Mr. POWELL. Yes, sir; this comes under our jurisdiction. We can not operate except under our own law. We are subject to our own jurisdiction.

Senator BRANDEGEE. Do you think it would promote international trade between America and China if we should pass this bill just as you have drawn it, with the restrictions that these corporations should not import goods into China from any country except America; do you think that would do it?

Mr. POWELL. I do not know about the actual operation of it.
Senator BRANDEGEE. Would the companies operate?

Mr. POWELL. For instance, our competitors-using it aginst us that we were bound in this way-might exploit the fact that our prices might be higher. Senator BRANDEGEE. But I do not seem to be able to get an answer to my question whether the proponents of this bill want to limit their imports to goods brought from America or whether they want to have the right to buy all over the world.

Mr. POWELL. I should say that it should be limited as far as possible to America, if it can be done without injuring the business of the firm out there. Senator BRANDEGEE. Can it be done without injuring it; that is what I want to know? You know all about business conditions over there and I do not. It would seem to me that as this corporation doing business in China did not buy in America it would not tend to promote trade with America, whereas if they are confined to purchasing from America it would not seem to me that they could compete with other people who are at liberty to buy from Japan or any cheaper market, and I want some information on it. I want to know what you want us to put in the bill, and then we will decide the matter.

Mr. POWELL. If it could be legally done, if these companies could be forced to buy in no other place than America, I should say it would be a very good thing, providing, of course, that this would not injure the firm in its competition.

The CHAIRMAN. What do you think of a company that was organized in the United States that was limited to purchases in goods bought out of the United States; do you think you could get any capital invested in a company like that? Senator WALSH. If you will pardon me, Mr. Chairman, I want to inquire if you would be able to get Chinese capital associated with you? Mr. POWELL. Yes, sir; to a certain extent.

Senator WALSH of Montana. Now, if you put such a limitation as that in the bill and Chinese capital has an opportunity to go into English companies, which are authorized to buy anywhere, or they can go into an American company that is authorized to buy only in the United States, would you think the bill under those circumstances would be inviting to Chinese capital? Mr. POWELL. No, sir; it would not.

Mr. DYER. And the British do not have it in their law.

Senator BRANDEGEE. Now, on the other hand, if it is not put in, how is it going to help American trade with China?

Mr. DYER. Well, they buy things, and are doing it now, in America that they can possibly find a market for in Great Britain. They buy nothing from any other country unless it can not be had from America. That is the absolute fact.

Senator CHAMBERLAIN. May I ask a question?

The CHAIRMAN. Certainly.

Senator CHAMBERLAIN. Is it not true that American manufacturers competing for business over there sell goods cheaper in China than they do in the United States?

Mr. DYER. That I do not know.

Mr. POWELL. What is the question?

Senator CHAMBERLAIN. I am speaking of these American manufacturers competing for business over there, that ship goods to China-do not the agents sell the goods cheaper there to customers than they do in the United States? Mr. POWELL. I think probably not the same quality of goods, but there has been a habit in the past of dumping some of our cheaper or second" stuff into a foreign market where it sells cheaper.

66

Senator CHAMBERLAIN. I thought competition had a good deal to do with the prices.

The CHAIRMAN. Suppose you were putting up a cotton mill there, you do not mean to say it would prevent this company from using Egyptian cotton, or our own people from using Egyptian cotton here to a degree.

Mr. POWELL. That is quite true of an American company if you limit it to this country.

The CHAIRMAN. I do not think you could get any capital into it at all.

Mr. POWELL. But in the actual application there is no question but that Americans push American materials clear down the line. It is a most important function and principle in foreign trade that the big part of it depends on your own personnel that is there on the job all the time.

Mr. DYER. Mr. Chairman, I think Mr. Eldridge could give you some facts with respect to this matter.

STATEMENT OF MR. T. R. ELDRIDGE, DEPARTMENT OF COMMERCE.

Mr. ELDRIDGE. Mr. Chairman, I would like to answer that one question right now. The bill provides. "conducted wholly within China and carried on with persons in China." Now, under that wording it would be perfectly possible for American corporations under this act to buy foreign merchandise from a foreign agent in Shanghai. So that, in fact, it would limit them to purchasing in the United States.

