pretense. With the completion of the formality of setting up a Communist-oriented government in North Korea, the Soviet Government announced on September 19, 1948, that by the close of the year all Soviet military forces would be withdrawn. On October 12 the Soviet Government extended diplomatic recognition to the People's Republic. During the following 6 weeks similar action was taken by the Mongolian People's Republic and the Soviet satellite governments of eastern Europe.

Continuation of effort to unify Korea.-The United Nations General Assembly resolution of December 12, 1948, continued, in a new phase, the efforts to bring about unification of Korea, the further development of representative government there, and "the full accomplishment of the objectives set forth in the resolution of November 14, 1947." The United Nations Temporary Commission was reconstituted on the basis of membership of seven nations. The Commission has been in South Korea since January seeking an opportunity to fulfill its mission. It has not been granted permission even to enter North Korea, however a circumstance which fundamentally impedes its work.

Importance of the schism between north and south. The schism between north and south presents an unequivocal issue to the United States, for in Korea as nowhere else the contest has been clearly drawn between two mutually exclusive viewpoints about the relation between people and their government. As stated by the President in his message to the Congress of June 7:

Korea has become a testing ground in which the validity and practical value of the ideals and principles of democracy which the Republic is putting into practice are being matched against the practices of communism which have been imposed upon the people of North Korea. The survival and progress of the Republic toward a self-supporting, stable economy will have an immense and far-reaching influence on the people of Asia. Such progress by the young Republic will encourage the people of southern and southeastern Asia and the islands of the Pacific to resist and reject the Communist propaganda with which they are besieged. Moreover, the Korean Republic, by demonstrating the success and tenacity of democracy in resisting communism, will stand as a beacon to the people of northern Asia in resisting the control of the Communist forces which have overrun them.

The Republic of Korea, and the freedom-seeking people of North Korea held under Soviet domination, seek for themselves a united, self-governing and sovereign country, independent of foreign control and support and with membership in the United Nations. In their desire for unity and independence, they are supported by the United Nations.

The United States has a deep interest in the continuing progress of the Korean people toward these objectives. The most effective, practical aid which the United States can give toward reaching them will be to assist the Republic to move toward self-support at a decent standard of living. In the absence of such assistance, there can be no real hope of achieving a unified, free, and democratic Korea.

Withdrawal of United States troops.-The proposal for aid to the Republic of Korea put forth by the President and now recommended to the House by the Committee on Foreign Affairs does not pertain to military aspects. It is obvious, however, that economic and military security cannot be considered as unrelated matters. The committee gave most searching consideration to the present state of military support in South Korea. The United States forces there have from the beginning regarded the key to South Korea's internal security as being the state of readiness of Korean defense forces rather than as the prospect of continued presence of United States troops. Accord

93099-49

ingly they have directed their efforts to the training and equipping of native security forces. The question of when to withdraw is, of course, a difficult one. The National Assembly of the Republic of Korea on November 20, 1948, passed a resolution urging the continued presence of United States troops until security forces of the republic should be capable of fully maintaining national security. The General Assembly of the United Nations, in its resolution of December 12, called for the withdrawal of occupying forces at the earliest practicable time. The two resolutions are compatible if one takes the earliest practicable time to mean the time when withdrawal can be accomplished without impairing security. On December 28 the Department of the Army announced plans for early withdrawal of its forces in Korea. It pointed out that this was in keeping with the United Nations General Assembly resolution. It also cited that a revolt of dissident elements of the South Korean constabulary in October 1948, had been put down promptly and efficiently by the main body of the constabulary-an indication of the capacity of the native security forces to defend the area alone. On June 8, 1949, an announcement by the Department of State said that United States. forces will "soon have completed" their withdrawal from South Korea. Completion of the withdrawal was reported in the press on June 29. It should be noted, however, that a military mission will continue to function in Korea, giving the Korean forces the benefit of United States military techniques and advice on organization.

