A copy of the proposed final Act† has been made available to the members of the Committee together with a copy of the report of the Canadian Delegation and a special memorandum† dealing with the complex problem of the transferring of percentages from one category to the other.

-Colonel G. W. McPherson.

This memorandum is designed to bring to the attention of the Committee the particular points on which the Canadian Delegation had instructions, the manner in which they endeavoured to carry out those instructions and the Delegation's interpretation of the application of the final Act to Canada.

INSTRUCTIONS RECEIVED BY CANADIAN DELEGATION

These instructions and the action taken by the Canadian Delegation to carry them out are referred to in the Delegation's report, Section 16. The Canadian Delegation was instructed to:

1. Reserve Canada's position as to whether or not a reparations claim would be made.

Subsequently the Delegation was authorized to act on the assumption that a claim would be made and as a result Canada was allocated 3.5% of the Category A assets and 1.5% of the Category B assets.

2. Support the proposition that German external assets situated in neutral countries should be included in the assets available for reparations.

In this regard Part I, Article 6 C and 8 B and C and the Unanimous Resolutions Nos. 1 and 2 are designed to give effect to this proposition.

3. Reserve the right of Canada to retain assets under the control of the Custodian.

The Delegation indicated to the Conference that Canada would not be prepared to surrender any of the assets controlled by the Custodian and the Conference recognized the right of each of the nations represented to retain such assets although in theory, for the purpose of accounting, there is a pooling of such assets. Part I, Article 6, of the final Act deals with this problem. 4. Support the establishment of an Inter-Allied Reparations Agency.

It is obvious that in order that there should be an equitable distribution of assets available for reparations, the Agency had to be established and the establishment is provided for in Part II of the final Act.

5. Report on policy respecting advance deliveries of industrial equipment which might be of interest to the Department of Reconstruction.

Certain lists of assets have already been made available by the Control Council in Berlin and it is understood that these lists have been received by the Department of Reconstruction.

6. Press for the recognition of the principle that German exports should be used in the first instance to pay for essential and approved imports.

This problem was considered as outside the scope of the Reparations Conference, the principle having been recognized at Potsdam. The U.K. and the U.S. delegations went on record during the Conference as recognizing this principle.

7. Protect the interests of Canadian nationals in any industrial equipment declared to be surplus to Germany's peace-time economy and available for reparations.

Article 4 C (i) and Resolution 3 appear to the Canadian Delegation to amply protect Canada's position in this regard.

8. Bear in mind the need for considering the strategic, political and economic aspects of the peace settlement.

The Head of the Canadian Delegation made a statement to this effect during the course of the Conference indicating at the same time that in the interest of the reconstruction of Europe Canada might be prepared to follow the American lead in surrendering a proportion of her share of industrial and other capital equipment.

FINAL PROPOSED ACT

Points of General Interest 1. Entry into Force and Signature

Under Article I of Part IV of the Act it will come into effect as soon as it has been signed on behalf of the Governments collectively entitled to not less than 80% of the aggregate of shares in Category A. The U.K., the U.S. and France are collectively entitled to 72%.

In view of the fact that only the Governments who sign the final Act are entitled to take part in the establishment of the Inter-Allied Reparations Agency, it would appear desirable that the Government should determine at the earliest possible moment whether or not it is going to accept the final Act.

The delegates representing Greece, Egypt and Denmark did not sign, the latter stating he had not received instructions to do so.

2. Effect of Non-acceptance

The effect of a Government not accepting the proposals, assuming that they are accepted by Governments whose aggregate shares in Category A equal 80%, is that the share of the Government failing to sign will be distributed among the signatory governments and it is not apparent how such a government could obtain reparations from any source other than the German assets which it may hold.

3. Shares of Reparations

Part I, Article 1, deals with this problem and the shares allocated to the various Governments represented at the Conference are set out in the Table of Shares in paragraph B.

The Conference recognized the desirability of reconstructing devastated areas of Europe as quickly as possible and the justice of using German industrial and other capital equipment to replace capital assets destroyed. It was, therefore, decided to establish two categories of assets, namely, Category A and Category B and in the latter category to include industrial and other capital equipment, merchant ships and inland water transport. Category A includes all other forms of German assets available for reparations such as(a) German assets within each country's jurisdiction.

(b) German assets in neutral countries.

RÈGLEMENT DE LA PAIX EN EUROPE

(c) Future deliveries from current German production. (d) Reciprocal deliveries from the U.S.S.R.

The Conference did not determine what total amount of reparations should be paid by Germany or the period over which payment should be made. Nor did it endeavour to ascertain or even estimate the total value of German assets available for reparations. On this latter point the attention of the Committee is drawn to Section 3 of the report of the Delegation which sets out the arrangements made with the U.S.S.R. under which it is entitled to 10% of the industrial and other capital equipment and an additional 15% of such assets as a reciprocal delivery for 15% of future deliveries to be made from the Soviet Zone of Occupation.

