which still exists in kind are tied up in lawsuits and cannot lawfully be sold. The amount of the claims, in any event, vastly exceeds even the entire residue of the assets. If the war damage claims are to be paid within the foreseeable future, without an appropriation, an alternative source of funds must be found.

Under the 1953 London Debt Settlement Agreement which deferred all claims against Germany, Germany also undertook to repay the United States $1 billion on account of the postwar economic aid which she received from us and $200 million for certain surplus property which we had left in Germany after the war. About $75 million in interest has already been paid and principal payments will soon begin. These funds can and should be used to finance the payment of the remaining war damage claims. The suggestion is not a novel one. The administration itself has already asked the Congress to divert $100 million from these sources to satisfy certain small claims; H. R. 12197, introduced by Mr. Klein, is likewise to be financed by economic aid payments. The conception is fundamentally sound and should be extended.

Exactly the same source of funds could be utilized to compensate the property owners whose assets have been sold. H. R. 12261 proposes in fact that economic aid payments be divided equally between war damage payments and compensation to property owners.

If Germany, and perhaps Japan, cooperated through prepayments against the existing debt, both war damage claimants and property owners could be paid without delay. In any event, they could be fully compensated over a period of a few years.

There has been uninformed comment to the effect that the use of these sums to be received from abroad is no different than direct appropriations from the Treasury. There is a vast difference.

Appropriations would unquestionably increase the pressure for taxes; the diversion of these funds, in the amounts here involved, can have no possible effect on taxes. It would be absurd even to suggest that our taxes would be lowered because the Treasury's cash receipts might be increased by $25 million or even a $100 million each year. Equally important, if we use the funds being repaid to us by Germany, we in no way involve the credit and good faith of the Government of the United States. Thus if Germany pays what it is obligated to pay, then war damage claimants and property owners will both be compensated. If Germany fails to honor its obligations, they will not be compensated-and since the United States is not a guarantor, it will not, if this occurs, be called upon to foot the bill. It is evident enough, however, that if half of the funds to be received from Germany is paid to German property owners there are obvious and heightened incentives on the part of the German Government to continue the payments in full and on time.

In no way does this transfer the burden of paying war damage claims from German taxpayers to United States taxpayers. As I have explained, the rights of American war damage claimants to demand payment from Germany have been cut off, and the funds from the sale of vested assets have been depleted by payments to others. H. R. 12261 does not propose that the United States discharge the claims; it merely proposes that the United States finance their pay

ment in consideration of the assignment of the claims to the Government. Section 217 of the bill expressly provides that

Any payment made upon any claim under the provisions of this title shall operate as an automatic assignment by the claimant to the United States of that portion of his claim for which he has received payment hereunder.

It is not unreasonable to expect the Government which cut off the right of the creditor to proceed against the debtor and which used the only available source of funds for other purposes-to expect that government to assist in financing the payment of the claims. This is exactly what H. R. 12261 would do.

The bill calls for the return of all vested German and Japanese assets which still exist in kind and for the compensation of property owners whose assets have been sold. As indicated, the compensation is to come not from appropriations but from funds being received from Germany. There are naturally certain exceptions to the principle of return. Those who live behind the Iron Curtain and war criminals are, of course, excepted. Property which we are obliged to release to other governments is excepted. Property which if returned will be seized by any foreign government is also excepted, and there are other less important exceptions.

The bill also provides, both for war-damage claims and for the return of assets, a system of priorities in payment. In order to dispose of hardship cases first, claims and payments up to the first $10,000 are given a first priority; the balance is paid as funds are received. The Foreign Claims Settlement Commission, an existing agency, is made responsible for the administration of the claims and payments program, although the Office of Alien Property continues to administer assets which have not yet been liquidated.

The reasons which call for the return of the privately owned properties vested during the war require no elaboration before this committee.

I have already referred to the historical background. We have never in the history of the United States, since the beginning of our Government in 1948, exercised the power to confiscate foreign-owned, private enemy property. Secretary of State Hughes, in 1923, after World War I, restated the justification for our policy in these words:

A confiscatory policy strikes not only at the interest of particular individuals but at the foundations of international intercourse, for it is only on the basis of security of property, validly possessed under the laws existing at the time of its acquisition, that the conduct of activities in helpful cooperation, is possible. * * * Rights acquired under its laws by citizens of another state (a state) is under an international obligation appropriately to recognize. It is the policy of the United States to support these fundamental principles.

Behind these broad conceptions are large and obvious considerations of economic policy which have an especial importance today. Our Government has made every effort in recent years to encourage private investment abroad.

To me it seems undeniable that if the United States itself asserts that private property owned abroad is subject to expropriation by foreign governments in order to satisfy debts owned or alleged to be owed not by the property owners but by their governments, then nearly $27 billion of privately owned American assets abroad will become hostage to the same policy.

