As regards other countries than the United States, the adoption of the clearing-house plan by some of them would be extremely detrimental to their own interests, and might be ruinous to a nation whose balance of private debts was largely in favor of Germany.

The principle is already accepted-Article A, clause "e"-that any allied State may exclude itself from the operation of the clearing-house plan.

Now, may Mr. Palmer make that statement?

The CHAIRMAN. Certainly. '

Senator FALL. Before he makes that statement, let me ask this: How are we going to facilitate the resumption of business between. these individuals when we leave it up in the air and wait for Congress? Mr. BARUCH. These individuals can privately proceed, just as they are doing now.

Senator FALL. This will, then, facilitate rather than retard the settlement of these private affairs although, as you say, Congress yet has the power to step in and settle it.

Senator FALL. Do you desire to make that statement now, Mr. Palmer?

STATEMENT OF MR. BRADLEY W. PALMER.

Mr. PALMER. The entire subject is very complicated, difficult to approach and to understand, and in order to answer the questions I think it would be desirable to read the explanatory statements made by the American delegates to each of the sections, which are interlocked. I did not intend to make a statement now, because I wished to go into the subject fully and in detail. What I did wish to call the committee's attention to at the outset is that the rights and interests of the American nationals are fully protected; are protected more than any other nation, or at least as much as any other nation. There is no distinction between the two. It is a complicated and difficult situation, and the clearing house system is merely a method of procedure. The British Government and the French Government devised that plan during the progress of the war to meet a situation and condition that did not exist in the United States, arising from this state of facts. The war struck England and France suddenly, in the midst of all their involved transactions with the enemy, and it threw their business affairs into chaos. Never was there such a condition as that before. I do not know the exact details, because they are very confidential, but I understand that it was necessary for the British Government to step in and put its guarantee back of a great many different classes of private obligations, such as acceptances. Otherwise, the great commercial houses of Great Bitain and of London would have gone down as the result of that. The difference with us was that before we entered the war, war conditions had been going on for two and a half years, and our business men had accommodated themselves to war-like condition, so that when we entered the war the same condition did not exist and was not threatened, and it was not necessary that our Government should interfere in private commercial transactions. The result was that England and France studied what they should do to take care of their citizens arter the war was over, and they evolved a clearing system. The object of that system was to enable their merchants to adjust their relations promptly after the war. Some time during 1917, I think, the

British Government here in Washington explained then system and their theory to us to the 1epresen.atives; to different governmental officials. We gave it a cursory examination, because we struck right away what we considered a fundamental obstacle, the proposition of the Government guaranteeing the private of ligations owed by its citizens, and we never could get over that.

Senator WILLIAMS. You also struck the obstacle of forbidding a man's settling his own debts to the Germans?

Mr. PALMER. That was a minor obstacle, although it was important. We never could get over that, and we had many discussions or talks about that in Washington prior to the termination of the war.

Then, when the peace treaty was proposed, this plan was suggested as a portion of the peace treaty, and the American delegate on the committee happened to be informed of that because of these discussions we had had in Washington, and the American delegate said right away, "Is it essential that the Government should guarantee the private obligations?" And that was an essential part of the plan. It could not be worked out without that. Neither could it be worked out without forbidding communications between merchants in both countries. Neither could it be worked out without the obligation to take a German's property, or the proceeds of his property, and use it to pay another man's debt in that country.

The American delegate did not think it was necessary for the United States to get into any such position as that, and therefore, with full explanation, and with the full concurrence of the other powers, we devised another system which enabled us to grant our nationals the same protection, and in my judgment a very much better protection, without involving the Government in the interference in private affairs.

That is a general statement. Before leaving that subject I would like to make one other statement.

Senator HITCHCOCK. Will you not state, just here, what is the protection that the American creditor of a German debtor gets? Mr. PALMER. An American creditor

Senator HITCHCOCK. Of a German debtor.

Mr. PALMER (continuing). Having a claim against a German? Senator HITCHCOCK. Yes; a prewar claim?

