:;v> Cornell University Library The original of tiiis bool< is in tine Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924023446648 [COMMITTEE PRINT] REPORT TO THE PRESIDENT SUBMITTED BY LT. GEN. A. C. WEDEMEYER SEPTEMBER 1947 KOREA Thi portions of this report dealing with China have previously been released, and are not included herein. Paragraphs which have been (deleted for securiiy reasons are indicated by asterisks. Cornell University Library DS 917.W39 Report to the President s"'''r'{f,?,l|,^SR|,'|,'|||i|||i 3 1924 023 446 648 Printed for the use of the Committee on Armed Services United States Senate UNITED STATES GOVERNMENT PRINTING OFFICE 83127 WASHINGTON : 19B1 k%i^rt>'^ DIRECTIVE TO LIEUTENANT GENERAL WEDEMEYER You will proceed to China without delay for the purpose of making an appraisal of the poUtical, economic, psychological, and military situations — current and projected. In the course of your survey you will maintain liaison with American diplomatic and military officials in the area. In your discussions with Chinese officials and leaders in positions of responsibility you will make it clear that you are on a fact-finding mission and that the United States Government can consider assistance in a program of rehabilitation only if the Chinese Government presents satisfactoiy evidence of effective measures looking toward Chinese recovery and provided further that any aid which may be made available shaU be subject to the supervision of representatives of the United States Government. In making yom- appraisal it is desired that you proceed with de- tachment from any feeling of prior obligation to support or to further official Chinese programs which do not conform to sound American policy with regard to China. In presenting the findings of your mis- sion you should endeavor to state as concisely as possible your esti- mate of the character, extent, and probable consequences of assistance which you may recommend, and the probable consequences in the event that assistance is not given. When your mission in China is completed you will proceed on a brief trip to Korea to make an appraisal of the situation there with particular reference to an economic aid program in Korea and its relation to general political and economic conditions throughout the country. Before going to Korea you will conununicate with General MacArthur to ascertain whether he desires you to proceed via Tokyo. You will take with you such experts, advisers, and assistants as'^ you deem necessary to the effectiveness of yoiu- mission. 1 Approved : Harry S. Truman. July 9, 1947. Ill LETTER OF SUBMITTAL September 9, 1947, Memorandum for the President. Mt Dear Mr. President: In compliance with your directive to me of July 9, 1947, the attached report on China-Korea is respect- fully submitted. In consonance with your instructions, advisers from State, Treasury, War, and Navy Departments accompanied me on a 2-month fact- finding mission in the Far East. The principal cities and some rural areas in China and Korea were visited. Successful efforts were made to reach all categories of people as measured by economic position, intellectual attainment, and divergent political viewpoints. Con- ferences were held with public ofiicials and with private citizens in all walks of hfe. Approximately 1,200 memoranda from individuals and groups were received and considered. The report includes pertinent data in appendixes which may be of interest and assistance to appropriate Government departments and agencies. The report presents against a global background my estimates of the situations, current and projected, in both China and Korea, and recommends what I deem to be soimd courses of action for achievement of United States objectives in the Far East. Respectfully yours, A. C Wedemeyer, Lieutenant General, United States Army. MEMBERS OF MISSION July 16-September 18, 1947 Capt. James J. Boyle Aide-de-camp — secretary, War Department. Capt. Horace Eng Aide-de-camp — interpreter, War Department. Lt. Col. Claire E. Hutchin, Jr... Military advisor. War Department. Mr. David K . Jenkins Fiscal advisor, Treasury Department. Mr. Philip D. Sprouse Political advisor. State Department. Rear Adm. Carl A. Trexel Engineering advisor, Navy Department. Mr. Melville H. Walker Economic advisor, State Department. Mr. Mark S. Watson Press and public affairs advisor, Baltimore Sim, Baltimore, Md. Lt. Gen, A. C. Wedemeyer Special representative of the President of the United States. 2 REPORT ON KOREA disposed to a Comiminist political and economic structure. Some have become affiliated with Conammiism in indignant protest against oppressive police measures, corrupt practices, and maladministration of National Government officials. Some have lost all hope for China under existing leadership and turn to the Communists in despair. Some accept a new leadership by mere inertia. Indirectly, the United States facilitated the Soviet program in the Far East by agreeing at the Yalta Conference to Eussian reentry into Manchuria, and later by withholding aid from the National Govern- ment. There were justifiable reasons for these pohcies. In the one case we were concentrating maximum Allied strength against Japanese in order to accelerate crushing defeat and thus save Allied lives. In the other, we were withholding unqualified support from a govern- ment within which corruption and incompetence were so prevalent that it was losing the support of its own people. Further, the United States had not yet realized that the Soviet Union would fail to coop- erate in the accomplishment of world-wide plans for postwar rehabili- tation. Our own participation in those plans has already afforded assistance to other nations and peoples, friends and former foes alike, to a degree unparalleled in humanitarian history. Gradually it has become apparent that the World War II objectives for which we and others made tremendous sacrifices are not being fully attained, and that there remains in the world a force presenting even greater dangers to world peace than did the Nazi militarists and the Japanese jingoists. Consequently the United States made the decision in the Spring of 1947 to assist Greece and Tiu-key with a view to protecting their sovereignties, which were threatened by the direct or inspired activities of the Soviet Union. Charges of unilateral action and circumvention of the United Nations were made by members of that organization. In the light of its purposes and principles such criticisms seemed plausible. The United States promptly declared its intention of referring the matter to the United Nations when that organization would b. ready to assume responsibility. - It follows that the United Nations should be informed of con- ^ templated action with regard to China. If the recommendations of this report are approved, the United States should suggest to China that she inform the United Nations officially of her request to the United States for material assistance and advisory aid in order to facilitate China's post-war rehabilitation and economic recovery. This will demonstrate that the United Nations is not being circum- vented, and that the United States is not infringing upon China's sovereignty, but contrary-wise is cooperating constructively in the interest of peace and stability in the Far East, concomitantly in the world. The situation in Manchuria has deteriorated to such a degree that prompt action is necessary to prevent that area from becoming a Soviet satellite. The Chinese Communists may soon gain military control of Manchuria and announce the establishment of a govern- ment. Outer Mongolia, already a Soviet satellite, may then recognize Manchuria and conclude a "mutual support agreement" with a de facto Manchurian government of the Chinese Communists. In that event, the Soviet Union might accomplish a mutual support agreement with Communist-dominated Manchuria, because of her current similar agreement with Outer Mongolia. This would create a difficult REPORT ON KOREA 6 situation for China, the United States and the United Nations; Ultimately it could lead to a Communist-dominated China. The United Nations might take immediate action to bring about cessation of hostilities in Manchuria as a prelude to the establishment of a Guardianship or Trusteeship. The Guardianship might consist of China, Soviet Russia, the United States, Great Britain, and France. This should be attempted promptly and could be initiated only by China. Should one of the nations refuse to participate in Manchurian Guardianship, China might then request ,the General Assembly of the United Nations to establish a Trusteeship, under the provisions of the Charter. Initially China might interpret Guardianship or Trusteeship as an infringement upon her sovereignty. But the mrgency of the matter should encourage a realistic view of the situation. If these steps are not taken by China, Manchuria may be drawn into the Soviet orbit, despite United States aid, and lost, perhaps permanently, to China. The economic deterioration and the incompetence and corruption in the political and military organizations in China should be con- sidered against an all-inclusive background lest there be disproportion- ate emphasis upon defects. Comity requires that cognizance be taken of the following: Unlike other Powers since VJ-Day, China has never been free to devote full attention to internal problems that were greatly confounded by eight years of war. The cmrent civil war has imposed an overwhelming financial and economic burden at a time when resoiu-ces and energies have been dissipated and when, in any event, they would have been strained to the utmost to meet the problems of recovery. The National Government has consistently, since 1927, op- posed Commimism. Today the same political leader and same civU and military of&cials are determined to prevent their coun- try from becoming a Communist-dominated State or Soviet satellite. Although the Japanese offered increasingly favorable surrender terms during the course of the war, China elected to remain steadfast with her AUies. If China had accepted surrender terms, approximately a million Japanese would have been released for employment against American forces in th& Pacific. I was assured by the GeneraUssimo that China would support to the limit of her ability an American program for the stabilization of the Far East. He stated categorically that, regardless of moral encourage- ment or material aid received from the United States, he is determined to oppose Communism and to create a democratic form of government in consonance with Doctor Sxm Yat-sen's principles. He stated further