was to be revived sufficiently to produce exports. Germany's gold and other foreign assets were taken as reparations.

The removal of industrial capital equipment as reparations, which was called for in the Potsdam Protocol and subsequently negotiated by the Four Occupying Powers in the Economic Directorate, was directed at Germany's most important export industries, namely, metals, machinery and chemicals. The Reparations Plan prohibited production of some important exports such as ball bearings, radio transmitting equipment and synthetic ammonia. It prohibited exports in other profitable fields such as locomotives and automobiles, and limited exports in areas were Germany has enjoyed preeminence. such as, pharmaceuticals and dyestuffs. Exports From Light Industries

Exports of the future German economy will be from the light industries: textiles and leather goods, wood products, certain kinds of optical instruments, and, of course, toys. To these will be added potash, coal, and, for a time, lumber. The heavy industry products for which Germany was noted will vitually disappear from her exports.

The problem, therefore, of reviving a bankrupt nation's export industries with no means of paying for the initial raw material imports would have been a difficult one under any circumstances. The difficulties were magnified many fold by two special considerations. The first is our foreign policy which is deliberately to revive industry in the liberated nations before permitting the revival of German industry. The level of industry in the Western Zones, which were operated largely on coal from the Ruhr and Saar, has been limited at all times by coal supplies. Our policy of exporting coal during the first year of occupation was, in effect, a decision virtually preventing the production of substantial exports. Secondly, the failure to obtain economic unity has further hampered the revival of export industries in Germany.

There are, in addition, a battery of administrative barriers to the development of foreign trade. The Trading with the Enemy Act and restrictions on international communications prevented German businessmen from discussing exports with customers outside of Germany. Initially, it has been necessary to do business with Governments. The absence of an exchange rate as well as the necessity for controlling all German assets abroad required that Military Government assume the enormous administrative responsibility of conducting the export business.

In addition to a Central German Agency in foreign trade, Potsdam also recognized the need for an export-import program for German as a whole. From the beginning, it was a basic tenet of U. S policy that Germany be treated as an economic entity. “During the period of occupation," reads the

Hops, used in the manufacture of beer, is an important export item in the U.S. Occupation Zone. Proceeds are used to pay in part the cost of importing foodstufts.

Potsdam Agreement, “Germany should be treated as a single economic unit. for necessary imports out of the proceeds of exports. The repeated efforts of the U. S. Element during the first year to obtain quadripartite agreement to an export-import plan and to a Central German Agency to handle foreign trade have failed.

A real export-import program, such as the U. S. has sponsored, requires the equitable distribution throughout Germany as a whole of all indigenous production and the pooling of proceeds from exports. This runs head-on into the question of reparations out of current production and stock. If current To this end common policies shall be established in regard to an export-import program for Germany as a whole.” Initial efforts toward this end resulted in a compromise interim agreement permitting the Zone Commanders to pay production is charged as reparations, then it cannot be used to pay for imports and the proceeds from exports cannot be equitably distributed throughout Germany as a whole. U. S. Position

Ever mindful of the lessons of the last war, the U. S. has resolved that this time we shall not pay for reparations. If the U. S. Government were to finance food imports into the U. S. Zone, which are necessary to prevent disease and physical deterioration, at the same time that current production is shipped

out of Germany as reparations it would mean that we were, in effect, financing reparations. It was precisely to avoid this development that it was agreed at Potsdam that "The proceeds from exports from current production and stock shall be available in the first place for payment for such imports." This has come to be known as the First Charge Principle. It goes hand in hand with the treatment of Germany as an economic unit and completely free interzonal trade, for as long as zones are maintained, it is possible for one nation to take current output as reparations at the same time that another occupying power is financing a deficit on imports.

In the meantime, Military Government procedures have been established for carrying on foreign trade. In addition to coal from the Ruhr, in which we are sharing in the proceeds, several million dollars worth of hops were sold from the U. S. Zone and the German Laender Governments were told that it was imperative to export goods even though their own domestic needs for the product were critical. Consequently, despite the unparralleled destruction in German cities and the fact that wood products ranked among the leading German pre-war imports, a large lumber export program was initiated. This not only offered an export which did not require raw material imports but an

Examples of the well known Rosenthal porcelain which is manufactured in the American Occupation Zone.

Photo by Byers