III. ECONOMIC BACKGROUND AND PROSPECTS

A. SOURCES OF THE PROBLEM

The basic circumstances.-The problems with which the United States has had to deal in its assistance to Korea have arisen from the following general circumstances: the 40 years of subordination of the Korean economy to that of Japan; the depletions due to the war; the sudden interruption of trade abroad, specifically with Japan; the dislocations due to the division of the country along the thirty-eighth parallel; and the expansion of population.

Effects of Japanese Occupation.-As to the effect of the occupancy by Japar, it would be an overstatement to say that Korea experienced no progress during that period. Actually there was a degree of industrial development and technical advance in public health measures, transportation facilities, irrigation, and the like. On the other hand, the Koreans shared in the advantages little or not at all. Korea became in effect a colonial area, its basic resources exploited for Japanese industry and its market utilized for the absorption of Japanese consumer items. In the words of a study issued by the Department of State:

* * Korea had been developed as a part of the Japanese economy, not as a self-sustaining unit. Japanese technicians and managers held the key positions in industry and trade; Japanese industrial corporations exploited Korean mines and were the owners of Korean factories; Japanese landlords and agricultural corporations acquired the best Korean farm lands; and Japanese traders controlled Korea's foreign trade. Korean agricultural products went to the Japanese market, and industrial plants were developed to support the Japanese

economy.

* * *

* * ** Under the Japanese, Koreans were denied opportunities to acquire the skills that would have enabled them to administer their own affairs and to operate their industries, mines, and transportation facilities. It was the deliberate

policy of the Japanese to keep the key positions in government, industry, and trade in the hands of the small Japanese minority-752,000 civilian residents of Japanese nationality, constituting only 3 percent of the total population of Korea as of 1942. * * *

The situation upon Japan's surrender.-A study of the Korean economy placed before the committee by the Department of State and the Economic Cooperation Administration adds the following summarizing comments regarding the situation at the close of Japan's four decades as overlord:

* *

The modern economic structure of Korea, comprising the industrial, financial, commercial, transportation, and mining enterprises, was owned and operated almost exclusively by the Japanese at the end of the war. In terms of capital invested in registered corporations and partnerships, the Japanese controlled 95 percent. Japanese enterprises had pervaded nonindustrial and noncommercial fields as well. By 1945, about 15 percent of all farm land, comprising a large portion of the best rice lands, was owned by Japanese corporations and individuals.

At the end of the war, the net balance of economic effects of the Japanese occupation was characterized by two facts: On the one hand, Korea's economy was enriched by a well-developed stock of capital, industrial plants, and equipment, while after the repatriation of the Japanese it lacked the managers and technicians required to run the economic apparatus. In addition, the Korean economy, geared to and integrated with the Japanese economy, found itself isolated and dependent upon semimanufactured commodities, on repair parts and replacements, on markets, and on outlets which only the Japanese could supply. The repatriation of Japanese managers and technicians and interruption of Japanese-Korean trade therefore seriously impaired the functioning of the Korean economy.

The depletion of the war years.-The subordination of the Korean economy to Japan, while producing generally unfavorable consequences, was particularly harmful during the years of World War II. Korea's agriculture was hurt by depletion of the soil. The Japanese failed to provide adequate commercial fertilizers during the war years and the consequent loss of soil values made it impossible for the people of South Korea at the time of their liberation to grow enough food to meet their own needs. This deficiency has been corrected by the supplying of commercial fertilizers from the United States. A second result of the wartime exploitation was the deterioration of capital plant due to overuse and lack of sufficient maintenance. Transportation facilities were acutely impaired. Industrial equipment generally was in bad shape. Furthermore, the facilities of Korea had been converted increasingly to Japanese war purposes; in large measure plants were converted to the manufacture of parts to be used in the final assembly of the completed articles in Japan; the degree to which Korea functioned as a self-containing unit steadily diminished. Manufacturing, which in 1938, with 7,000 factories, accounted for more than a third of the national product, was directed almost wholly to meeting Japanese military and economic demands. Effects of severance from Japan.-As to the effect of the severing of ties with Japan and the other factors impinging upon trade abroad, these are stated in summary as follows in the study by the Department of State and the Economic Cooperation Administration:

