Mr. MACMURRAY. Yes.

Senator WALSH. The corporation would be created in Alaska by filing its articles of incorporation with the secretary of the Territory of Alaska? Mr. MACMURRAY. Yes, sir.

Senator WALSH. Now, I do not see what the legation has to do with that. Mr. MACMURRAY. May I read a portion of an abstract of the decision? [Reading:]

“In the case of the United States v. Paul McRae, acting clerk of the United states Court for China, respondent (case No. 586, filed June 9, 1917), the United States Court for China held the corporation act of March 2, 1903 (for Alaska), to be applicable to China. The basis upon which this act was held by the court to be so applicable was: (1) That the laws of the United States have been extended to China by the acts of Congress of 1848 and 1860, and could be withdrawn only by a similar act. (2) That the act of 1903 appears to be suitable to conditions in China and necessary to execute the treaties, and consequently is extended here by the affirmative acts of 1848 and 1860. The court further pointed out the following rules for such application of the act of 1903: (a) The requirements of that act that proposed articles of incorporation be filed 'in the office of the secretary' are sufficiently complied with by filing them with the legation, and (b) the further requirement that such articles be filed in the office of the clerk of the district court is met by filing them with the clerk of the United States Court for China."

Senator WALSH. Then, as I understand it, the court found that because there is a statute of the United States providing for the organization of corporations in Alaska by filing the articles of incorporation with the Secretary of the Territory of Alaska and filing them with the district court, they may organize corporations in China by filing the articles of incorporation with the legation and with the clerk of the United States court there?

Mr. MACMURRAY. Yes, sir.

Senator CHAMBERLAIN. Is not that analogous to the British order in council. or the British act, which requires certain corporations to file their articles with the registrar?

Mr. MACMURRAY. Of course, the British order in council is an absolute regulation; it is a statutory act. This is an interpretation of a statutory act. The two, of course, follow along parallel lines.

Senator CUMMINS. Let me see if I now fully understand it. A corporation organized in any one of the States to do business in China would have a right to go to the United States court there for the adjudication of its privileges and immunities, what ever it may have been granted in its article of incorporation? That is true, is it not?

Mr. MACMURRAY. Yes, sir.

Senator CUMMINS. And the court has held that a corporation organized in China under the laws of Alaska is also entitled to these rights and privileges, and the reason that those people operating in China would rather go to the Alaskan statute than to the laws of any of the States is that it is supposed that a corporation organized under the laws of Alaska is a little nearer to the United States than a corporation organized under the laws of any of the States? Is that about the situation?

Mr. MACMURRAY. Yes; and it is the fact, Senator, that it can be organized legally in China without coming home to obtain registration.

The Alaska provision as extended to the China jurisdiction would probably be the most convenient arrangement that now exists under American law for incorporation there, but there is that considerable doubt in the minds of the people in China whether on appeal of some case it might not be held by other courts that the Alaska statute is not applicable by analogy to the China jurisdiction. That means, as an alternative to going under a foreign flag and relying upon foreign protection in China, that Americans desiring to incorporate in China must operate with a State charter. That in itself entitles them to full protection as an American corporation without regard to what State they have incorporated in.

The inadequacy of that is probably largely psychological. It is primarily due to the fact that almost nobody in China has any knowledge of what a Delaware, an Arkansas, or an Indiana corporation may be. The Chinese particularly have no knowledge and no means of obtaining knowledge. I should, perhaps, point out what seems the trivial fact that there is nobody over there in China, except one or two law firms, that have even an encyclopedia of law from which to ascertain what the corporation law in a particular State is. The

whole matter is in China on a different basis from what it is here, where it is easy to consult counsel and find out what the terms of the statute are, and what decisions there are on the laws of incorporation in certain States. Over there, because of the comparative fewness of Americans and the fact that there are only a small number of law offices, it is almost impossible for anybody to know or expect to know what the incorporation law of any American State may be. That has a very direct effect upon the minds of the Chinese, whose cooperation is desirable. They have a feeling that they do not know what law will apply when they put their money in.

Senator CUMMINS. Is that lack of cooperation seen in the disinclination of the Chinese to enter a corporation of this character and contribute a part of its capital, or is it seen in the disinclination to deal with an American corporation organized under the laws of a State?

