foreign Ministers. During the\nensuing discussions, the Soviet Foreign Minister\nproposed a number of substitute schemes.\nMr. Molotov's first proposal was that repara-\ntions, exports, and internal consumption all should\nhave equal priority. This would be provided for by\nthe following sentence in the statement of the first-\ncharge principle:\n\"In case the means are insufficient to\npay simultaneously on reparations account and\nfor approved imports all kinds of deliveries\n(internal consumption, exports, reparation)\nhave to be proportionately reduced.\nMr. Molotov gave an illustration of what he meant by\nthis proposal. Assume that 2 million tons of coal\nwere actuall produced, but the total requirements for\ninternal\n1\nIbid.\n2\nFM (Potsdam), July 23, 1945, 11:30 a.m., pp. 5-6.\nTOP SECRET\nTOP SECRET\n- 79 -\nuse, export, and reparations amounted to 2,200,000\ntons. As a first measure, exports and reparations\nwould be reduced 10 percent to make up the dif-\nference. This would continue for a year's time,\nwith the hope that production would increase suf-\nficiently to make up the difference. If during the\nwhole year there was still a shortage of 10 percent,\nall three factors, including internal consumption,\nwould be reduced 10 percent. If, on the other hand,\nproduction increased over the goal originally set,\nthe amount to go into reparations would not change.\nInstead, the surplus would be either for internal\nuse or for export, as the Control Council should\ndecide. 1\nThe Soviet Foreign Minister advanced a second\nproposal to the effect that necessary imports could\nsimply be reduced if they proved to exceed the amount\nwhich German exports could pay for. The British and\nAmerican Foreign Ministers quickly pointed out that\nthis was incompatible with the program of minimum\nimports to which the Soviet Union had already com-\nmitted itself.\nMr. Molotov countered with yet another proposal\nto the effect that essential imports should have first\npriority on the proceeds of such German exports as had\nbeen agreed to by the Control Council and that repara-\ntions should have first priority on the proceeds of\nother exports, not specifically agreed to by the\nControl Council. He illustrated this proposal as\nfollows:\n\"Say the Control Council had decided\non the export of 500,000 tons of coal at a\ntime when it was planned to produce 2,000,000\ntons.\n1\nIbid., p.5.\nTOP SECRET\nTOP SECRET\n- 80 -\ntons. Suppose the British then wanted to\nexport 700,000 tons. The 500,000 tons\nwould be a first charge and the supple-\nmentary 200,000 tons would be subject to\nreparations needs. To summarize, the\nexports approved by the Control Council\nfor the payment of imports is to be a\nfirst charge. In other cases reparations\nhave priority. In the example cited above\nthe 500,000 tons of exports would have\npriority but the 200,000 additional would\nbe subject to a reparations priority. How-\never, if the Control Council agreed that\nthe 200,000 tons should be exported in\norder to pay for imports then they would\nalso have priority over reparations. \"I\nThis scheme was likewise rejected by the American\nand British representatives.\nNear the end of the Conference, on July 30,\nMr. Molotov submitted a final proposal in which the\nfirst-charge principle would be applied only to pay\nfor those imports approved as necessary by the\nControl Council. The Soviet Foreign Minister pro-\nposed the following wording to provide for this:\n\"Payments for approved imports into\nGermany shall be a first charge against the\nproceeds of exports out of current produc-\ntion and out of stocks of goods to the\nextent to which these exports will be\napproved by the Control Commission, and as\nregards the extent of these imports not\nagreed by the Control Commission, priority\nwill be given to reparations. #2\nAt first\n1 Ibid., p. 7.\n2 FM (Potsdam), July 30, 1945, 5:00 p.m., p. 12.\nTOP SECRET\nTOP SECRET\n- 81 -\nAt first the American and British representatives\nopposed this plan. Mr. Bevin stated his objection in\nthe form of an example. Suppose that the British Zone\nCommander bought wheat and had to export coal to pay\nfor it. Suppose further that approval for the export\nof this coal was not given by the Allied Control\nCouncil. The Zone Commander would be faced with\nalmost certain starvation in his zone. Reparations\nwould nevertheless take precedence, and the British\nwould be compelled to pay for the import of wheat\ninto the British Zone. 1\nSecretary Byrnes also opposed the Soviet plan.\nHe again urged acceptance of the American proposal\nfor an entirely zonal approach to reparations on\nthe ground that it would eliminate disputes among\nzone commanders. Secretary Byrnes pointed out that,\nif the zonal plan were adopted, the Soviet Union\nwould \"have no interest in exports and imports from\nour zone. #2\nSince the Foreign Ministers were unable to agree\non an acceptable version of the first-charge formula,\nthey were forced to refer the question to the Big\nThree for decision. When the matter came up for\nconsideration during the rush of business in the\nclosing hours of the Conference, both Premier Stalin\nand President Truman stated that the first-charge\nprinciple should be omitted from the Protocol.\nForeign Secretary Bevin spoke up, however, and\ninsisted that the first-charge principle was con-\nsidered indispensable by the United Kingdom. Secretary\nByrnes inquired why the British were not willing to\n\"handle this in their own way since they were in\ncontrol in their zone\". Mr. Bevin replied that\nseparate handling would cut across the agreement to\ntreat\n1\nIbid, p. 13.\n2 Ibid.\nTOP SECRET\nTOD SECRET\n- 82 -\ntreat Germany as a whole economy and would divide\nGermany into 1 three entirely separate economic com-\npartments.\nAfter a brief delay the Soviet and American\nDelegations approved the following text (paragraph\n19 of the Potsdam Agreement):\n\"Payment of reparations should leave\nenough resources to enable the German\npeople to subsist without external\nassistance. In working out the economic\nbalance of Germany the necessary means\nmust be provided to pay for imports\napproved by the Control Council in Germany.\nThe proceeds of exports from current pro-\nduction and stocks shall be available in\nthe first place for payment for such imports.\n\"The above clause will not apply to the\nequipment and products referred to in para-\ngraphs 4(A) and 4(B) of the Reparations\nAgreement.\nThe first sentence is taken directly from the original\nAmerican proposals regarding reparations principles,\nas presented to the Allied Reparations Commission.\nThe Soviets 2 never seriously objected to this general\nstatement.\nThe second sentence is a compromise. The American\nproposal, from which it is basically derived, referred\nto imports approved \"by the governments concerned\"\nrather than \"by the Control Council in Germany\".\nReference to the Control Council in this connection\nwas a Soviet proposal. The Soviets apparently felt\nthat\n1 HG (Potsdam), July 31, 1945, 4:00 p.m., p. 14.\n2\nEconomic Sub-Committee (Potsdam), \"Report to\nthe Foreign Secretaries\", July 20, 1945, Annex II.\n(Collado Papers, No. 5.)\nTOP SECRET\nTOP SECRET\n- 83 -\nthat they could in this way limit the first-charge\nmerely to those imports which they themselves approved\nin the Control Council. Imports considered unnecessary\nby any one of the occupying powers would be second in\npriority to reparations.\nThe third sentence was also based on an American\nproposal. However, the specific reference to the\nfirst-charge principle (i.e., the phrase \"available in\nthe first place\") was included at the insistence of\nthe British. The original American proposal also had\nincluded capital equipment, as well as current produc-\ntion and stocks of goods, among the categories of\nexports upon which necessary imports would constitute\na first charge.1\nThe final sentence was the result of a late\nAmerican proposal, made after agreement had been\nreached on the American \"zonal\" reparations plan,\nunder which the Soviet Union received a percentage\nshare from the west. At first the Soviets objected\nto the inclusion of this sentence, since it primarily\naffected Soviet reciprocal deliveries to the West,\nbut at the last minute they agreed to its inclusion.\nD. CURRENT\n1. The \"Memorandum on the Provisions of the\nBerlin Protocol Relating to Reparations\" prepared on\nSeptember 20, 1945 by the United States Delegation to\nthe Allied Reparations Commission contains further\ncomments on this sentence: \"The word 'stock' ... means\nstock of goods'. The phrase 'in the first place'\nmeans that the cost of necessary imports is made a\nfirst charge against the proceeds of all exports of\ncurrent production, raw materials and stocks of goods\nbefore any deliveries of such commodities shall be\nmade for reparation or for other purposes. It should\nbe noted, however, that this concept of a first charge\nto pay for necessary imports does not apply to\ndeliveries of capital equipment, nor to deliveries of\nthose commodities to be supplied to the Western Zones\nby the Soviets under paragraph 4 (A) of Article IV.\"\n(ACR Report, Appendix 30, p. 10.)\nTOP SECRET\nTOP SECRET\n- 84 -\nD. CURRENT PRODUCTION\nThe reparations section of the Potsdam Agreement\ndoes not mention current production as a source of\nreparations. The only reference to the subject appears\nin paragraph 19 of the Economic Principles, where it is\nindirectly referred to in the statement that \"the pro-\nceeds of exports from current production and stocks\nshall be available in the first place\" to pay for\nnecessary imports approved by the Control Council.\nYalta\nAt Yalta, all the Delegations accepted the\nprinciple that current production would be a source\nof reparations. The Yalta Agreement stated outright\nthat one of the three sources of reparations would be\n\"annual deliveries of goods from current production\nafter the end of the war for a period to be fixed\".\nThe Soviets were the strongest advocates of\ncurrent production. They proposed that Germany be\nrequired to make \"annual deliveries of commodities\"\nvalued at $10 billion during 10 years after the\nend of the war. I Although not explicitly stated\nin the Soviet proposal, the $10 billions in current\nproduction was presumably to be divided in the same\nproportion as the $20 billion grand total: i.e.,\n50 percent to the Soviet Union, 40 percent to the\nUnited States and the United Kingdom, and 10 percent\nto all other nations. The Soviet proposal contained\nno breakdown of the commodities to be delivered from\ncurrent production, but merely stated that \"the list\nof goods to be delivered during the 10-year period\ncould be definitely fixed later on. \"2 The Soviets\ngave an explanation of how the figure of $10 billion\nhad been arrived at:\n\"It\n¹Attached to FM (Yalta), Feb. 7, 1945, 12:00 noon.\n2 FM (Yalta), Feb. 5, 1945, 4:00 p.m., p. 15.\nTOP SECRET\nTOP SECRET\n- 85 -\n\"It had been figured that the national\nincome of Germany before the war amounted to\n30 billion dollars annually. The war would\nlower this income by 30-35 percent and would\nbring it to the neighborhood of approximately\n18-20 billion. The Soviet Government proposed\nto take one billion dollars annually, or 5-6\npercent from German national income. This was\nnot a large sum and could be supported by\nGermany. \"I\nThere is no question but that the United States at\nYalta accepted the principle that there would be repara-\ntions from current production. In fact, the United\nStates proposal on reparations principles at Yalta\nstated that reparations in kind were to be extracted\nfrom capital removals and from \"annual deliveries of\ncommodities during ten years after the end of the war\" 2\nThe United States did not, however, feel itself bound\nby the ten-year time limit. Secretary Stettinius\nremarked that \"the ten-year period was merely mentioned\nas a basis for discussion\", adding that it might result\nthat only seven years would be required. , The United\nStates did not, furthermore, agree to the $10 billion\nfigure for reparations from current production as pro-\nposed by the Soviet Union. All that the United States\ndid was to agree that the $20 billion total would be\naccepted as a basis for discussion. We also made no\ncommitments as to the division of current production\namong reparations recipients; we only agreed that the\nSoviet Union would receive 50 percent of all repara-\ntions.\nThe United Kingdom at Yalta also accepted the\nprinciple that there should be reparations from\ncurrent production. The original British proposal\nprovided that German reparations should be extracted\nfrom\n¹FM (Yalta), Feb. 7, 1945, 12:00 noon, p. 6.\n²FM (yalta), Feb. 9, 1945, 12:00 noon, p. 9.\n3Attachment No. 4 to FM (Yalta) Feb. 10, 1945,\n12:00 noon.\nTOP SECRET\nTOP SECRET\n- 86 -\nfrom \"annual deliveries from current production for\na period to be considered\" as well as from capital\nremovals and German labor. 1 The British, however,\nsteadfastly refused to make any commitments regarding\nthe amount of reparations from current production and\nexpressed strong opposition to the ten-year period\nfor current production deliveries proposed by the\nAmerican and Soviet Governments. They suggested a\nmuch shorter period of time, preferably five years.\nMr. Eden refused to accept the ten-year period even\nas a basis of discussion, although he received express\nassurance from both the American and Soviet Foreign\nMinisters that this involved no firm commitment.\n2\nU.S. Policy Formulation\nEver since the Yalta Conference, the American\nposition has been that reparations from current pro-\nduction should be subordinated to reparations in the\nform of once-and-for-all removals from Germany's\nnational wealth. This idea was first clearly expressed\nin the United States policy paper prepared by the\nInformal Policy Committee on Germany in the spring of\n1945. \"To the maximum extent possible\", the paper\nstated, \"reparations should be taken from the national\nwealth of Germany existing at the time of collapse\n113\nThe instruction went on to specify the limitations which\nthe United States wished to impose on current production\nas a source of reparations:\n\"To the extent that for political reasons\nit may become necessary in the negotiations to\nagree that reparations be collected in the form\nof deliveries of goods from current production\nover a period of years, such goods should be of\nsuch a nature and in such amounts as not to\nrequire the maintenance of the German war\npotential\n1\nAttachment No. 4 to FM (Yalta) Feb. 10, 1945,\n12:00 noon.\n2FM (yalta), Feb. 10, 1945, 12:00 noon, p. 6.\n3 IPCOG 2/1, para. 3(8).\nTOP SECRET\nTOP SECRET\n- 87 -\npotential or the continued dependence of\nother countries on Germany after repara-\ntions cease. Accordingly, recurring\nreparations, over a period of years, should\nbe:\n\"(1) As small as possible in relation\nto the reparations to be paid in the form of\nindustrial plants and equipment; and\n'(2) Primarily in the form of raw\nmaterials and natural resources, and to the\nsmallest extent possible in the form of\nmanufactured products. \"1\nMoscow\nThis policy of de-emphasis on current production\nwas advocated by the United States representative at\nthe first meeting of the Reparations Commission in\nMoscow. Ambassador Pauley stated the American posi-\ntion as follows: \"Since a reparations plan should\nnot require building up German economic capacity, we\nshould restrict to a minimum any long-run payment of\nreparations in the form of manufactured products. \"2\nAfter some discussion, the Soviet and British Delega-\ntions agreed to this in principle, and the following\nstatement was later adopted as one of the \"Agreed\nPrinciples\" to be submitted to the Potsdam Conference\nby the Reparations Commission:\n\"To a maximum extent reparations shall\nbe taken from the existing national wealth of\nGermany. In order to avoid building up\nGerman industrial capacity and disturbing the\nlong\n1\nIbid., para. 3(h).\n2\nACR Report, Appendix 9.\nTOP SECRET\nTOP SECRET\n- 88 -\nlong term stability of the economies of the\nUnited Nations, long run payments of repara-\ntions in the form of manufactured products\nshall be restricted to a minimum. \"1\nMembers of the Commission disagreed over various\naspects of reparations from current production.\nThere were differences of opinion over the amount of\nreparations from current production, over the time\nlimit for deliveries, and over the first-charge\nprinciple in its application to current production.\nAs to the amount, the Soviets continued to\ninsist upon the $10 billion total which they had\nproposed at Yalta. At the beginning of the Moscow\nsession, they proposed that the Reparations Commission\ndetermine how the $10 billion would be broken down\nin commodities and how it would be allocated among\nrecipients. 2 However, the Soviets failed to provide\nsupporting evidence for their claim to the $10 billion\ntotal. They subsequently proposed that the determination\nof the amount of current production be of capital-\nequipment removals.\nAs to the time limit, the Soviets formally pro-\nposed at the beginning of the Moscow session that\nGermany should make deliveries from current produc-\ntion \"for a period of ten years after the conclusion\nof the war\". 4 The time period for deliveries was not\ndiscussed on a tripartite basis. The United States\nDelegation, however, became increasingly opposed to\nthe ten-year period advocated by the Soviets and\naccepted\n1\nACR \"Agreed Principles of Reparations\". (Collado\nPapers, No. 2, p. 10.\n2 ACR Report, Appendix 10.\n3\nIbid. Part IV, p. 12.\n4\nIbid. Appendix 10.\nTOP SECRET\nTOP SECRET\n- 89 -\naccepted by the United States at Yalta as a basis\nfor discussion. During the Moscow meetings, the\nUnited States Delegation came to favor a five-year\nperiod, as had been advocated by the British at\nYalta. The United States also favored a progressive\nreduction in the amount of the annual payment 1\nThe relation of reparations from current pro-\nduction to the first-charge principle was one of the\nmajor points of disagreement at Moscow. 2 The issue\nwas summed up in the letter which Ambassador Pauley\nwrote to the Soviet representative at the conclusion\nof the Moscow session: \"I want to make my position\nperfectly clear with regard to the charges against\nGerman exports which we discussed yesterday. Surely\nwe both understand there can be no current annual\nreparations from Germany except as more goods are\nshipped out of Germany than are shipped in, that is,\nthere must be a large export balance. \"3\nPotsdam\nThe original Soviet proposal on reparations at\nPotsdam, as submitted to the Economic Sub-Committee\non July 24, contained detailed provisions regarding\ncurrent production. The following points were\ncovered: (1) annual deliveries in kind should amount\nto $10 billion, or half of the total reparations bill;\n(2) the $10 billion should be delivered over a ten-\nyear period, with $1 billion being delivered each\nyear; and (3) annual deliveries in kind should con-\nsist of the following categories of goods: coal and\nbrickets; chemicals (drugs, dyes, potassium, etc.);\nmachinery and tools; cement and building materials;\ntimber\n1\nIbid., Appendix 15.\n2\nSee above, pp. 76 ff. for a full description of\nthis difficulty.\n3\nACR Report, Part IV, p. 7.\nTOP SECRET\nTOP SECRET\n- 90 -\ntimber and paper; sugar; cattle and agricultural\nproducts; eeramics; medical instruments; optical\napparatus; and river shipbuilding. 1 The Soviet\nproposal was not discussed in the Economic Sub-\nCommittee.\nWhen the Soviets later accepted the American\nzonal plan at Potsdam, they did not abandon their\nclaim to reparations from current production. Nor\ndid the American and British Delegations consider\nthat acceptance of the zonal plan eliminated current\nproduction as a source of reparations. In the first\nplace, the British-American sponsored first-charge\nprinciple, as expressed in paragraph 19 of the\nEconomic Principles, specifically applied to repara-\ntions from current production.² Furthermore, current\nproduction was mentioned in the first draft of the\nAmerican proposal for a zonal plan of reparations.\nThe proposal stated that \"each of the four powers\noccupying Germany except as otherwise directed\nby the Allied Control Council\nmay remove or\npermit to be removed from its zone of occupation\ncapital equipment, current production, and stocks\nof goods either to pay for necessary approved imports\nnot otherwise paid for or after such payment for\nimports has been effected for its own account or for\nthe reparations account of any other United Nation\nentitled to reparations. \"3 Finally, the American\nproposal was specific enough on the subject of\ncurrent production to mention 4 May 10, 1951, as a time\nlimit for annual deliveries.\nAlthough\n1\nSoviet Delegation (Potsdam), \"Plan of Reparations\nfrom Germany\", July 24, 1945. (Collado Papers, No. 11.)\n2 See above, p. 76\n3\nU.S. Delegation (Potsdam), \"Proposal on Repara-\ntions and Related Matters\", July 24, 1945. (Collado\nPapers, No. 17.)\nTOP SECRET\nTOP SECRET\n- 91 -\nAlthough the United States, therefore, did not\nconsider that the Potsdam Agreement eliminated current\nproduction as a source of reparations, it is equally\nclear that the United States opposed reparations from\ncurrent production until essential imports were paid\nfor. The understanding at the Potsdam Conference\nappears to have been that the problem was actually\npostponed; i.e., that nothing could be done until the\nControl Council worked out the German level of industry\nin accordance with the standard-of-living formula and\nthe export-import programs. required to maintain the\nagreed standard of living. The following report on\nthe problem reflects the thinking of the United States\nDelegation immediately after the Potsdam Conference:\n\"The problem of deliveries from current\nproduction as reparations was not raised at the\nBerlin Conference. The reparations plan there\nadopted, coupled with the policies of removal\nalready initiated in the Eastern Zone, indicates\nthat such exports as Germany can provide at\nleast during the first years of occupation will\nin large part be required to meet the cost of\nessential imports. This is likely to leave\nlittle reparations from current production, at\nleast in the near future. Reparations from\ncurrent production is not, therefore, a matter\nof immediate consideration. The determination\nof the character and amount of removals of\nindustrial capital equipment should not be\nbased on any program for leaving sufficient\nresources within Germany to provide for repara-\ntions from current production. It is likewise\nnot necessary to determine a time limit for\nremovals from current production for reparation\naccount at present. The determination of the\ntime limit would not appear to be a responsibility\nof the Control Council or the Zone Commanders, but\nshould be negotiated by the Allied Commission on\nReparations.\nN\nE. EXTERNAL\n1\nACR Report, Part X, p. 5.\n2 ACR Report, Appendix 30, p. 14.\nTOP SECRET\nTOP SECRET\n- 92 -\nE. EXTERNAL GERMAN ASSETS\nThree paragraphs in the Potsdam Agreement contain\nreferences to Germany's external assets. Paragraphs\n8 and 9 of the Reparations Agreement in part concern\ndivision of German assets among reparations recipients:\n\"8. The Soviet Government renounces all\nclaims in respect of reparations to\nGerman\nforeign assets in all countries except those\nspecified in paragraph 9 below.