that he plans to make sweeping reforms in the government including the removal of incompetent and corrupt officials. He stated that some progress has been made along these lines but, with spiraling inflation, economic distress, and civil war, it has been difficult to accomplish fuUy these objectives. He emphasized that, when the Communist problem is solved, he could drastically reduce the Army and concentrate upon political and economic reforms. I retain the conviction that the Generalissimo is sincere in his desire to attain these objectives. I am not certain that he has today sufficient determina- tion to do so if this requires absolute overruling of the political and 4 REPORT ON KOREA military cliques surrounding him. Yet, if realistic United States aid is to prove effective in stabUizing the situation in China and in coping with the dangerous expansion of Communism, that determination must be established. Adoption by the United States of a policy motivated solely toward stopping the expansion of Commimism without regard to the continued existence of an unpopular repressive government would render any aid ineffective. Further, United States prestige in the Far East would suffer heavily, and wavering elements might turn away from the existing government to Communism. In Chiaa and Korea, the political, economic, and psychological Eroblems are inextricably miugled. All of them are complex and are ecoming increasingly difficult of solution. Each has been studied assiduously in compliance with your directive. Each will be discussed in the course of this report. However, it is recognized that a con^ tinued global appraisal is mandatory in order to preclude dispropor- tionate or unticaely assistance to any specific area. The following three postulates of United States foreign policy are pertinent to indicate the background of my investigations, analyses, and report: The United States will continue support of the United Nations in the attainment of its lofty aims, accepting the possible develop- ment that the Soviet Union or other nations may not actively participate. Moral support will be given to nations and peoples that have established political and economic structures compatible with our own, or that give convincing evidence of their desire to do so. Material aid may be given to those same nations and peoples in order to accelerate postwar rehabilitation and to develop eco- nomic stability, provided : That such aid shall be used for the purposes intended. That there is continuing evidence that they are taking effective steps to help themselves, or are firmly committed to do so. That such aid shall not jeopardize American economy and shall conform to an integrated program that involves other international commitments and contributes to the attain- ment of political, economic, and psychological objectives of the United States. Part II — China [Omitted from this printing] Part III — Korea POLITICAL The major political problem in Korea is that of carrying out the Moscow Agreement of December 1945 for the formation of a Pro- visional Korean Government to be followed by a Four-Power Trustee- ship over Korea. The United States-Soviet Joint Commission, es- tablished in accordance with that Agreement, reached a deadlock in 1946 in the effort to implement the Moscow Agreement due to Soviet opposition to consultations with the Commission by all Korean REPORT ON KOREA P democratic parties and social organizations, as provided for in that Agreement. Soviet motives have been to eliminate the extreme r%htist groups in the United States zone from consultations and sub- sequently from participation in the new government, thus ensuring a Communist-dominated government in Korea. Soviet objections to such consultations have been based on the rightist groups' openly expressed opposition to trusteeship, while the United States has taken the position that to disqualify these groups would deprive a large section of the Korean people of an opportunity to express views regarding their government. A resumption of the Joint Commission meetings in May 1947; following an exchange of notes between Secretary Marshall and Foreign Minister Molotov, resulted in a further deadlock on the same issue, although these notes liad established a formula which would have permitted participation in consultation by the rightist groups in question. After the Soviet Government failed to reply to Secretary Marshall's note of August 12 requesting the submission by the Com- mission of a joint status report or separate reports by each Delegation, the United States Delegation on August 20 transmitted a umlateral report to Washington. An American proposal then made to China, the United Kingdom, and the Soviet Union for a Four-Power Confer- ence to discuss Korea has been agreed to by China and the United Kingdona but has been rejected by the Soviet Union. Internally, the Korean problem has been complicated by the Soviet establishment of a Commimist regime in North Korea and by the macliina,tions in South Korea of Communist groups, openly hostile to the United States. :l! ***** * The latter, in accordance with their directives, are endeavoring to turn over to Koreans as rapidly as possible full administrative re- sponsibility in governmental departments. In consonance with this plan they have organized an interim Korean legislative assembly and in general, are striving to carry out a policy of "Koreanization" of government in South Korea. ECONOMIC South Korea, Jaasically an agricultural area, does not have the over- all economic resoiu"ces to sustain its economy without external assist- ance. Tlie soil is depleted, and imports of food as well as fertilizer are required. The latter has normally come from North Korea, as have most of the electric power, timber, anthracite, and other basic products. ' i • The economic dependence of South Korea upon North Korea, and of Korea as a whole, in prewar years, upon trade with Japan and Manchuria, cannot be too strongly emphasized. Division of the coim- try at the 38° North parallel and prevention of all except smuggling trade between North and South Korea have reduced the Korean econ- omy to its lowest level in many years. Prospects for developing sizable exports are slight. Food exports cannot be anticipated on any scale for several years, and then only with increased use of artificial fertilizer. South Korea's few manufacturing industries, which have been operating at possibly 20 percent of prewar production, are now reducing their output or closing down. In part this is a natural result 6 REPORT ON KOREA of ten years of deferred maintenance and war-time abuse, but lack of raw ma;terials and essential repair parts, and a gross deficiency of competent management and technical personnel are the principal factors. A rimaway inflation has not yet occurred in South Korea, because the Military Government has restrained the issuance of currency by keeping governmental expenditures and local occupation costs at rea- sonable levels; because cannibalizatioQ and the use of Japanese stocks have kept some industries going; and because the forcible collection of rice at harvest time has brought in sufficient food to maintain— with imports provided by the United States — an adequate official ration in the cities. Highly inflationary factors such as the exhaustion of raw material stocks, cimaulative breakdowns in public services and trans- portation, and the cutting of power supply from the North might occur simultaneously. The South Korean economic outlook is, therefore, most grave. " ' A five-year rehabilitation program starting in July 1948, and requir- ing United States financing at a cost of $647 mUlion, has been proposed by the Military Govermnent. A review of preliminary estimates indi- cates that the proposed annual rehabilitation cost would be substan- tiaUy greater than the relief program of $137 million which was tentatively approved for fiscal 1948 but later reduced to $92.7 million.' These preliminary estioiates of costs and the merits of individual projects need careful review. It is not considered feasible to make South Korea self-sustaining. If the United States elects to remain in South Korea support of that area should be on a relief basis. SOCIAL CUITXTRAL Since the Japanese were expelled, the Korean people have vehe- mently and unceasingly pressed for restoration of their ancient culture. There is particular zeal for public education. Individual and collec- tive efforts to reduce illiteracy have produced results meeting the praise of American Military Government officials. There will be materially better results when there are more school buildings, more' trained teachers and advisors, and many more textbooks in the Korean language. Current American activities aim at adult visual education on a modest but reasonably effective scale. South Korea's health and public-welfare work are at present fully as effective as imder Japanese administration and considerably more so in the. prevention of serious diseases. Even the Koreans' eagerness for improvement cannot immediately overcome the unquestionable need for large funds for social betterment. MILITARY The military situation in Korea, stemming from political and economic disputes which in turn are accentuated by the artificial barrier along the 38° North parallel, is potentially dangerous to United States strategic interests. Large-scale Commimist inspired or abetted riots and revolutionary activities in the South are a constant threat. However, American forces supplemented by quasi-military Korean, units are adequate to cope with such trouble or disorder except in the., currently improbable event of an outright Soviet-controlled invasion. REPOBT ON EOKEA 7 Whereas Americau and Soviet forces engaged in occupation duties in South Korea and North Korea respectively are approximately equal,, each comprising less than 50,000 troops, the Soviet-equipped and trained North Korean People's (Communist) Army of approximately 125,000 is vastly superior to the United States-organized Constabulary of 16,000 Koreans equipped with Japanese small arms. The North Korean People's Army constitutes a potential military threat to South Korea, since there is strong possibility that the Soviets will withdraw their occupation forces, and thus induce our own withdrawal. This probably wUl take place just as soon as they can be sure that the North Korean puppet government and its armed forces which they have created, are strong enough and sufficiently well indoctrinated to be relied upon to carry out So vieit objectives without the actual presence of Soviet troops. It appears advisable that the United