- 3 -
 
is Germany likely to become entrenched in the markets of 
the claimant states; the more difficult, also, will be
the readjustment of both paying and receiving countries
at the end of the reparation period.  The interference
with the normal trade may be relatively slight in the first
two or three years after the war when trading conditions 
are in any case apt to be highly abnormal and the overall
and deferred demands. Beyond that time, however, the
interference with normal trade will become progressively
greater.  It is recommended, accordingly, that the
reparation period should be limited, if possible, to
five years years, and in any event should not exceed ten years.
 
     (c) To avoid "transfer" difficulties, the repara-
tion obligation should be payable preponderantly
"in kind", i.e., in goods and services, rather than in
foreign exchange.  The goods should be such as Germany
is able to deliver and the claimant countries are will-
ing to receive, both conditions being necessary for 
"transferability".
 
     United nations claiming reparation from Germany, in
addition to being entitled to payments in kind, should
have the option of retaining and disposing of all German
property and rights within their territories and to
apply the proceeds against their reparation claims.
 
     The Soviet Government will probably demand, in
satisfaction of part its reparation claim, the perfor-
mance of labor services by German manpower in Russia.
There is no compelling reason for the United States to
oppose such claims witin reasonable limits, provided
that in the coscription of the labor force a distinction
is made between formerly active Nazis and politically
passive Germans, with minimum standards of treatment and
a relatively short period of service for the latter.
 
     (d) The principal basis for the apportionment of
reparation among the claimant states should be the
amount of damage to and loss of non-military property,
exclusive of current output, caused by or incident to
hostilities. As a supplementary basis of allocation,
occupation costs (including for this purpose clearing
 
 
                                            balances