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been technical advisor of the War Industries Board; and Mr. Charles H. MacDowell, head of the chemical section of the War Industries Board; also Mr. Bradley Palmer, who had been one of the legal advisors of the Alien Property Custodian; and Mr. Chandler Anderson, formerly counselor of the Department of State for a short time.
We all met as a group from time to time, in order to compare notes, and the entire economic clauses were gone over and subjected to criticism by this group.
For the meetings of the international subcommissions each country selected its expert to sit upon the various matters. The chairmen were of different nationalities; thus the chairman of the customs commission was an American, of the commercial treaties commission an Italian, of the property commission a Frenchman, and so on. Covering a period of several weeks these subcommissions sat frequently; toward the end they sat almost continuously. American experts upon these subcommissions made frequent reports to the American members of the commission, and all were thus in close touch with the progress of the work.
In accordance with the plan adopted, these subcommissions, when they arrived at a conclusion, presented such reports to the main Economic Commission for approval, amendment or rejection. In this way the points of each particular topic were reviewed again, and as report after report of these subcommissions was adopted by the main commission, the reports were carefully drawn together so as to make a whole. The reports of the main commission were finally submitted to the Supreme Council for approval, substantially in form as appears to-day in the treaty text.
The work of all the men connected with these prolonged discussions was done with the highest order of zeal, intelligence and efficiency, and we can feel that the best interests of the United States were looked after.
As an evidence of the way in which the work was prepared for consideration by the American delegation, I will submit to you a copy of draft of economic clauses, privately printed, with comments and explanations of the various American delegates.
On one side you will find an explanation of each clause, and on the other the comment of the American delegate.
Further I will be glad to submit to you a concise statement of the economic clauses made by the various expert advisers immediately after the treaty was adopted, being explanatory of what they mean and what effect they would have upon American interests.
Senator Moses. That summary is already prepared?
The CHAIRMAN. Paragraphs (1) and (2) giving the choice whether the Powers would accept section 3.
Senator WILLIAMS. Page 371 of the text.
Mr. BARUCH. That was in reference to the selection of the clearinghouse system, which was put forth primarily by England. The American delegation did not feel that that was one that we should adopt.
Senator HITCHCOCK. Please explain what the clearing-house system was.
Mr. BARUCH. The central part of the clearing-house arrangement is that relating to prewar debts, and the procedure with reference to prewar debts shows the nature of the scheme.
Each country begins by guaranteeing to the other the debts due by its own citizens. Germany, for instance, guarantees that debts due by Germans to Englishmen shall be paid. England, on the other hand, guarantees that debts due by Englishmen to Germans shall be paid. Various incidental provisions are made with regard to the process of ascertaining and checking these debts, but they are not important for the essentials of the scheme.
All these debts, when ascertained and checked, are reported to certain clearing offices defined in the treaty. If it should appear that Germany owes to England more than England owes to Germany, as ascertained at the clearing offices, Germany pays the balance in cash to England. If, on the other hand, it appears that England owes a balance to Germany, the balance is not paid by England in cash, but is set aside as a credit to Germany's account in connection with reparations or other obligations which Germany must assume under the treaty. That refers to paragraph 243. Attention should be called to this feature of the general process of settlement. Since Germany has large obligations to meet, more particularly for reparations, anything that is left to her credit is simply turned into what may be called a “pool," namely, the general accumulation of assets and resources which Germany must utilize in order to meet reparation charges and the like.
The clearing-house settlement arrangement is further applied to the liquidation of German property. England, for example, has seized or sequestrated certain property situated in England and belonging to German nationals. This property is held as a security or pledge for repaying damages or sequestration losses incurred by Englishmen who may have had property situated in Germany. Any balance left in England's hand after these property losses in Germany are met, is again regarded as a balance for the “pool” or reparation assets, is reported to the clearing house, and is available for reparation purposes.
It is a natural part of this arrangement that the German Government itself undertakes to recompense its own nationals (Germans) who may have debts due to them or may be the owners of property taken over by the British Government-I simply use the British as an example. The German nationals are not expected to suffer, but their indemnification is left to their own Government.