States organize, equip, and train a South Korean Scout Force, similar to the former Philippine Scouts. This force should be under the control of the United States nulitary commander and, initially should be officered throughout by Americans, with a program for replacement by Korean ofiicers. l,t, should be of sufficient strength to cope with, the threat from the North. It would counteract in large measure the North Korean People's Army when American and Soviet forces are withdrawn from Korea, possibly preclude the forcible establishment of a Communist govern- ment, and thus contribute toward a free and independent Korea. Pakt IV — Conclusions Thei peaceful aims of freedom-loving peoples in the world are jeopards ized today by developments as portentous as those leading to World War II. The Soviet Union and her satellites give no evidence of a conciliator j or cooperative attitude in tbese developments. The United States is compelled, therefore, to initiate realistic lines of action in order to create and maintain bulwarks of freedom, and to protect United States strategic interests. The bulk of the Chinese and Korean peoples are not disposed to Communism and they are not concerned with ideologies. They desire food, shelter, and the oppol'tunity to live in peace. ■ ■' ", '■ CHINA ■ (Omitted from this printing) KOREA The situation in Korea, in its political, economic and psychological aspects, is strongly and adversely influenced by the artificial barrier of the 38° north parallel separating agricultural South Korea from the more industrialized North Korea. The South Korean economic position is grave. Agriculture is debilitated and there are few other resources. "The estabUshment of a self-sustaining economy in South Korea is not feasible. Accordingly, United States aid should include a mini- mum of capital investment and should consist chiefly of items required for support on a relief basis. 8 REPORT, ON KOREA Korean Conmiimist agents are creating unrest and fomenting dis- order in South Korea. Since the United States-Soviet Joint Commission meetings have twice ended in deadlock, and offer no real hope of success, the United Nations now seems to be the appropriate medium through which a Provisional Korean Government, functioning under a Four-Power Trusteeship, can be established. The United States may be confronted with a situation requiring decision concerning continued occupation in South Korea should the Soviet Union withdraw her occupation forces. This could reasonably be expected to occur when the Soviet-created puppet goverimaent and its armed forces are sufficiently well established to carry out Com- munist objectives without the presence of Soviet troops. The creation of an American controlled and ofl&cered Korean Scout Force, sufficient in strength to cope with the threat from the North, is required to prevent the forcible establishment of a Commimist gov- ernment after the United States and Soviet Union withdraw their occupation forces. Part V. — Recommendations It is recommended: That the United States Government provide as early as practicable moral, advisory, and material support to China and South Korea in order to contribute to the early establishment of peace in the world in consonance with the enunciated principles of the United Nations, and concomitantly to protect United States strategic interests against militant forces which- now threaten them. That United States policies and actions suggested in this report be thoroughly integrated by appropriate government agencies with other international commitments. It is recognized that any foreign assistance extended must avoid jeopardizing the American economy. CHINA (Omitted from this printing) KOREA That the United States continue efforts for the early establishment of a Provisional Korean Government in consonance with the Moscow Agreement and meanwhile provide necessary support of the pohtical, economic and military position of South Korea. APPENDIXES Appendix E to Part III — Korea POLITICAL Risume of United States Policy Toward Korea The first treaty between the United States and Korea, signed in 1882, provided that if other powers dealt unjustly ox oppressively with either Government, the other would exert its good ofiices to bring about an "amicable agreement." During the early period of United States-Korean relations the United States considered Korea as an independent state for the purposes of fulfilling treaty obligations, although that nation was actually under Chinese suzerainty. Prior to the Sino- Japanese War of 1895, when efforts were made to gain the support of the United States to avert war, the United States took the position that, while it stood for peace, it would do nothing which might cause it to assume responsibility for settlement of the dispute. Under the treaty ending the war, China relinquished suzerainty over Korea, which.was in turn assumed by Japan. Therefore, the United States continued its policy of non-interference in Korean internal affairs and in 1899 denied a Korean request for American initiative in obtaining from the powers an agreement guaranteeing Korea's integrity. At the time of the Russo-Japanese War of 1904-05, President Theodore Roosevelt stated that the United States could not intervene to preserve Korean integrity since the Koreans were unable "to strike one blow in their own defense." When Japan forced the Korean Emperor to agree to Japanese control of the administrationjof Korean affairs, the Emperor appealed to the United States, under the good ofl&ces clause of the United States-Korean Treaty of 1882 but his appeal was denied. Nor did the United States -protest Japanese formal aimexation of Korea in 1910. Thus, with •little or no effort on the part of the United States to oppose such,.a, development, Korea passed from the sufs^rainty of China to that of Japan and thence to the status of a Japanese colony. Efforts* of Korean exiles to introduce Korea's case at the Paris Peace Conference and at the Washington Conference of 1921-22 were rebuffed, but these exiles continued their efforts to further the cause of Korean independence, some of them in the United States. With the outbreak of World War II, the question of Korean independence was revived and Korean exiles in the United States and China began to agitate for Korean independence and official recognition. At the Cairo Con- ference in 1943, agreement was reached by the participating powers, later adhered to by the Soviet Union, that Korea would become independent "in due course." This phrase caused great resentment among the Koreans who felt that they should be given immediate 9 83127—51 3 10 REPORT ON KOREA independence upon the defeat of Japan. This resentment was in- creased when the decision was reached at the Moscow Conference in December 1945 that Korea would be placed under a Four-Power Trusteeship (the Soviet Union, the United States, the United King- dom, and China) for a period of up to five years. A tentative a^ee- ment in this regard had previously been reached between the United States and the Soviet Union, and when the end of the war was im- minent agreement was reached between the United States, the Soviet Union, the United Kingdom, and China that Soviet forces accept the Japanese surrender in Korea north of the 38° North parallel, while the American forces would accept such surrender south of that line. This arbitrary line, originally serving as a marker of military responsibility, soon became a complete barrier to free movement between North and South Korea. It has resulted in separation of the country into two parts, an economically unstable division which has seriously blocked eflForts to establish a unified Korea. Current Political Situation The major political problem in Korea is that of carrying out the Moscow Agreement of December 1945 for the formation of a Pro- visional Korean Government. The United States-Soviet Joint Com- mission, established in accordance with that Agreement, held its first meeting in March 8, 1946, but finally adjourned on May 28, 1946, without having reached an agreement looking toward the implementa- tion of the Moscow Agreement regarding Korea. The failure of the Joint Commission arose from the unwillingness of the Soviet Delega- tion to agree to consultation with the Commission of all Korean groups, as provided for in the Moscow Agreement, to assist in the formation of the Provisional Korean Government. Soviet motives have been to eliminate the majority of the rightist groups in the American-occui)ied zone of Korea from consultation and subsequently from participation in the new government. Had the Soviet Delega- tion been successful the result would have been a Communist-domi- nated government in Korea. Soviet objections to consultation with these rightist groups have been based on the latter's openly expressed opposition to trusteeship. The American Delegation has taken the stand that criticism of trusteeship did not disqualify Korean groups from participation in consultation, since to do so would deprive a considerable section of the Korean people of an opportunity to be heard in regard to the formation of the Provisional Korean Govern- ment. An exchange of notes between the Secretary of State and the Soviet Foreign Minister in April and May 1947 resulted in a resump- tion of the meetings of the Joint Commission on May 21, 1947, under a formula which provided for consultation by all Korean groups which were prepared to sign a declaration that they would not, after such signing, "foment or instigate active opposition" to the work of the Joint Commission or to the fulfillment of the Moscow Agreement. After repeated sessions of the Joint Commission a deadlock was again -reached in July, the Soviet Delegation returning to its position of the previous year and the American Delegation insisting upon the- imple- mentation of the formula set forth in the Marshall-Molotov letters, which guaranteed wide-scale participation of Korean democratic parties and social ogranizations in consultation and freedom of expres- sion of opinion by all Koreans. Finther meetings of the Commission REPORT ON KOREA 11 having produced no results, Secretary Marshall addressed another note to Foreign Minister Molotov on August 12 requesting that the Commission submit by August 21, 1947, a joint status report or that each Delegation submit separate reports. No reply having been received to this note and the Soviet Delegation refusing to participate in a joint report, the American Delegation on August 20 transmitted a unilateral report to Washington. Since the receipt of this report, the Secretary of State has addressed identical notes