\n\"9. The Governments of the United Kingdom\nand the United States of America renounce their\nclaims in respect of reparations to German\nforeign assets in Bulgaria, Finland, Hungary,\nRumania, and Eastern Austria.\"\nParagraph 18 of the Economic Principles refers to\nAllied control over Germany's external assets:\n\"Appropriate steps shall be taken by the\nControl Council to exercise control and the\npower of disposition over German-owned external\nassets not already under the control of United\nNations which have taken part in the war against\nGermany.\nIf\nYalta\nThe Yalta Agreement included \"German investments\nabroad' as one of the sources of reparations. How-\never, the agreement contained no details as to how\nGerman external assets were to be divided or how they\nwere to be controlled by the occupying powers.\nGerman external assets were discussed only briefly\nat Yalta, chiefly in connection with German assets in\nthe United States. President Roosevelt remarked that\n\"after the last war the German property that had been\nsequestered during the war had been turned back to\nthe German owners\" but that this time he would seek the\nnecessary\nTOP SECRET\nTOP SECRET\n- 93 -\nnecessary legislation \"to retain for the United States\nall German property in America\". 1 Later in the repara-\ntions discussion, Premier Stalin raised the subject and\npointed out that, although the United States might not\ndesire German capital equipment as a source of repara-\ntions, she might \"take over German property in the\nUnited States as a part of her share. \"2 Aside from\nthese two brief allusions, however, the problem of\nexternal German assets was not discussed at Yalta.\nU.S. Policy Formulation\nUnited States policy, as formulated in the spring\nof 1945 by the inter-agency Informal Policy Committee\non Germany, was that \"German foreign exchange assets\nincluding investments abroad' should be one of the\nsources of reparations. 3 The statement outlined as\nfollows United States policy toward control over these\nforeign assets:\n\"The governments participating in the\nReparation Commission will retain control\nover the disposition of German property\nlocated within their respective borders.\nThese nations will seek agreement with\nother countries in which German assets are\nlocated designed to eliminate continued\nGerman control of such assets and prevent\ntheir eventual return to Germans. 114\nMoscow\nThe United States Delegation to the Reparations\nCommission urged that German external assets be made\none of the chief sources of reparations. This was\npart of the American policy of laying major emphasis\non reparations\n1 HG (yalta), Feb. 5, 1945, 4:00 p.m., p. 17.\n2 Ibid., p. 19.\n3 IPCOG 2/1, para. 3(g).\n4\nIbid., para. 8.\nTOP SECRET\nTOP SECRET\n- 94 -\non reparations from the \"national wealth\" of Germany,\nas distinct from reparations from current production.\nThis principle was accepted by the Commission and\nincorporated in the Agreed 1 Principles submitted to\nthe Big Three at Potsdam.\nThe United States Delegation to the Reparations\nCommission also advocated the setting up of a pro-\ncedure for controlling and dividing German external\nassets. 2 The Delegation favored the prompt issuance\nof a decree by the Allied Control Council vesting\ntitle to German external assets in an appropriate\nagency of the Control Council. The following pro-\ncedure was suggested by the United States Delegation:\n(1) Assets in countries other than United Nations\nshould be thrown into a reparations pool for eventual\ndistribution according to directives from the Repara-\ntions Commission or another Allied reparations agency.\n(2) Assets in one of the United Nations entitled\nto reparations should be transferred to that nation\nand charged against its reparations account.\n(3) Assets in one of the United Nations not\nentitled to reparations should either (a) be kept by\nthat nation in order to wipe out German interests,\nin that country, (b) be used to pay the claims of\nthat nation against Germany, with the surplus applied\nto pay for imports into Germany from that nation, or\n(c) be used to pay the claims of that nation against\nGermany, with the surplus thrown into the reparations\npool. 3\nAlthough the problem of control over German assets\nwas not discussed formally by the Allied Reparations\nCommission,\n1 ACR, \"Agreed Principles of Reparations undated.\n(Collado Papers, No. 2, p. 10.)\n2\nACR Report, Appendix 14.\n3\nIbid.\nTOP SECRET\nTOP SECRET\n- 95 -\nCommission, the American proposal for a vesting\ndecree by the Allied Control Council was discussed\ninformally with the British and Soviet representatives.\nThe British took the position that a freezing decree -\nas distinguished from a vesting decree - should be\nissued initially. They also argued that the matter of\nvesting or freezing, and the manner for doing so,\nshould be left to the respective governments rather\nthan to the Reparations Commission. It was informally\nagreed that effective and speedy action was necessary\nto prevent dissipation of German assets in neutral\ncountries, and that each representative would recommend\nto his Government the necessity for such speedy action.\nPotsdam\nTwo distinct aspects of the external-assets\nproblem were discussed at Potsdam. On the one hand,\nthere was the problem of devising a means for exercis-\ning four-power control over external assets, particularly\nin neutral countries. On the other hand, there was the\nproblem of dividing German external assets among the\nreparations recipients. The negotiations concerning\nthese two points are discussed separately below.\n(a) Control over Assets. At Potsdam the United\nStates urged that the Big Three take immediate steps\nto gain full control over German external assets by\nmeans of the following declarations:\n\"The Chiefs of State of the United States,\nthe United Kingdom, and the Soviet Union having\nmet at Potsdam and having concerted with the\nGovernment of France, the following declaration\nis issued:\n\"The Governments of the United States, the\nUnited Kingdom, the Soviet Union, and France\ndeclare that German external assets, not already\nunder the control of United Nations which have\ntaken a part in the war with Germany, are subject\nto\n1\nIbid., Part IV, p. 12.\nTOP SECRET\nTOP SECRET\n- 96 -\nto the jurisdiction of the Powers occupying\nGermany and of the Allied Control Council.\n\"All countries in which such assets are\nlocated are hereby called upon to place such\nassets at the disposition of the occupying\npowers and of the Allied Control Council.\nThe diplomatic representatives of the Powers\nsignatory to this Declaration will act as\ntheir representatives in exercising control\nand the power of disposition over such\nassets. 1\nThe United States also argued that the Allied Control\nCouncil issue a decree vesting German external assets.\nA draft decree was submitted by the United States\nDelegation to the Economic Sub-Committee 2\nHowever, the British and Soviet Delegations\nopposed the issuance of both the declaration and the\ndecree. As a compromise, the United States proposed\ninclusion in the Economic Principles of a paragraph\nwhich would specify that the Control Council would\ntake appropriate steps to exercise control and the\npower of disposition over German external assets.\nThe United States also proposed that \"appropriate\nreference\" to the assumption of control over German\nexternal assets be made in the communiqué to follow\nthe Conference. The British favored the American\nproposal, but the Soviets said that they had \"very\nlittle interest in the matter\" and reserved their\nposition up to the last moment. 3 In the end, however,\nthe Soviets agreed to the inclusion of what became\nparagraph 18 in the Economic Principles.\nAt\n1U.S. Delegation (Potsdam), \"Text of Proposed\nDeclaration by the Big Three and France: German\nExternal Assets), July 20, 1945. (Collado Papers,\nNo. 29.)\n2ACR Report, Appendix 24.\n>Economic Sub-Committee (Potsdam), \"Third Report\nto the Foreign Ministers\", August 1, 1945. (Collado\nPapers No. 40.)\nTOP SECRET\nTOP SECRET\n- 97 -\nAt the close of the Potsdam Conference, the\nUnited States Delegation sent to the United States\nrepresentative on the Allied Control Council a\nmemorandum urging adoption by the Control Council\nof a vesting decree. A draft decree was submitted,\nwhich formed the basis for Control Council Law\nNumber 5, adopted on October 30, 1945.\nAlthough the Control Council was clearly made\nresponsible for the disposition of all German assets\nby paragraph 18 of the Economic Principles, the\nsituation was confused by the following extract\nfrom an aide-mémoire sent by the United States\nAmbassador at Moscow to the Soviet Government on\nSeptember 7, 1945:\n\"The view is held by the United States\nthat even though the Allied Control Council\nhas control and power of disposal of\nexternal assets of Germany, Russia will\ndispose of assets in Bulgaria, Rumania,\nHungary, Finland, and Eastern Austria with-\nout reference to United Kingdom, French, and\nUnited States elements in the Allied Control\nCouncil; and all other German external assets\nwill be disposed of, without reference to\nRussian element, by the United Kingdom,\nFrench, and United States elements in the\nAllied Control Council. \"1\nThe Soviet Government replied that it had \"no objection\nto the proposal insofar as it affects the Soviet\nUnion. \"12 This exchange seriously weakened the claim\nof\n1\nTelegram No. 1964 to Moscow, Sept. 6, 1945.\n(Paraphrased as aide-mémoire to the Soviet Government,\nSept. 7, 1945.\n2\nTelegram No. 3303 from Moscow, Sept. 18, 1945,\ncontaining text of note of Sept. 16, 1945, from the\nSoviet Foreign Office.\nTOP SECRET\nTOP SECRET\n- 98 -\nof the Allied Control Council to exercise any\ncontrol over the disposition of German external\nassets in individual zones.\n(b) Division of German External Assets. The\nEconomic Sub-Committee and the Foreign Ministers at\nPotsdam sought in vain through most of the Conference\nto evolve a formula for distributing external assets\namong reparations recipients. It was left up to the\nHeads of Government themselves to work out a formula\nfor distribution of German assets in the last 24 hours\nof the Conference.\nThough most of the Conference, the Soviets had\ninsisted that they should receive 30 percent of\nGermany's foreign assets, wherever located. When\nasked for clarification, Premier Stalin replied that\nthe Soviet Union wanted 30 percent of all German\nassets which had been frozen in other countries,\nincluding the United States. Secretary Byrnes promptly\nobjected, pointing out that the disposal of frozen\nGerman assets in the United States was a matter requir-\ning Congressional action. In fact, Congress had\nalready established the manner for settling claims to\nGerman assets in America, and the American Delegation\ncould not agree to any method for disposing of these\nclaims which ran counter to the laws passed by Congress.\nThe Secretary added that many Latin American countries\nhad claims against Germany for shipping losses, and\nthat German assets in those countries would probably\nbe used to satisfy such claims. 1\nWhen the British also protested strongly, Premier\nStalin agreed to confine the Soviet request to 30\npercent of German assets in neutral countries only.\nThis scheme was also 2 considered unworkable by the\nother Delegations.\nAt\n1 HG (Potsdam), July 31, 1945, 4:00 p.m., p. 7.\n2\nIbid., p. 10.\nTOP SECRET\nTOP SECRET\n- 99 -\nAt the next-to-the last meeting of the Heads of\nGovernment, Premier Stalin abandoned the Soviet claim\nto 30 percent of German external assets. 1 He proposed\nan entirely new approach, whereby German assets would\nbe divided according to a geographic demarcation line,\nroughly corresponding to the boundary of the area\noccupied by the Red Army. Everything east of the\nboundary would go to the Soviet Union and everything\nwest to the other Allies. He explained the boundary\nas a line running roughly from the Baltic to the\nAdriatic and gave as an example the fact that German\ninvestments in Rumania and Hungary would go to the\nSoviet Union. The British agreed to this plan in\ngeneral, with the proviso that German assets in\nGreece should go to the United Kingdom. 2\nThe disposition of German assets in Austria and\nYugoslavia was the subject for considerable discussion.\nPremier Stalin pointed out that neither country fell\nclearly on the eastern or western side of the boundary\nline. Austria was divided into zones of occupation,\nand Yugoslavia was partly in the zone of occupation\nof the Red Army and partly out of it. When Premier\nStalin asked what should be done with German assets\nin Yugoslavia, Mr. Bevin suggested that they be given\nto the Western powers. Premier Stalin asked Mr. Bevin\n\"if he wanted Austria too.\" When Mr. Bevin replied\nthat he did not, Premier Stalin suggested that the\nWestern Allies take Yugoslavia and that Austria be\ndivided according to the zones of occupation.\nWhen Premier Stalin was asked what percent of\nGermany's foreign assets he expected to receive under\nthe\n1 HG (Potsdam), July 31, 1945, 4:00 p.m., p. 7.\n2 Ibid., p. 10.\n3 HG (Potsdam), Aug. 1, 1945, 4:00 p.m., pp. 2-3.\nTOP SECRET\nTOP SECRET\n- 100 -\nthe new proposal, he replied that he did not know, but\nthat \"it would be very small as most of ... [the\nassets]\nwere west of the demarcation line\". He felt that he\nhad made a concession and that the Western powers\nshould reciprocate and renounce their claim to German\nassets east of the boundary line. He stated that the\nSoviet Union was laying claim to German foreign assets\nonly in \"Rumania, Bulgaria, Finland, and Hungary\" and\nthat enterprises in Norway, Switzerland, Spain, and\nall other countries in the west \"would all fall to\nthe Allies. \"1\nSome dispute arose over the exact interpretation\nof the phrase \"zone occupied by the Red Army\", which\nwas to be the criterion for determining the area to\nwhich the Soviet Union would confine its claims.\nPremier Stalin explained that Yugoslavia and\nCzechoslovakia were not to be considered in the\nSoviet-occupied zone for this purpose. German assets\nin those two countries would be at the disposal of\nthe Western Allies. 2 The general principle appears\nto have been that the Soviet Union would extract\nreparations from the former German satellites of\nEastern Europe, while the Eastern European nations\nwhich had been allies during the war - Yugoslavia,\nGreece, and Czechoslovakia - were to join the Western\nAllies for disposing of German assets. German assets\nin Poland were not mentioned in the discussions.\nAfter general agreement had been reached on this\nmethod of dividing external assets, Foreign Secretary\nBevin said that he assumed \"it was clear that assets\nowned by British and Americans in [the Soviet-\noccupied area] would not be touched. Premier Stalin\nreplied \"of course they would not\", and added that the\nSoviet\n1 Ibid., p. 4.\n2 Ibid., p. 5.\nTOP SECRET\nTOP SECRET\n- 101 -\nSoviet Union \"had not been at war with Great Britain. \"\nMr. Bevin pointed out that British and American assets\nmight have been taken over by Germans and would appear\non the surface to be German assets. To this Premier\nStalin replied that it \"would be necessary to decide\nthe matter on the merits of each case. \"1\nOne other question arose during the discussions:\nwhether or not to publish the agreed formula for dividing\nGermany's external assets. Premier Stalin at first\nthought that the formula should appear in the Protocol,\nbut should not be published. When, however, President\nTruman said that he felt the provision should be\npublished, Premier Stalin agreed. 2\nF. SHARES\nIbid., p. 5\n²Ibid.\nTOP SECRET\nTOP SECRET\n102 I 1\nF. SHARES OF GERMAN ENTERPRISES\n\"Shares of German enterprises\" are referred\nto as follows in paragraphs 8 and 9 of the Reparations\nAgreement:\n\"8. The Soviet Government renounces\nall claims in respect of reparations to shares\nof German enterprises which are located in\nthe western zones of occupation in Germany.\n...\n\"9. The Governments of the United Kingdom\nand the United States of America renounce their\nclaims in respect of reparations to shares of\nGerman enterprises which are located in the\neastern zones of occupation in Germany. 11\nYalta\nShares of German enterprises located in Germany\nwere first mentioned as a source of reparations in\na Soviet proposal at Yalta which provided that \"shares\nof industrial, transport, navigation, and other\nenterprises in Germany\" should constitute one of the\nsources of reparations. In signing the Yalta Agree-\nment, the American and British Governments agreed to\nthe principle that shares of German enterprises in\nGermany should be a source of reparations. The\nmatter was not discussed at Yalta.\nU.S. Policy Formulation\nThe United States policy statement on German\nreparations prepared by the Informal Policy Committee\non Germany made no mention of shares of German enter-\nprises as a source of reparations. In listing the\nsources of reparations, the statement included only\ntangible items, such as equipment and plants. 1\nMoscow\nWhen the Reparations Commission met at Moscow,\nthe Soviet Delegation submitted a proposal\nwhich\nIIPCOG 2/1, para. 3 (g).\nTOP SECRET\nTOP SECRET\n- 103 -\nwhich included \"shares of industrial, transport and\nother enterprises remaining in Germany\" as one of\nthe sources of reparations. I The Soviet proposal\ndid not specify the total value of these shares nor\ndid it give any indication as to their allocation\namong reparations recipients. The Reparations\nCommission did not discuss the Soviet proposal and\nno agreements were reached on the Soviet proposal.\nPotsdam\nAt Potsdam the Soviets again proposed that one\nof the major categories of reparations be shares of\nGerman enterprises. They proposed $1.9 to $2.3\nbillions in \"shares of German enterprises (railways,\nports, canals, etc.), foreign currency, precious\nmetals 2 The Soviet claim in this instance specified\nshares of transport enterprises only: earlier Soviet\nproposals had included shares of industrial and\nother enterprises as well.\nIn the course of negotiations, the Soviets\nmodified this proposal. Instead of demanding a\nfixed value of shares to German enterprises, they\nproposed that they receive 30 percent of all shares\nof German enterprises, regardless of where they were\nlocated in Germany. This paralleled their demands\nfor 30 percent of German external assets and 30\npercent of German gold. 3\n1 ACR Report, Appendix X.\n2\nSoviet (Potsdam) Delegation, \"Plan of Reparations\nfrom Germany\", July 24, 1945. (Collado Papers, No. 11.)\n3 HG (Potsdam), July 31, 1945, 4:00 p.m., p. 7.\nTOP SECRET\nTOP SECRET\n- 104 -\nHowever, the 30 percent claim was abandoned by\nthe Soviets in the last 24 hours of the Potsdam\nConference. Premier Stalin himself suggested that\nthe demarcation line between the Soviet and Western\nZones of Occupation should be the dividing line with\nrespect to shares of German enterprises. 1 When\nSecretary Byrnes asked for clarification, Premier\nStalin explained that \"the shares of German corporations\nlocated in the American zone would belong to the\nAmericans. \"2 Secretary Byrnes asked whether this\nmeant that \"the Russians would make no claim to shares\nof enterprises located in the American zones. Premier\nStalin replied that the Soviet Union would make no\nsuch claims. 3\nFurther discussion of German enterprises con-\ncerned the actual wording of paragraphs 8 and 9 of\nthe Reparations Agreement. The draft for the first\npart of paragraph 8 read: \"The Soviet Government\nrenounces all claims to shares of German enterprises\nwhich are located in the western zones 11 and the\ndraft for the corresponding part of paragraph 9\nread: The Governments of the United Kingdom and the\nUnited States of America renounce their claims to\nshares of German enterprises which are located in the\neastern\nzone \" Secretary Byrnes proposed inserting\n\"in respect of reparations\" between \"claims\" and \"to\"\nin both paragraphs. The purpose, according to\nSecretary Byrnes, was \"to avoid creating the impression\nthat the Soviet Government had claims other than\nreparations. 114 Although it was not stated, an\nadditional\n1HG (Potsdam), Aug. 1, 1945, 4:00 p.m., p. 2.\n²Ibid., p. 3.\n3Ibid.\n4HG (Potsdam), Aug. 1, 1945, 10:40 p.m., p. 2.\nTOP SECRET\nTOP SECRET\n105 I 1\nadditional reason for the change was probably to\nprotect American and British assets in the\nSoviet Zone. By providing that the United States and\nthe United Kingdom renounced all claims in respect of\nreparations to assets in the Soviet Zone, the way\nwas left open for claims to American and British\nproperty in the Soviet Zone.\nAt first Foreign Minister Bevin jected to the\namendment. He pointed out that, as he interpreted\nit, the British would be forced to renounce their\nclaim to a factory owned by a British national in\nthe British Zone which the Germans had taken over for\nwar purposes prior to 1939. Secretary Byrnes replied\nthat, on the contrary, his amendment was intended to\ncover just such cases. It did not prevent the United\nKingdom from claiming a British-owned factory in the\nBritish Zone, and it prevented the Soviets from\nclaiming a British-owned factory in the Soviet Zone.\nAfter this explanation, the Soviet and British Delega-\ntions agreed to accept the American proposal for the\nadditional phrase in paragraphs 8 and 9.1\nAt the close of the Potsdam Conference, the\nUnited States Delegation finally formulated a definite\npolicy regarding shares of German enterprises. This\npolicy was expressed in the following summary memorandum\non the provisions of the Potsdam Agreement:\n\"The United States Government is opposed to\nthe payment of reparations by the transfer of\nstock ownership in German domestic corporations,\nand will not accept such stock itself as repara-\ntions. The United States regards the taking\nof corporate stock as inconsistent with the\nbalance of the reparations plan, which is based\non \"things\", as likely to create an undesirable\ninterest in expanding the German economy; as\nlikely to increase cartelization both in\nGermany and internationally under foreign government\nsponsorship;\nIbid.\nTOP SECRET\nToΓ SECRET\n- 106 -\nsponsorship; and as tending to prolong the\nactual payment of reparations by Germany\nfar beyond any period contemplated by the\nReparations Agreement. \"1\nG. GOLD\n1 ACR Report, Appendix 30, pp. 32-33\nTOP SECRET\nFOR SECRET\n- 107 -\nG. GOLD\nThe Potsdam Agreement contains only a brief\nallusion to the subject of gold. Paragraph 10 in\nthe Reparations Agreement states:\n\"The Soviet Government makes no claims\nto gold captured by Allied troops in Germany.\"\nYalta and Moscow\nThe Yalta Agreement does not mention gold among the\nsources of reparations, nor does the basic policy state-\nment prepared by the United States Government during the\nspring of 1945. Similarly, neither American, British,\nnor Soviet proposals at the Moscow meeting of the\nReparations Commission make any mention of gold. 1\nThe use of gold for reparations was, however,\nconsidered by it he United States Government prior to\nPotsdam. It was the subject of disagreemont between\nMr. Pauley (the American representative on the Reparations\nCommission) and the Department of State. Mr. Pauley's\nposition was that the United States did not want repara-\ntions for itself in the form of plants, machinery,\nand labor, but that-as he expresed it -\"what we can\nuse, and should demand as fully as possible, are\ngold, currencies, foreign assets, processes, patents,\nand all kinds of technical know-how. The Depart-\nment of State, on the other hand, was strongly\nopposed to the idea that the United States should\nmake a reparations claim to gold found in Germany.