Mr. MACMURRAY. The former; although where the question has been raised, as sometimes the quest'on is raised, as to the character of the corporation, that other question enters into it, of course. There would perhaps be somewhat less confidence in dealing with a corporation whose legal basis they were unfamiliar with.

Senator CUMMINS. They, your conclusion is, I take it, that it would be very desirable in doing business in China-purely local business-that so far as Americans participate it it, it should be done under a Federal incorporation? Mr. MACMURRAY. Yes, sir; so it seems to me, Senator. And I might add there is another reason. As is known, of course, there are certain of the State corporation laws which are excedingly lax. That is not so very serious here at home, because every corporation does business more or less in the open and there is always the eye of the public on it. Over there that is not the case. The American community that is interested in it is so small and the operations carried on over there are so far away from general observation that a corporation operating under a very lax set of laws is in a position, if it is unscrupulous, to do a great many things that would not be possible here, tending to bring discredit on it.

Senator CUMMINS. You rèpresent the State Department here at this hearing, do you not?

Mr. MACMURRAY. Yes, sir.

Senator CUMMINS. One of the points that has been suggested several times with regard to this bill is this. Suppose that a corporation is organized to do business in China under the act here proposed. Let us assume that 51 per cent of its stock is subscribed by Americans and 49 per cent of its stock is subscribed by Chinese. It goes on to do business, any kind of buiness that it may choose to do. There is quite an elaborate system of supervision provided for in the bill on the part of the Government of the United States. Suppose that the corporation fails and the stockholders lose their money, or would under ordinary circumstances lose their money. What would be the attitude of China and Chinamen toward the Government of the United States if they, in common with their American fellow stockholders, were compelled to lose their money in any enterprise which a corporation of this sort might engage in? Would it be likely to create international disturbances, and would it not be probable that they would expect the Government of the United States to make good the losses which the Chinese stockholders might sustain?

Mr. MACMURRAY. No; I do not think so, Senator. I think they would not feel that the Government of the United States was in any degree more responsible than if this had been, for example, a Delaware corporation rather than a Federal corporation.

Senator WALSH. Apparently then, they would feel a greater security, because of the greater supervision, the more accurate supervision by the United States Government over corporate affairs than by the State of Delaware over a Delaware corporation?

Mr. MACMURRAY. Yes; they would have greater confidence.

Senator WALSH. This bill provides for such supervision, and it provides for the revoking of the articles by the Secretary:

"The Secretary of Commerce may suspend the charter of a corporation whenever, with or without examination as provided in section 15, he becomes satisfied that the business and affairs of the corporation are conducted or have been conducted within the year last preceding in a manner (1) contrary to the provisions of this act or any other law or treaty of the United States, or of the articles of incorporation or by-laws of the corporation, or (2) detrimental to the business interests and good will of the United States."

Would you think that a Chinaman would be willing to subscribe to stock in a corporation under an act of that character, giving the Secretary of Commerce the power to suspend the corporation, practically to put it out of business, at any time that he thought the business was conducted in such a way that it was not to the best interests of the United States?

Mr. MACMURRAY. I think they would have no hesitation about that. Senator WALSH. Well, if they are apprehensive about this matter at all, about the future of the corporation, it would seem to me that that would scare them to death.

Senator CHAMBERLAIN. Is it not true that that portion of that particular bill was drafted very much along the lines of the British Order in Council? Does not the registrar exercise very much the same power that is undertaken to be given to the Secretary here?

Mr. MACMURRAY. I think it is virtually identical.

Senator WALSH. I do not mean to say that it is not, but when we are told that they are apprehensive about the lack of supervision by a State organization, it would seem to me that they would be frightened to death with this thing.

Representative DYER. Senator, if you will permit me to make the suggestion, that same section that you are reading from provides that such suspension shall not take effect until after the Secretary has filed suit in the United States Court for China and hearing had, and it would be for the court to decide whether the charter should be revoked or not.

Senator WALSH. It does not make a bit of difference. The court is not going to find that the law has been violated in any respect, nor that the corporation has conducted its business in any manner that is not to the best interests of the corporation or of the stockholders, but whenever the court finds that it is detrimental to the best interests of the United States that that corporation should continue business it goes out.