to China, the United Kingdom, and the Soviet Union proposing a Four Power Conference for a settlement of the Korean situation. China and the United Kingdom have indicated their willingness to participate in such a conference. The Soviet Union has declined. Internally, the Korean problem has been complicated by the Soviet establishment of a Communist state in North Korea and by its en- couragement of the activities of Communist and Communist-domi- nated- organizations in South Korear^ostile to th& United States. . The rightist groups Sire probably the best organized parties in South Korea. They command a majority of the Korean Interim Legislative Assembly and, if elections were held under present condi- tions, would gain control of any gpvernment established in South Korea by such elections. The American authorities ia South Korea are endeavoring to turn over to the Koreans as rapidly as possible administrative responsibility in the various departments of the United States Military Government, have organized a half-elected and half-appointed Korean Interim Legislative Assembly, and in general are striving to carry out a policy of "Koreanization" of govern- | ment in South Korea. / Military Government Directive and Steps Taken to Implement Same" The Directive mider which the United States Military Government now operates in Korea sets forth three basic United States objectives: (1) To establish an independent and sovereign Korea, free from all foreign domination and eligible for membership in the United Nations (2) to insure. that the National Government so established shall be a democratic government fully representative of the freely expressed will of the Korean people; and (3) to assist the Koreans in establishing the sound economy and adequate educational system necessary for an independent democratic state. The Directive points out that the policy of the United States in regard to Korea, in accordance with the Moscow Agreement, contemplates the establishment of a Provisional Korean Government to assist the United States-Soviet Joint Com- mission in preparing Korea for self-government, the creation of some form of trusteeship for Korea imder the United States, the United Kingdom, China, and the Soviet Union for a period of up to five years and the complete independence of Korea at the earliest possible moment, with subsequent membership in the United Nations. The Directive goes on to state that the American occupation of South Korea is for the purpose of facilitating the attainment of the basic American objectives in Korea and shall continue as long as it con- tributes to that end. As a result of Soviet obstruction and tactics designed to eliminate the majority of the rightist groups from participation in the new govel-nment to be established for all of Korea, the American mihtary 12 REPORT ON KOREA authorities in South Korea have been unable to proceed with the initial steps required for the establishment of a Provisional Korean Government. As required by the Directive, the American authorities have made considerable progress in utilizing qualified Koreans in posts in local and provincial administration and in the administration of the United vStates zone as a whole. American personnel remains in the provincial administrations only in an advisory capacity and all administrative posts are filled by Koreans. In the over-all adminis- tration of South Korea, all Government departments are now headed by Korean officials and Americans are utilized only in an advisory capacity, although important controversial matters may be referred either to the United States Military Governor or the Commanding General of the United States Occupation Forces for final decision. American military personnel in the Military Government are being replaced as rapidly as possible by American civilians. A Korean Interim Legislative Assembly was estabhshed in December 1946, half of its membership being selected by the United States Command- ing General from a list of Koreans recommended by Korean groups and half being elected as representatives of the various provinces and municipalities. Presently under consideration by this Assembly is a program for land reform in Siouth Korea and the Assembly has recently adopted a general election law providing for election of officials to an Interim South Korean Government according to certain stipu- lated rules and regulations. In accordance with the Directive, the United States military authorities have permitted full freedom of expression to all political groups, except in those cases when the activities of certain Communist-dominated groups were clearly prejudicial to the security of American military occupation. In seeking to attain the cultural objectives set forth in the Directive, the United States occupational authorities have caused funds to be set aside for training courses in industry and agriculture, have en- couraged the establishment of teacher training schools and of summer and winter institutes for the reeducation of teachers and haye in general devoted their efforts to the restoration of schools, the enforce- ment of new system of education and expansion of school facilities. They have also ejicpuraged the formation of various committees for the purpose of democratizing the Korean educational administration. The implementation of these programs bas been handicapped by lack of funds. Culturally, as well as politically, efforts have been made to carry out a process of "Koreanization" looking toward a free anid independent Korea. It should be pointed out that the Directive itself necessarily allows latitude of interpretation and execution and that the Ajnerican authorities iu Korea have functioned within the framework of that Directive. ******* Also, the failure to implement the badly needed land reform pro- gram has been due to the desire to await the unification of North and South Korea, at which time a Provisional Korean Government would be in a position to carry out a uniform program of this kind for the entire nation. Now that imification appears to be a matter for the indefinite future, plans are being made to carry out, such a program at the earliest possible moment. REPORT ON KOREA 13 ObstrvMwns to Realization of United States Objectives The chief obstructions to the realization of United States objectives in Korea have been the division of that country by the 38° North parallel barrier and the lack of Soviet cooperation in carrying out the provisions of the Moscow Agreement regarding Korea. Behind the 38° North parallel the Soviet Union has established a Democratic Front Government modelled along Soviet lines and has eliminated all political parties of a non-Communist character. North Korean Com- munist groups have thus been able to encourage and assist the activi- ties of the Democratic Front and other Communist-dominated leftist groups in South Korea hostile to the United States by the infiltration of agents from North Korea into the American zone of occupation. The Soviet refusal in the United States-Soviet Joint Commission to consult with all Korean political and social organizations, as the first step in the formation of a Provisional Korean Government, has so far made it impossible to realize American objectives in Korea — the establishment of a self-governing, sovereign Korea independent of <-^ foreign control and fuUy representative of the freely expressed will of the Korean people. Other obstructions to the realization of American objectives in Korea have come from sources within the United States zone of occu- pation : H: ***** * 2. Similarly, extrenie leftist groups have endeavored to foment hostility to the United States and opposition to the attainment of American objectives in Korea. Such groups have been pa,rticularly active among Korean peasants in opposing the rice collection prograni instituted by the United States Military Government for the purpose of ensuring suflicient food for the lu-ban areas. ******* Implication of Withdrawal of All United States Assistance or Continuing Present united States Policy The American occupation forces in Korea could not remain in that country if aU assistance to South Korea were stopped, since the cessa- tion of aU aid would lead to an early economic breakdown and to the outbreak of riots and disorder throughout the United States zone of occupation. The withdrawal of American military forces from Korea would, in turn, result in the occupation of South Korea either by Soviet troops, or, as seems more likely, by the Korean military imits — ; trained under Soviet auspices in North Korea. The end result would be the creation of a Soviet sateUite Communist regime in aU of Korea. A withdrawal of all American assistance with these results would cost the United States an immense loss in moral prestige among the peoples - of Asia; it would probably have serious repercussions in Japan and ! would more easily permit the infiltration of Communist agents into | that coiintry; and it would gain for the Soviet Union prestige in Asia which would be particularly important in the peripheral areas border- { ing the Soviet Union, thus creating opportunities for further Soviet j expansion among nations in close proximity to the Soviet Union. Present American policy provides that, in view of the failure of the United States-Soviet Joint Commission to succeed in implementing the provisions of the Moscow Agreement regarding Korea, the matter be referred to the Four Powers for solution. It also provides that the 14 REPORT ON KOREA matter be referred to the General Assembly of the United Nations in the event of the failure of the Four Powers to solve the Korean problem. This indicates that the United States wUl continue to seek, by con- sultation with the powers concerned, a solution of the problem, but a failure to reach an agreement on Korea in the United Nations will require that the United States make a decision regarding its future course in Korea: whether it shall withdraw or whether it shall organize a South Korean Government and under what conditions and whether it shall give economic and military aid to such a government. A continuation of present American policies will serve to give notice to the Soviet Union and to other nations in the Far East that the United States will not abandon Korea in the face of Soviet intransi- gence and that the United States wUl continue to insist upon the fulfillment of the Moscow Agreement regarding Korea. A continuation of present American policies wUl serve to deny to the Soviet Union direct or indirect control of all of Korea and prevent her free use of the entire nation as a mUitary base of operations, including