\nThe Department asserted that, \"aside from the question\nof gold restitution as against its use for reparations,\nthe disadvantages which would result from such a\ndemand on the part of this Government would outweigh\ngreatly the benefits to be gained from an increase of the\ngold stocks in this country \"3 Mr. Pauley did not\nagree,\n-The American proposals are contained in the ACR\nReport, Part IV, pp. 5-6, and Appendixes 9 and 11. The\nSoviet proposals are contained in the ACR Report,\nAppendix 10.\nACR Report, Appendix 42, p. 3.\n3Ibid.\nTOP SECRET\nTOP SECRET\n- 108 -\nhowever, and recommended further study of the subject,\n\"especially as the receipt of gold as reparations\nmay prove particularly convenient and useful for our\ncountry to pay occupation costs in the supply of our\narmy of occupation with such goods as cannot be\nobtained in Germany.\" Because of this disagreement,\nthe use of gold as a source of reparations was not\nproposed by the United States to the Reparations\nCommission.\nPotsdam\nA Soviet proposal of July 24 at Potsdam was the\nfirst specific reference to gold as a source of\nreparations. In an itemized breakdown of reparations\nsources, the Soviets proposed that \"precious metals\"\nbe part of a category which, along with German assets\nand foreign currency, would amount to $1.9 to $2.3\nbillions.1 Almost until the end of the Potsdam Con-\nference, the Soviets continued to demand a share of\nGerman gold. The negot ations paralleled those eon-\ncerning German assets and shares of German enterprises,\nsince the Soviets also laid claim to 30 percent of\nGerman holdings in these two categories. 2\nAlmost at the end of the Potsdam Conference,\nPremier Stalin made a new proposal: that the Soviet\nUnion receive 30 percent of all captured German gold.\nSecretary Byrnes pointed out to Premier Stalin that\nmuch of the gold had been looted from occupied\ncountries, which would have first claim to its\nrestitution. Premier Stalin replied that the Soviets\nmeant German gold\". Secretary Byrnes asserted,\nhowever, that the gold was all looted and that the\nbasic question was whether to return it to its right-\nful owners or to share it among the Big Three.3\n1 Soviet Delegation, \"Plan of Reparations from\nGermany\", July 24, 1945. (Collado Papers No. 11.)\n2 See pp. 98-99 and 103-104.\nBig Three July 30, 1945 4:00 p.m., p. 7.\nTOP SECRET\nTOP SECRET\n- 109 -\nAt the next-to-the-last meeting of the Big Three,\nhowever, the Soviets suddenly abandoned their claim\nto German gold. In connection with a general\nsettlement of the related problems of external\nGerman assets and shares of German corporations,\nPremier Stalin announced that \"the Russians would\nnot claim the gold which their Allies had found in\nGermany. \"1 This settled the gold problem as far\nas the Big Three were concerned, and no further\ndiscussion took place.\nH. WAR BOOTY\n¹HG (Potsdam), Aug. 1, 1945, 4:00 p.m., p. 2.\nTOP SECRET\nTOP SECRET\n- 110 -\nH. WAR BOOTY\nThe Potsdam Agreement does not mention war\nbooty. However, negotiations concerning the subject\nare described here because war booty was closely\nrelated to reparations.\nYalta\nThe sub ject of war booty was not discussed at\nYalta.\nU.S. Policy Formulation\nSoon after Yalta, the United States became\nconcerned over indications that the Soviets were\nremoving as \"war booty many items which should more\nproperly have been classified as reparations. This\nconcern was reflected in the United States policy\ndirective prepared by the inter-agency Informal\nPolicy Committee on Germany:\n\"In order to prevent the treatment as\nwar booty or as reimbursement for occupation\ncosts of exports from Germany which should\nproperly be considered as reparations\ndeliveries, agreement should be sought on\nthe scope of war booty and reimbursement for\noccupation costs. Agreement should also be\nsought on the scope of restitution in relation\nto reparation. \"1\nMoscow\nAt Moscow the United States Delegation sought\nto carry out this policy by requesting the Soviets\nto present an exact definition of war booty that\nwould exclude capital equipment. The Soviet\nrepresentative repeatedly delayed in presenting the\nCommission with a definition, despite persistent\nurging by the United States representative.\nAccordingly,\n¹IPCOG 2/1, para. 7.\nTOP SECRET \"\nTOP. SECRET\n111 1 I\nAccordingly, the United States Delegation submitted\nits own definition on July 11:\n\"War booty shall consist of all finished\nwar material, but shall not include equipment\nused to produce war material. What constitutes\nwar material shall be defined by Military\nrepresentatives of the three powers represented\non the Allied Commission on Reparations. \"1\nAt the July 13 meeting the Soviet representative\nstated that he was unable to discuss the American\ndefinition or any other aspect of the war-booty\nproblem. The American representative replied that\nit was impossible to agree on reparations principles\nuntil it was clearly understood what constituted\nreparations, particularly as distinguished from\nwar booty. The United States Delegation therefore\ninsisted that the Reparations Commission's report\nto the Big Three at Potsdam contain the following\nqualification: \"The United States Government feels\nthat the definitions of restitution, war booty, and\nreparations are so interrelated with the formulae\nfor allocation of reparations that agreement must\nbe reached on all of these matters simultaneously. \"2\nThe United States Delegation also obtained agreement\non the inclusion in the Reparations Commission's\nreport of a statement to the effect that the United\nStates had proposed the following definition of war\nbooty (which was a modification of its earlier\nproposal):\n\"War booty shall be limited to finished\nequipment and supplies produced for and\nbelonging to the German armed forces exclusive\nof any facilities used to produce such equipment\nor supplies. \"3\nThus\n1ACR Report, Part IV, p. 16.\n²Ibid., Part V, p. 2.\n3 Ibid.\nTOP SECRET\nTOP\nSECRET\n- 112 -\nThus the Reparations Commission reached no final\nagreement on the definition of war booty.\nPotsdam\nThe problem of defining war booty was turned\nover to the Economic Sub-Committee at Potsdam. In\nspite of frequent urging by the United States\nrepresentative, the Soviets continued to delay in\nsubmitting a definition, and the Sub-Committee\nreported disagreement on the subject in its first\nreport to the Foreign Ministers. I Finally, on\nJuly 21 the Soviet representative submitted a\ndefinition of \"war trophies\". The Soviets proposed\nthat the term be made to include:\n\"I) All military supplies and equipment\nof Germany, including all supplies and military\nequipment which belong, are being used or have\nto be used [sic] by the military and para-\nmilitary units of the enemy or by members of\nthese units;\n\"2) All supplies and equipment used by\nthe enemy to satisfy his military needs and\ncaptured by the Allies before the end of the\nwar on territories where military operations\nwere conducted.\nThe Soviet definition, particularly in paragraph 2,\nwas considered exceedingly broad in scope by the\nAmerican and British Delegations. In response to\nspecific questions by the American and British\nrepresentatives, the Soviet representative indicated\nthat the Soviet Union considered textile mills, shoe\nfactories, and coal mines to be war trophies if at\nany time they had been used to supply the German\narmed forces. The Soviet representative readily\nadmitted that this would leave very little for\nreparations if strictly applied throughout Germany.\nHe\n¹Economic Sub-Committee (Potsdam), \"Report to\nthe Foreign Secretaries\", July 20, 1945. (Collado\nPapers, No. 5.)\n²Soviet Delegation (Potsdam), Definition of\nWar Trophies\", July 21, 1945. (Collado Papers, No. 6.)\nTOP SECRET\nTOP SECRET\n- 113 -\nHe suggested, however, that because a nation had\nthe right to claim war booty on this broad scale,\nit did not exclude the possibility that the right\ncould be waived, thus leaving more in the way of\ncapital goods for reparations. 1\nBecause the United States representative\nobjected strongly to the Soviet definition of war\nbooty, the matter had to be turned over to the Foreign\nMinisters. 2 After Secretary Byrnes criticized the\nbroad Soviet definition, the Soviet Foreign Minister\nsubmitted the following somewhat less sweeping\ndefinition:\n\"1) All military property of Germany,\nincluding all military property, which belongs,\nis being used, or was intended to be used by\nthe military and paramilitary units of the\nenemy or by the members of these units.\n\"2) Property which was used by the\nenemy for military purposes and which in the\ncourse of the war was removed from Germany\nto serve the military needs of the Allies: 113\nWhen this definition was discussed, Secretary\nByrnes stated the issue to Mr. Molotov by asking\n\"whether it was true that the Soviet authorities\nhad taken large quantities of equipment and\nmaterials out of their zone. 114 Secretary Byrnes\nsaid that he asked the question \"not in any\nattitude of hostility but with the simple desire\nof\nI ACR Report, Part V, pp. 4-5.\n2FM (Potsdam), July 23, 1945, 10:30 a.m., p. 2.\n3Soviet Delegation (Potsdam), \"Second Definition\nof War Trophies\", July 23, 1945. (Collado Papers,\nNo. 12.)\n4 FM (Potsdam), July 23, 1945, 4:00 p.m., p. 2.\nTOP SECRET\nTop SECRET\n- 114 -\nof ascertaining the facts in the situation. \" He\nadded that it had been reported that \"household\nequipment, such as plumbing, silver, furniture, etc.\nhad also been removed.\"\nMr. Molotov replied that this was the case\nand admitted that a certain amount of property\nhad been removed. Mr. Molotov offered to compensate\nfor such removals by reducing the over-all figure\nto be received by the Soviet Union. He first proposed\nsubtracting $300 million from the Soviet Union's\n$10 billion share to compensate for \"miscellaneous\nremovals\". Secretary Byrnes objected to this method\nof settling the difficulty. Mr. Molotov then pro-\nposed taking $1 billion from the Soviet share.\nLater he even offered to reduce the Soviet share\nby $1-1/2 billion or even $2 billion. 1 The Soviets\nwere thus very anxious to meet American objections\non war-booty removals, but at the same time were\nequally eager to retain the fixed-sum approach\nto the reparations problem, to which they attached such im-\nportance. The United States refused to accept the\nSeviet offer however, on the ground that a fixed\nsum of $8 billion would be only slightly less\nimpossible than a fixed sum of $10 billion.\nThe Heads of Government discussed the subject\nof war booty near the close of the Potsdam Conference.\nPremier Stalin opened the discussion by accusing\nthe British and American Governments of making\nlarge-scale unauthorized removals. He charged that\nBritish and American occupation authorities had\nremoved 11,000 railroad cars from the Western Zones,\na large number of which should have been returned\nto the Seviet Zone. President Truman intervened\nat this point to state that there should be a\ncentral transport administration, which would\ntake care of railroad equipment in all zones.\nPremier Stalin added that \"the Soviets did not remove\nrailroad\n1\nIbid.\nTOP SECRET\nTOP SECRET\n- 115 -\nrailroad equipment from the American zone although\nthe Americans had charged the Russians with taking\neverything\". Premier Stalin said that he mentioned\nthis \"to show that not only the Russians had\nsinned but also the British and Americans\" in the\nmatter of unauthorized removals of equipment. l\nPresident Truman replied to the charges that, if\nsuch removals had taken place, they were not done\nunder instructions of the American Government.\nA communication had been addressed to General\nEisenhower and an investigation had been made.2\nAt the final meeting of the Heads of Government,\nthe United States sought once more to obtain approval\nfor its definition, which provided that war booty\n\"shall be limited to finished equipment and supplies\nproduced for and belonging to the German armed\nforces exclusive of any facilities used to produce\nsuch equipment or supplies.\" This definition had\nbeen tentatively agreed to in the Economic Sub-\ncommittee. Mr. Molotov proposed, however, that an\ninsertion be made in the record to the effect that\nthe Conference had adopted the American suggestion\n\"in principle\" only. He stated that the Soviet\nDelegation had not had time to discuss the paper\nfully and that \"the wording should be agreed on\nafterward. He repeated that the \"Soviet Delegation\nagreed in regard to its substance\", but added that\n\"everyone had been busy on either the protocol or\ncommittees. \"3 When Secretary Byrnes reminded Mr.\nMolotov that the three representatives on the\nEconomic Sub-committee had tentatively agreed to the\nAmerican paper, Mr. Molotov only replied that he\nhimself had not read it. Accordingly, the President\nand Secretary were forced to accept Mr. Molotov's\nvague\n1HG (Potsdam), July 31, 1945, 4:00 p.m., p. 5.\n2Ibid., p. 8.\n3HG (Potsdam), Aug. 1, 1945, 10:40 p.m., p. 3.\nTOP SECRET\nTOP SECRET\n- 116 -\nvague proposal that it merely be recorded that the\nConference had adopted the American suggestion \"in\nprinciple\", but that the \"wording\" would have to\nbe worked out later. This understanding was not\nrecorded in the Potsdam Agreement.\nI. RESTITUTION\nTOP SECRE\nTOP SECRET\n-\n117 -\nI. RESTITUTION\nThe Potsdam Agreement does not mention restitution.\nHowever, negotiations on the subject are described\nhere because the problem was closely related to\nreparations. As was the case with war booty, the\nUnited States made many efforts to incorporate a\ndefinition of restitution in the Potsdam Agreement.\nYalta\nThe subject of restitution was only briefly\ndiscussed at Yalta and this was in connection with\nthe British proposal on reparations. Mr. Eden\nstated that the British considered it important\nthat \"reparations arrangements should be made without\nprejudices to the restitution of looted property. \"1\nMr. Molotov and Mr. Stettinius promptly agreed to\nthis principle. Nothing on restitution was incorporated\nin the Yalta agreement.\nU.S. Policy Formulation\nA United States position .on restitution was\nworked out in the Informal Policy Committee on Germany.\nThe policy instructions prepared by the Committee for\nthe United States Delegation to the Allied Reparations\nCommission stated that \"agreement should\nbe sought\non the scope of restitution in relation to reparation\"\nin order to prevent the shipment from Germany of goods\nwhich should properly be considered as reparations\ndeliveries\n\"2\n\"Restitution shall be confined to\nidentifiable artistic, religious, and\ncultural objects existing at the date of\nthe invasion of the territories from which\nsuch objects have been removed, insofar as\nsuch objects can be recovered and irrespec-\ntive of the form of dispossession by which\nthey\n¹FM (Yalta), Feb. 10, 1945, 12:00 noon, p. 5.\n²IPCOG 2/1, para. 7.\nTOP SECRET\nTOP SECRET\n- 118 -\nthey came into enemy hands. While any\nnation entitled to reparation may be allowed\na prior claim for the return of certain other\nparticular types of identifiable property.\nremoved by the enemy, the value of such\nproperty, if returned, shall be entered on\nthe reparation account of such nation. \"1\nThe British Delegation submitted a draft definition\nwhich was somewhat broader:\n\"In the view of the United Kingdom\nDelegation restitution should be confined to\nthe restoration of identifiable property\nexisting at the date of the invasion of the\nterritories from which the property had been\nremoved, insofar as it can be recovered and\nirrespective of the form of dispossession by\nwhich it had come into enemy hands.\n\"As regards replacement in kind--i.e.,\nreplacement of property, which cannot be\ntraced or has been destroyed, by similar or\ncomparable enemy property--this should only\nbe permitted in the case of works of art;\nand only then provided such replacement did\nnot take a form which would be contrary to\nthe general interests of learning.\nOther\nclaims to replacement of unidentifiable and\nirrevocable looted property should not receive\nany special priority but should be aggregated\nwith all other claims for reparations. \"2\nThe Soviet definition, as presented on July 13, was\nbroader than either of the others:\n\"1. Restitution covers all property\nwhich can be identified as having existed\nat the moment of enemy occupation of the\nterritory from which this property was\nremoved,\n1 ACR Report, Part V, p. 2.\n2 Ibid., Part IV, p. 15.\nTOP SECRET\nTOP SECRET\n- 119 -\nremoved, as well as property which came\ninto existence on the said territory\nduring the period of enemy occupation if\nthis can be established and irrespective\nof the manner in which it fell into the\nhands of the enemy.\n\"2. As regards property which was\ndestroyed by the enemy or utilized or\nlost value as a result of enemy action, the\nright is retained to replace it by similar\nor comparable property. This applies to\nobjects of unique character such as works of\nart, historical objects, libraries, unique\ninstallations, etc.\n\"3. The injured country retains the\nright to make claims to restitution in\nrespect of property removed by the enemy\nwhich is found in any third country.\n\"4. It is moreover agreed that all\nquestions of restitution will be dealt with\non behalf of the injured property owners\nby the country of which they are citizens. 111\nThe American proposal, which was the most\nrestrictive, limited restitution to artistic, religious,\nand cultural objects. The British proposal did not\nlimit restitution to any particular types of property,\nalthough it did confine restitution in kind to works\nof art. The Soviet proposal was more inclusive than\nthe American and British proposals in several respects:\n(1) It covered all types of property. (2) It covered\nproperty which existed not only at the time of German\ninvasion, as in the American and British proposals,\nbut also property which came into existence after\nthe German invasion. (3) It applied the principle of\nrestitution in kind to include not only art objects,\nas in the British proposal, but any object of a \"unique\"\ncharacter. (4) It provided for restitution of German-\nlooted property found in third countries.\nThe\nlIbid.\nTOP SECRET\nTop SECRE\n- 120 -\nThe Allied Reparations Commission failed to\nagree on a definition. An important reason for this\nfailure was that the United States Delegation insisted\nthat the definitions of restitution and war booty\nbe discussed simultaneously. Since the Soviet\nDelegation refused to submit a definition of war\nbooty, a stalemate was reached. 1\nPotsdam\nThe problem of defining restitution was turned\nover to the Economic Sub-Committee at Potsdam.2\nAfter some delay, the Soviets submitted a draft\ndefinition which proved to be only slightly less\ncomprehensive than their earlier draft had been.\nThe new definition specified that restitution in\nkind, by means of replacement, was to take place\nonly in the case of objects of a unique character--\na point which had not been clear in the earlier draft. 3\nDisagreement within the United States Delegation\ncaused difficulty in the presentation of the American\nposition at Potsdam. The staff of the United States\nDelegation to the Allied Reparations Commission\nfavored a very narrow definition which would have\nlimited restitution to artistic, religious, and\ncultural objects. A broader definition was favored\nby officials of the Department of State, who were\nconcerned with the many international commitments\nwhich the United States Government had made regarding\nrestitution. The Department proposed the following\nbroader definition:\n\"Removals\n1ACR Report, Part V, pp. 2-3.\n2Economic Sub-Committee (Potsdam), \"Report to\nthe Foreign Secretaries\", July 20, 1945. (Collado\nPapers, No. 5.)\n3Soviet Delegation (Potsdam), \"Proposed Definition\nof Restitution\", July 21, 1945. (Collado Papers, No. 8.)\nTOP SECRET\nTOP SECRET\n- 121 -\n\"Removals as restitution shall be\ngoverned by the following:\n\"(1) Upon application by any Allied\nGovernment, restitution may be made of the\nfollowing categories of property, wherever\nfound, if such property is identifiable and\nwas removed from occupied territory by the\nenemy by whatever means:\n\"(a) Heavy industrial and agricultural\nequipment.\n\" (b) Machine tools and unique machinery.\n\" (c) Rolling stock and other railroad or\ntransportation equipment.\n11 (d) Works of art, religious, historical,\neducational, or cultural objects,\nlibraries, scientific equipment, and\nother laboratory or research materials\nrelated to organized inquiry into the\narts and sciences.\n\"(2) All questions of restitution shall be\ndealt with on behalf of the injured property\nowners by the Allied Nations of which they\nare citizens, unless such Allied Nation shall\nmake other arrangements with the Allied Nation\nfrom whose territories the property was removed. III\nRepresentatives of the Department of State at Potsdam\nfelt that this definition should be incorporated in\nthe American proposal for a zonal reparations plan.\nHowever, the United States representative on the\nReparations Commission and his staff were opposed\nto including any statement regarding restitution in\nthe\n1 Department of State, \"U.S. Proposal on\nReparations and Related Matters\", July 23, 1945.\n(Collado Papers, No. 16.) This was a revision of\nthe original memorandum prepared by Ambassador Pauley.\nIt was altered SO as to include the Department of\nState's views on restitution.\nTOΓ STORE\nTOP SECRET\n- 122 -\nthe reparations proposals. This latter view won out,\nand when the American proposal for a zonal reparations\nplan was submitted to the Economic Sub-Committee on\nJuly 24, it did not contain a definition of restitution.\nSubsequently, the representatives of the Department\nof State sought to incorporate their definition of\nrestitution in the Economic Principles, but they\nwere unsuccessful in this effort also. 1\nJ. THE RUHR\n1U.S. Delegation (Potsdam), \"Proposed Redraft of\nEconomic Principles\", undated. (Collado Papers,\nNo. 37.) This draft was prepared within the U.S.\nDelegation, but was not used.\nTOP\nSECRET\nTOP SECRET\n- 123 -\nJ. THE RUHR\nThe Ruhr is not mentioned by name in the\nPotsdam Agreement. The subject is included here\nbecause it played such a prominent part in the\nreparations discussions.\nYalta and Moscow\nThe role to be played by the Ruhr in German\nreparations did not enter into discussions at the\nYalta Conference or at the Moscow meeting of the\nReparations Commission. The over-all reparations\nplan was under consideration at those meetings, which\nmeant that the role of particular areas or zones was\nnot important. It was not until the American zonal\nplan was proposed at Potsdam that the special position\nof the Ruhr was considered.