The British may have an agent, say, for Egyptian cotton at Shanghai who is operating their business in China. They could buy that cotton from a British agency.

Senator BRANDEGEE. Why would it not, then, from your point of view, be better to strike out that provision which gives you authority to import from the United States into China? Why do you leave it in there? Would it not be better to say that you can import from any country that you want to and remove the restriction?

Mr. ELDRIDGE. Because it prevents those corporations operating under this act from engaging in direct trade with foreign countries. In other words, it prevents Americans going to China and incorporating under this act and conducting most of their trade directly with Great Britain and with Germany or with Egypt or India.

Senator BRANDEGEE. Then take Senator Walsh's view of it, that express authority to import only from the United States excludes the power to import from any other country, does it not?

Mr. ELDRIDGE. It excludes the power to import directly from any other country, and therefore it prohibits trade with any other country under certain limitations as compared with the trade of the United States.

Senator BRANDEGEE. That is your intention, is it?

Mr. ELDRIDGE. That is the intention of the law.

Senator BRANDEGEE. Why do you not say, then, that such corporation shall not have authority to import from any other country except the United States, making its function perfectly clear and not leave it to speculation, which is now divided in this committee?

I may say

Mr. POWELL. I think I might have something definite on that. that I know a little bit about business conditions in China. Suppose I have a Chinese friend in Shanghai, a young man who has been educated in this country. He has gone back to China. He has a little capital with which he wants to go into business with me. He would put up some money, and I would put up some money, and we would organize an American company with the idea of manufacturing cotton goods. I am going to see that that cotton machinery comes from the United States.

Senator BRANDEGEE. It is not a Chinese question or a question of how things have heretofore been accomplished there. What I want to know is, what shall we put in this bill; what do you want us to do; what power do you want this corporation to have, and what limitation do you want put upon it. I want to know if the language in the bill is calculated to carry this intention into effect. Mr. POWELL. We want a bill that will put an American company in China that will have the facilities for doing business on an even basis with an English competitor across the street who is competing with us, because if we are not out there he is going to have all the trade and switch it to England if he

can.

Senator BRANDEGEE. Of course, I understand that, and therefore you want exemption from income tax. That is the specific thing. I can understand that proposition, but I do not understand what we have just been discussing, and I hope that before the hearing is concluded some one will be able to penetrate my brain on the subject, at least so that we may understand properly the language in the bill.

Mr. DYER. I will ask Mr. Lee to answer that question for you. For many weeks he took notes at the committee hearings in the House.

Senator BRANDEGEE. You mean as to what the question is in the minds of the people? I think I can understand the language in the bill, and I think I can understand that there is some doubt as to what the proper interpretation of it is. What I want to get at is what these people want to be authorized to do.

STATEMENT OF MR. F. P. LEE, ASSISTANT DRAFTSMAN, LEGISLATIVE DRAFTING SERVICE, HOUSE OF REPRESENTATIVES.

Mr. LEE. Mr. Chairman, corporations as a matter of law have only the powers expressly given to them. Other powers are prohibited to them. Therefore, as Senator Cummins and Mr. Eldridge pointed out, one of these Federal corporations may, with certain exceptions specified in the bill, engage only in business in China.

Now, as to Senator Brandegee's point, the corporation may not import articles from France to China, for instance; but it is not prevented from buying French articles from a French agent in China. The Judiciary Committee did not want this act to become a guise for a Federal corporation engaging in business principally in France, for instance, or in the United States, and yet the committee did not want to, nor could it practically, cut off the corporation entirely from obtaining French goods. So the language of the bill was intended to permit the purchase of French goods in China from a French agent, but not the importations; that is, the purchase in France of a French article and the bringing of it to China.

On the other hand, as to the United States, the committee thought. as I understood it and was instructed, that it was advisable to observe a distinction advocated by the Department of Commerce, namely, to permit the purchase of goods in the United States (that is, not to have to buy from the agent in China of the United States firm, but make a purchase directly and bring the goods to China); but on the other hand it was inadvisable that the corporations should be able to import into the United States and sell in the United States, or rather export from China into the United States and sell in the United States. That business must be done through an agent in the United States or through a subsidiary or parent corporation incorporated under State law and not under this proposed act. Senator BRANDEGEE. I thought section (b) limited you to doing business in China and not in the United States?