the ice-free ports in South Korea. Appendix "F" to Part III — Korea ECONOMIC South Korea has few resources except agrictdtural land. This area formerly obtained much of its anthracite, electric power, timber; fertUizer, and other chemical products from North Korea, and bitu- minous coal and food from Manchuria, but must now obtain these essential items (except electric power) as well as raw materials and repair parts for her industries, from other external sources. Goal. — The whole of Korea, particularly South Korea, lacks coal. No bituminous deposits are known and existing coal deposits are of a low-grade anthracite. The coal runs high in ash, and tends to dis- integrate to powder. The largest producing mine in South Korea, constituting in fact 50 percent of the production, is located at Sam Chok on the east coast. Production involves costly rail-sea-raU distribution. This coal can be and is being used in thermal plants by pulverizing and mixing with oU, but its use is costly and maintenance of boUer equipment is heavy. In any case, bituminous coal must be imported for the operation of the raUways and most of the industries. Electric -power. — Because of the unfavorable coal situation, South Korea is at the mercy of North Korea with respect to electric power because virtually all of the large hydroelectric installations are in North Korea. In 1945 there was a total of 1,240,000 kUowatts of installed capacity, 90 percent of it hydroelectric and in North Korea. Some of the capacity in North Korea has been removed by the Russians. At the present time South Korea depends on North Korea sources for 75 percent of its power requirements in the winter months' when stream flow for its hydroelectric plants is low, and 50 percent to 60 percent during the rainy summer months. Conditions will be critical during the coming winter. Minimum peak requirements are estimated at 200,000 kUowatts and only 110,000 kUowatts are in sight including the area's own generating capacity of 60,000 kilowatts — and that only if rehabUitation materials are received — plus 50,000 REPORT ON KOREA 15 kilowatts from North Korea, which is all the Russians profess to be able to deliver. If North Korea power were cut off, all industrial production in South Korea would have to be suspended, and remaining locally generated energy rationed for military and emergency use: Any new plants to correct this deficiency or permit any revival of industry would require four to five years to complete, and would still be dependent upon imported coal or oil, or upon a considerable expan- sion of the low quality anthracite production. There is no reasonable solution to this dilemma other than to unite North and South Korea. Forestry.- — The forest situation in South Korea is unfavorable. Before the war, effective programs of reforestation and erosion control were under way, but during the war the annual cut averaged 168 million cubic feet as compared with annual estimated growth of only 1 13 million cubic feet. Furthermore, over two-thirds of South Korean requirements of lumber, fuel wood, and pulp were formerly supplied by North Korea. With this source cut off and coal imports and prodxiction drastically reduced, hills and mountains around the large cities have been literally denuded. Unless North and South Korea are united or substantial imports are provided, the needs of South Korea for fuel wood, lumber, railroad ties, and telephone and tele- graph poles, make it inevitable that overcutting and denuding of forest land in South Korea will continue, with resulting increased erosion and flood damage to agricultural land. Mineral Resources. — Mineral resources of Korea are varied and rather extensive, but with a few exceptions are of low grade. There is a large deposit^ — -over one billion metric tons — of low grade (35 percent magnetite) iron ore at Musan in Northeastern Korea which the Japanese mined extensively before and during the war. Capacities are said to have been developed for the production of over 800,000 tons of pig iron and 350,000 tons of steel annually, but operations were possible only by large imports of bituminous coal from Manchuria and Japan. In both North and South Korea, gold and copper were also mined, the latter as an adjunct of the former, and some lead and zinc, and a large quantity of graphite, the latter, however, of low quality. There is enough developed tungsten production in South Koreit to make it an important export commodity. iTidustries.— The prospects for Korean industry, even in the event of early unification, are not bright. Before 1931 Japan exploited Korea primarily as a source of raw materials, rice and cheap labor. Thereafter Korea Ibecame Japan's bridgehead to the Asiatic mainland, and with Manchuria^ was developed as the mainland portion of Japan's war potential. By 1938 there were 7,000 factories, mostly- small, employing 188,000 workers, principally in the production of chemicals, textiles and processed foods. Main industrial concentra- tions were in the north, near hydroeleetric power plants and thelarger mineral deposits. This rather inlpressive industrial plant was not damaged by bombing, but it would be a mistake to assume therefore that Korea possesses a ready-made industrial plant which could quickly be turned to full and efficient peacetinae operations. Produc- tion, at perhaps 20 percent of capacity, was restored after the occupa- tion, but output has dwindled as stocks of raw materials have been exhausted, and as machinery has stopped functioning for lack, of spare parts and competent maintenance and operating personnel. 16 REPORT ON KOREA The dearth of competent administrative supervisory and technical personnel, practically all of whom were formerly Japanese and are now evacuated, is die outstanding deficiency in Korean industries, power, and transportation systems. The unification of North and South Korea would make some of the required raw materials available, and spare parts may eventually be obtainable from Japan, but the serious deficiency of competent personnel is an unresolved problem. Railways. — -Korea has an excellent standard-gauge railway system including a double-track main line from Pusan on the southeast coast to Antung on the Manchurian border, which adequately serves the country with the exception of the eastern half of Kangwon Province. However, trackage, rolling stock except locomotives, and railway communications are badly in need of rehabilitation as a result of years of undermaintenance because of wartime shortages of materials. The railways in common with the country as a whole have been badly crippled by the evacuation of the Japanese administrative, super- visory, and technical personnel. The right-of-way is excellently engineered and constructed and characterized by a profusion of con- crete and masonry structures, but all of the seven million ties in South Korea wiU require replacement within the next seven years, and quantities of rails and fishplates are also needed. One hundred and one new locomotives of the 2-8-0 type have been provided by the Military Government, but much of the other rolling stock requires overhaul. Railway communications also require considerable reha- bilitation. Higfmays. — -There are no modern roads in Korea. The highways of South Korea are practically nonoperable for automotive traffic except from Seoul to Inchon, Kaisong, and Chimchon. Practically all supplies must be distributed throughout Korea by rail. Shipping. — The only shipping of South Korea consists of eight Baltic vessels, and 12 LST's, operated by the Military Government coastwise and for some trade with Japan. Ports. — ^There are two major ports in South Korea; Pusan, an excel- lent deep-water port with four large piers at the Southeast end of the peninsula, and Inchon, west of Seoul, a much smaller tidal-basin port which can accommodate four %- thousand- ton ships at dockside in the basin and larger trans-Pacific cargo and passenger vessels in the anchorage outside. Two other deep-water ports, Masan and Yosu, were mined and are little used at present. Mukko on the east coast is the export terminal for Sam Chok, the largest anthratjite mining area in Soutt Korea. The other ports of Mokpo, Pohang, Chinhae, and Kunsan are limited by unfavorable factors of high tidal range, and a lack of berths and port clearance facilities. In North Korea, there are two first-class warm water commercial and naval ports at Wonsan and Chungjin on the east coast, the latter particularly desirable from a Russian viewpoint, and other ports Gongki, Rashin, Sungjin, Chinnanpo and Simhu, the latter two handi- capped by the 25- to 30-foot tides of the Yellow Sea. Withdrawal of Japanese Personnel As disastrous in its effects on Koreian economy as the division of Korea's people and resources by the 38° North parallel, was the evacuation of all Japanese personnel, except 500 retained in North Korea, after VJ-Day. The 700,000 Japanese formerly resident in REPORT ON KOREA 17 Korea dominated all elements of the economy and supplied manage- ment and technical personnel even to the mechanic class. Koreans were denied opportunities or positions of consequence in all phases of political and economic life. It is no reflection on the individuals concerned to note that a former Korean stationmaster at Pusan is now head of the railways, or that a vocational school graduate is ia re- sponsible charge of a large hydroelectric plant not far from Seoul. It is however, an indication of an almost fatal deficiency in South Korean economy. The ultimate solution is not readily apparent. Disinvestment The process of disinvestment probably began in South Korea during the late thirties when the Japanese decided to put all new capital into war production and permit nonwar facilities to depreciate. Capital §oods provided by the Japanese for maintenance and development in outh Korea went with few exceptions to war plants such as the sub- marine shop at Pusan, and to the strategic transport services lioking Japan with the Manchuria-North Korea industrial complex. This meant that facilities such as the north-south railroad from Pusan to Antung on the Manchurian border received the main portion of con- struction materials available. Other industrial establishments in South Korea were converted to war production or allowed to deterio- rate. The supply of fertilizer, essential to rice culture in the exhausted paddies of South Korea, was drastically reduced in the early forties as a result of the conversion of North Korean nitrogen fixation plants to the manufacture of explosives. Exploitation of South Korea's meager forest resources resulted in severe