\nPotsdam\nThe Ruhr figured in the discussions at Potsdam\nin three distinct ways. First, there was the Soviet\nproposal that the Soviet Union receive a fixed amount\nof industrial equipment from the Ruhr area. Second,\nthere was the American plan that the Soviet \"percentage\"\nfrom the west should come from the Ruhr area only.\nFinally, there was the Soviet proposal concerning the\ninternational control and administration of the Ruhr.\nEarly in the discussions, the Soviets had\ninsisted that they receive $10 billion in reparations\nfrom all Germany. In an effort to effect a compromise,\nthey later proposed reducing the Soviet share to\n$8 1/2 billion or $8 billion. Later still, when the\nAmerican zonal plan was under negotiation, Foreign\nMinister Molotov proposed that the Soviet Union\nreceive \"a fixed amount, say two billion, from the\nRuhr\" Mr. Molotov stated that the Soviets could\n\"agree to no plan which did not contain such a\nprovision. \"1 Four days later, when the Foreign\nMinisters were discussing the American plan for an\nexchange of reparations between the Soviet Zone and\nthe\n¹FM (Potsdam), July 23, 1945, 4:00 p.m., p. 4.\nTOP SECRET\nTOP SECRET\n- 124 -\nthe Ruhr, Mr. Molotov again insisted that the Soviet\nUnion receive $2 billion worth of industrial equipment\nfrom the Ruhr. He observed that the destruction\nin the Ruhr had turned out to be much less than the\nAllies had originally thought it would be. Soviet\nreports, he said, indicated that \"only from ten to\nfifteen percent of the productive capacity of the\nRuhr had been destroyed\" and that \"as a whole, machine\ntools and the basic equipment remained serviceable. \"1\nSecretary Byrnes stated that he could make no\nguarantees as to the amount of industrial equipment\nto go to the Soviet Union from the Ruhr, since the\nBritish would have to be consulted and the British\nForeign Secretary was not present, Mr. Bevin being\nin the process of replacing Mr. Eden. Mr. Molotov\nthen asked whether \"it was still the intention of the\nUnited States Government to reduce the production\ncapacity of the Ruhr as a measure of security.\"\nSecretary Byrnes replied that it was still our intention\nto do so, adding that the only question was \"how much\nequipment would be available for transfer to the Soviet\nzone in return for goods.\nTwo days later, as the Potsdam Conference was\ndrawing to a close, the Soviets were still insisting\non a fixed amount from the Ruhr. They wanted 2 guarantee\nthat they would receive industrial equipment valued\nat $2 billion or weighing five or six million tons.:\nSecretary Byrnes explained the difficulty of fixing\nin advance the tonnage or specific dollar value of\nthe equipment which would be available to the Soviets\nfrom the Ruhr. When he proposed a percentage rather\nthan a fixed amount, Foreign Minister Molotov replied\nthat 8 percentage of an undetermined figure \"meant\nvery little. 114\nTwo\n¹FM (Potsdam), July 27, 1945, p. 4. (Hour not\ngiven; British not represented.)\n2Ibid.\n3HG (Potsdam), July 29, 1945, 12:00 noon, pp. 3-4.\n(British not represented.)\n4Ibid., p. 4.\nTOP SECRET\nTOP SECRET\n- 125-\nTwo days before the end of the Potsdam Conference,\nthe Soviets changed their tactics. They sided with\nthe British in proposing that their share be taken\nfrom all the Western Zones--not from the Ruhr only.\nMr. Molotov stated that confining the removals to the\nRuhr only \"narrowed the base\", since there was\nindustrial equipment in the United States Zone as\nwell. 1 Mr. Byrnes defended the American proposal\nfor using the Ruhr only as a source for Soviet repara-\ntions from the Western Zones. He pointed out that\nconfining Soviet claims to the Ruhr would be simpler,\nbecause then the claims of France, Holland, Belgium,\nYugoslavia, and other powers could be met from the\nremainder of the Western Zones. He stated that the\nUnited States would work out an arrangement to\ncompensate the British for Ruhr factories which went\nto the Soviet Union. 2\nWhen the matter was turned over to the Big\nThree, however, the United States acceded to the\nwishes of the British and Soviets and agreed that the\nSoviet share would come from all three Western\nZones, not just from the Ruhr.\nDuring the discussion of the Ruhr as a source of\nreparations, the Soviets took the occasion to\nintroduce their views regarding international control\nof the Ruhr. At a meeting of the Soviet and American\nForeign Ministers on July 30, Mr. Molotov presented\nthe following comprehensive proposal regarding\nthis subject:\n\"Considering the Ruhr Industrial District\nas a part of Germany and having in view the\nnecessity of all kind [of] curtailment of\nGermany's war potential the Conference has\ndeemed expedient:\n\"(1)\n¹HG (Potsdam), July 30, 1945, 4:30 p.m., p. 4.\n(British not represented.)\n²FM (Potsdam), July 30, 1945, 5:00 p.m., p. 7.\n3HG (Potsdam), July 31, 1945, 4:00 p.m., p. 3.\nTOP SECRET\nTOP SECRET\n- 126 -\n\"(1) To determine that the Ruhr Industrial\nDistrict shall be in respect of administration\nunder the joint control of U.S.A., U.K.,\nU.S.S.R., and France.\n\"(2) The administration of the Ruhr\nIndustrial District shall be exercised by\nthe Allied Council composed of representatives\nof U.K., U.S.A., U.S.S.R., and France.\n\"(3) The Industry of the Ruhr District will\nbe utilized for reparation purposes in conformity\nwith the common reparation plan.\n\"(4) To establish immediately, in view of\nprompt accomplishment of this decision, a\nprovisional Allied Council composed of\nrepresentatives of U.S.A., U.K., U.S.S.R.,\nand France, which in a month's term will carry\nout necessary preparatory work and will assume\nthe provisional administration of the Ruhr\nDistrict. \"1\nIn submitting his proposal, Mr. Molotov remarked\nthat there had been much discussion at previous\nconferences regarding the internationalization of\nthe Ruhr, but \"nothing lately had been heard of\nit. \"12 Secretary Byrnes reminded him that at one\ntime President Roosevelt \"had been in favor of the\ndismemberment of Germany but had subsequently changed\nhis mind. \"3 He recalled Marshal Stalin's talks with\nMr. Hopkins on this point during May 1945. Mr.\nMolotov agreed with these comments, but pointed out\nthat the Soviet proposal dealt merely with the four-\npower control of the Ruhr and did not concern the\npolitical separation of the Ruhr from Germany.\nLater,\nlsoviet Delegation (Potsdam), \"On Ruhr Industrial\nDistrict: Soviet Proposal\", July 30, 1945. (Collado\nPapers, No. 36.)\n2HG (Potsdam), July 30, 1945, 4:30 p.m., p. 4.\n(British not represented.)\n3\nIbid.\n4 Ibid., p. 5. The Soviet proposal began with the\nwords: \"Considering the Ruhr Industrial District as\na part of Germany If\nTOP SECRET\nTOP SECRET\n- 127 -\nLater, at a meeting of the Big Three, Premier\nStalin also took occasion to raise the question of\nthe control of the Ruhr. He reviewed past discussions\nof the subject. At Teheran it had been proposed\nthat the whole region be separated from Germany\nunder the control of the great powers. At their\nMoscow talks he and Prime Minister Churchill\nhad stated that \"perhaps it was a good thing to\nestablish the Ruhr under an international control.\"\nThese views, Premier Stalin explained, had been\nbased on the assumption that Germany would be\ndismembered. Since that time, the great powers had\nchanged their views and had come to regard the\ndismemberment of Germany as inadvisable. Premier\nStalin therefore wanted to know if the Americans and\nBritish wished to detach the Ruhr from Germany.\nPresident Truman replied that the Ruhr was\npart of Germany and would be so administered under\nthe Control Council. 1 Premier Stalin thought that\nthis principle should be mentioned somewhere in the\nprotocol. The British, however, reserved their\nposition. Foreign Secretary Bevin said that he could\nnot discuss the problem without the French being\npresent, since it was a very important matter of\nprinciple to them. 2 He agreed, however, to allow\nthe Ruhr to remain under the Control Council until\nits final disposition should be decided upon. His\nsuggestion that the problem be referred to the\nCouncil of Foreign Ministers was accepted.3\nK. THE\n¹HG (Potsdam), July 31, 1945, 4:00 p.m., p. 16.\n²Ibid., p. 15.\n3Ibid., p. 16.\nTOP SECRET\nTOP SECRET\n- 128 -\nK. THE SOVIET SHARE FROM THE WEST\nReparations for the Soviet Union from the\nWestern Zones are provided for in paragraph 4 of the\nPotsdam Reparations Agreement, as follows:\n\"4. In addition to the reparations to\nbe taken by the U.S.S.R. from its own zone\nof occupation, the U.S.S.R. shall receive\nadditionally from the western zones:\n(A) 15 per cent of such usable and\ncomplete industrial capital equipment, in\nthe first place from the metallurgical,\nchemical and machine manufacturing industries,\nas is unnecessary for the German peace\neconomy and should be removed from the\nwestern zones of Germany, in exchange for\nan equivalent value of food, coal', potash,\nzinc, timber, clay products, petroleum\nproducts, and such other commodities as may\nbe agreed upon.\n11 (B) 10 per cent of such industrial\ncapital equipment as is unnecessary for the\nGerman peace economy and should be removed\nfrom the western zones, to be transferred to\nthe Soviet Government on reparations account\nwithout payment or exchange of any kind in\nreturn.\n\"Removals of equipment as provided in\n(A) and (B) above shall be made simultaneously.\"\nYalta and Moscow\nThe Soviet share from the Western Zones was not\nconsidered at Yalta and Moscow, since the problem\ndid not arise in connection with the reparations plan\nunder consideration at those meetings. It was only\nafter the American zonal plan was introduced that\nSoviet reparations from the Western Zones became\nan issue.\nPotsdam\nTOP SECRET\nTOP SECRET\n- 129 -\nPotsdam\nAfter arguing vigorously for their own fixed-sum\nplan through most of the Potsdam Conference, the\nSoviets finally agreed to accept the American zonal\nplan. In accepting, however, they insisted upon\nreceiving industrial equipment from the Western\nZones in addition to reparations from their own\nzone. Efforts to determine the amount or percentage\nof equipment which the Soviets should receive from\nthe Western Zones required lengthy negotiation at\nPotsdam.\nAs first submitted on July 24, the new American\nreparations plan was purely zonal; i.e., each of\nthe occupying powers would look to its own zone for\nits entire reparations share. Attached to the\nproposal, however, was a statement to the effect that,\nin implementing this program, industrial equipment,\nwith emphasis on steel capacity, would be made avail-\nable to the Soviet Union from the Ruhr area at the\nsame time that agricultural products and raw\nmaterials ... were made available for Western Europe\n(including the western zones of Germany) from Eastern\nEurope (including the Eastern zone of pre-war\nGermany) The American statement added that \"the\nbasis for such an exchange will be worked out between\nthe governments concerned. \"l This proposal was the\norigin of what later became paragraph 4 of the\nReparations Agreement.\nAfter much discussion the Soviets finally\naccepted the principle of the American zonal plan.\nThey continued, however, to urge that their share\nfrom the Western Zones be expressed in terms of a\nfixed value rather than in terms of a percentage of\nwhat was available. Their original proposal was for\nindustrial equipment from the Ruhr weighing five or\nsix million tons or valued at two billion dollars.2\nEven\n¹u.s. Delegation (Putsdam), \"United States\nPosition on Reparations\", July 23, 1945. (Collado\nPapers, No. 17.)\n2FM (Potsdam), July 30, 1945, 5:00 p.m., p. 7.\nTOP SECRET\nTOP SECRET\n- 130 -\nEven after the Soviets eventually agreed to a\npercentage formula, there continued to be considerable\ndifficulty because the Soviets demanded a much higher\npercentage than the United States and the United\nKingdom were willing to agree to.\nAgreement on the percentages was reached only\nafter prolonged negotiation. The first American\nproposal was that the Soviets receive 25 percent\nof the available equipment in the Ruhr, for which\nthey would compensate in full with reciprocal\ndeliveries. 1 Foreign Minister Molotov immediately\nobjected, remarking that \"25% of an undetermined\nfigure meant very little.\" He also opposed the idea\nthat the Soviet Union would have to pay in full with\nreciprocal deliveries. He proposed that only part\nof the amount received by the Soviets be covered by\nexchange deliveries.\nSecretary Byrnes made another proposal: that\ninstead of 25 percent from the Ruhr alone, the Soviet\nUnion receive 12-1/2 percent from the French, British,\nand American Zones taken together. 2 This, however,\nwas not accepted by Foreign Minister Molotov, who\ninsisted that the Soviet Union wanted a fixed sum\nrather than a vague percentage.\nThe United States then submitted yet another\nproposal, as follows:\n\"Reparations claims of Russia and Poland\nto be satisfied from the Russian zone plus\n\"(a) 25% of such industrial capital\nequipment as we determine is not necessary for\na peace economy and should be removed from\nthe Ruhr on condition that there would be\nexchanged an equivalent value in food, coal,\npotash, zinc, timber, clay products and oil\nproducts, to be made available to us by the\nSoviets.\n\"(b)\n¹HG (Potsdam), July 29, 1945, 12:00 noon, p. 4.\n(British not represented.)\n²Ibid., p. 7.\nTOP SECRET\nTOP SECRET\n- 131 -\n\"(b) An additional 15% of such industrial\ncapital equipment as is determined unnecessary\nfor a peace economy should be transferred from\nthe Ruhr to the Soviet government without\npayment or exchange of any kind in return. \"1\nAlthough the Soviets acquired an additional\n15 percent in equipment for which they were not\nrequired to make compensation with reciprocal\ndeliveries, they were still not satisfied.\nForeign Minister Molotov proposed raising the share\nof uncompensated deliveries to 25 percent, which\nwould have meant, along with the 25 percent of\ncompensated deliveries, that a total of 50 percent\nof available equipment in the Ruhr would go to the\nSoviet Union. 2\nA British proposal offered a new approach to\nthe problem:\n\"As part of a settlement covering this\nand other matters, H. M. Government are ready\nto agree that Russia, in addition to\nobtaining reparation removals and deliveries\nfrom the Russian Zone of Occupation, shall\nalso be entitled to receive from the Western\nZones, and particularly from the Ruhr, 10%\nof such equipment, particularly from the\nheavy metal industries, as it is decided to\nremove under an agreed Reparation Plan, which\nwill have to provide on the one hand for\nelimination of the German war potential\nto an adequate degree and which will have,\non the other hand, to leave to Germany a\nsufficient industrial equipment to enable\nher to maintain approved living standards.\nIt is the policy of H. M. Government that, in\norder to eliminate German war potential, there\nmust\n¹u. S. Delegation, (Potsdam), \"German Reparations:\nthe United States Proposal\", July 30, 1945. (Clayton\nPapers, No. 36.)\n2HG (Potsdam), July 30, 1945, 4:30 p.m., p. 3.\n(British not represented.)\nTOP SECRE\nTOP SECRET\n-132 -\nmust be very considerable removals from these\nheavy metal industries, but they cannot express\nan opinion about the precise amount until a\ncomprehensive Plan has been worked out. \"1\nThe British plan did not provide for full reciprocal\ndeliveries, although an addendum to their proposal\nstated that the reparations plan should contain a\nprovision whereby the Western Zones could \"obtain\nfrom the Russian Zone adequate amounts of annual\ndeliveries of timber and potash. \"2\nMr. Molotov suggested that the American proposal\nfor 25 percent compensated and 15 percent uncompensated\ndeliveries from the Ruhr be taken as the basis for\ndiscussion. Mr. Bevin objected that he could not\nagree to the taking of all the equipment from the\nBritish Zone only. When Mr. Molotov proposed that\nthey take \"both zones\" as the basis, Secretary Byrnes\nagreed, provided that the percentages were halved.\nHe proposed 12-1/2 percent in compensated deliveries\nand 7-1/2 percent in uncompensated deliveries from the\nWestern Zones. This meant that the Soviet Union would\nbe getting 20 percent of the equipment in the Western\nZones of Occupation.\nForeign Minister Molotov considered this figure\ntoo low. He proposed 25 percent compensated and 25\npercent additional uncompensated, to be extracted\n\"chiefly from the Ruhr\". When the American and British\nForeign Ministers objected, he changed his proposal\nto 20 percent compensated and 25 percent uncompensated\nfrom \"both zones\", with a statement added that the\nequipment would be taken chiefly from the Ruhr.\nSecretary\n1U.K. Delegation (Potsdam), \"The Soviet Union\nShare of Reparation\", July 30, 1945. (Clayton Papers,\nNo. 57.)\n2Ibid.\n3 FM (Potsdam), July 30, 1945, 5:00 p.m., p. 6.\n4 Ibid., pp. 9-10.\nTOP SECRET\nTOP SECRET\n- 133 -\nSecretary Byrnes then sought to place the issue\nin its relation to the other major issues of the\nConference. He pointed out that the United States\nhad made a great concession to the. Soviets in the\nmatter of the Polish frontier and that the British\nhad made a great concession on admission to the\nUnited Nations. He added that he knew \"that it\nwas a concession for the Soviets to agree to\npercentages but 'if we made concessions, the Soviets\nshould also. \"1 Mr. Molotov replied with yet another\nproposal: \"25% from the Ruhr and 15% from the two\nzones. \" (Mr. Molotov did not specify what part of\nthis proposal should be covered by reciprocal\ndeliveries. )2 Secretary Byrnes pointed out that\nthis was no concession, in that it was equivalent to\n55 percent from the Ruhr (25 percent plus twice 15\npercent), and therefore was actually higher than any\nfigure yet mentioned by the Soviets. Mr. Molotov\nthen broke off the discussion by repeating\nprevious Soviet position that the main question was\nthat of an absolute figure and proposed that the\ndecision be left up to the Heads of Government 3\nWhen the matter came before the Heads of Govern-\nment, the Soviets presented a proposal for 15 percent\nin compensated deliveries and 10 percent in un-\ncompensated deliveries, both to come from all the\nWestern Zones. 4 Premier Stalin urged acceptance\nof the Soviet figures on the grounds that the Soviet\nUnion \"had accepted the point of view of the Americans\"\nand \"had agreed not to mention a definite figure but\nhad accepted a statement of percentages.\" The\nAmerican Delegation accepted the Soviet percentages,\nbut\n¹Ibid., p. 10.\n²Ibid., p. 11.\n3\nIbid.\n4HG (Potsdam), July 31, 1945, 4:00 p.m., p. 5.\nToΓ SECRET\nTOP SECRET\n- 134 -\nbut the British made an effort to reduce the figure\nfor exchange deliveries from 15 percent to 12-1/2\npercent. 1 Foreign Secretary Bevin explained that\nBritish reluctance to accept 15 percent was based\non two considerations: (1) the British were\nresponsible for the zone from which most of the\nSoviet removals would come, and (2) the British were\nresponsible for supplying from their zone a large\npart of the reparations needs of France and other\ncountries.\nPremier Stalin replied that France had signed\nan armistice with Hitler and had suffered no real\noccupation. Furthermore, 150 German divisions had been\nsent against Russia after the defeat of France or\nhad been supplied from France. Therefore, he stated,\n\"France should be satisfied with a small amount.\"\nForeign Minister Bevin argued that under the\nSoviet figures, the Soviet Union would receive more\nthan 50 percent of the total of all German reparations.\nPremier Stalin denied this, asserting that the Soviet\nUnion only received 10 percent of the reparations from\nthe West. since it compensated with reciprocal\ndeliveries for the additional 15 percent. Thus the\nWestern powers would receive 90 percent of the repara-\ntions from the Western Zones. Premier Stalin stated\nthat, since both the Soviet and American Delegations\nagreed to 15 percent and 10 percent, he \"hoped Mr.\nBevin would support them. Mr. Bevin said, \"All right\nthen, and Premier Stalin expressed his thanks. 2\nAfter the percentage figures had finally been\nagreed to by the Big Three, there remained some\ndifficulty with the wording of paragraph 4, which\ncontained the statement of percentages. The Soviets\ninsisted upon adding the following underlined words\nto the original American proposal: \"15% of such\nusable and complete industrial capital equipment,\nin the first place from the metallurgical, chemical,\nand machine manufacturing industries as is unnecessary\nfor\nlIbid., p. 9.\n2\nIbid., p. 10.\nTOP SECRET\nTOP SECRET\n- 135 -\nfor the German peace economy\n\"1\nThe other Delegations\naccepted these additional words.\nL. RECIPROCAL\n¹Drafting Committee (Potsdam), \"Report on Protocol\nof German Reparations\", Aug. 1, 1945. (Collado Papers,\nNo. 42.)\nTOP SECRET\nTOP SECRET\n- 136 -\nL. RECIPROCAL DELIVERIES\nReciprocal deliveries by the Soviet Union to the\nWestern Zones are referred to in paragraphs 4 (A)\nand 6 of the Potsdam Reparations Agreement and in\nparagraph 19 of the Economic Principles. Paragraph\n4 (A) of the Reparations Agreement provides that the\nSoviet Union, in exchange for the 15 percent of the\navailable capital equipment it receives from the\nWest, will supply:\n11\nan equivalent value of food, coal,\npotash, zinc, timber, clay products, petroleum\nproducts, and such other commodities as may\nbe agreed upon. 11\nParagraph 6 provides in part as follows:\n\"The delivery of products covered by\n4 (A) above shall begin as soon as possible\nand shall be made by the U.S.S.R. in agreed\ninstallments within five years of the date\nthereof.\"\nParagraph 19 of the Economic Principles refers indirectly\nto reciprocal deliveries in stating the 1 following\nexception to the first-charge principle:\n\"The above clause will not apply to the\nequipment and products referred to in paragraphs\n4 (A) and 4(B)² of the Reparations Agreement.\"\nYalta\n1 See above, pp. 72-83, for a discussion of the\nfirst-charge principle.\n2\nParagraph 4 (B) concerns the Soviet share from\nthe West not compensated by reciprocal deliveries.\nSee above, p. 128.\nTOP SECRET\nTOP SECRET\n- 137 -\nYalta and Moscow\nThe problem of Soviet reciprocal deliveries did\nnot arise at Yalta or Moscow, since only the over-all\nplan of reparations under consideration at that time\ndid not call for such deliveries.\nPotsdam\nThe idea of requiring reciprocal deliveries of\nraw materials from the East was originally motivated\nby the American Delegation's concern over two problems:\n(1) the effect of transferring Germany's most\nimportant agricultural lands to Polish administration\nand (2) the need for supplying the British and American\nsectors of Berlin.\nThe first suggestion regarding deliveries of raw\nmaterials from Eastern Germany appears in a letter\nto the Secretary of State on July 18, 1945 from the\nUnited States representative on the Réparations\nCommission. The letter pointed out that there was\ndanger that the reparations plan might be upset by the\nceding of large segments of former German territory\nto Poland. The United States representative urged\nthat the products and equipment located in the ceded\nterritory be used first for the maintenance of the\nGerman economy. He added, however, that in practice\nit would probably be necessary to work this out \"in\nthe form of agreements to deliver certain fixed\nquantities of coal, zinc, coke, iron, steel, cement,\ncalcinated soda, etc., for a definite period of\nyears #1 Thus the plan to require deliveries of raw\nmaterials from the Soviets originated in the effort\nto find ways and means to compensate for the deficit\nin the German economy resulting from the splitting off\nof all that part of Germany lying east of the Oder-\nNeisse line. 2\nDuring\nU.S. Delegation (ACR), \"Relationship between\nReparations and Ceded German Territory\", July 18, 1945.