It will be noted that Canada's share under Category A is 3.50 and the share allocated to the rest of the Empire, with the exception of the U.K:, is 3.80. Canada's percentage under this Category is of the U.S. share and appears to be a favourable comparison.

4. Method of Determining Shares

The Yalta Conference agreed that Germany

(a) Must pay in kind for the losses caused by her to the Allied Nations in the course of the war, and

(b) Reparations should be received in the first instance by those countries which have borne the main burden of the war and have organized victory over the enemy.

A Committee of Statisticians considered the statistical information filed by the countries represented at the Conference and endeavoured to set up, in chart form, a comparative statement as between the various countries of the claims made, classifying in one chart the statistical information that could be evaluated in monetary figures and in the other chart figures which could not be so evaluated.

This Committee distributed to the delegates the charts which they had prepared and the Inviting Powers placed before the Conference the Table of Shares, pointing out at the same time that it was impossible to relate directly the percentages allocated to the statistical charts because, in arriving at the percentages allocated, many factors, for example, political questions, had to be taken into account. An attempt was made at the meeting of the Heads of Delegations to force the Committee of Statisticians to appear and explain how the percentages were arrived at but this attempt was successfully opposed by the Inviting Powers.

It would seem that the two main elements determining the shares of reparations were the relationship of war damage and material loss to war effort and positive contribution to victory. There is no doubt that other factors were taken into consideration and it is interesting to compare the statistical information filed by the U.S. with that filed by Canada and the percentage share allocated to the U.S. and Canada respectively in Category A. Very roughly the items evaluated in monetary terms filed by the U.S. and Canada compare as twelve to one respectively and the items not evaluated in monetary terms filed by these two countries compare as six to one. If any average can be struck it would be approximately nine to one and it is interesting to note that the U.S. share in Category A is slightly less than this ratio. This also applies to the final figures allocated to the U.S. and Canada in Category B. On the basis of population, and it is not suggested that this factor was taken into consideration at all, it is interesting to note that Canada's percentage considerably exceeds that of the United States.

The reasons why the Delegation feel that Canada should accept a 1.50 share of Category B assets are as follows:

The American delegation indicated informally early in the Conference that they were authorized to give up a substantial part of their Category B share because it was realized that devastated Europe must be reconstructed to the benefit of all the countries and secondly because the United States, being a great industrial country, did not require, and in fact would not desire to move plant and equipment from Germany to the United States. No doubt there were some political considerations, as well as economic considerations behind their proposed gesture, although it should be kept in mind that they talked about obtaining compensation by an increase in their Category A share for what they might give up in Category B. This idea was, of course, not acceptable to the U.K. delegation and when the U.S. finally did give up 16.20% of their Category B they obtained no direct compensation in Category A although certain concessions were made to them with respect to their Custodian owned assets which are included in Category A and the same concession will apply to Canada.

The Canadian Delegation, having been instructed that "reparations cannot be considered in isolation from strategic, economic and political aspects of European settlement" and further that "you would be justified in giving general support to any movement designed to promote the restoration of Europe's economy and development of general economic stability", indicated to the delegates of the Inviting Powers that Canada would be prepared to surrender a part of its Category B share for the same reasons and on the same basis as the U.S. When the Table of Shares was presented to the Conference the U.S. surrendered 16.20% of its Category B share. The Canadian Delegation surrendered 2.0% of the Category B share allocated to Canada and the Union of South Africa surrendered .60%. The U.K. refused to accept any portion of the surrendered shares and the Conference distributed these percentages to the other participating countries.

It is interesting to note that the U.K., who have suffered considerable physical destruction of property, in addition to not accepting any portion of the surrendered shares, in the dying moments of the Conference surrendered .20% of the Category B allocated to the U.K. in a successful effort to get some of the other countries to remain in the Conference.

6. German External Assets in Neutral Countries

For several months diplomatic pressure has been brought to bear on various neutral countries in Europe in an attempt to make them disclose German property held in or through those countries. It was felt that if the Conference were to support the idea that such assets should be made available for reparations, this would considerably strengthen the position of the Allied negotiators.

There were delegates at the Conference who strongly opposed the use of "the big stick" to force the neutrals to disgorge but, on the other hand, many of the delegates felt that if these assets were not made available for reparations, Germany's financial interests and probably some of the tap ranking Nazis who had been able to remove their assets from Germany and centralize them in neutral countries, would now be able to recover these assets and evade their responsibility to pay reparations with the rest of the German people.

Part I, Article 6 C and the Unanimous Resolution of the Conference, with particular reference to Resolutions I and 2, are an attempt to deal with this problem. It will be noted that the inference is that arrangements will be negotiated with the neutral countries by the three Inviting Powers and there is no indication that "the big stick" will be used.