Senator CHAMBERLAIN. I Would like to make this suggestion. As I have said, my recollection is that that provision is substantially what the British law requires and the British reserve that same right, in order to prevent companies incorporated under the British law from indulging in a business which would be deterimental not only to the British Empire itself but to the people of China as well. For instance, in the sale of opium, corporations organized to carry on an illegitimate or illegal traffic; the purpose of it is to prevent corporations from engaging in that kind of business.

Senator WALSH. I have not the slightest doubt in the world, Senator, that the purpose is highly commendable, but the power is unlimited. What guide is there? Is it not a matter of pure opinion on the part of the Secretary of Commerce that the way the business is being conducted is detrimental to the business interests of the United States? What rule is going to guide him in determining whether it is detrimental to the business interests? Congress, of course, being a legislative body, might say that a certain thing is detrimental to the business interests of the United States, but when you leave it to the Secretary of Commerce you leave it to the individual opinion of one man. He decides that it is, and then it goes up to a judge out in China to determine whether the operations of a certain corporation are detrimental to the business interests of the United States. You can appreciate, Senator Chamberlain, that it is not a judicial question to start with. It is a purely political question and a political power which you are conferring upon the court.

Senator BRANDEGEE. Mr. MacMurray, what is your position in the State Department? What office do you hold?

Mr. MACMURRAY. Chief of the Far Eastern Division.

Senator BRANDEGEE. Have you ever lived in China?

Mr. MACMURRAY. Yes, sir.

Senator BRANDEGEE. How long?

Mr. MACMURRAY. About five years.

Senator BRANDEGEE. How long ago?

Mr. MACMURRAY. The last time I was there was two years ago.

Senator BRANDEGEE. Did you engage in any business?

Mr. MACMURRAY. No; I was secretary of the legation.

Senator CUMMINS. Senator Chamberlain, following the suggestion of Senator Walsh, you would not be very insistent upon putting that sort of provision in a charter of a corporation, would you? You would have the widest differences of opinion in Congress as to what is detrimental to the business interests of

the United States. I can hardly imagine submitting a question of that kind to the court.

Senator CHAMBERLAIN. I think the same result might be obtained by changing the phraseology of the bill, but I can see very readily that the purpose of such a provision is to vest in some authority here such power that when a corporation was doing something that would practically destroy our business relations with China its charter might be revoked.

Senator CUMMINS. The corporation ought to be so limited in its fundamental law or in its articles of incorporation that it must pursue a lawful business, of course, and if it pursues a lawful business in a lawful way I can hardly think that it ought to be dissolved because it might be doing something that somebody thought was detrimental to the business interests of this country.

Senator BRANDEGEE. Mr. MacMurray, have you carefully studied the provisions of this bill?

Mr. MACMURRAY. Rather carefully; yes.

Senator BRANDEGEE. Do you appear here at the request of the Secretary of State?

Mr. MACMURRAY. No; at the request of Senator Cummins.

Senator CUMMINS. I will say that Senator Jones submitted to me the names of two officers, one in the office of the Secretary of State and one in the office of the Secretary of Commerce, and I communicated with them. I did not know the etiquette of the matter, and so I wrote originally to the two gentlemen whose names were given me. Mr. MacMurray was one of them. I was reminded promptly by the office of the Secretary of State that if I wanted anybody from that office I must communicate with the Secretary himself and have him detail the proper man. So I corrected my mistake as quickly as possible.

Senator BRANDEGEE. What I wanted to ask Mr. MacMurray was, after such study as he has given this bill, whether he advocated it as it stands, whether he approved of it, and whether he was representing his own personal opinion about it or the attitude of the Department of State, and also whether he has given any consideration to the constitutional power of Congress to pass the bill as it stands.

Mr. MACMURRAY. The State Department does approve of, at any rate, the general purpose of the bill. There are certain details in the bill as to which the Department of State would be quite indifferent how they were arranged, but the general purpose of the bill meets its full approval.

Senator BRANDEGEE. When you speak of the Department of State do you mean Secretary Hughes?

Mr. MACMURRAY. Yes.

Senator BRANDEGEE. He has read it and studied it?

Mr. MACMURRAY. The matter has been before him and he has, in fact. written to Mr. Dyer-I think his letter was addressed to Mr. Dyer-expressing his approval.

Senator BRANDEGEE. Does he in his letter express his views as to the constitutional power of Congress to pass the bill?

Mr. MACMURRAY. I think that is not contained in his letter.
Senator WALSH. Would you have the kindness to read it to us?