\n(Collado Papers, No. 3.)\n2ACR Report, Part V, pp. 12-13.\nTOP SECRET\nTOP SECRET\n- 138 -\nDuring the Potsdam Conference the United States\nDelegation became convinced that this splitting off\nof Eastern Germany, in addition to other factors\nsuch as large-scale removals of \"war booty\" by the\nSoviets, required an entirely new, zonal approach to\nthe whole reparations problem. The initial American\nproposal for zonal reparations provided that, in\nexchange for the industrial equipment furnished to\nthe Soviets from the Ruhr, \"agricultural products and\nraw materials, including liquid and solid fuels,\ntimber and potash\" would be \"made available for western\nEurope (including the western zones of Germany) from\nEastern Europe (including the Eastern zone of pre-war\nGermany) \"I The original American proposal contained\nno mention of specific amounts or percentages, but\nstated merely that \"the basis for such an exchange\nwill be worked out between the governments concerned. \"2\nSecretary Byrnes, when he first presented the\nplan in private conversation with Mr. Molotov, explained\nthat there would be special provision for \"exchange\nof needed products between zones\". He expressed the\narrangement in very general terms: \"From the Ruhr if\nthe British agreed, machinery and equipment could be\nremoved and exchanged with the Soviet authorities for\ngoods--food and coal--in the Soviet zone. \"3 At first,\nMr. Molotov neither accepted nor rejected the proposal,\nbut merely commented that delivery of capital equipment\nto the Soviets could be accomplished in a short\nperiod of time, whereas reciprocal deliveries of raw\nmaterials from the Soviet Zone to the Western Zones\nwould of necessity have to extend over a much longer\nperiod of time.\nReciprocal\n¹u.s Delegation (Potsdam), \"United States Position\non Reparations\", July 23, 1945. (Collado Papers,\nNo. 17.)\n2Ibid.\n3FM (Potsdam), July 27, 1945, p. 3. (Hour not\ngiven; British not represented.)\n4 It is to be noted that the Soviet Zone\" is\nreferred to here as the source for reciprocal deliveries.\nThis is not specified in the Potsdam Agreement.\nTOP SECRET\nTOP SECRET\n- 139 -\nReciprocal deliveries became a feature of all\nsubsequent American proposals for a reparations plan.\nFirst, the United States proposed that the Soviet\nUnion compensate in full with reciprocal deliveries\nfor receiving 25 percent of available equipment from\nthe Ruhr. When Foreign Minister Molotov objected to\nfull compensation, the United States proposed that the\nSoviet Union compensate for receiving 25 percent of\navailable equipment in the Ruhr and receive an\nadditional 15 percent without having to make reciprocal\ndeliveries. This American proposal spelled out the\nfollowing products to be furnished by the Soviets as\nreciprocal deliveries: \"food, coal, potash, zinc,\ntimber, clay products and oil products\". 1 When\nsubsequent negotiations revealed that the Soviets and\nthe British preferred that all Western Zones, not just\nthe Ruhr, be made the source for the Soviet share, the\nUnited States Delegation suggested that, if this were\nthe case, the percentage figures should be halved,\nSO that 12-1/2 percent would be in compensated\ndeliveries, while 7-1/2 percent would be uncompensated.\nThe commodities to be furnished by the Soviets were\nthis time listed as follows: \"food, coal, potash,\nzinc, timber, clay products, petroleum and petroleum\nproducts, and such other commodities as may be agreed\nupon\". 2 This proposal formed the basis of paragraph\n4(A) of the Potsdam Agreement.\nVarious questions arose during the negotiations\nconcerning the products to be delivered by the Soviets.\nPetroleum and petroleum products were one such problem.\nThe first United States proposal listed \"liquid fuels\"\namong the commodities to be furnished by the Soviets,\nand another early proposal listed \"oil products\".\nLater the words \"petroleum and petroleum products\nwere substituted at the suggestion of Mr. Pauley, who\nstated that he was making a special effort to obtain\nfifty\n1 ACR Report, Part V, p. 8.\n2U.S. Delegation (Potsdam), \"Proposal on\nReparations and Related Matters\", July 30, 1945.\n(Collado Papers, No. 38.)\nTOP SECRET\nTOP SECRET\n- 140 -\nfifty thousand barrels of crude oil per day from\nAustria, Hungary, and Rumania in order to increase\nthe supply of petroleum and petroleum products for\nuse in waging war in the Pacific. On the evening\nof July 31, 1945, however, the United States Delegation\nconsented to the request of the Soviet Delegation that\nthe phrasing read petroleum or petroleum products\"\nand later it was agreed to omit the word \"petroleum\",\nthus leaving only the phrase petroleum products\"\nwhich appears in the Potsdam Agreement. 1\nA second special problem concerned the source of\nthe deliveries. The Potsdam Agreement itself does\nnot specify whether the reciprocal deliveries will\ncome from the Soviet Zone, from the Soviet Zone and\nthat part of Eastern Germany administered by Poland,\nfrom the Soviet Union, or from all of Eastern Europe.\nAlthough the negotiations shed some light on this\nquestion, they do not provide a final answer. The\nfirst United States proposal stated that the products\nwould come from \"Eastern Europe, including the Eastern\nzone of pre-war Germany\". 2 When the Foreign Ministers\ndiscussed the proposal, however, they referred to\n\"the Soviet Zone\" as the source for reciprocal\ndeliveries. 3 The next American proposal stated merely\nthat the products would be \"made available to us by\nthe Soviets\", without specifying where they were to\ncome from. 4 Apparently it is in this last sense that\nparagraph 4 (A) is to be interpreted. The inconsistencies\ninherent in this provision are pointed out in the\nfollowing analysis made subsequently in the Department\nof State:\n\"The\n¹ACR Report, Part V, p. 13.\n2U.S Delegation, (Potsdam), \"United States\nPosition on Reparations\", July 23, 1945. (Collado\nPapers, No. 17.\n3FM (Potsdam), July 27, 1945, p. 3. (Hour not\ngiven; British not represented.)\n4 ACR Report, Part V, p. 8.\nTOP SECRET\nTOP SECRET\n- 141 -\nThe provision does not make clear whether\nthe reciprocal deliveries are to come from the\neastern zone of Germany (in which case their\ndelivery as reparation to the Allies would\nviolate the principle of economic unity of\nGermany): from the eastern areas under Polish\nadmonistration (as compensation for the loss\nof that territory) or from outside Germany\naltogether. The list of materials specified -\nfood, coal, potash, zinc, timber, clay products,\npetroleum products - runs across all lines -\nwith potash coming only from within Germany,\ncoal and zinc only from Silesia, petroleum\nproducts only from old Poland and Rumania. \"1\nThe best explanation for these inconsistencies is that\nthey were part of an American effort to gain compensation\nfor the deficit to the German economy resulting from\nthe splitting off of that part of Germany east of the\nOder-Neisse line Reciprocal deliveries were considered\na means for gaining such compensation, and the goods to\nbe delivered were for the most part taken directly from\nthe list of commodities which Poland had agreed to\ndeliver to the Soviet Union in a trade treaty concluded\nimmediately prior to the Potsdam Conference.\nThe British took a special position at Potsdam\non the subject of compensated deliveries The British\nat first opposed the American proposal on the ground\nthat the reciprocal exchanges might lead to disputes\nAs Foreign Secretary Bevin expressed it, \"It will be\ndifficult to exchange potatoes for chemical machinery\n3\nThe British also took a special position with regard\nto inter-zonal supplies. They hoped to gain an over-\nall agreement on supplies for all Germany and were\nparticularly concerned over the problem of supplying\nthe Western sectors of Berlin. They therefore proposed\nas a general principle that \"each of the Zones of\nOccupation, including the Greater Berlin Area, will\ndraw\n1\nDepartment of State Working Paper, \"Principal\nEconomic Issues on Current German Problems for Council\nof Foreign Ministers Meeting, Moscow [1947]: Memorandum\nNo. 2: Reparations\", undated, F. 9.\n²ACR Report, Appendix 30, p. 25.\nFM (Potsdam), July 30, 1945, 5:00 p.m, p. 5.\nTOP SECRET\nTOP SECRET\n- 142 -\ndraw its supplies as far as practicable from the\nareas of Germany on which it had drawn before the war. \"I\nTo implement this, the British proposed that two steps\nbe taken:\n(1) After the 1946 harvest, the Soviet\nZone should supply the amounts of food to\nBerlin and the Western Zones which it had\nsupplied in the past.\n(2) Silesia, under Polish administration,\nshould supply 5 million tons of hard coal\nannually for three years to the Western Zones\nand the Greater Berlin area.\nIf it proved impossible to agree on these two steps,\nthe British proposed as an alternative that \"an\nagreement covering specific quantities of food and\ncoal and other fuel should be worked out by the\nControl Council, and when such an agreement has been\nconcluded, this agreement and the agreement that the\nSoviet Government should obtain industrial plants\nfrom the Western Zones and, particularly, from the\nRuhr, will come into operation simultaneously. \"2\nThe original British proposal regarding the 10\npercent Soviet share from the West contained a special\nproviso on reciprocal deliveries: \"The Reparation\nPlan will have to be such as to enable the Powers\n(other than the Soviet Union and Poland) entitled to\nreparation to obtain from the Russian Zone adequate\namounts of annual deliveries of timber and potash.\nIt will be for the Allied Commission on Reparations\nto work out the details.\nEventually,\n¹U.K. Delegation (Potsdam), \"Source of Supply for\nthe Zones of Occupation, including the Greater Berlin\nArea\", July 30, 1945. (Collado Papers, No. 34.)\n2Ibid.\n3U.K. Delegation (Potsdam), \"The Soviet Union Share\nof Reparation\", July 30, 1945. (Collado Papers, No. 33.)\nTOP SECRET\nTOP SECRET\n- 143 --\nEventually, the British gave up their efforts\nto gain agreement on a plan for an exchange of supplies\nseparate from the reparations plan. They accepted\ninstead the American formula for reciprocal deliveries,\nalthough they continued to regard reciprocal deliveries\nas a means for supplying Berlin from the Soviet Zone.\nAt the last meeting of the Potsdam Conference Prime\nMinister Attlee proposed that the Allied Control\nCouncil be instructed to draw up a program of food,\ncoal, and fuel to be imported into the greater Berlin\narea over the six months following the Conference.\nHe added that \"the amount furnished by the Soviet\nGovernment could be considered as an advance delivery\nunder paragraph 4 of the Reparations Agreement. \"I\nHowever, Premier Stalin objected to any agreement\nthat the Soviets be obligated to supply Berlin. He\nwas willing that the matter be referred to the Allied\nControl Council, but was unwilling to make any commit-\nment in principle that the Soviet Union would supply\nthe British and American sectors of Berlin. Prime\nMinister Attlee replied that he understood that the\nRussians wanted advanced deliveries of capital goods\nfrom the Ruhr, before what was available had been\ndetermined. What the British wanted, he said, was\nmerely the same thing from the Soviet side: advance\ndeliveries of the reciprocal shipments of food, coal,\nand other supplies called for in paragraph 4(A).\nPremier Stalin refused to commit himself on this\nmatter.²\nThe time limit on reciprocal deliveries was\nanother special problem. When the idea of reciprocal\ndeliveries was first suggested by Secretary Byrnes,\nForeign Minister Molotov commented that reciprocal\ndeliveries would have to extend over a much longer\nperiod of time than the deliveries of capital equip-\nment from the Western Zones, which could be moved\nquite promptly. Accordingly, the first detailed\nAmerican\n¹HG (Potsdam), Aug. 1, 1945, 4:00 p.m., p. 6.\n²Ibid., p. 8.\nTOP SECRET\nTOP SECRET\n- 144 -\nAmerican proposal provided that reciprocal deliveries\nshould be completed by May 10, 1951 - a period of\nnearly six years; whereas deliveries of capital\nequipment to the Soviets should be completed by May 10,\n1947 - a period of less than two years. 1 A subsequent\nAmerican proposal, however, stated that \"removals of\nindustrial capital equipment shall be completed within\ntwo years of the date hereof in exchange for products\nto be delivered within five years of the date hereof. \"12\nThis was the time limit for reciprocal deliveries\nfinally agreed upon, as incorporated in paragraph 6\nof the Reparations Agreement.\nM. DETERMINATION\n1 ACR Report, Part V, p. 9.\n²Ibid., p. 10.\nTOP SECRET\nTOP SECRET\n-145 -\nM. DETERMINATION OF LEVEL OF INDUSTRY\nAND REPARATIONS AVAILABILITIES\nThe determination of the amount of reparations\nis covered by several paragraphs of the Potsdam Agree-\nment. Paragraph G of the Reparations Agreement sets\nforth the criteria for making the determination and\nprescribes the method:\n\"The determination of the amount and\ncharacter of the industrial capital equipment\nunnecessary for the German peace economy and\ntherefore available for reparations shall be\nmade by the Control Council under policies\nfixed by the Allied Commission on Reparations,\nwith the participation of France, subject to\nthe final approval of the zone commander in\nthe zone from which the equipment is to be\nremoved.'\nParagraph 15 (b) of the Economic Principles defines\nwhat is \"unnecessary for the German peace economy\"\nby stating that Allied controls should be imposed\nupon the German economy to the extent necessary\n\"(b) To assure the production and\nmaintenance of goods and services required\nto meet the needs of the occupying forces\nand displaced persons in Germany and\nessential to maintain in Germany average\nliving standards not exceeding the average\nof the standards of living of European\ncountries. (European countries means all\nEuropean countries excluding the United\nKingdom and the Union of Soviet Socialist\nRepublics. ) \"1\nThe time limit for the determination of reparations\nis set by paragraph 5 of the Reparations Agreement,\nas follows:\n\"The\n1see above, pp. 64-67, concerning the negotiation\nof the standard-of-living clause.\nTOP SECRET\nTOP SECRET\n- 146 -\n\"The amount of equipment to be removed\nfrom the western zones on account of\nreparations must be determined within six\nmonths from now at the latest.\"\nYalta\nAt Yalta there was little discussion\nof the determination of what would be available as\nreparations. The only decision made was that the\nAllied Reparations Commission would be initially\nresponsible for determing the total amount of repara-\ntions and would work out a \"detailed plan for exaction\nof reparations from Germany\".\nU.S. Policy Formulation\nUnited States policy with regard to the determina-\ntion of what would be available for reparations was\nfirst stated in the basic directive prepared in the\nspring of 1945, which outlined the following procedure:\n\"The occupation authorities should be\nresponsible for the execution of the [reparations]\nplan within Germany. In the execution of the\nplan, the Control Council should have the\nauthority to withhold from transfer as repara-\ntions specific items the removal of which in\nits judgment would reduce the available\neconomic means below the minimum required to\nmeet the other purposes of the occupation.\nAfter review by the Control Council and, in\nthe absence of agreement, the zone commander,\nif he believes that any specific item should\nbe retained within his zone, may with the\nspecific determination of his government\nthat such item is essential for the purposes\nof the occupation withhold the removal of\nsuch item. The zone commander may, of course,\nwithhold the removal of such items pending\nsuch determination.\" \"1\nThis\n1IPCOG 2/1, para. 11.\nTOP SECRET\nTOP SECRET\n- 147 -\nThis policy statement contained two principles which\nthe American representatives insisted upon during\nsubsequent negotiations: (1) that the determination\nshould be made by the Allied Control Council, and\n(2) that the individual zone commanders should have\nthe right to veto the removal of particular items\nof equipment from their zones.\nMoscow\nAt Moscow there was some discussion but no agree-\nmont on the principles to be used in determining\nreparations availabilities. The United States\nDelegation proposed a division of German industries\ninto three categories: (1) industries for complete\nremoval, (2) industries for partial removal, and\n(3) industries from which removals would be dis-\ncretionary. The Reparations Commission discussed\nwhich industries should be listed under each category,\nbut reached no decision. In general, the Soviets\nfavored a more drastic and the British a less drastic\napproach than the United States. 1 The Steering\nCommittee of the Reparations Commission agreed, with\nthe Soviet representative concurring reluctantly,\nthat if any conversion rate was necessary for evalua-\ntion purposes, the 1938 official rate of exchange of\none mark equal to 40 cents would serve as well as\nany other. 2\nPotsdam\nThe determination of the level of industry became\nlinked with the reparations problem after the zonal\nplan was adopted at Potsdam. The first American\nproposal for a zonal plan empowered each occupying\npower to remove equipment from its own zone, \"except\nas otherwise directed by the Control Council. \"3\nWith\n1ACR Report, Part IV, p. 11.\n²Ibid.\n3U.S. Delegation (Potsdam), \"U.S. Proposal on\nReparations and Related Matters\", July 24, 1945.\n(Collado Papers, No. 17.)\nTOP SECRET\nTOP SECRET\n- 148 -\nWith regard to the equipment to be received by the\nSoviets from the West, the original proposal stated\nonly that \"industrial equipment, with emphasis on\nsteel capacity, would be made available\" to the\nSoviet Union, adding that the basis for the transfer\nwould \"be worked out between the governments concerned. \"1\nThis proposal was later altered slightly to read that\nthe Soviets would receive a percentage of such\nindustrial equipment \"as we determine is not necessary\nfor a peace economy and should be removed from the\nRuhr. 112 When this proposal was submitted to the\nForeign Ministers, Mr. Molotov objected on the ground\nthat it did not specify exactly how the equipment\n\"unnecessary for a peace economy\" was to be determined. 3\nSecretary Byrnes replied that, since the Ruhr lay in\nthe British Zone, it would be up to the British\nauthorities to determine what was available for\nreparations \"on the basis of what must be left there\nin order to maintain the minimum required standard\nof living. 114\nMr. Molotov objected that the determination of\nwhat was available for reparations should be done\n\"on an Allied basis in which the Soviets would\nparticipate. He suggested that the determination\nshould\n1U.S. Delegation, (Potsdam), \"United States\nPosition on Reparations\", July 23, 1945. (Collado\nPapers, No. 17.)\n2u.s. Delegation (Potsdam), \"German Reparations:\nThe United States Proposal\", July 30, 1945. (Clayton\nPapers, No. 36.)\n3HG (Potsdam), July 30, 1945, 4:30 p.m., p. 3.\n(British not represented.)\n4Ibid.\nTOP SECRE\nTOP SECRET\n- 149 -\nshould be made either by the Control Council or by\nthe Reparations Commission. Secretary Byrnes replied\nthat the Control Council operating for all Germany\ncould determine the general norms of living standards,\nbut that \"the final authority would probably remain\nin the commander-in-chief of the given zone, since he\nwas responsible for that zone. \" Mr. Byrnes then\nproposed the following draft:\n\"The determination of the amount and\ncharacter of the industrial capital equipment\nunnecessary for a peace economy and therefore\navailable for reparation would be made by the\nReparation Commission with France added working\nin consultation with the Control Council subject\nto the final approval of the zone commander in\nthe zone from which the equipment is to be\nremoved. 1\nIt will be noted that this proposal placed primary\nresponsibility on the Reparations Commission rather\nthan on the Control Council.\nAt the next meeting, with the British in\nattendance, Foreign Secretary Bevin at first took\nthe position that each zone commander should make\nthe determination in his own zone. 2 Mr. Molotov\ninsisted that some agency in which the Soviets\nparticipated--either the Reparations Commission or\nthe Control Council--should be responsible for\ndetermining what was available for reparations.\nSecretary Byrnes was willing to accept determination\nby the Control Council, provided that the Control\nCouncil's decisions were \"subject to the final\ndetermination of the zone commander.\" Mr. Bevin\nstated that the British position was that \"the\nascertainment of the material to be removed would\nbe subject to investigation by the Control Council,\nbut\n1U.S. Delegation (Potsdam), \"Addition to U.S.\nProposal on German Reparations\", July 30, 1945.\n(Clayton Papers, No. 37.)\n2FM (Potsdam), July 30, 1945, 5:00 p.m., p. 8.\nTOP SECRET\nTOP SECRET\n- 150 -\nbut that the zone commander would have the right of\nveto at the time of the decision.\" Mr. Molotov\nobjected, however, stating that the Control\nCouncil should have the final decision. Mr. Molotov\nthen asked who would formulate the general program\nupon which the determination of reparations would\nbe based. Mr. Bevin proposed that it be the Allied\nReparations Commission (with the French added)\n\"in association with\" the Control Council. 1 Mr.\nMolotov agreed, and Secretary Byrnes also agreed,\nprovided that the zone commander retained the right\nof veto.\nWhen the matter was turned over to the Heads\nof Government, Secretary Byrnes presented an American\nproposal which sought to express in draft form the\nmatters that had been agreed upon. The proposal was\nas follows:\n\"The determination of the amount and\ncharacter of the industrial capital equipment\nunnecessary for the German peace economy and\ntherefore available for reparation shall be\nmade by the Control Council under policies\nfixed by the Allied Commission on Reparations,\nwith the participation of France, subject to\nthe final approval of the Zone Commander in\nthe Zone from which the equipment is to be\nremoved. \"2\nSecretary Byrnes explained that primary responsibility\nwas given the Control Council \"because the four govern-\nments were represented on it and it was an administra-\ntive body charged with executive functions, whereas\nthe\n1\nIbid., p. 9.\n2 U.S. Delegation (Potsdam), \"U.S. Proposal on\nReparations and Related Matters\", July 30, 1945.\n(Collado Papers, No. 38.)