Mr. PALMER. A right; yes. In the first place, privately he has the right to go to a new tribunal in case of dispute as to debt. The Government has a right to use any of the property or resources of the enemy property in this country to pay that debt, if the Government so chooses. Now, there is the clear distinction. The right is not given to an American citizen to come to this Government and demand that his debt shall be paid by the Government, either out of its own funds or out of the proceeds of enemy property which the Alien Property Custodian has taken. That is not a right which is given to a private American citizen. The Government has the right to do that if it wishes to do so. In other words, the Government stands in the position where it can protect its nationals by the use of these funds, or not, as it sees fit. There are many reasons why it is desirable to leave that matter in that position. We do not know what the condition of affairs is in Germany. We do not know what has been done to our property. We do not know whether the Germans will restore our property. We do not know whether

the German merchants will pay their debts in a fair way or whether obstacles will be put in the way of resuming and obtaining perperty rights and rights of contract by our nationals. If commercial relations are resumed in the ordinary way, and no obstacles are put in the way, perhaps the United States Government will say that that is the best thing to do, to let the commercial relations resume their regular course without interference or guaranty. But all the time under the treaty it has the right and power to protect its nationals as fully as it likes.

Senator HITCHCOCK. Can the American Government use the assets of German nationals in this country for the payment of debts due to Americans, without at the same time guaranteeing the payment of debts of Germans or claims that Germans have against Americans? Mr. PALMER. Yes; if Congress so desires.

Senator KNOX. As I understand you, then, the American creditor practically has no rights.

Mr. PALMER. The American creditor is restored to the same rights that he had, regardless of the war.

Senator FALL. Without the treaty?

Mr. PALMER. Without the treaty. And, in addition to that, his Government has the right to protect him fully, further, by applying the property and credits in this country to the payment of his damages or debts.

Senator KNOX. You mean the proceeds of alien property in this country?

Mr. PALMER. Yes.

Senator KNOX. And such alien property as may be disposed of from this time on?

Mr. PALMER. Yes.

Senator KNOX. But then, pending the action by Congress in appropriating those proceeds, the American creditor has nothing, as I understand you; no provision is made for him under this treaty? Mr. PALMER. Well, Mr. Senator, his rights are not impaired at all. He is restored to his same position that he had, regardless of the war, and the United States Government has not guaranteed to pay his debt, of course. The United States Government has not imposed upon Germany the obligation to pay his debt. He is restored to his same claim against the same creditor in the same way as if there had been no war.

He also has the additional protection of being allowed, if he likes, to go to a new arbitral tribunal.

Senator FALL. That is only when there is no dispute?

Mr. PALMER. As to the amount, no. Further than that, if the debt is not paid the United States Government has the right to compensate him and pay him out of these proceeds.

Senator SWANSON. That is what I was going to ask you. This treaty provides that the Government can use the property of any Germans in the hands of the Alien Property Custodian to pay such

debts?

Mr. PALMER. Yes.

Senator SWANSON. That is in the treaty itself?

Mr. PALMER. Yes.

Senator KNOX. But in the meantime the American citizen simply has the embarrassment of having a foreign debt or against whom there is no forum in which he can enforce his claim? He can have the

amount of his claim determined in this forum but there is no way of enforcing the claim?

Mr. PALMER. Germany agrees to enforce the judgment in the new forum; and he can sue in the German courts, if he likes, or in the American courts.

Senator KNOX. How would he satisfy his judgment?

Mr. PALMER. He has the same contractual rights as he always had, according to the nature of his debt and the nature of his claim. Senator SWANSON. Nothing in this treaty prohibits Congress, if it so desires, from assuming liability for these debts?

Mr. BARUCH. Nothing at all.

Senator SWANSON. If the United States want to assume the liability for the debts of citizens of the United States, they can do it?

Mr. PALMER. Certainly they can do it.

Senator KNOx. Have you any idea of the relation between the amount of the proceeds of the property held by the Alien Property Custodian and the amount of the debts held by citizens of the United States against Germans?