Senator WILLIAMS. All this is credited to Germany as part of her reparation ? Mr. BARUCH. Yes, sir.
The whole arrangement did not seem to the United States representatives a desirable one for this country, and from the start they stated that the United States would not enter on it. The treaty provides (article 296, clause "e") that no country shall be bound by it unless affirmative notice of its acceptance is given, and our expectation is that no such affirmative notice will be given by the United States.
Senator SWANSON. That is limited to prewar debts ?
Mr. BARUCH. Yes; prewar debts.
Senator SWANSON. Take the German property that there is in the United States. Under section 3, how would that property be distributed ?
Mr. BARUCH. Cerman property that has been seized by the custodian ?
Senator SWANSON. Yes. Mr. BARUCH. That property is left in the hands of Congress, to do with it as it wishes.
Senator SWANSON. Under this treaty?
Senator SWANSON. Then the treaty does not make any disposition of that property, I understand.
Mr. BARUCH. No, sir. It leaves it in the hands of Congress to dispose of. But, in addition, under that treaty it has been given additional rights of use. It can be held as a set-off against American property in Germany. It can be used for the payment of prewar claims like the Lusitania, and other prewar claims.
Senator SWANSON. Do you know the section of the treaty where that is particularly provided for?
The CHAIRMAN. We will come to that later, when we take up the alien property provisions.
I understand that you take advantage of the privilege granted in paragraph (2) and do not adopt paragraph (3) ? Mr. BARUCH. Yes, sir; that is our recommendation.
The CHAIRMAN. Well, now, we might as well go to the alien property division.
Senator SWANSON. If we do not accept section 3, what is the method of settling claims, with section 3 eliminated? We might as well get that clear.
Mr. BARUCH. Congress will have to make disposition and set up machinery, as I understand it, to meet the situation.
Senator SWANSON. The treaty does not set up any machinery except under section 3.
Mr. BARUCH. The machinery that would be set up affecting us would be the mixed tribunal, and that was done in order to enable American citizens, or to protect American citizens—that is not exactly the word, but you will get my meaning—against the necessity of going into Germany to get jurisdiction there. It provides a mixed tribunal to try the case.
Senator SWANSON. And all this treaty does as to section 3 is to create a mixed tribunal to fix the relative indebtedness of German and American citizens.
Mr. BARUCH. Our courts are to settle all questions for Americans.
Senator WILLIAMS. We would have to institute something like the Spanish Treaty Claims Commission, or some sort of organization.
Mr. BARUCH. I believe that Mr. Palmer, who has given study to that and who is familiar with it, is probably working on that.
Senator HITCHCOCK. The national of every other country must depend upon this international commission in order to secure his claim against Germany.
Mr. BARUCH. If his Government elects in the first instance.
Senator Knox. Where do you find that, Mr. Baruch, in the treaty; what page and section?
Senator SWANSON. It is on page 351, subparagraph “e.” Now, I understand that if Germany has any claims against the United States they must sue in our courts?
Mr. BARUCH. A German citizen; yes.
Senator SWANSON. Now, if a citizen of the United States has a claim against a German in Germany, Germany has agreed to create a mixed commission to ascertain that indebtedness. Mr. BARUCH. Yes, sir.
Senator WILLIAMS. Senator Knox, what you are inquiring for is subparagraph “e” on page 351.
Mr. BARUCH. Does that answer your question, Senator ?
Senator Fall. May I ask you a question? Why do you think that is a better proposition for the people of the United States to go to this mixed arbitration tribunal rather than to a clearing house?
Mr. BARUCH. I can answer that question more concisely by just reading three paragraphs here from this print which I had hoped to place in the hands of each member. It is an explanation of each one of the economic clauses, and giving under the head of each one the reasons for the clause as it is.
Senator Fall. I will withdraw the question until we have those data.
Mr. BARUCH. You will find it quite clearly explained there.
Senator POMERENE. Those are the explanations made by our representatives, of the text ?