\nTOP SECRET\nTCP SECRET\n- 151 -\nthe Reparations Commission was 2 policy-making body. \"1\nIn accepting the American draft, Premier Stalin\nspecifically stated that \"it was agreed that the\nControl Commission would determine the equipment that\nshould be removed. \"2\nPremier Stalin then raised the question of\nsetting a time limit on the determination of repara-\ntions. Premier Stalin proposed three months as the\ntime for determining what would be the level of the\nGerman economy and what would therefore be available\nfor reparations. President Truman agreed, but Foreign\nSecretary Bevin considered three months to be too\nshort a period. Premier Stalin said, \"Make it three,\nfour, or five, but there should be a time limit. \"3\nWhen Mr. Bevin said that he would accept SIX months,\nthe others agreed.\nN. ADVANCE\n¹HG (Potsdam), July 31, 1945, 4:00 p.m., p. 3.\n²Ibid., p. 5.\n3 Ibid., p. 6.\nTOP SECRET\nTOP SECRET\n- 152 -\nN.\nADVANCE DELIVERIES\nThe Potsdam Agreement makes the following provision\nfor advance deliveries 1 n paragraph 7 of the Repara-\ntions Agreement:\n\"7. Prior to the fixing of the total\namount of equipment subject to removal, advance\ndeliveries shall be made in respect of such\nequipment as will be determined to be eligible\nfor delivery in accordance with the procedure\nset forth in the last sentence of paragraph 6.\"\nYalta\nThere was no discussion of advance deliveries\nat Yalta.\nU.S. Policy Formulation\nPolicy for an interim reparations program was\nformulated by the Informal Policy Committee on Germany.\nThe following policy statement was prepared by the\nCommittee for the guidance of the United States Delega-\ntion on the Reparations Commission:\n\"As an interim program, pending the\nformulation of more definitive arrangements,\nthis Government would favor formulation\nof an immediate program by the Reparation\nCommission along the following lines:\n\"a. During the initial period following\nthe collapse of Germany each of the four\noccupying powers -Great Britain, Russia, France\nand the United States--may remove from its zone\nof occupation in Germany plants, equipment\nand materials (including current output)\ndetermined by the Reparation Commission. It\nshall be our policy to press for inclusion\nin such an initial removal schedule the\ncategories of plant, equipment and materials\n(excluding ocean-going merchant tonnage)\ndescribed in paragraphs 30, 31, and 32 of the\n\"Directive to the Commander in Chief of the\nUnited States Forces of Occupation Regarding\nthe\nTOP SEGRET\nTOP SECRET\n153 1 i\nthe Military Government of Germany\" and\nin paragraph 3 g 1 above.\n\"b. The decision as to whether or not\nthe removal of particular plants, equipment\nor materials out of a zone in Germany was\nconsistent with the purposes of occupation\nwould be made by the commander of such zone,\nsubject to the following conditions:\n\"(1) There would be constant\nconsultation between zone commanders.\n\"(2) In making a decision as to\nremoval the zone commander would be\nresponsible for carrying out any\nrelevant agreed policies which may be\nformulated from time to time by the\nControl Council.\n\"(3) The Control Council would have\nan opportunity to consider any particular\nremoval and could veto it.\n\"(4) Regular reports should be made\nto the Control Council of transfers for\nreparation account and the Control Council\nshould keep appropriate Allied agencies\ncurrently informed.\n\"c. During this initial period any one of\nthe four occupying powers could allow, if it\nso desired, any other United Nation entitled\nto reparations in the form of removals from\nGermany to take out of its zone plants, equip-\nment and materials of such a nature and not\nin excess of such amounts as may be determined\nby the Reparation Commission. Such removals\nwould be subject to the policy and conditions\nspecified in sub-paragraphs a and b above.\n\"d.\nSee above, p. 25 , for the text of 3(8).\nTOP SECRET\nTOP SECRET\n- 154 -\n\"d. Records should be kept of all deliveries\nmade on reparations account under such interim\narrangements and such deliveries should be\nmade without prejudice to the final allocation\nof reparation shares. The Reparation Commission\nshould determine the principles for valuation\nof such deliveries.\"\nMoscow\nThe United States Delegation to the Reparations\nCommission presented a proposal in which the primary\nemphasis was placed on the use of advance deliveries\nfor reconstruction and rehabilitation purposes. The\nUnited States proposal asserted that \"an orderly flow\nof deliveries from Germany should begin at the earliest\npossible date to achieve earliest possible relief of\ndevastated areas in the United Nations. \"1 \"Pending\nthe establishment of a permanent Allied reparations\nagency,' the proposal continued, \"interim deliveries\nshould be based upon the urgency of need for rehabilita-\ntion purposes and should not be designated initially\nas reparation, restitution, or for purchase account\nof the recipient nations.\"\nTo carry out this program of interim deliveries,\nthe United States proposed the establishment in Berlin\nof a Sub-Commission of the Reparations Commission.\nThe Commission would transmit to the Sub-Commission a\nlist of industries and types of equipment from which\nremovals could be made. Interim deliveries and\nremovals of capital equipment from these specified\nindustries, up to an agreed limit of the movable\nassets expressed in physical terms, would be made\nupon the approval or recommendation of the Sub-\nCommission. Each of the occupying powers would be\npermitted to proceed with actual removals, subject\nto the following conditions:\n\"1.\n1 ACR Report, Appendix 21.\nTOP SECRET\nTOP SECRET\n- 155 -\n\"1. With respect to any removal by an\noccupying power for its own account the\nrespective zone commander shall notify the\nsubcommission of the contemplated removal.\nIf the sub-commission recommends that such\nremoval shall not be made, it shall so\nnotify the Allied Commission on Reparations\nwhich shall make such representations to\nthe government as it deems appropriate.\nPending the decision of the governments, the\ncontemplated removal shall be suspended.\n\"2. With respect to any removal from\nthe zone of one occupying power for the\naccount of another United Nation (whether or\nnot such United Nation be an occupying power)\nsuch removal shall be permitted upon the\napproval or recommendation of the sub-commission. \"1\nFinally, the American proposal made the following specific\nprovision for advance deliveries in the form of current\nproduction:\n\"With respect to interim deliveries to\nall United Nations of raw materials out of\ncurrent production or inventories and\nmanufactured goods out of inventories, such\ndeliveries may be made upon the approval or\nrecommendation of the sub-commission on the\nbasis of the need of the claimants after due\nregard to the supplies available and the require-\nments of the occupation forces. Shipping docu-\nments covering such interim deliveries shall\ninclude notification to the receiving country\nthat in the final accounting such deliveries\nmay be deemed by the Allied Commission on\nReparations to be on (1) export account to be\npaid for in acceptable currencies, (2) repara-\ntion, or (3) restitution. \"2\nIn\nI Ibid., Part IV, p. 17.\n²Ibid.\nTOP SECRET\nTOP SECRET\n- 156 -\nIn the discussions in the Reparations Commission,\nthe Soviets pressed for the prompt beginning of\ninterim reparations deliveries. This was part of\ntheir general desire to see the reparations program\nproduce tangible results as soon as possible. 1\nThe British, on the other hand, favored a more\ncautious approach. They would not agree to any program\nof interim deliveries until the main issues of a\npermanent reparations settlement had been decided.\nSince the Reparations Commission failed to agree on\nthese main issues, no agreement could be reached on\ninterim deliveries.\nPotsdam\nAdvance deliveries were first considered by the\nEconomic Sub-Committee at Potsdam. Discussions in the\nsub-committee brought out certain differences between\nthe American and Soviet positions. The United States\nproposed that the occupation authorities in each zone\nbe empowered to remove equipment as advance deliveries\nonly after giving the special Reparations Sub-Commission\n(acting in consultation with the Control Council and\nunder instructions from the Allied Commission on\nReparations) an opportunity to veto the removal. 2 The\nSoviets proposed, on the other hand, to give the Sub-\nCommission no opportunity to pass on the removal of\nadvance deliveries by the individual zone commander.\nThe Soviets proposed that the individual zone commander\nbe empowered to make a removal from his zone, provided\nonly that he notify the Sub-Commission of the con-\ntemplated removal, and give the Sub-Commission an\nopportunity to enter such removal in the plan of\nadvance deliveries.\nThe\n1\nIbid.\n2 ACR Report, Appendix 21.\nSoviet Delegation (Potsdam), \"On Advance\nDeliveries from Germany\", July 24, 1945. (Collado\nPapers, No. 10.)\nTOP SECRET\nToΓ SECRET\n-- 157 -\nThe Soviet proposal also differed from the\nAmerican with respect to advance deliveries from\ncurrent production and from stocks or inventories.\nThe United States proposed that advance deliveries\nbe taken from two categories: (1) raw materials\nfrom either current production or inventories and\n(2) manufactured goods from inventories only. The\nSoviet proposal, however, provided for advance\ndeliveries from only the first of these categories--\nraw materials out of current production or inventories.\nFinally, the Soviet proposal differed from the\nAmerican regarding reports on interim removals. The\nSoviets were opposed to making a full report on\nremovals \"a condition precedent to the movement of\nany interim deliveries.\" Furthermore, the Soviets\nproposed that the powers submit merely a statement\nof removals made \"after the termination of war with\nGermany\", whereas the American Delegation proposed\na statement of all removals since the invasion of\nGermany--a provision which would have forced the\nSoviets to report on its large-scale removals which\ntook place before the termination of the war.\nThe problem of advance deliveries took on a\nnew aspect when the American zonal plan was adopted\nin the course of the Potsdam Conference. An elaborate\nsystem of supervision by the Reparations Commission\nor the Control Council was no longer important, since\nthe whole reparations program was placed on a zonal\nbasis. The Soviets, however, continued to insist\nthat there be some provision regarding advance\ndeliveries, and it was on their insistence that\nparagraph 7 was included in the Reparations Agree-\nment. They proposed at first that the determination\nof advance deliveries be made by the Allied Com-\nmission on Reparations. However, just before the\nPotsdam Agreement was adopted, they agreed that the\ndetermination of capital equipment for advance\ndeliveries would be made by the Control Council. 1\nThe\n¹ACR Report, Part V, p. 12.\nTOP SECRET\nTOP SECRET\n- 158 -\nThe subject of advance deliveries was also\ndiscussed in connection with the supplying of\nBerlin. Prime Minister Attlee proposed that an\nagreed amount of food and coal be furnished by the\nSoviets to the American and British sectors of\nBerlin and that these supplies be considered an\nadvance on the reciprocal deliveries to be furnished\nby the Soviet Union to the Western Zones. When Premier\nStalin objected, Prime Minister Attlee pointed out\nthat since deliveries of capital goods from the Ruhr\nto the Soviet Union were to begin immediately, the\nSoviet Union's reciprocal deliveries should also begin\non an \"advance delivery\" basis. Premier Stalin\nobjected, however, on the ground that there was a\ndifference in time limit for the completion of the\ntwo types of deliveries. 1 Premier Stalin also argued\nthat the United States and Great Britain could refuse\nto make advance deliveries of capital equipment, if\nthey wished. Foreign Secretary Bevin replied that\nthey \"did not wish to do that\" and that they \"wished\nto accomodate\" the Soviet Union. No decision was\nreached on the point. 2\nAn analysis of the discussions at Potsdam does\nnot make clear an ambiguity in paragraph 7: the\nphrase \"total amount of equipment subject to removal\",\nwhich was retained in the paragraph as finally adopted,\nin spite of the fact that the total reparations plan\nhad been abandoned in favor of the zonal plan. It\nmight be argued that the phrase \"total amount of\nequipment subject to removal\" applies only to the\ncapital equipment assigned to the Soviets from the\nWestern Zones in paragraph 4. Apparently, however,\nthe United States placed a broader interpretation\non the phrase, for a policy memorandum prepared by\nthe United States Delegation to the Reparations\nCommission after Potsdam made it clear that Paragraph 7\nwas intended to include advance deliveries from each\nof\n¹HG (Potsdam), Aug. 1, 1945, 4:00 p.m., p. 7.\n²Ibid., p. 8.\nTOP SECRET\nTOP SECRET\n- 159 -\nof the zones to any of the reparations recipients.\nThe Commander of the American Zone was instructed\nin this policy paper to \"urge upon the Control\nCouncil the immediate adoption and implementation\nof a program for advance deliveries of capital\nequipment in accordance with the Berlin Protocol. \"1\nFurthermore, the United States Delegation inter-\npreted paragraph 7 as specifically authorizing advance\ndeliveries on a zonal basis: \"The Commander of the\nU.S. Zone should wherever possible make arrangements\nto deliver on reparation account to any of our\nEuropean Allies such industrial equipment (not\nnecessary for the German peacetime economy as\nin his judgment is urgently needed in any such country\nfor relief and reconstruction purposes. 11 The policy\nmemorandum also outlined the relationship of advance\ndeliveries to the establishment of a permanent\nreparations agency.\n\"The desirability of setting up machinery\nfor allocating this equipment is recognized.\nThe U.S. Government is making every effort\nto expedite the establishment of an Allied\nReparations Agency which will allocate\nspecific industrial equipment for both\nadvance and long-run deliveries. However,\ndeliveries of industrial equipment by the\nControl Council or the Zone Commanders\nshould not be withheld solely on the grounds\nthat no such agency is in existence or has\nbegun to function. \"2\n0. REPARATIONS FOR POLAND\nThe special problem of reparations for Poland\nis referred to in paragraph 2 of the Potsdam Repara-\ntions Agreement:\n\"The\n1 ACR Report, Appendix 30, p. 31.\n²Ibid.\nTOP SECRET\nTOP SECRET\n-- 160 -\n\"The U.S.S.R. undertakes to settle\nthe reparations claims of Poland from its\nown share of reparations.\"\nYalta and Moscow\nReparations for Poland were not discussed at\neither Yalta or Moscow.\nPotsdam\nAt Potsdam the Soviet Union strongly supported\nPoland's claim to administration over German territory\neast of the Oder-Neisse line. When it became evident\nthat the United States might have to agree to plac-\ning Eastern Germa ny under Polish administration,\nthe staff of the United States Delegation at Potsdam\nurged that certain steps be taken to ensure that\n\"reparations burdens as well as benefits\" be dis-\ntributed among those receiving ceded German territory.\nOriginally, the United States hoped to extract\nimportant economic concessions to counterbalance\nthe benefits gained by Poland in acquiring German\nterritory.\nOne American proposal was that any exportable\ncommodities produced in ceded territories should be\nsubject to the following priorities: first, they\nshould be shipped into Germany to such extent as\nwas necessary to sustain a minimum level of\nsubsistence there; second, they should be sold in\norder to finance necessary imports into Germany; and\nthird, they should be paid into the general repara-\ntion fund to be allocated among the claimant nations.\nIt was also proposed that the value of capital equip-\nment and natural resources located in any ceded\nterritory should be accounted for as reparations\ndelivered to the nation acquiring the territory. 1\nAt the same time, however, the following alternative\napproach to the problem was proposed by the United\nStates staff on the Reparations Commission:\n\"Practically,\n¹Letter from Ambassador Pauley to Secretary\nByrnes, July 18, 1945. (Collado Papers, No. 3.)\nTOP SECRET\nTOP SECRET\n- 161 -\n\"Practically, the foregoing obligations\nmay well have to be funded both in the form\nof agreements to deliver certain fixed\nquantities of coal, zinc, coke, iron, steel,\ncement, calcinated soda, etc., for a\ndefinite period of years, and by reducing\nthe amount of reparations which will be\ndelivered to the nation receiving ceded\nterritory or delivered to another nation\nfor whose security territory may be ceded. \"1\nThese proposals were advanced early in the Potsdam\nConference, when an over-all reparations plan was\nstill under consideration.\nThe development of a zonal plan caused a change\nin the means for dealing with Polish reparations.\nThe new approach is outlined in the following memoran-\ndum prepared by the United States staff:\n\"The Soviet Zone, including the area\noccupied by Poland, contains between 45\nand 50 percent of the area and wealth of\nGermany. Soviet and Polish claims for\nreparation amount to about the same\npercentage (i.e., 45-50 percent) of total\nclaims. Soviet and Polish claims for\nreparations by removals of capital equip-\nment (including war booty or trophies),\ncurrent production, or stocks of goods\nshould be met solely from the Soviet Zone.\nThe claims of other nations should be met\nfrom the other zones. 112\nThe ideas expressed in this memorandum formed the\nbasis for the United States proposal that both\nSoviet and Polish reparations shares be extracted\nfrom\n1U.S. Delegation (ACR), \"Relationship between\nReparations and Ceded German Territory\", July 18,\n1945. (Collado Papers, No. 3.)\n2U.S. Delegation (Potsdam), \"Boundaries, Supply,\nand Reparations\" July 22, 1945. (Collado Papers,\nNo. 9.)\nTOP SECRET\nTOP SECRET\n- 162 -\nfrom Eastern Germany.\nWhile advocating this new approach, the United\nStates at the same time continued to press for a\nspecial supply arrangement which would make up for\nthe serious deficit to the German economy resulting\nfrom placing a large part of Eastern Germany under\nPolish administration. The following formula was\nproposed:\n\"Trade arrangements should be made for\nthe exchange of substantial amounts of\nfoodstuffs, coal, and other necessary\nproducts customarily provided by the Soviet\nZone, including the area occupied by Poland,\nfor products customarily supplied by the\nrest of Germany. While production and\ninterchange have been temporarily disrupted\nby war, such can now be speedily resumed. \"1\nWhen the American ideas regarding Polish\nreparations were presented to the Soviet Foreign\nMinister at Potsdam, he protested that it had not\nbeen the intention at Yalta to strip the area of\nall its value and then to turn it over to Poland.\nMr. Molotov added, however, that \"it was possible\nto consider the equipment and materials in the area\nas Poland's share of reparations. \"2\nSubsequently, when the American zonal reparations\nplan was being discussed, the idea was generally\naccepted that Polish reparations should come out\nof the Soviet share, which meant in effect that they\nshould come from the territory in Eastern Germany\nceded to Poland. 3\nThe\n¹Ibid.\n2 FM (Potsdam), July 23, 1945, 4:00 p.m., p. 3.\n3 ACR Report, Part V, p. 9.\nTQP SECRET\nTOP SECRET\n- 163 -\nThe commodities with which the Soviets were\nsupposed to compensate for reparations from the\nWest were intended originally to 'compensate for\nwhat was lost from Germany's reparation-paying\nability through the slicing off of territory east\nof the Oder-Neisse line. The items listed for\ndelivery by the Soviet Union were for the most\npart taken directly from a list of commodities\nwhich Poland had agreed to deliver to the Soviet\nUnion in a trade treaty executed immediately before\nthe Berlin Conference.1\nP. REPARATIONS\n1 ACR Report, Appendix 30, p. 25.\nTOP SECRET\nTOP SECRET\n- 164 -\nP. REPARATIONS FOR OTHER NATIONS\nThe Potsdam Agreement makes only one brief\nallusion to the reparations claims of nations other\nthan the Three Powers and Poland. This is to be\nfound in paragraph 3 of the Reparations Agreement:\n\"The reparations claims of the United\nStates, the United Kingdom, and other countries\nentitled to reparations shall be met from the\nwestern zones and from appropriate German\nexternal assets.'\nThus the Potsdam Agreement turned over to the United\nStates and the United Kingdom all responsibility for\nallocating reparations among the smaller nations.\nYalta\nAlthough no specific agreements were made at\nYalta concerning reparations for other Allied nations,\nthere was some discussion of the subject, and an\nunderstanding was reached on general policies.\nThe Soviets strongly favored giving the Three\nPowers a preferred position in receiving reparations.\nPremier Stalin made this clear when he stated early\nin the Conference that the Reparations Commission\nshould \"work on the basis that the three principal\nAllies had contributed most to the common victory\nand should be given priority in the matter of\nreparations. 111 This view was reflected in the two\ncriteria proposed by the Soviets for determining how\nmuch reparations a nation should receive. These\nwere: (1) the extent to which a country had \"borne\nthe main burden of the war\" and (2) the contribution\nof a country in \"organizing victory over the enemy.\"\nAs interpreted by the Soviets, both these criteria\nwould have favored the major powers.\nThe\n1HG (Yalta), Feb. 5, 1945, 4:00 p.m., p. 19.\nTOP SECRET\nTOP SECRET\n- 165 -\nThe United States view was generally favorable\nto the Soviet position that the major powers should\nhave first priority. When President Roosevelt first\nbrought up the subject of reparations, he remarked\nthat \"there was first of all the question of the\ndesires and needs of the principal allies and\nsubsequently that of the smaller countries, such\nas Belgium, Holland, Nerway, etc. \"1\nThe British, however, were opposed to this\nemphasis. They made repeated efforts to promote the\nclaims of the smaller Allied nations. First, they\nsought to make sure that the Reparations Commission\nwould consider the claims of other nations \"who bore\nthe facts of Nazi aggression as well. \"2\nWhen President Roosevelt and Premier Stalin\ninsisted on priority for the major powers, Prime\nMinister Churchill agreed, but urged that there\nbe a definite understanding that the claims of the\nsmaller nations would be considered later. He sub-\nmitted a draft proposal which specified that the\nReparations Commission should \"determine the moment\nwhen the representatives of the other Allied Powers\nwill be invited to participate in the Allied Commission,\nas well as define the forms of participation of these\nPowers in the Commission.\" This statement was not\nincluded in the Yalta Agreement 3 The British also\nsought to aid the smaller Allies by adding a third\ncriterion to the two proposed by the Soviet Union,\nboth of which favored the major powers. The British\nproposed\nlIbid., p. 14.\n2 Ibid., p. 19.\n3Attachment to FM (Yalta), Feb. 7, 1945, 12:00\nnoon.\nTOP SECRET\nTOP SECRET\n- 166 -\nproposed that the \"losses and sufferings\" of a\nnation be the third criterion. 1 This would have\nbeen particularly beneficial to the smaller\nliberated countries. President Roosevelt and\nPremier Stalin agreed to add this third criterion,\nwhich was included in the Yalta Agreement.