erosion and the destruction of crops and utilities through flooding. The Japanese also depleted Korean stock- piles and withdrew skilled labor for Army service, or for the mines and factories of Manchuria and the Japanese islands. During two years of mihtary government, the process of disinvestment has con- tinued. The possibility of South Korea financing a program of investment and rehabilitation out of the proceeds of exports is not worth con- sidering in detail. Although South Korea is primarily agricultural, it is unlikely that it will be able to export foodstuffs, even under the most favorable circumstances. Deterioration of agriculture, due to accumulated soil deficiencies and erosion, and an increase of popula- tion from 15 to 20 million since 1940 indicate that no export surplus of food can be expected in the next several years. The only exports which may be derived from South Korea are small amounts of such minerals as tungsten, gold and copper, some ginseng root, and marine products such as agar-agar. The most optimistic estimate is $10 mUlion worth of exports by 1950. Much more than $10 million earned by Korean exports wiU be needed to finance essential raw material imports, and there is no prospect of any capital development out of current production. Inflation The Korean inflation is not as serious as the Chinese inflation in rate of price increase, but its causes are less susceptible to control by measures taken within Korea. Price increases have been due to physical inability to produce goods, and not to unrestrained issuance of paper currency. Prices, of consumers' goods in various categories have risen 200 to 700 times over the 1937 level. The official rice price, 18 REPORT ON ±i.UKJ!iA however, has risen only 70 times, and about 80 percent of the calorie requirement for the urban population is available at the official price. A runaway inflation has not yet occurred in South Korea, because (a) the MUitary Government has restrained the issuance of currency by keeping governmental expenditures and local occupation costs at reasonable levels, and (b) because cannibalization and the use of Japanese stocks have kept some industry going, and (c) the forcible collection of rice at harvest time has brought in sufficient food to main- tain, with "disease and unrest" imports, an adequate official ration in the cities without the use of large inflationary payments to the farmers. Highly inflationary factors such as the exhaustion of raw material stocks, cumulative breakdowns in public services and transportation, and the cutting of power supply from the North, might occur simul- taneously. The Korean economic outlook is, therefore, more grave than in China or Japan, where governmental fiscal policies as well as low production, are the main causes of inflation. Korea, lacking- raw materials and skilled labor, is not in a position to be saved from a disastrous and chaotic hyperinflation by the efforts of its own people combined with correct policy decisions. A breakdown could be fore- stalled only by external provision of large amounts of consumers' goods and transportation equipment. Agriculture and Fisheries Agriculture. — Over three-quarters of the total population of South Korea are farmers. The total area of land under cultivation in 1946- was 6,033,000 acres, or about 2% acres per farm household. Approxi- mately 15 percent of agricultural land was formerly owned by Japanese, but title thereto remains with the MLhtary Government and will eventually pass to Koreans. In the projected land reforms an additional 60 percent of land, which is tenant-operated, would be involved. The Military Government has not proceeded with land reform even with regard to Japanese-h«ld land, in the view that such- reform should not precede establishment of an interim Korean. Government. After VJ-Day the influx of over two and a half million Koreans from Japan, China, and North Korea into South Korea, coupled with ahnost complete lack of commercial fertilizers as well as severe floods,, resulted in a severe food shortage. Farmers have been reluctant to- double-crop soils already depleted because of a lack of fertilizer, and have preferred to conserve land for rice, the best money crop. la 1946 the average planted acreage was only 79 percent of the 1935-39' average, and production of grains and pulses was only 71 percent. In the past, about 36 percent of the population and 36 percent of the food production of Korea were located north of the 38° North parallel. However, postwar population movements, plus the avail- ability of more commercial fertilizers in North Korea (where almost all of Korea's large chemical plants are located), has changed this situation. Only about 30 percent of Korea's population is now nortK of the 38° North parallel, but that area accounts for around 38 percent of food production. Rice is the principal Korean crop, and it has consistently repre- sented more than half the total value of agricultural production. During the 1930's the rice crop averaged about 100,000,000 bushels annually. Forty percent or more was exported each year to Japan, accounting generally for about one-third of the total gross value of REPORT ON KOREA 19 exports. This was by no means voluntary on the part of the Korean f)eople. In line with Japanese policy, farm tenancy increased from ess than 40 percent in 1910 to more than 75 percent in 1945. This facilitated grain collections, for landlords usually received their rentals in rice, and these averaged about 60 percent of the crop. Conse- quently, although Koreans preferred rice to other grains, their per capita consumption was forced down from 3.62 bushels in 1915-19 to 2.02 bushels in 1939^5, a decline of 44 percent. This deficiency was partly made up by imports of Manchurian millet and soya beans, but underconsumption was nevertheless chronic. To meet the food crisis in South Korea and to rehabilitate agricul- ture the Military Government developed programs to import food- stuffs to prevent starvation and to assure Korean urban residents at least a subsistence diet until indigenous production could be increased to meet minimum food needs; and a fertilizer import program designed to restore depleted soils and increase agriciiltural production to levels at least as high as had been reached in the past. In 1945 the Military Government's attempt to institute a compul- sory system of rice collection for rationing to non-self-suppliers was largely unsuccessful. In 1946, a poor crop year due to floods, the Military Government collected 87,428 tons of rice, or about one-sixth of the total production. In order to supplement indigenous produc- tion to meet the minimum needs of non-self -suppliers ia South Korea, 180,848 metric tons of wheat, corn, and floiu- were imported into South Korea by the Military Government from May through Decem- ber 1946. A program for the collection of the rice in 1946 was given highest priority by the Military Government, as one of the most important ways to ease the food situation, stabilize the economy, and check the inflationary spiral. This program was fully supported by all agencies, and it succeeded in collecting a total of 548,000: metric tons of polished rice, or its equivalent, about 30 percent of the total 1946 production. This successful collection program, coupled with the importation of 275,962 metric tons of cereals purchased with U. S. funds during the first seven months of 1947, has enabled the Military Government to stabilize the food situation in South Korea through the issuance to non-seK-suppliers of minimum staple rations averaging slightly over 300 gram (1.050 calories) per person per day. Fisheries.— Fishing was one of the important prewar Korean indus- tries, ranking sixth in the world. It is second in importance only to agriculture in the economic structure of the country. The industry was, however, largely dependent upon Japan for imports of fisheries supplies and, has deteriorated seriously since this source has been cut off. Consumption of fish products has decreased from a prewar average of 47 pounds per capita per year to 32 pounds. Korea needs additional fisheries supplies, boats, manUa line, nets, trawls, ammonia for refrigeration, tin plate for canning, salt and sugar for curing. Fears are expressed that if such supplies are not forthcoming and fishing operations considerably expanded, the Japanese will enter claims for fishing groim.ds now reserved for the Koreans. Foreign Trade The total volume of Korea's external trade grew from ¥60,000,000 in 1910 to more than ¥2,400,000,000 in 1939. With respect to the principal categories of its trade, i. e., foodstuffs, textiles and fibers, 20 REPORT ON KOREA minerals, manufactures, and miscellaneous items. Korea was con- sistently a net importer; of all, except for foodstuffs. Food exports however, were seldom so large that they did more than offset imports of textiles and fibers. From 1910 to 1945, Korea's external trade was almost wholly absorbed by the Japanese Empire and the prime factor during the entire period was the export of rice to Japan. In 1936, of the value of 41 Korean products showing a net export balance, rice accounted for approximately 64 percent. Although by 1939 the relative im- portance of rice exports had declined in favor of minera,ls and manu- factures, of the 55 net export products in that year, rice still made up one-third of the total money value. Until the years immediately preceding the war, fish and marine products ranked second to rice, averaging from 7.5 percent to 9 percent of all net export commodities. Other exports individually were of minor significance. Korea's principal imports historically have reflected its dependence on the outside world for fuels, heavy manufactures, machinery, automotive equipment, textiles, and fibers, and specialized products. Under current conditions, foreign trade in the ordinary sense of the term is small in amount. During the period August 15, 1945, through June 30, 1947, the value of goods entering or leaving the area was approximately $168,000,000. Of this siun, however, only about $25,000,000 represents the value of goods exchanged between Korea and the mainland of Asia as a result of the operations of private traders. The remaining $143,000,000 represents mainly commodi- ties imported by agencies of the United States Government as a part of the Civilian Supply Program and financed with appropriated funds of the War Department, or as shipments made under the $25,000,000 Foreign Liquidation Commission credit, plus small amoimts of UNRRA supplies. Exports which enter into this figure are surplus government-owned minerals