7. Allocation of a Reparations Share (o Non-repatriable Victims of German Action

This is of general interest to Canada in that Part I, Article 8 provides for the setting up of a special fund to aid in the rehabilitation of people coming within the categories indicated in this Article. The original proposal was made by the U.S. and its introduction raised one of the most controversial questions of the entire Conference. The principal criticism against providing such a fund for what appears to be a humanitarian effort was that certain agencies now operating in Europe to relieve the distress of displaced persons were using funds supplied by various United Nations to relieve the distress of Nazi sympathizers who, because of their collaboration with the Nazis in their own countries, were forced to flee on the collapse of Germany and, in some cases went to Germany. As a result, the original proposal was redrafted and sub-paragraph D of this Article clearly defines the type of people who are eligible for aid under the plan.

The Article also provides for the agency which is to administer the fund and further that any individual refugee who receives assistance will not be prejudiced in any claim he may have against the future German Government except to the amount of the assistance given. The fund is to be provided out of an allocation of $25,000,000 which it is hoped will be obtained from the proceeds of German assets in neutral countries and in addition all of the non-monetary gold found in Germany. The use of non-monetary gold for this purpose was considered poetic justice in view of the fact that part of the non-monetary gold consists of the gold removed from the mouths of victims of Nazi horror camps, their rings and other jewelry.

8. Equality of Treatment Regarding Compensation for War Damage

The U.S. and Canadian delegations played a large part in having a resolution passed dealing with this subject and it is referred to in Unanimous Resolution No. 3.

During the course of the Conference it came to the attention of the Canadian Delegation that a certain country had passed discriminatory legislation under which that country was not prepared to pay reparations to foreign owned corporations even though such corporations might be wholly owned by other corporations or nationals of a United Nation. It was, therefore, felt that as a matter of principle, the countries represented around the Conference table should agree to the principle that there should be no such discrimination. It was also appreciated that there might be special problems, particularly with respect to those countries which had passed special legislation, and in those cases special agreements may have to be made between the countries concerned.

9. Property in Germany Belonging to a United Nation or its Nationals

The question of protecting these property interests and the further question of restitution of property removed from occupied territories and now located in Germany, were discussed at some length and certain delegates suggested that these interests should be ignored on the theory that if a United Nation, its nationals or a corporation, invested moneys in Germany before the war, this investment was a straight business venture and, therefore, should be included in the reparations pool. This argument was not successful and as a result the proposed final Act contains a provision with particular reference to the allocation of industrial and other capital equipment designed to protect such property rights. The provision is to be found in Part I, Article 4 C (i).

If the Allied Control Council declares industrial equipment available for reparations and the claimant country has a substantial prewar financial interest in such equipment, then that country will be entitled to have the equipment allocated to it, if it so desires. If there are two or more claimants having a sufficient interest, then their peculiar requirements will be taken into consideration by IARA.

In the Annex, Resolution No. 3 deals at greater length with the problem of whether or net property in Germany belonging to a United Nation or its nationals should be a part of the pool of assets available for reparations. The Head of the Delegation did not feel that Canada should support this resolution although it appears to be of considerable interest to Canada. The general effect is that if the interest in a particular property, either wholly or in the form of shareholdings, is more than 48%, such property shall as far as possible be excluded from the pool and the Control Council shall determine whether or not a minority shareholding is of sufficient importance to justify the property not being considered to be available for reparations. This does not in any way affect the question of the destruction of the property if this is necessary for security reasons.

On the other hand, if there is a legitimate United Nations interest in any property allocated as reparations or destroyed, then the United Nation or its nationals, having such interest, are entitled to equitable compensation which will be a charge on the German economy and, if possible, will take the form of a shareholding in a German asset of the same kind which has not been allocated for reparations.

As stated above, the United Nation or its nationals may have an interest in certain assets now situated in Germany that were looted from occupied territories and these assets are specifically referred to in Part III, dealing with monetary gold which does not appear to be of any direct interest to Canada and in the Annex, Resolution No. 1.

Resolution No. 3 of the Annex, with particular reference to Clause (c), recommends that looted property be excluded from assets available for reparations.

Where such looted property is identifiable there will be restitution but where it is not identifiable the claim will be part of the general reparations claim of the country concerned. It was felt that certain exceptions should be made with respect to objects of an artistic, historic, scientific, educational or religious nature, excluding equipment of an industrial character. Such articles are, if possible, to be replaced by equivalent objects if they are not restored. The Resolution suggests that expert missions should be allowed by the Zone Commanders to search for and identify looted goods. The Agency will deal with all questions relating to restitution of property in the Western Zones of Germany where such questions are referred to the Agency by Zone Commanders.

10. Inter-Allied Reparations Agency

Part If of the proposed final Act deals with the establishment of the Agency commonly referred to as IARA, and where the various articles are of particular interest to particular departments, this interest is indicated in that section of the memorandum dealing with that department.

The Agency will be established in Brussels and each of the Signatory Governments will be entitled to one delegate and one alternate. It is the intention to establish the Agency as soon as possible in order that the disposition of industrial and other capital equipment may be proceeded with.

Each of the delegates will be entitled to one vote, except in the voting on the budget where the delegate's vote will be proportionate to the share of that budget payable by his Government. Provision is also made for arbitration.

It does not appear necessary to deal with each of the articles in this part since it is felt that the articles themselves are quite clear.