Mr MACMURRAY (reading):

"I have the honor to acknowledge the receipt of your letter of March 9, 1921, in which you request my views regarding the bill (H. R. 16043) to authorize the formation of corporations to promote trade in China, which passed the House of Representatives on February 21 last.

"I beg to state that the department has for some time advocated the enactment of Federal legislation which would regularize the formation of corporations in China, and is in sympathy with the general provisions of your bill. However, in view of the department's special responsibilities under the treaties with China and other powers in connection with the activities of American citizens and American relations in China, I feel that it might be well if this department should have a voice in the preparation of any regulations which may be promulgated for the purpose of carrying out the provisions of the proposed act."

I should add that the bill which you have before you to-day does contain an amendment in accordance with that suggestion. The remainder of the letter relates to that suggestion that the Department of Commerce and the Department of State jointly should frame the regulations. Perhaps I need not read that.

Senator BRANDEGEE. No; I do not care anything about the regulations that they are to make, but I do not see that that touches the question at all as to whether Congress has the power to pass this bill or not.

Mr. MACMURRAY. Might I on that question refer to Mr. Hackworth, of the solicitor's office of our department?

Senator BRANDEGEE. To whom was that letter addressed?

Mr. MACMURRAY. That was addressed to Representative Dyer in response to an inquiry from him.

Representative DYER. I will say, Senator, if I may be permitted, that I took the matter up personally with the Secretary of State at two conferences and went over the bill with him, and he afterwards wrote the letter which Mr. MacMurray has read.

Senator BRANDEGEE. Did you ask him whether he thought Congress had the power to pass this act or not?

Representative DYER. I did not ask him that, Senator.

Senator BRANDEGEE. Did he raise that question at all?

Representative DYER. He did not; he did not refer to it, and I of course did not feel that it was proper for me to do so. He is a much better lawyer than I am.

Mr. MACMURRAY. I may say it was pointed out to the Secretary that a constitutional question had been raised before he signed that letter.

Senator BRANDEGEE. All he says in the letter, if I have followed it, is that it is very desirable to do something that will promote our trade with China, with which I am in hearty accord. The question is, Have we the power to pass this bill?

Mr. MACMURRAY. He is a little more definite than that.
Senator BRANDEGEE. Let us see it again, then.

Mr. MACMURRAY. He says, "the department has for some time advocated the enactment of Federal legislation which would regularize the formation of corporations in China and is in sympathy with the general provisions of your bill."

Senator BRANDEGEE. I am in sympathy with it, too, but I wondered if the court would declare it to be void if we passed the bill as exceeding the constitutional power of Congress. The question as it lies in my mind is this. under the commerce clause of the Constitution, upon which I suppose you are basing this measure, Congress has power to regulate commerce with foreign nations. The inquiry arises in the minds of all of us, I think, whether a general incorporation act by which companies may be incorporated by filing an application with the Secretary of Commerce to do business wholly in China-whether that is commerce with foreign nations. If there is anybody here that can throw any light on that, that is something that I would like to know about.

Representative DYER. The same principle is involved, Senator, as in the Edge

Act.

Senator BRANDEGEE. Yes; but I want some lawyer to show me that the commerce clause of the Constitution authorizes us to pass a general incorporation act by which companies may incorporate themselves to do business wholly within China.

Senator WALSH. Mr. Dyer, I would like to inquire about that. My understanding of the Edge Act is that it provides for corporations to be organized here for the purpose of carrying on an export trade; that is to say, carrying on the transference of merchandise from this country over to another country. Obviously, that is commerce with a foreign country, and if this corporation were organized for the purpose of promoting the exportation of goods from this country to China and the importation of goods from China to this country, it would unquestionably be a regulation of foreign commerce. But that, Mr. Dyer, is not the purpose of the act at all; the purpose of the act is to organize corporations that will set themselves up in China and do business in China between Chinamen.

Representative DYER. But, mark you, it is for American goods in China.

Senator BRANDEGEE. Is there any proponent of this bill that has an attorney here who is prepared to discuss that feature of the bill?

Senator CHAMBERLAIN. I think the Solicitor from the State Department might discuss that.

Mr. MACMURRAY. Might I suggest Mr. Hackworth?

Senator CUMMINS. We will call him presently. Have you finished?