and marine products, to the value of some $5,000,000. The Military Government is endeavoring to encourage such trade as will reduce the area's dependence upon American fxmds. Credits realized from South Korea exports, xmless balanced in kind by imports approved as essential, are to be used to pm-chase commodities similar to those making up the Civilian Supply list and certified for import by the Military Government. On 15 July 1947, Korea was declared open to small numbers of foreign businessmen, who might desire to .develop trade possibilities within the framework estabhshed by the military authorities. Meanwhile, trade has been imdertaken with Hong Kong and Macao, and some critically needed materials have been obtained by barter in exchange for Korean surpluses. Recent negotiations with the Egyptian government have led to an agreement to exchange 730 tons of tungsten concentrates for 3,000 bales of long- staple Egyptian cotton. AH dealings with Japan are restricted to a governmental level, and China has imposed conditions which make legitimate trade virtually out of the question. Actually, a growing smuggling trade is going on both with Japan and China, and via Hong Kong and Macao. An essential step for promoting Korea's trade on a sound basis would be development of an efiicient customs service. REPORT ON KOREA 21 United States Investment in Rehabilitation There is one basic policy question which overhangs all financial and ecpnon^ic programs for Korea: How long will the occupation of South Korea continue on a unilateral basis? Until this question is answered in terms of months or years, no satisfactory decision can be made on United States financial or developmental programs for the area. The characteristics of the South Korean economy are such that there is no compromise which provides effective utilization of dollars, and at the same time leaves open the decision concerning the duration of the occupation. If a serious decline in the living standard, and possibly economic disintegration are to be avoided, South Korea must have (a) unification with North Korea, or (6) substantial rehef supplies, or (c) relief and rehabilitation supplies of $200 to $300 million a year for several years. The third alternative would provide a possible basis for an indefinite continuance of occupation. The capital in- vestment in a permanently separate South Korea would be wasteful, and the likelihood of a stable economy resulting therefrom would be in doubt for some years. South Korea is a depleted and eroded country with no minerals worth mentioning; an agriculture dependent on nitrate input, and a backward people. In terms of the needs of the East Asia area, an investment in rehabilitation and industrializa- tion, which would permit South Korea to subsist on its own industrial output at its standards of the past 10 years with a minimum of relief, could be justified only by political and strategic consideration of the highest order. A consideration affecting the duration of the occupation of Korea, and hence the type of economic program, is the estimated length of the occupation in Japan. General MacArthur has indicated his desire for a United Nations, or other international administration to take responsibility in Japan soon after the peace treaty is signed. There woxild be obvious difficulties in any long-term occupation and rehabilitation program for South Korea, initiated at a time when the occupation of Japan was about to be relinquished by the United States. Apart from the problem of tactical forces in Japan to back up the Korean occupation, there would be communication and supply problems. There might be political objection to the occupation of liberated Korea after the termination of occupation in defeated Japan. The United States Military Government in Korea has recommended a five-year rehabilitation program starting in July 1948, and requir- ing U. S. financing for a deficit of $647 million. The estimates mdi- cate that the proposed rehabilitation of the Korean economy would cost more per year for the first three years, than the relief program of $137 million which was tentatively approved for fiscal 1948, but reduced in July 1947 to $92.7 million. A feature of the proposed rehabilitation program is an expenditure of $35 million to provide a chemical fertilizer industry and the sup- porting power instaUations, roughly duplicating the installations in North Korea which formerly supplied the fertilizer needs of South Korea. An additional amount of approximately $85 million is in- cluded in the five-year rehabilitation program to cover the cost of fertilizer imports, pending the completion of the plants. Other items in the program are investment in coal mining to provide low-grade anthracite for briquetting, and to provide for the development and 22 KEPOKT ON KdKEA reconstructioa of the transportation, textile and fishing industries. There is no assurance, however, that (a) $35 miUidn fertUizerf in- dustry would meet the estimated requirements, or reach capacity- production in, the time allotted. The suitability, of low-grade anthra- cite dust as the basic energy source for a considerable industrial estab- lishment in South Korea has not been tested, and (b) there are no reli- able estimates of the reserves of this fuel, and no evidence of this fuel, and no evidence that the mines and railroads could be developed to fit the prescribed time schedule. In the event that it is decided to continue a one-nation occupation of South Korea for some years, the least costly program would be one designed to provide, not capital goods, but raw materials and fer- tihzer in sufiicient quantity to stabilize the economy at a satisfactory standard of living as measured by a prewar Japanese and potential North Korean living standards. In this way, the risks of an experi- ment in industrialization without resources would be avoided. A relief program of the type envisaged might cost the United States about $150 million a year, in addition to the present mUitary occu- pation costs which are in the neighborhood of $200 million a year. It would be necessary frankly to recognize this as a relief program which held no prospect of financial return, and no prospect of making South Korea a self-sufficient economy. Industrial Survey A comprehensive industrial survey of South Korea would not be warranted. The industrial elements and capabilities as well as weak- nesses of that area are all too evident. Should Korea be reunited, and the United States bear a responsibility in the economic rehabili- tation of the country, an industrial survey wholly or in part by qualified United States Government personnel is indicated. If, however, it be made by private consultants, they should clearly understand that the sm-vey must be realistic and reflect the economic needs and capabilities of the coimtry. Foreign consultants and con- struction firms do themselves and their own country as well as the country concerned, a disservice in recommending projects for which there is not complete economic justification. Appendix G to Part III — Korea SOCIAL AND CULTURAL Because Japan had administered and developed Korea uniformly for Japanese and not Korean purposes, and in particular had persistently suppressed the people's historic culture, once the region was freed of the Japanese, its people undertook a re-Koreanization program with feverish activity. Since VJ-Day, their own labors in behalf of educa- tion, for example, apart from the contributions of American authorities have been determined and surprisingly effective. In that short time it is estimated that total illiteracy has been cut from 75 to 44 percent (to 25 percent in a most favored area), a commendable record even when one notes warningly that the degree of literacy thus attained is necessarily a modest one permitting Tittle more in some cases than abUity to read a ballot. Although there are today more children in BEPoitT ■ bij fe(JflMA 23 school in South Korea than were' in school in all K6rea dttfing the Japanese rule; papular education is' but begun, whether one considers primary or secondary schooling; Its advancement calls for buildings, texts and other equipment, teachers and advisors, and these require- ments call for money. , The program of the educational group in our own MUitary Govern- ment is well designed but- promoted within tight financial limits. The same can be said for adult educational work of the United States Office of CivU Information. It operates through local hbraries whose pictures, posters, periodicals, and other exhibits reach a great many urban visitors, and through a special train which moves periodically among the yUl^iges, presenting weU-attended educational picture shows and distributing eagerly read farm weeklies and newspapers. Of many lacks the worst is of picture films. Korean newspapers are numerous but for the most part are pri- marily political organs. Only by hastening education in the Korean language, long suppressed by Japan, can therp be prompt development of adult education; there is present need for increased educational and cultural activities to occupy the attention of young people who presently have insufficient employment. American health advisers report good progress in prevention of such serious diseases as smallpox and typhus, scant progress in the fight on chronic maladies. Institutional welfare work is iasufficient but no more so than under Japan. In general, one notes abundant energy among Korean leaders and a great desire for mass improvement socially and culturally as well as in other fields; it merits greater financial encouragement than thus far has been available. Appendix H to Part III — Korea THE MILITARY SITUATION IN KOREA AND PROPOSED MILITARY AID Military Situation In September 1945, United States Army Forces, pursuant to in- structions contained in General Order Number 1 of the Supreme Commander Allied Powers, occupied Korea south of the 38° North parallel and accepted the surrender of Japanese troops south of that line. This arbitrary line of demarcation between the United States and Soviet Union occupation areas rapidly became a complete barrier to free movement between agricultural South Korea and the more industrialized North Korea. Numerous disputes and incidents, mostly political or economic, continue to take place even after two years of occupation. The Commander in CMef, Far East, has delegated military respon- sibility and authority for occupation, of South Korea to Lieutenant General John R. Hodge, Commanding Genera,l of the XXIV Corps. This Corps of two divisions totals 41,000 Umted States troops and constitutes the American Occupational