Mr. LEE. Yes. In other words you may not export from China into the United States and sell there; but paragraph (1) of subdivision (c) of section 4 permits you to purchase in the United States and transport to China and sell.

Senator BRANDEGEE. But you have been talking about exporting from China to the United States. Nobody wants to do that, do they?

Mr. LEE. I am also talking about importing from the United States into China. Take the A. B. C. Co. in China. It may purchase an article in New York and take it to Shanghai and sell it there. On the other hand, it may not take an article originating in China and transport it to New York and sell it in New York, but it may only sell it in Shanghai to the agents of the New York firm, which in turn will transport it to New York.

Mr. BRANDEGEE. Do you think under this bill as it is drawn, any of these corporations organized to do business in China could export anything to the United States?

Mr. LEE. It can export nothing to the United States unless under paragraph (3) of subdivision (c) it has specific authority with the approval of the Secretary to engage in business in the United States incidentally to its business in China.

Senator BRANDEGEE. Do you mean to say that with the approval of the Secretary of Commerce this corporation could export the products of Chinese labor over here and go into that business?

Mr. LEE. With the approval of the Secretary of Commerce they may do business in the United States-anything that is “ necessary to the establishment and conduct of any business or enterprise in which it (that is, the corporation) is authorized to engage."

The CHAIRMAN. I think they can do it without that power.
Mr. DYER. It is merely incidental.

Senator BRANDEGEE. As I understand you, you intend to prevent these companies starting to do business within China; you intend to prevent them from importing as companies themselves from any foreign country except the United States?

Mr. LEE. That is what I have understood the Judiciary Committee intended. Senator BRANDEGEE. Of course, I can understand that there is nothing in the bill that will prevent a corporation in China from buying stuff in China that somebody else there would import into China. Where an agent of a foreign country brought stuff there, there is nothing in the bill that would prevent this corporation buying that stuff or from making a contract with somebody that the other fellow should import stuff into China

Mr. LEE. Yes, sir; precisely.

Senator BRANDEGEE. That would be rather whipping the devil around the stump.

Senator WALSH of Montana. Whether you have expressed it accurately or not, it was your purpose to limit the importing business to imports from the United States?

Mr. LEE. Yes, sir; that is the purpose the language of the bill is intended to carry out.

Senator WALSH of Montana. As to goods from any other place, they must buy, if they buy them at all, from somebody in China, and can not buy in the other countries and bring them in?

Mr. LEE. Yes, sir.

Senator BRANDEGEE. What do you think there is gained from letting them purchase English-made goods from an English selling agent but not letting them import direct from Great Britain? As a matter of fact, what is the difference? The money of this corporation goes to the British producer just the same, does it not; and American goods are not used, but the British goods are?

Mr. LEE. As a draftsman, I am not qualified to answer that question of policy, Senator; except that I can say it is obvious from the provisions of the bill that such a restriction operates more effectively to limit the tax exemption and the protection of the flag to business in China.

The CHAIRMAN. Mr. Lee, is it your opinion that if a coal company, mining coal, was organized under this bill, that it could not sell that coal in Japan? Mr. LEE. The company could not, for the coal would then be sold in Japan to the Japanese.

The CHAIRMAN. I am putting the question, though, in the way I think it appears to me. Japan wants coal. Do you mean that it could not sell the coal that it mines in Japan to citizens of Japan?

Mr. LEE. It could sell it in China to a Japanese agent.

The CHAIRMAN. Then you make a distinction between agreeing to deliver it in Japan and delivering it to some agent of the Japanese in China? Mr. LEE. That is the distinction.

The CHAIRMAN. I do not think there is any distinction.

Mr. LEE. Mr. Chairman, I believe this should be kept in mind, if I may suggest it. The Judiciary Committee of the House, as I understood it, was desirous that the bill should not be used as a guise by engaging in a little business in China and then going abroad in another country and engaging in a great deal of business and obtaining the benefits of the act in respect to it. For that reason they tried to make a distinction between sale for delivery in China and delivery in Japan and sale there.

May I make one more statement with respect to Senator Brandegee's point. If you allow the company to purchase goods in the United States, it thereby will avoid a certain commission that it would have to pay, I suppose, if it purchased those goods from brokers or through an agency in China, and could have that profit for its own business instead of having to give it to some one else.