\nAS to the actual amount of reparations for\nother nations, the Soviet Delegation proposed that\nthe smaller nations receive $2 billion out of the total\nof $20 billion to be extracted from Germany as repara-\ntions 2 This compared with the $10 billion to be\nreceived by the Soviet Union and the $8 billion to\nbe divided between the United Kingdom and the United\nStates. The United States did not accept these\nfigures, although it did agree to accept as a \"basis\nof discussion\" the Soviet proposal that the Soviet\nUnion receive 50 percent of the total of $20 billion.\nThe British accepted no figures, either for the\ngrand total or for the share of the smaller nations. 3\nU.S. Policy Formulation\nSoon after Yalta, the United States began to\ngive thought to the problem of reparations for other\nnations and to the creation of an agency to allocate\nshares. The following policy statement was formulated\nby the Informal Policy Committee on Germany in the\nspring of 1945:\n\"The\nIFM(Yalta), Feb. 7, 1945, 12:00 noon, p. 6.\n²Ibid.\nSee above, pp. 13-15.\nTOP SECRET\nTOP SECRET\n-- 167 -\n\"The Reparation Plan should include\nprovision for the early establishment of a\nreparation agency including representatives\nof such governments as have suffered\ndevastation or substantial damage. This\nagency, after detailed study of Germany's\ncapacity to pay and examination of claims to\nreparation by the various claimant nations,\nshall develop a long term plan for the\ndelivery of reparations. This plan shall\nset forth a description of the reparations\nto be delivered and their physical allocation\nto the various claimant nations. It shall\ncontain a time schedule indicating the rate\nat which deliveries are to be made to the\nseveral governments over a stated period of\nyears. The reparation agency should be\ngiven continuing responsibility for drawing\nup at regular intervals detailed schedules\nof the amounts and kinds of reparations items\nto be delivered and should have authority to\ndetermine the allocation of specific items\namong claimant governments.\nMoscow\nThe Reparations Commission at Moscow reached\nseveral agreements on reparations for other Allied\nnations. In the first place, it was agreed that all\nGerman reparations would first be apportioned among\nthe Three Powers, who would then contribute from\ntheir shares to the shares of other nations. The\nformula for accomplishing this, which was based on\na United States proposal, was that all reparations\nwould first be divided as follows: the Soviet\nUnion, 56 percent; the United Kingdom, 22 percent;\nand the United States, 22 percent. The following\nprinciple would then apply: \"To meet the validated\nclaims for reparations on the part of the other\nnations, as determined by mutual agreement of the\nthree powers, each of the three powers will give up\nfrom their share in the ratio that each share bears\nto the total.\nThe\n1IPCOG 2/1, para. 11.\n2ACR Report, Part IV, p. 9.\nTOP SECRET\nTOP SECRET\n- 168 --\nThe Reparations Commission also agreed on a\ntentative procedure for dividing reparations among\nthe smaller recipients. The following steps would\nbe taken: (1) The Reparations Commission was to\ninvite each of the United Nations to submit data\ndescribing the nature of its reparations claims. (2)\nThe Commission would then decide on a tentative list\nof countries to receive reparations and on a tentative\ndistribution of shares among them. (3) The Com-\nmission would negotiate with the governments entitled\nto reparations in an effort to gain their agreement to\nthe percentage share allotted to them. (4) If these\nnegotiations were successful, the Commission would\ninvite the nations to a special conference which\nwould proceed to draft a general reparations agree-\nment. 1\nThe Reparations Commission did not agree on a\ndetailed plan for carrying out the actual distribution\nof reparations among Allied nations. The United\nStates Delegation, however, prepared a staff memorandum\nwhich contained such a plan. 2 After the percentage\nformula had been worked out by the Reparations\nCommission and a diplomatic meeting of all interested\nnations had been held, an inter-Allied agency would\nbe created which would perform a number of policy\nand adjudicative functions. It would determine\npriorities, apportion transfers by zones, study\nthe effects of removals on the German economy,\napprove or issue vesting orders on German foreign\nand domestic assets, and adjudicate claims, conflicts,\nand appeals under the reparations agreement. Under\nthis American staff proposal, administrative functions,\nas distinct from policy and adjudicative functions,\nwere to be performed by the zone commanders, acting\nin\n1ACR, \"Procedure for Settling the Provision of\nReparations between Countries other than the U.K.,\nU.S.A., and U.S.S.R.\" (Collado Papers, No. 2, p. 12.)\n2ACR Report, Appendix 20.\nTOP SECRET\nTOP SECRET\n- 169 -\nin coordination through the Allied Control Council.\nAdministrative functions included such tasks as the\nappraisal of items for removal, the issuing of\nlicenses for specific removals and shipments, the\nhandling of inspections by representatives of\nclaimant nations, and the keeping of accounts and\nreports. 1\nThe following countries were to be invited to\nbecome members of the Allied reparations agency:\nAustralia, Belgium, Brazil, Canada, Czechoslovakia,\nDenmark, France, Greece, Luxembourg, Netherlands, New\nZealand, Norway, Poland, South Africa, the United\nKingdom, the United States, the Soviet Union, White\nRussia, and the Ukraine.\nThe American staff proposal was not considered\nby the Reparations Commission. It was, however, the\nfirst detailed plan for allocating reparations among\nthe smaller nations and as such was a forerunner of\nlater plans upon which the Inter-Allied Reparations\nAgency was based. Under the American zonal plan\nadopted at Potsdam, the United States and the United\nKingdom were made solely responsible for satisfying\nthe claims of the smaller allies, except Poland.\nBecause the Soviet Union was thus relieved of all\nresponsibility in distributing reparations among\nthe smaller nations (except Poland), the details of\nthe subject were not discussed at Potsdam. The\nassumption was that the American and British govern-\nments would work out the procedure at a later date.\nA related problem--the future of the Allied\nReparations Commission--was briefly considered at\nPotsdam. The principal disagreement concerned the\nparticipation of other Allied nations in the Com-\nmission. On July 30, the Foreign Ministers agreed\nthat\n1\nIbid., p. 3.\nTOP SECRET\nTOP SECRET\n- 170 -\nthat France should be added to the membership of the\nCommission.1 A day later, Premier Stalin stated in\na meeting of the Heads of Government that he approved\nthe inclusion of France in the membership of the\nCommission.² However, at the final meeting of the\nConference he suddenly proposed that Poland also\nbecome a member of the Commission. Prime Minister\nAttlee and President Truman opposed the inclusion\nof Poland for several reasons: (1) the Soviet Union\nhad agreed to take care of Poland's reparations\nshare; (2) France had a zone of occupation in\nGermany, whereas Poland did not; and (3) it was\ninadvisable in general to \"mix other hands in the\npie. \"3 Premier Stalin thereupon reluctantly agreed\nthat only France should be added to the membership\nof the Commission.\nQ. USE\n¹FM (Potsdam), July 30, 1945, 5:00 p.m., p. 9.\n²HG (Potsdam), July 31, 1945, 4:00 p.m., p. 8.\n³HG (Potsdam), Aug. 1, 1945, 4:00 p.m., p. 6.\nTOP SECRET\nTOP SECRET\n- 171 -\nQ. USE OF ALLIED PROPERTY AS REPARATIONS\nThe Potsdam Agreement contains no mention of\nthe use of Allied property as German reparations. 1\nThe United States submitted a proposal on the subject,\nbut it was not discussed.\nU.S. Policy Formulation\nIn May 1945 the Informal Policy Committee on\nGermany prepared the following policy statement:\n\"The removal of plants and equipment\nshall take place regardless of the fact that\nthey are owned in whole or in part, directly\nor indirectly, by United Nations nationals.\nWhere plants or equipment which are owned in\nwhole or in part by a United Nations national\nare to be so removed arrangements shall be\nmade, if practicable and desired by the govern-\nment of such national, for the owner to retain\nhis interest in such plant and equipment after\nremoval. If not practicable or so desired,\nGermany shall furnish to the government of\nsuch national adequate reparation to cover\nthe interest of such national.\nPotsdam\nAt Potsdam the United States Delegation submitted\nthe following paper on July 25:\n\"1)\n1 Article XX and Annex II, both of which were\nunpublished, contained an agreement in principle on\nthe use of Allied property for reparations or \"war\ntrophies\" taken from the Axis satellite countries.\nSince the negotiators at Potsdam considered Satellite\nreparations to be a problem distinct from German\nreparations, article XX and Annex II cannot be\nconsidered to provide a parallel.\n2IPCOG 2/1, para. 3(1).\nTOP SECRET\nTOP SECRET\n- 172 -\n\"1) Ownership by United Nations or\nneutral nationals should not impede a program\nof removals.\n\"2) United Nations nationals should be\ninvited to submit statements covering the\nnature and extent of their property in\nGermany to the ACC. The ACC should have\nfacilities and free access to such properties\nfor the purpose of investigating claims and\nappraising properties.\n\"3) Removals of United Nations properties\nshould be made on condition that the United\nNations nationals retain their ownership\ninterests in the moved properties, except\nthat, where retention of ownership is not\npracticable, Reichsmark accounts should be\nset up, on the basis of ACC valuations, to\ncover the value of the properties. Arrange-\nments should then be made, prior to removal,\nto have the receiving country liquidate these\naccounts in acceptable foreign exchange in\npayments amortized over a short period of\nyears.\n\"4) Neutral nationals or their govern-\nments should be permitted to file with the ACC\nstatements covering the nature and extent\nof the properties in Germany of neutral\nnationals. Reichsmarks to the extent of\nvaluations made by the ACC should be\ndeposited to the account of such neutral owners\nby way of compensation. \"1\nBecause of the rush of business, this proposal was\nnot even discussed at Potsdam, with the result that\nno mention of the subject appears in the Potsdam\nAgreement.\nThe\n1United States Delegation (Potsdam), \"Removals\nfrom Germany of Properties of United Nations or\nNeutral Nationals, July 25, 1945. (Collado Papers,\nNo. 22.)\nTOP SECRET\nTOP SECRET\n- 173 -\nThe use of Allied property as reparation was\nindirectly alluded to in another connection.\nSecretary Byrnes proposed at the final meeting of\nthe Conference that the following underlined words be\nadded to paragraph 9 of the Reparations Agreement:\n\"The Governments of the United Kingdom and the\nUnited States of America renounce their claims in\nrespect of reparations to shares of German enter-\nprises which are located in the eastern zone of\noccupation in Germany, as well as to German foreign\nassets in Bulgaria, Finland, Hungary, Rumania, and\nEastern Austria. \"1 This proposal was accepted by\nthe other delegations. One reason why Secretary\nByrnes proposed to add these words was to leave\nthe way open for the American and British Governments\nand other Allied Governments to claim property owned\nby their nationals in the Eastern Zone.\nR. GERMAN\n¹HG (Potsdam), Aug. 1, 1945, 10:40 p.m., p. 2.\nTOP SECRET\nTOP SECRET\n- 174 -\nR. GERMAN LABOR AS REPARATIONS\nThe Potsdam Agreement does not refer to German\nlabor as reparations.\nYalta\nAt Yalta no decisions were reached on the use\nof German labor as reparations. The subject was\nconsidered, however, and the discussions reveal\nthe positions of the delegations.\nWhen President Roosevelt first introduced the\nsubject of German reparations, he inquired into\n\"the Russian desires in regard to the utilization\nof German manpower. \"1 Premier Stalin replied that\nthe Soviets \"were not ready yet to present any plan\nin regard to German manpower. \"2 This was reflected\nin the Soviet Union's written proposal, which\nrequested that the question of the use of German\nlabor as reparations be postponed, on the under-\nstanding that it would be \"considered at a later\ndate. \"3 Later in the Conference, Foreign Minister\nMolotov described the German labor problem as \"very\ncomplicated\", adding that the Soviet Government\nneeded \"time for further study\". At the same time,\nForeign Minister Molotov agreed that the problem\nwould be discussed by the Reparations Commission in\nMoscow.\nThe United States position on the principles to\ngovern the use of German labor as reparations was not\nclearly stated at Yalta. There appears,\nhowever,\n¹HG (Yalta), Feb. 5, 1945, 4:00 p.m., p. 14.\n2Ibid., p. 15.\n3 Attached to FM (Yalta), Feb. 7, 1945, 12:00 noon.\n4 FM (Yalta), Feb. 7, 1945, 12:00 noon, p. 7.\nTOP SECRET\nTOP SECRET\n- 175 -\nhowever, to have been general acceptance\nof the idea that German labor would be used as repara-\ntions. For example, at one point President Roosevelt\nassured Premier Stalin that the United States would\nhelp the Soviet Union obtain the reparations she\nrequired, \"as well as the manpower to reconstruct the\ndevastated cities. \"1 The American draft proposals\non reparations made no commitment as to German labor,\nstating only that the question \"would be considered\nat a later date.\"2 The United States Delegation,\nhowever, clearly accepted the principle that German\nlabor would be used as reparations, since it agreed\nto the Protocol which listed \"the use of German\nlabor\" as a source of reparations.\nThe British were responsible for\nactually including in the Protocol the provision\nthat German labor would be one of the sources of\nreparations. The British draft proposal specifically\nprovided that \"use of German labor and lorry\nservice\"3 would be the third major source of repara-\ntions. This was accepted by the other Delegations\nand included in the Protocol.\nU.S. Policy Formulation\nAfter Yalta, the Informal Policy Committee on\nGermany formulated the following detailed statement\nof United States policy on the use of German labor\nas reparations:\n\"a. The United States will not accept\nreparation in the form of labor services.\n\"b.\n¹HG (Yalta), Feb. 5, 1945, 4:00 p.m., p. 17.\n²FM (Yalta), Feb. 9, 1945, 12:00 noon, p. 9.\n³Attachment No. 4 to FM (Yalta), Feb. 10, 1945,\n12:00 noon.\nTOP SECRET\nTOP SECRET\n- 176 -\n\"b. Both compulsory and voluntary labor\nservices furnished as reparation should be used\noutside of Germany only for reconstruction and\nrepair of war damage and not for current production\noperations except for fuel and food.\n\"c. This Government is strongly of the\nview that persons other than those specified\nin d. below as deserving of punishment should\nnot be called upon to perform compulsory labor\nservice outside Germany.\n\"d. Compulsory labor service should be\nrequired only from those judicially convicted as\nwar criminals, including individuals determined\nby appropriate process to be members of European\nAxis organizations, official or unofficial,\nwhich themselves have been adjudicated to be\ncriminal in purpose or activities.\n\"e. Agreement should be sought along the\nfollowing lines with regard to compulsory labor\nservice:\n\"(1) Except for persons tried for\nspecific crimes, and convicted and\nsentenced to lifetime punishment, the\nperiod of compulsory labor service should\nbe limited to a definite span of years.\n\"(2) The standard of living and\nconditions of employment should conform\nto humane standards.\n11 (3) The Reparations Commission or\nAgency should periodically survey the\nliving and working conditions of compulsory\nworkers and the uses made of their services.\n\"f. Apart from persons deserving of punish-\nment as defined above, German labor for repara-\ntions should be recruited only on a voluntary\nbasis.\n\"g.\nTOP SECRET\nTOP SECRET\n- 177 -\n\"g. The net value of the services of both\ntypes of labor shall be included as reparations. \"1\nMoscow\nAt the opening of the Moscow Session of the Repara-\ntions Commission on June 21, the Soviet Delegation\nproposed that \"the volume and character of the German\nlabor used by way of reparation will be determined by\nthe Commission.\" The Soviet proposal added that \"the\nvolume and type of removals from the national wealth\nof Germany\" would to a large extent determine the\n\"quantity and quality of the labor force which Germany\nwill make available by way of compensation for damage\nin accordance with the needs of the Allied nations. \"2\nThe Soviets therefore proposed that decisions regarding\nGerman labor be postponed until agreement had been\nreached on other kinds of reparations. Since full\nagreement was not reached on the latter, the Reparations\nCommission did not consider the problem of German labor.\nPotsdam\nGerman labor for reparations continued to be a\npostponed issue at Potsdam, where the primary emphasis\nwas on removals from the national wealth of Germany.\nNone of the various proposals presented by the American,\nSeviet, and British Delegations mentioned labor services\nas reparations.\nThe United States Delegation gave some internal\nconsideration to the problem and expressed concern\nthat the United States policy statement prepared by\nthe Informal Policy Committee on Germany was far more\nrestricted than the other powers desired. The United\nStates desired that compulsory labor service outside\nGermany\n¹IPCOG, 2/1, para. 4.\n2ACR Report, Appendix 10, p. 2.\nTOP SECRET\nTOP SECRET\n- 178 -\nGermany be confined to convicted war criminals,\nwhich would mean that only one to one-and-a-half\nmillion persons would be available for compulsory\nlabor. Total demands by other countries indicated\nthat six or seven million workers might be needed. 1\nNo disagreement arose at Potsdam, however, since\nGerman labor was sidetracked for other aspects\nof the reparations problem.\nS. GERMAN\n1 ACR Report, Appendix 19.\nTOP SECRET\nTOP SECRET\n- 179 -\nS. GERMAN MERCHANT MARINE AND NAVY\nThe principles agreed to at Potsdam for\ndisposing of German merchant and naval shipping\nare not included in the Reparations Agreement, but\nin a separate section of the Potsdam Agreement,\nimmediately following the reparations section.\nThe reason for this separation was that the\nPotsdam Conference decided that German ships were\nnot to be considered reparations. The negotiations\non the subject are nevertheless described n this\nstudy because there was a very close relationship\nbetween reparations and German shipping.\nFor division of the German navy, the agreed\nprinciples were:\n\"(1) The total strength of the German\nsurface navy, excluding ships sunk and those\ntaken over from Allied Nations, but including\nships under construction or repair, shall be\ndivided equally among the U.S.S.R., U.K., and\nU.S.A.\nIT (2) Ships under construction or\nrepair mean those ships whose construction\nor repair may be completed within three to\nsix months, according to the type of ship.\nWhether such ships under construction or\nrepair shall be completed or repaired shall\nbe determined by the technical commission\nappointed by the Three Powers and referred\nto below, subject to the principle that\ntheir completion or repair must be achieved\nwithin the time limits above provided,\nwithout any increase of skilled employment\nin the German shipyards and without per-\nmitting the reopening of any German ship\nbuilding or connected industries. Completion\ndate means the date when a ship is able to\ngo out on its first trip, or, under peace-\ntime standards, would refer to the customary\ndate of delivery by the shipyard to the\ngovernment.\n11 (3)\nTOP SECRET\nTOP SECRET\n- 180 -\n11 (3) The larger part of the German\nsubmarine fleet shall be sunk. Not more\nthan thirty submarines shall be preserved\nand divided equally between the U.S.S.R. ,\nU.K., and U S.A. for experimental and\ntechnical purposes.\n\"(4) All stocks of armament,\nammunition and supplies of the German\nNavy appertaining to the vessels transferred\npursuant to paragraphs (a) and (c) 1 hereof\nshall be handed over to the respective\npowers receiving such ships.\n11 (5) The Three Governments agree\nto constitute a tripartite naval com-\nmission comprising two representatives\nfor each government, accompanied by the\nrequisite staff, to submit agreed recommenda-\ntions to the Three Governments for the\nallocation of specific German warships and\nto handle other detailed matters arising\nout of the agreement between the Three\nGovernments regarding the German fleet.\nThe commission will hold its first meet-\ning not later than August 15, 1945, in\nBerlin, which shall be its headquarters.\nEach delegation on the commission will\nhave the right on the basis of reciprocity\nto inspect German warships wherever they\nmay be located.\n11 (6) The Three Governments agreed\nthat transfers, including those of ships\nunder construction and repair, shall be\ncompleted as soon as possible, but not\nlater than February 15, 1946. The com-\nmission will submit fortnightly reports,\nincluding proposals for the progressive\nallocation of the vessels when agreed by\nthe commission.\"\nThe\n1\nApparently a reference to paragraphs (1)\nand (3):\nTOP SECRET\nTOP SECRET\n- 181 -\nThe principles for distribution of the German\nmerchant marine were as follows:\n\"(i) The German Merchant Marine,\nsurrendered to the Three Powers and\nwherever located, shall be divided equally\namong the U.S.S.R, the U.K., and the U.S.A.\nThe actual transfers of the ships to the\nrespective countries shall take place as\nsoon as practicable after the end of the war\nagainst Japan. The United Kingdom and\nthe United States will provide out of their\nshares of the surrendered German merchant\nships appropriate amounts for other Allied\nStates whose merchant marines have suffered\nheavy losses in the common cause against\nGermany, except that the Soviet Union shall\nprovide out of Its share for Poland.\n\" (2) The allocation, manning, and\noperation of these ships during the\nJapanese war period shall fall under the\ncognizance and authority of the Combined\nShipping Adjustment Board and the United\nMaritime Authority.\n11 (3) While actual transfer of the ships\nshall be delayed until after the end of the\nwar with Japan, a Tripartite Shipping Com-\nmission shall inventory and value all avail-\nable ships and recommend a specific dis-\ntribution in accordance with paragraph (1).\n\"(4) German inland and coastal ships\ndetermined to be necessary to the maintenance\nof the basic German peace economy by the\nAllied Control Council of Germany shall not\nbe included in the shipping pool thus divided\namong the Three Powers.\n\"(5) The Three Governments agreed to\nconstitute a tripartite merchant marine\ncommission comprising two representatives\nfor each government, accompanied by the\nrequisite\nTOP SECRET\nTOP SECRET\n- 182 -\nrequisite staff, to submit agreed recommenda-\ntions to the Three Governments for the alloca-\ntion of specific German merchant ships and\nto handle other detailed matters arising out\nof the agreement between the Three Govern-\nments regarding the German merchant ships.\nThe commission will hold its first meeting\nnot later than September lst, 1945, in\nBerlin, which shall be its headquarters.\nEach delegation on the commission will\nhave the right on the basis of reciprocity\nto inspect the German merchant ships\nwherever they may be located.