After the Japanese surrender in August 1945, the Korean economy, previously integrated with that of Japan, was seriously disrupted. Economic controls collapsed. Japanese residents were largely returned to Japan, leaving a vacuum at managerial and technical levels in public services, industries, and mining. Factories adjusted to the production of war supplies were not suited to a peacetime economy. Trade outlets to Japan were broken, while spare parts and semimanufactured products from Japan were cut off. Important commercial rela

tions with Manchuria and other yen-bloc areas were also cut off. Production declined precipitately. Relief needs mounted.

The effect of the disruption of trade abroad relates directly to the cessation of commerce between the north and south areas. In the study by the Department of State and the Economic Cooperation Administration, coal is taken as an example illustrating the effect:

Prior to liberation and the division of Korea into north and south zones, South Korea met its coal requirements chiefly by imports from Manchuria and Japan and by shipments from North Korea. Anthracite coal mined in South Korea was largely exported to Japan. Although South Korea has relatively extensive anthracite coal reserves, running into hundreds of millions of tons, these reserves have been little developed; production in South Korea has never exceeded 1.5 million tons a year and in most years it has been much less. After liberation, production came almost to a standstill in consequence of the withdrawal of Japanese managers and technicians, and severe deterioration of equipment and facilities during the war years. Whereas South Korea requires at least 3,000,000 tons of coal annually to meet the minimum needs of railroads, thermoelectric plants, industries, and urban and rural domestic users, there was available to meet these needs in 1948 only 614,000 tons of locally produced anthracite and 900,000 tons of bituminous coal imported from Japan, or a total of 1.5 million tons. The shortage has seriously hampered industrial rehabilitation and has caused urban and rural users of fuel to denude the hills and mountains of South Korea of all available vegetation, thereby causing severe soil erosion and an increase in disastrous floods. * * *

Results of the division.-The most unfavorable circumstance, however, has been the division of the peninsula at the thirty-eighth parallel. The difficulties resulting from this division are illustrated by the following statement in the study made by the Economic Cooperation Administration:

Whereas * * * almost two-thirds of the agricultural resources are below the thirty-eighth parallel, 90 percent of the iron and steel, 85 percent of the chemicals, 90 percent of the electric generating power and most of the coal are located north of that parallel. South Korea has preeminence in the consumer goods fields with 90 percent of textiles, 65 percent of food processing, and 60 percent of the machinery industry. In all, over 75 percent of industrial production is located in North Korea. The thirty-eighth parallel has become a barrier preventing normal flow of trade between these two mutually complementary halves of an economic unit; the predominantly agricultural South Korea requires the fertilizer production of the north, and the industrial plants of the south are without the iron, steel, and electrical energy of the north. Thus, a major cause of distortion in South Korea's foreign trade pattern is the necessity of securing fuel, fertilizer, and industrial raw materials from abroad to supplement the limited quantities which can be bartered for from North Korea

In the summarizing words of Administrator Hoffman, appearing before the committee:

Artificial and ruthless division of any country will necessarily have disruptive effects. But in the case of Korea, in which the economies of the northern and southern portions of the country had traditionally complemented each other, the effect of the division has been catastrophic.

Growth of population.-An aggravating factor related to the division. of the country is that of growth of population. This is illustrated in an accompanying graph based upon estimates of population in the area concerned at the end of each year during the period 1940-48. The population of the area stood at 14,969,000 at the close of 1940. By the close of 1948 it was 20,141,000. It is believed now to be about 21,000,000. The percentage increase in 81⁄2 years is approximately 40 percent. A study of Korea prepared last year by the Department