Mr. PALMER. No, Mr. Senator: we have not the faintest idea about that. We have a rough idea of the value of the property which has been taken. The State Department, I understand, have asked for the deposit of claims, and they have an enormous amount of claims; but what they are, and of what character they are, and what ought to be done about them, is something that is a very large question that has never been gone into at all.

Senator KNOX. Would you be willing to risk a guess as to whether there is practically enough German property to pay the American claims from the proceeds of the German property in this country?

Mr. PALMER. Mr. Senator, I would say this, basing my remarks not on hearsay but on what I call intuition. The German Government has published from time to time the announcement that the American properties are intact in Germany. Whether or not that statement is true I do not know. It is not true as to some of the other countries. But if Germany will restore the American property in Germany as required by the treaty, then I should think that there would be a very great balance of property in this country. There must be, because the German claims for debt can not amount to very much, whatever they are.

Senator KNOX. What disposition would be made of that balance? Could that be applied, under the terms of the treaty, to the payment of debts of others of our cobelligerents?

Mr. PALMER. No.

Senator KNOX. That seems to be the scheme between all of the nations that are parties to this treaty, except ours. For instance, if a Turk owed an Englishman money, you could take the property of a Turk in England to pay that debt, if there was a surplus over and above the English debt.

Mr. PALMER. Perhaps I have not understood the question. Will you ask it again? I want to explain what can be done with the proceeds?

Senator KNOX. What I want to know is this: If there is a surplus over and above what is necessary in this country to pay American creditors, I want to know what becomes of that surplus?

135546-19-2

Mr. PALMER. I will answer that in this way, that under the clauses of the treaty the disposition of the entire fund is in the hands of the Congress. They can use the fund to pay the claims of American citizens on account of their property in Germany, if they suffer loss or damage. They can use it to pay debts of their citizens unpaid by German nationals. They can use it to pay what we call the Lusitania claims-claims on account of damages suffered by nationals of the United States prior to our entry into the war. They can put the balance into the reparation fund.

Senator KNOX. But suppose we do not have any reparation.
Mr. PALMER. That goes into the general reparation.

Senator KNOX. Then that would be to pay England and France and Italy?

Mr. PALMER. Yes; the general reparation fund, however it is divided.

The CHAIRMAN. But we have no part in reparation funds, have we? Mr. PALMER. We are entitled to a share of the reparation, Mr. Chairman, but as to the division of the reparation, that is something that did not come within my province, and I know nothing whatever about that.

There is one thing, however, that I do want to call attention to now. The United States has the fullest power and authority to return any of this property that they see fit. That was something that I insisted upon, to have a fair understanding with the other Governments, because we have a lot of classes of property that it is certain we shall want to restore to the owners when Congress has received information on those subjects to give it sufficient knowledge to enable it to deal with the entire subject understandably. It is not necessary for us to turn the balance of the funds or any portion of the funds into the reparation fund. That lies with Congress if they desire to do so. The object of the American delegate, basing himself on the provisions of the act of Congress which we have always interpreted to mean that Congress reserved to itself the disposition of the enemies' property that had been taken, was to preserve that intact; in other words, to leave Congress the full, absolute power to deal with the property as they saw fit; and that is the effect of the treaty.

Senator WILLIAMS. Paragraph 4 of the annex to article 297, with reference to property, rights, and interests, reads as follows:

All property, rights, and interests of German nationals within the territory of any allied or associated power and the net proceeds of their sale, liquidation or other dealing therewith may be charged by that allied or associated power in the first place with payment of amounts due in respect of claims by the nationals of that allied or associated power with regard to their property, rights, and interests, including companies and associations in which they are interested, in German territory, or debts owing to them by German nationals, and with payment of claims growing out of acts committed by the German Government or by any German authorities since July 31, 1914, and before that allied or associated power entered into the war. The amount of such claims may be assessed by an arbitrator appointed by Mr. Gostave Ador, if he is willing, or if no such appointment is made by him, by an arbitrator appointed by the mixed arbitral tribunal provided for in section 6. They may be charged in the second place with payment of the amounts due in respect of claims by the nationals of such allied or associated power with regard to their property, rights, and interests in the territory of other enemy powers, in so far as those claims are otherwise unsatisfied.