\"\nYalta\nThe German navy and merchant marine were not\ndiscussed at Yalta, either as a source of repara-\ntions or otherwise.\nU.S. Policy Formulation\nUnited States policy, as formulated in the\nspring of 1945, was to include German ships among\nthe sources of reparations. 1 However, special\nconsiderations arising out of the war with Japan\ncaused the United States to modify this policy to\nthe extent of including German ocean-going merchant\ntonnage in the shipping pool until the end of the\nwar against Japan. United States policy was stated\nat this time as being in favor of the division of\nthe fleet \"on some fair basis\" after the end of\nhostilities with Japan. 2\nMoscow\nAt the Moscow meeting of the Reparations\nCommission, the United States Delegation proposed\nthat\n¹IPCOG 2/1, para. 3 (g).\n²Ibid.\nTOP SECRET\nTOP SECRET\n- 183 -\nthat German naval ships and inland and ocean-going\nmerchant ships above 2000 tons be included among the\nitems subject to complete removal as reparations.\nThe Commission did not discuss German shipping,\nhowever, and therefore did not consider the American\nproposal.\nPotsdam\nAt Potsdam, the disposition of the German fleet\nwas discussed at the first meeting of the Big Three\non July 17. Premier Stalin asked Prime Minister\nChurchill why he \"refused to give Russia her share\nof the German fleet. \" Churchill replied, \"The fleet\nshould be destroyed or shared.\" He added, \"Weapons\nof war are horrible things. It To this Premier Stalin\nreplied, \"Let's divide it. If Mr. Churchill wishes,\nhe can sink his share.\nWhen the problem was discussed in detail two\ndays later, the full position of each delegation\nwas revealed. The American position, as outlined\nby President Truman, was that the German merchant\nfleet should be considered as reparations, to be\ndivided according to whatever reparations principles\nwere agreed upon. However, he stated that the\nUnited States was also interested in having the\nmerchant fleet operate under its present control\nto aid in the Japanese war. Whatever disposition\nwas to be made should await the completion of the\nJapanese war. 2\nThe Soviet view was that the German Navy should\nbe classified as war booty, not as reparations.\nPremier Stalin gave the following reasons: \"Material\ntaken by armies in the course of war is booty.\nArmies that laid down their arms and surrendered,\nturned in their arms and these arms were booty.\nThe same thing applies to the navy He pointed\nout\n¹HG (Potsdam), July 17, 1945, 12:00 noon, p. 11.\n2HG (Potsdam), July 19, 1945, 5:00 p.m., p. 3.\n3Ibid., p. 3.\nTOP SECRET\nTOP\nSECRET\n- 184 -\nout that the surrender terms for Germany stipulated\nthat the German Navy should be surrendered, a fact\nwhich also proved that the Navy was booty. Premier\nStalin indicated, however, that it might be\npossible to regard the German merchant fleet as\nreparations rather than war booty. He recalled the\ncase of Italy, however, in which the merchant fleet\nas well as the Navy had been considered war booty.\nThe British sought to use the German fleet as\na bargaining instrument. Prime Minister Churchill\npointed out, first of all, that the Western powers\nhad the whole of the German merchant fleet in their\nkeeping. Regarding the German Navy, he wanted to\nwait until the end of the Conference before reaching\na decision. \"Should 8 general agreement be reached\nat this Conference,\" he remarked, \"and a friendly\nsettlement of their problems be achieved, I would\nnot be opposed to a division of the German [naval]\nfleet. \" He added, however, that the British felt\nthat in dividing the German Navy some consideration\nshould be given to the naval losses suffered by the\nrespective powers. He described at length the\nmagnitude of British losses, and added that Great\nBritain should receive special consideration.\nThe British took a special position regarding\nGermany's submarines. Mr. Churchill explained that\nGreat Britain, an island nation, had twice nearly\nperished as a result of submarines. He desired\nthat the bulk of Germany's U-boats be sunk and that\nonly a few of the latest type, which contained\n\"valuable information for the future\", should be\nspared and divided equally among the three powers.\nHe repeated, nowever, that other naval vessels\nshould be divided equally among the powers, \"provided\na general agreement was achieved at the Conference. \"1\nWith regard to the German merchant fleet, the\nBritish position was that no steps should be taken\nuntil the Japanese war was concluded. Mr. Churchill\nasserted that the Allies had sufficient men, planes,\nand naval vessels, but that they needed merchant\nships\n1\nIbid., p. 4.\nTOΓ SECRET\n- 185 -\nships for the movement of men and materials. There\nwas also the tremendous task of transporting goods\nto supply the British Isles and liberated Europe.\nHe felt that the then-existing shipping pool should\nbe continued, at least until the end of the Japanese\nwar. He stated, further, that the Soviets had\nacquired the Finnish merchant fleet of 400,000\ntons and two Rumanian troopships and that these\nvessels should be divided along with the German\nmerchant vessels in the Allies' pool. 1\nOne more feature of the British proposal was\nthat the German merchant fleet should be divided\ninto four parts, three for the major powers and a\nfourth for the other Allied nations which had\nsuffered severe merchant-shipping losses during\nthe war. He gave as an example the Norwegians,\nwhose oil-tanker fleet had been very valuable and\nwho had lost many vessels to German U-boats.\nIn the discussion which followed, the American\nposition was brought out. President Truman stated\nthat he was \"agreeable to a three-way division of\nthe German merchant and naval fleets\", but added\nthat he would \"like it to be done after the Japanese\nwar. If When asked by Premier Stalin whether he\nwanted to postpone the disposal of both merchant\nand naval fleets until after the war, President\nTruman replied that he was ready to dispose of the\nGerman Navy immediately.2\nPremier Stalin insisted that the turning over\nof a part of the German merchant fleet to the\nSoviet Union in no way constituted a \"gift\". He\nalso wanted it made clear that the Soviet Union\nwas not seeking to interfere with the war against\nJapan. Both President Truman and Prime Minister\nChurchill\n¹stalin interrupted at this point to say that\nthe Soviets had not acquired any ships from Finland\nand had acquired only one from Rumania, which was\nused to carry wounded soldiers.\n2HG (Potsdam), July 19, 1945, 5:00 p.m., p. 5.\nTOP SECRET\nTOP SECRET\n- 186 -\nChurchill gave assurance that the Soviet Union was\nnot receiving a \"gift\" and that there was no implica-\ntion that the Soviet Union was seeking to interfere\nin the carrying out of the Japanese war. 1\nPremier Stalin was anxious to obtain clear agree-\nment on the principle that the Soviet Union was \"to\nhave the right to claim one third of the German\nmerchant and naval fleet. \" He stated, \"If my\ncolleagues think otherwise, they should say so.\"\nPresident Truman replied that he \"did not think\notherwise\", but Prime Minister Churchill did not\nspeak. Premier Stalin added, \"With regard to the\nuse to which the merchant fleet would be put, in-\ncluding the one third to be handed over to Russia,\nof course [we] will raise no obstacles to the use\nof [our] third in the war against Japan. 112 The\nPresident stated that he had \"no objection to this\nproposal. Prime Minister Churchill, however,\nstated that he would make no commitments. Premier\nStalin then agreed to defer final decision on the\nGerman merchant ships until the end of the Conference.\nPrime Minister Churchill then argued strongly for\nthe destruction of Germany's submarine fleet, which\nhad done such severe damage to the British Isles.\nPremier Stalin stated that he was \"also in favor of\nsinking a large proportion of the U-Boats. 113\nA final point concerned the rights of Soviet\nrepresentatives to inspect the German naval fleet.\nPremier Stalin complained that a Soviet Naval\nCommission had been established, but that it had\nnot been allowed to see the German fleet nor had it\neven been given a list of German vessels. Prime\nMinister Churchill replied that he was quite\nwilling\n1\nIbid., p. 6.\n²Ibid., pp. 6-7.\n3 Ibid., p. 8.\nFOR SECRET\nTOP SECRET\n- 187 -\nwilling to allow the Soviet Commission to inspect\nthe ships, provided reciprocal facilities to inspect\nGerman submarines at Baltic installations were\ngranted to British officers. Premier Stalin\nstated that the Soviets \"could agree to Mr. Churchill's\nrequest that the exchange of facilities be mutual.\"\nPresident Truman added: \"So far as the United States\nzone was concerned, the Russians were at liberty to\nsee anything they wanted, only we would expect that\nthis would be reciprocal.\nShortly before the end of the Potsdam Conference,\nthe negotiators returned to the subject of German\nships, and each delegation submitted written proposals.\nThe United States proposal was very general:\n\"It is agreed that the German fleet shall\nat once be divided equally among the U.S.S.R.\nand the U.K., and the U.S. A large proportion\nof the German submarines shall be destroyed,\na small number being retained for experimental\nand training purposes. The destruction of the\nsubmarines shall be supervised by a mixed\ncommission which shall also determine which\nwill be retained.\n\"It is further agreed that naval\nofficers of the three powers will be accorded\nfacilities to inspect German naval vessels\nand installations wherever held.\n\"It is agreed that the German merchant\nmarine wherever or however captured or held\nshall be ultimately divided equally among\nthe U.S.S.R., the U.K., and the U.S., subject\nto further distribution by them to other\nAllied Nations. Although particular vessels\nmay be earmarked now for particular nations,\nall German merchant vessels shall be used in\nthe prosecution of the Japanese war as long\nas that war continues. The allocation, manning,\nand operation of these ships during the\nJapanese\n1 Ibid., p. 7.\nTOP SECRET\nTOP SECRET\n- 188 -\nJapanese war period shall fall under the\ncognizance and authority of the Combined\nShipping Adjustment Board and the United\nMaritime Authority. The ultimate dis-\ntribution of the German merchant fleet\nshall take place six months after the fall\nof Japan.\n\"It is further agreed that appropriate\nofficers of the three powers will be accorded\nfacilities to inspect German merchant\nvessels wherever held. \"1\nThe Soviet Delegation presented the following\nproposal:\n\"1. One third of the total strength\nof the German surface navy including ships\nwhich at the beginning of Germany's surrender\nwere under construction or in repair shall\nbe transferred to the Soviet Union.\n\"2. A larger part of the German submarine\nfleet shall be sunk. A part of the submarine\nfleet viz. submarines presenting the greatest\ninterest from the technical standpoint shall\nbe preserved and divided between the USSR,\nGreat Britain and the USA.\n\"3. One third of all stocks of armaments,\nammunition and supplies of the German navy\nshall according to the classes of vessels be\ntransferred to the Soviet Union.\n\"4. One third of the German merchant\nmarine shall be transferred to the Soviet\nUnion.\n\"5.\n1U.S. Delegation (Potsdam), \"Disposition of the\nGerman Fleet and Merchant Marine\", July 29, 1945.\n(Collado Papers, No. 28.)\nTOP SECRET\nTOP SECRET\n-- 189 -\n\"5. The transfer of vessels and ships\nof the German navy and merchant marine shall\nbegin on August 1st and their receipt shall\nbe completed by November 1st, 1945.\n\"6. A Maritime Technical Commission will\nbe set up to hand and take over vessels of\nthe German navy and merchant marine located\nin the ports and bases in allied countries\nas well as in Germany and other countries. \"1\nThe British made the following detailed proposal:\n\"(1) (a) It was agreed on the 19th July\nthat the German surface ships should be shared\nequally between the Three Powers. The British\nDelegation suggest that consideration should\nnow be given to allotting a share to France\nwhich is an equal party to the terms of\nsurrender for Germany and is a full member of\nthe Control Council for Germany. The alloca-\ntion of specific vessels is, it is suggested,\na matter upon which an expert commission should\nsubmit recommendations to the Three Govern-\nments, after it has drawn up a list of all\navailable surface ships, including those\nunder construction or already launched, and\nthose under repair which can be quickly\ncompleted. Any ships requiring more than\nthree months for completion should be\nremoved from Germany by the country to whom\nthey are allocated. Remaining ships under\nconstruction will be destroyed.\n'(b)\n1Soviet Delegation (Potsdam), \"German Navy and\nMerchant Marine\", undated. (Paper found in the\n1945 files of the United States Embassy at Moscow\nin a folder numbered 711 and labeled \"German\nReparations\". )\nToΓ SECRET\nTOP SECRET\n- 190 -\n\" (b) At the same time it was agreed\nin principle that the German U-boats should\nbe dealt with separately, the greater part\nbeing destroyed. A token number would be\nretained for equal division among the Three\nPowers for purposes of research. The\nquestion of a French share of the retained\nU-boats should also be considered. Here\nagain, it is suggested that the expert com-\nmission should be instructed to make concrete\nproposals after full investigation of the\nnumbers of U-boats--seaworthy, damaged and\nunder construction or repair--which are in\nthe hands of the Allied authorities. Each\nof the Three Powers would be responsible for\narranging the destruction of U-boats in its\ncontrol, apart from the token number which\nit may be agreed to retain.\n\"In deciding the allocation of German\nwarships, the British Delegation consider\nthat account should be taken of the Rumanian\nand Bulgarian warships available to the\nSoviet Union.\n\"(2) The Soviet request for a pro-\nportional share of the German Navy's reserve\nof armaments, ammunition and supplies was\nnot discussed at the Plenary Meeting on the\n19th July. The Soviet request is acceptable\nin principle to the British Delegation, who\nmust point out, however, that these stores\nhave been dispersed by the Germans and that\nthe first step must be the preparation of an\ninventory which should be one of the tasks\nassigned to the proposed expert commission.\n\"(3) It was agreed in principle that\nthere should be a division of the surrendered\nGerman merchant shipping, but no final\nconclusion was reached as to the proportions\nto be allotted to the different Allied States.\nMr. Churchill expressed the view that account\nshould be taken of merchant shipping which\nhad\nTOP SECRET\nTOP SECRET\n- 191 -\nhad passed under the control of the Soviet\nGovernment as the result of the armistices\nwith Finland and Rumania. President Truman\nemphasized the need for German shipping in\nthe war against Japan and in bringing\nsupplies for the rehabilitation of Europe.\n\"The meeting agreed in principle that\nwithout prejudice to the preparation of a\nscheme for the division of surrendered\nGerman merchant ships, all such ships\nshould be available for use in support of\nthe Allied war effort against Japan.\n\"The British Delegation maintain their\npoint of view that in the division of the\nsurrendered German merchant shipping,\naccount should be taken of the shipping taken\nas reparation by the Soviet Union from the\nSatellite States. Account should also be\ntaken of the need for providing ships for\nlocal German purposes, in accordance with\nany recommendations which may be made by\nthe Allied Control Council for Germany.\nSubject to these conditions, the British\nDelegation renew the suggestion made by\nMr. Churchill on the 19th July that a fourth\npart be made available for division between\nthe other Allied States whose merchant\nmarines have suffered substantial losses at\nthe hands of Germany. The share of the\nSoviet Union would in that case be one\nquarter of the total available.\n\"The shares of the various Allied\nStates would be counted as reparation\nreceipts.\n\"(4) The British Delegation cannot\nagree to the timetable proposed by the\nSoviet Delegation, since, as pointed out\nabove, there is much essential preliminary\ninvestigation and listing to be done before\nthe transfer of ships can begin. The\nBritish Delegation suggest that the follow-\ning timetable should be approved in principle\nby the Conference:\n\"(a)\nTOP SECRET\nFOR SECRET\n- 192 -\n\" (a) Warships. Transfers will be carried\nout as soon as possible after Govern-\nments have approved the recommenda-\ntions of the proposed expert com-\nmission.\n\" (b) Merchant Ships. Proposals for the\nallocation of specific German merchant\nships, in accordance with such decision\non allocation as may be agreed by the\nConference, should be agreed as soon\nas possible between the three Govern-\nments, in the light of recommendations\nmade by the experts, and particular\nships would then be earmarked. The\ntransfer of these ships would take\nplace as soon as they become avail-\nable after the end of the Japanese\nWar.\n(5) The Plenary Meeting on the 19th July\nagreed in principle upon the formation of a Three\nPower Naval Commission, with reciprocal rights\nfor each party to make the investigations\nrequired for their work in any territory under\nthe control of the other parties. As mentioned\nabove, the British Delegation propose that\nthere shall be established an expert commission\nto deal with German warships. Its composition\nand duties are suggested in paragraphs (1) and\n(2) above.\n\"As regards merchant ships the British\nDelegation suggest that detailed recommenda-\ntions to give effect to the proposals in\nparagraphs (3) and (4) (b) should be worked\nout between suitable expert representatives\nnominated by the Three Governments to deal with\nmerchant ships, in consultation with representa-\ntives of other interested Governments.\n\"(3) There is the possibility that any\npublic announcement that German warships are\nto be divided amongst the Allies may result\nin the German crews scuttling ships which might\nbe ordered to sail to Allied ports. It is\ntherefore\nTOP SECRET\nTOP SECRET\n- 193 -\ntherefore desirable that no announcement of\nthe division of the German Navy be made, at\nany rate until the expert commission has\ncompleted its investigations, which should\ninclude the detailed arrangements for carry-\ning out the transfer of ships. A similar\ndelay is necessary before making any definite\nannouncement about the division of the surrendered\nGerman merchant ships. \"1\nSubsequent discussion by the Foreign Ministers\nbrought to light continued differences of opinion,\nparticularly between the British and Soviet positions.\nFirst, the British held that the principle of three-\nway division among the Three Powers applied only to\nthe German naval fleet. The British had special\nreservations regarding the German merchant marine. 2\nSecond, the British insisted upon an exact state-\nment of the number of submarines to be retained.\nForeign Secretary Bevin asserted again the importance\nwhich the British attached to the virtual elimination\nof the German submarine fleet. He stated that the\nBritish and American Delegations had agreed on saving\nthirty submarines, to be used for experimental pur-\nposes only. At first Foreign Minister Molotov sought\nto retain a larger submarine force, but he subsequently\nagreed upon a total of thirty ships to be preserved. 3\nDisposal of the German merchant marine was the\nmost difficult problem to settle. The British desired\nthat a reasonable amount of shipping be left to\nGermany to care for the needs of the German economy.\nForeign Secretary Bevin proposed that the Allied\nControl Council determine \"the number and type of\nships\n¹U.K. Delegation (Potsdam) \"Disposal of the\nGerman Fleet and Merchant Ships\", undated.\n2FM (Potsdam), August 1, 1945, 11:25 a.m., p. 20.\n3Ibid., pp. 20-21.\nTOP SECRET\nTOP SECRET\n- 194 -\nships suitable for Baltic and other uses. If There\nwould be a balance left, to be divided three ways\namong the Three Powers. The British also proposed\nthat the Soviet Union satisfy Polish claims out of\nits one-third share and that the British and\nAmericans take care of the claims of others. Foreign\nSecretary Bevin explained that the \"others\" would\ninclude only Norway, France, Holland, and possibly\nBelgium. Secretary Byrnes suggested the inclusion\nof Greece, to which Mr. Bevin agreed.\nWhen Mr. Molotov objected to this procedure,\nMr. Bevin reminded him that the British should have\na special voice in the matter since the merchant\nfleet was not reparations, but war booty in British\npossession. He cited figures to show that a three-\nway distribution of the German merchant fleet did\nnot in any way accord with the proportionate wartime\nshipping losses of the various Allied powers. Of\nthe total Allied merchant shipping sunk during the\nwar, 48 percent was British, 15 percent American,\n10-1/2 percent Norwegian, 7 percent French, and\n5-1/2 percent Dutch. I This accounted for 86 percent\nof the losses. In contrast to this was the fact\nthat the Soviet Union had suffered only 1 percent\nof the total losses. 2 For these reasons Mr. Bevin\nfelt that it was only proper that the Soviet Union\ngive Poland its proportionate share out of the Soviet\nthird.\nMr. Molotov then raised the question of\nYugoslavia, remarking that Yugoslavia should receive\nits share from the Western Allies. Mr. Bevin replied\nthat\n¹Ibid., p. 22.\n2 Ibid. Mr. Molotov stated that the figure of\n1 percent for the Soviet Union was not correct.\nMr. Bevin replied that he had a figure of 240,000\ntons lost for the Soviet Union. Mr. Bevin added\nthat he had no figures for Poland.\nTOP SECRET\nTOP SECRET\n- 195 -\nthat he would \"leave the Yugoslavs to the Soviet\nUnion out of their generosity. \"1 Secretary Byrnes\nraised the whole question whether it was wise to\nenumerate the countries whose claims were to be\nconsidered. He stated that it might \"induce them\nto file claims, 11 adding that there were also some\nSouth American countries which had lost ships and\nwould like to file claims. Secretary Byrnes stated\nthat if the Soviet Union would undertake to satisfy\nthe claims of Poland and Yugoslavia, the United\nStates and the United Kingdom would have a much\neasier time in meeting the needs of other countries.\nMr. Molotov, however, was unwilling to make the\nSoviet Union responsible for satisfying Yugoslav\nclaims. The American position, as again emphasized\nby Secretary Byrnes, was to oppose the enumeration\nof countries which would receive ships. The\nbetter procedure would be for the United States and\nthe United Kingdom to decide which ships would go\nto which countries after the three-way division\nhad been made. Mr. Byrnes and Mr. Bevin stated that\nthey would be willing to satisfy Yugoslavia, provided\nthat the Soviet Union guaranteed \"that Poland would\nreceive the same percentage of losses as American\nand Great Britain gave the other Allies. \"2 Mr.\nMolotov reserved his position on this point. Agree-\nment was finally reached by the Heads of Government\nwhen the Soviet Union withdrew its objection to its\nsatisfying the Polish claim. 3\n1\nIbid., p. 23.\n2 Ibid., p. 24.\n3HG (Potsdam), Aug. 1, 1945, 4:00 p.m., pp. 14-15.\nTOP SECRET"
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