Senator BRANDEGEE. As it seems to me this section b-" such corporation may engage in any business or enterprise conducted wholly within China and carried on with persons in China "-would permit them to sell any foreigner who happened to be in China, and that foreigner could export it all over the world. I can not see that there is any other construction to be placed on that language. The business was within China, the business of trade or purchase and sale was made wholly within China; the people are right there.

Mr. LEE. That is entirely correct.

Senator BRANDEGEE. Very well. Then this corporation can export really its products all over the world.

Mr. LEE. Yes, sir; but only in the sense that you have just stated. Senator WALSH of Montana. That is, provided it can find somebody in China to sell them to. I want to inquire of Mr. Lee about that. This law was apparently not intended to permit a corporation to engage in any export business there to the United States or to any other country?

Mr. LEE. That is correct. Of course, the Federal corporation may have a parent or subsidiary corporation formed under some State or foreign law or an agent which will take the goods off its hands in China and find the market for them in the United States or abroad.

Senator WALSH of Montana. Then I want to ask Mr. Powell this: Apparently, this corporation has no power whatever to export anything.

Mr. POWELL. As a corporation.

Senator WALSH of Montana. If it finds some foreigner, either individually, or a representative of some foreign firm to which it can sell any Chinese products in China, all well and good, but he can not go out into the United States or anywhere else and establish a market for Chinese goods and ship those Chinese goods. Now, of course, everybody recognizes that China can not pay for everything it buys in gold nor in securities. It has to pay in goods. Now, is it possible, as a commercial proposition, for a company to establish itself in China merely as a selling company, and not take at all in exchange Chinese goods which it can dispose of throughout the world?

Mr. POWELL. It would dispose of those goods there to the agent in Shanghai. This firm might, for example, buy Chinese raw silk. Raw silk is coming to America-I think we buy about forty or fifty million dollars worth a year.

Senator WALSH of Montana. Exactly, it can buy an enormous quantity of raw silk, but what will it do with that raw silk when it has it?

Mr. POWELL. It will have to sell it to somebody who can bring it into the United States.

Senator WALSH of Montana. But they would have to sell it to somebody in China?

Mr. POWELL. Yes, sir.

Senator WALSH of Montana. You can not sell it to anybody in the United States that is, export it to the United States?

Mr. POWELL. No, sir; but you might have a representative of an American firm in China who would buy it from this firm, but he might not do that; he might go out and buy on his own.

Senator WALSH of Montana. That is compensation. If the New York firm has an agent in Canton or Shanghai, that agent will not buy from you; he will go and buy directly from the manufacturers from whom you get it.

Mr. POWELL. Yes, sir; except that this firm if it was in that business would have probably greater facilities for buying because buying is a very difficult process out there; materials have to be collected from thousands of small sources.

Senator WALSH of Montana. Do you think it is an inviting commercial or financial proposition-inviting to Chinese capital-to put their money into a corporation that has no power to buy Chinese goods and export them? Mr. POWELL. No, sir; I can not see that it is.

Senator WALSH of Montana. I can speak from our own experience in the West-corporations engaged in buying wheat and grain. A farmer has got to buy coal, for instance, with the money that he gets from the same company that buys his grain and sells him his coal, and if you restrict that corporation to buying grain alone, you would practically take away half of the business. Mr. ELDRIDGE. The exports from China to the United States are about 100 per cent greater than the imports of the United States into China, and have always been; in other words, the balance of trade from China to the United States is favorable to China.

Now, this bill will encourage the more equal balance of trade in that respect. It will encourage imports of American goods into China. The export of Chinese goods is a highly centralized proposition at the present time, in large buying agencies established in China. For instance, the export of raw silk is in the hands of a few large exporters of raw silk who are primarily agents for American-silk manufacturers. So the intent and purpose is that trade will probably be handled in the same way. It is more economical that it should be handled through these combinations of manufacturers who have their representatives in China. It is the same with respect to Chinese-oil seeds and Chinese hides. They are all sold there by strong combinations of importers. The import business is much more difficult to carry on in China than the export business.

Senator WALSH of Montana. I can appreciate very easily that we would like to do something to help our export business with China; that is important, the