Force in Korea, There are no South Korean Armed Forces to augment these Ameri- can occupational troops. There are, however, three authorized Korean imiformed elements or quasi-military forces: the National Pohce with a strength of 28,000, the Constabulary with 16,000, and 24 REPORT ON KOREA the Korean Coast Guard with 3,000. These forces may be expected to remain loyal to the United States Military Government in the event of emergency. The National Police Force is the agency for enforcing law and ordei* iti Kbrek tod is organized into district and subdistrict headquarters with police stations in principal towns and villages. it: ***** * The Constabulary is similar in purpose to the National Guard of the United States in that it is used to back up the police in event of major disorders. At present, the Constabulary is also being utilized to augment Americfeti guferds on United States Army installations. It is armed with captured Japanese rifles and small arms, and its efficiency is low by American standards. North of the 38° North parallel, the estimated Soviet troop strength in Korea is approximately 45,000. These forces are organized into two major units, the 40th Rifle Division and the 19th Mechanized Division, plus complementary air, naval, and service support. There is evidence of further Soviet withdrawal now underway. An accurate- figure denoting the Soviet-trained and equipped North Korean People's (Communist) Army in its over-all structure has not yet been obtained but the figure of 125,000 troops has been generally accepted. These forces assist Soviets in control of the border, main- tain liaison with Chinese Communists in Manchuria, and constitute a potential military threat to South Korea. Current political and economic unrest in Southern Korea is ag- gravated by Communistic terrorism, and by Communist-inspired riots and revolutionary activities in the occupied area. Such disorders impose additional military burdens on the police, the constabularj?^, and the American Occupation Forces. In addition, there is a possi- bility, however remote, of a Soviet-inspired invasion of South Korea by troops of the North Korean People's (Communist) Army. Recent reports from Manchuria indicate that sizable elements of Korean: troops are operating with Chinese Communists, possibly to acquire battle conditioning. Furthermore there is evidence that Soviet officers and equipment are being used to groom the Korean Army. Although it is extremely doubtful that the Soviets or their North Korean satellites would invade South Korea in the near future, infiltration of Communists and of large numbers of the North Korean Army, in connection with large-scale Communist-inspired or abetted riots or revolts m the South, is always a dangerous threat. Should this occur, the forces available should be adequate for maintaining order under any circumstances except for an outright Soviet directed or controlled invasion. Strategic Importance \ The political, social, economic, and military situations in South I Korea are inextricably mingled. A Soviet-dominated Korea would I constitute a serious political and psychological threat to Manchuria, / North China, the Ryukyus, and Japan, and hence to United States strategic interests in the Far East. It is therefore in the best interest of the United States to ensure the permanent military neutralization of Korea. Neutralization can only be assured by its occupation until its future independence as a buffer state is assured. EEPOHT ON JtOREA 25 So long as Soviet troops remain in occupation of North Korea, the United States must maintain troops in South Korea or admit before the world an "ideological retreat." The military standing of the United States would decline accordingly; not only throughout the Far East, but throughout the world. Withdrawal of United States" Occupation Forces from Korea would result in a growing unrest among the Japanese people because of their uncertainty regarding future United States policy in the Far East, and their consequent fears of expanding Soviet influence. This might well increase occupational requirements for Japan. Except as indicated above, and the fact that its occupation denies a potential enemy the use of warm-water ports and the opportimity to establish strong air and naval bases in the peninsula, the United States has little military interest in maiataining troops or bases in Korea. In the event of major hostiUties^ in the Far East, present forces in Korea would most likely be a military liability as they could not be maintained there within our present military capabilities. There are three possible courses of action with reference to United States Occupation Forces in Korea: They may be withdrawn immediately, which would abandon South Korea to the Soviet Union through pressures which could be exerted by the North Korea People's (Communist) Army and is therefore an unacceptable course from the strategic viewpoint. They may remain in occupation indefinitely, which course would be unacceptable to the American public after Soviet withdrawal, and would subject United States to international eensur©i They may be withdrawn concurrently with Soviet occupation forces. Soviet forces in Northern Korea will not be withdrawn, until the North Korean puppet government and armed forces which they have created are strong enough and sufficiently well indoctrinated to be relied upon to carry out Soviet objectives without the actual presence of Soviet troops. One of these Soviet objectives will undoubtedly be to obtain control of South Korea by utilization of Communist Korean armed forces as a means of pressure after withdrawal of United States forces, as was done in the cases of Poland, Outer Mongolia, Yugo- slavia, and Albania. There appears to be a strong possibility that Soviet Kussia will withdraw itsH)ccupation forces wher such conditions are favorable and thus induce our own withdrawal. Military Aid to Korea The Military Government in Korea, which is currently being turned over to American and Korean civilians, is the only government in South Korea. The immediate and primary objectives of the American Military Commander in Korea are to maintain law and order in the face ol subversive uprisings in the American zone, to care for and safeguard American noncombatants and property;, j,nd to operate a military government which looks toward the futiire political independ- ence of Korea together with its economic and social rehabilitation. In view of these objectives, the immediate purpose of any American military aid to Korea should be to facilitate their realization. The long-term purpose of military aid to Korea should be to enable South Korea, and later all Korea, to engage in a holding operation against the progressive expansion of militaristic Communism. Mini- 26 BEPPRT , ON . KOSEA mum military aid toi SQiAtibem, Korea therefore should envisage the support: of the uniformed elements of Korean military and quasi- military forces through the furnishing of United States equipment including carbines and some light machiae guns as well as furnishing vehicles, telephone, and,i.r,adio communications, etc., and training advice. . i Consideration was givgn by the Mission to the organization,. train- ing, and equipping of a: strong. Korean military force along the lines of the former Philippipe Scouts. This force should be under the control of the United States Military Commander, initially should be officered throughout by Americans, but with a program for re- placement and understudy by Korean officers, and should be , of sufficient ^strength to cope with the threat from the north. Such a force will become truly. effective onlyifthe United States Commander in Korea is given clear-cut authority to establish and control it. ,. Because of its occupation by.itwo nations of radically differing ideologies , and policies, and the corresponding separation into two parts economically, there . is little that Korea, even as a liberated nation, can do to improve its situation. South Korea lacks the experir ence and industrial potential to create or support its own armed forces. An American organized and equipped Korean military force would sej-ve to counteract in lafge measm-e the North Korean People's (Communist) Army when the American and the Soviet forces are withdrawn from Korea.' It might possibly preclude the forceful establishment of a Communist Government, and thus contribute to a situation favorable for the estabhshment of a free and independent Korea. Conclusions United States-Soviet Union troop strengths in South and North Korfea are approximately equal but the Soviets, assisted by a Soviet- controlled, equipped, and trained North Korean People's (Commu- nist) Army of 125,000 men, and geographically supported by a con- tiguous Soviet Siberia, are in an infinitely stronger military position^ There is considerable ilnrest in South Korea but forces available t6 General Hodge are adequate to cope with it and to maintain order,. though completely inadequate, even with maximum assistance from General MacArthur, ,to theet Soviet-controlled invasion of North V Korean forces. - i . : v \/ A United States withdrawal which permitted the Soviet Union to- dominate Korea would result in a serious political and. psychological threat to China, inolu'dfc^'Manchuria, and Japan. : The United States has a strong strategic interest in insuring per- manent military neutralization of Korea and its denial as a base to? the Soviet Union. ■ The Soviets will withdraw their occupation forces just as soon as they can be sure that the North Korean puppet government and armed forces which they have created will be strong enough and sufficiently well indoctrinated to be relied upon to carry out Soviet objectivesp without the actual presence of Soviet troops. EEPOHT ON KOREA 27 Recommendations It is recommended that: United States withdrawal from Korea be based upon agreements with the Soviet Union to effect proportional withdrawals, with as many guarantees as possible to safeguard Korean freedom and inde- pendence. Military aid be furnished to South Korea which would support the achievement of such adequate safeguards and which would envisage: Continuing to fimiish arms and equipment to Korean National Police and Korean Coast Guard. The creation of an American-officered Korean Scout Force to replace the present Constabulary of sufficient strength to cope with the threat from the North. Continued interim occupation by United States Army forces in Korea. Advice in training of technical specialists and tactical units. o GAYLAMOUNT PAMPHLET BINDER Manu/aelunJ hg GAYLORD BROS. Int. Syracuf*, N. T. Slooklon, Calil.