Mr. BARUCH. They were explanations made by our representatives, giving our understanding of the clauses.
Senator WILLIAMS. Made by the subcommittees to the group?
Senator POMERENE. In other words, they were reservations to the treaty ?
Mr. BARUCH. No.
Senator MOSES. These explanations were made by the groups which you have described as composed of various gentlemen gathered in subsidiary bodies, who were dealing with the economic clauses of the treaty in the first instance? They represent your own arguments ? Mr. BARUCH. Yes, sir.
Senator Moses. And after being put in this printed form they were put in the hands of the five commissioners or plenipotentiaries, for their information ?
Mr. BARUCH. All the economic commissions, of the five countries, came together, and then when we had agreed we reported to the commission of four, and they accepted it; and then it was put in the hands of our drafting commission. Does that answer your question ?
Senator MOSES. Yes; except that it seems as if there was some intermediate step left out as to how our plenipotentiaries got into possession of it.
Mr. BARUCH. They were advised.
Senator POMERENE. Were these explanatory notes incorporated in your minutes which you submitted to the commission?
Mr. BARUCH. So far as I know this is the only commission that made its report in this way. We got this up for our own particular benefit, so that we could digest the subject. You will notice that the treaty is a very large volume, and we got this up as a ready reference more for our own selves than for anything else.
Senator WILLIAMS. It is the explanation of your conduct-explains the result you arrived at. Suppose you just read that to the committee.
Mr. BARUCH (reading): Article A and Regulation X provide for a system under which clearing offices are created, one between each allied State and Germany, for the settlement of debts. In order to make the plan workable, it is provided that:
(a) Each State shall guarantee the payment of all debts owing by its nationals to pationals of the enemy State, except in cases of the insolvency of the debtor, before the war;
(6) The proceeds of the sale of private enemy property in each State shall be used by the said State to pay the debts of its own nationals;
(c) Debtors and creditors in States formerly enemy are forbidden to settle their debts with each other or to communicate with each other regarding them.
This plan may be desirable for Great Britain, but is extremely undesirable, if not actually impossible, for the United States. It is accordingly recommended that it be not accepted by the United States.
1. Our Government should not accept the burden of guaranteeing the private debts owed by its citizens. This would be an obligation of unknown and probably very great proportions.
2. The treaty should not compel the United States to use the private property of Germans in our country for the payment of debts owed by other Germans to our citizens. To do so might amount to confiscation.
Senator Fall. If we do not guarantee the debts due to our own nationals as other nations propose to do, and do not use the excess of the proceeds of sales of alien property for the discharge of such debts, we are the only nation that will leave our citizens entirely unprotected, except as to their recourse against the nationals of the other country through other tribunals. Mr. BARUCH. Congress has the power to do what it wishes.
Senator Fall. You mean to say that although you recommend to the contrary, Congress could go ahead and pass laws providing for the distribution of the proceeds of the sale of property in the hands of the Alien Property Custodian?
Mr. BARUCH. I said that those were the views as expressed by myself. That is still my present view, and I will be glad to state my reasons.
Might not Mr. Palmer make a statement in reference to this?
Senator SWANSON. Suppose you finish the reading of your own statement.
Mr. BARUCH (reading):
Moreover, Congress has expressly reserved to itself the power to decide what shall become of the enemy property in the United States. On the other hand, there seems no objection to the United States retaining the enemy property, for the present, as a hostage or pledge to secure American rights, and then deciding in its own way what is the fair and proper course. To accept the clearing-house system would commit the United States to a course which, it is firmly believed, Congress will not wish to follow.
3. To forbid our citizens from adjusting their debts and accounts with former enemies privately would be a wholly unnecessary and unjustifiable interference with private affairs. It would be a most serious obstacle in the resumption of business and commercial relations. Our financial houses and business firms had many complicated accounts, and transactions which were suspended by war. These houses, and especially the bankers, must speedily adjust their financial accounts. Otherwise commerce can not be properly resumed. The clearing-house plan would compel all such adjustments and all payments to be made through governmental agencies.