Secretary of State Dulles put the proposition to the Senate Judiciary Committee even more simply. Ile said:

I would think that in an era when we expect *** American capital investments abroad, that it is wise for us to adhere ourselves strenuously to the highest standards of conduct in relation to those matters. That puts us in a better position to call upon others to apply the same standards.

It is a little curious and most regrettable that the Department of State and the Department of Justice do not see eye to eye on this question.

More than any other nation, the United States is dedicated to the principle of private property at home and abroad. Surely it is in our own interest to hold fast to this principle in our dealings with foreign governments and the property of their nationals. We cannot foster a climate favorable to private international investment by masking the confiscation of foreign-owned private property as a mere taking of reparations. The concealment is verbal only. Reparation payments are made by governments-not selected individuals and stockholders. The policy of confiscation is likewise a corrosive threat to our present-day political relations with Germany and Japan.

These countries are today our allies. Those who oppose the return of German and Japanese assets do so not on the basis of conditions today but on the basis of policies declared at Potsdam. Those policies, negotiated with the Soviet Union in the summer of 1945, have nothing whatever to do with the political posture of the world in the summer of 1956.

Less than a month ago Chancellor Adenauer was here as our honored guest, and he is a most valuable friend in Europe, and among the issues of priority he raised with our Government was the issue of the future disposition of privately owned German assets.

How can we, on the one hand, call for closer and more binding ties with the Federal German Republic and, on the other, insist on ratifying the confiscation of private property belonging to German nationals?

Hardly a year ago we entered in a treaty of friendship, commerce, and navigation with Germany which provided thatProperty of nationals and companies of either party shall receive the most constant protection and security within the territories of the other party. Yet we still maintain on our books a law which calls for confiscation. The German Bundestag or Parliament, and every major party in it are united in the effort to secure the return of private property which German nationals owned abroad. This is neither an act of arrogance or presumption nor a mere echo of the desires of the property owners. The true objective is to establish a principle in the interest of all who profess the inviolability of private property and of all who profess a belief in the freedom of the person and the rights of property.

Why then, if international economic and political cosiderations all argue powerfully against it, have we persisted in the policy of confiscation? One contention sometimes urged-usually by private spokesmen who have a vested interest in the present policy-is that existing international agreements require this continued commercial warfare against Germany and Japan and that to return the properties, or to compensate the owners, would somehow put us in violation of the Paris reparation agreement of 1946.

The contention has absolutely no foundation.

To Italy we have already returned the assets. In the case of Germany and Japan the State Department has officially advised the Congress that there exists no bar to the return of the assets in kindand certainly there never at any time existed a bar to the payment of just compensation.

The administration itself has proposed a partial return.

There is absolutely nothing in the Paris Reparation Agreement of 1946 or in any other agreement which should in any way, today, hamper or qualify the actions of the Congress in speeding the return to our allies of property which belongs to them, not to us.

To those who contend that Germany undertook to compensate and should now compensate her own property owners for the property which we have taken, I can only point out that this will never avoid the stigma of confiscation. That problem can only be solved in Washington, not Bonn. It is we who seized the assets-calling them reparations and we who have liquidated most of them. It is we who gave Germany Hobson's choice of continuing under occupation or accepting the restoration of sovereignty under condition that Germany shield us from claims for the return of external assets. Germany, of course, accepted the condition-but the onus rests on us for having exacted a compromise with principle as a condition of German selfgovernment.

To return 10 percent of the assets and to confiscate 90 percent as has been proposed in H. R. 6730-the so-called $10,000 bill-is not to solve the assets problem but to aggravate it.

What conceivable reason can there be-reason grounded in principle to return $10,000 to natural persons only, exclude corporations and to offer nothing whatever to private stockholders?

Why, too, 10 percent? Ten percent is a token payment which merely symbolizes and acknowledges the existence of the obligations without discharging it.

From the viewpoint of self-interest H. R. 6730 represents no more than a random gesture in the direction of principle. From the viewpoint of satisfactory political relations with the Federal Republic of Germany it is a futile gesture. H. R. 6730 will not solve the assets problem because it does not seriously seek to solve it.

There are, however, more fundamental defects in H. R. 6730. It is grounded in the dangerous doctrine that in property matters there is a justifiable distinction between juridical and natural persons. Almost all of our own business abroad is done in corporate form. What possible reason can there be for us to discriminate against corporations and favor only those property owners who are natural persons? What of the Germans and Japanese who own shares of stock in corporations-are they not both property owners and natural persons?

In my view H. R. 6730 has but one important merit: It recognizes that economic-aid payments from Germany can and should be used to finance the payment of American war damage claims. It thus also points the way to a source of funds which can be used to compensate the property owners whose assets have been sold.

H. R. 6730 does not solve the problem of German and Japanese assets. It does not solve the problem of American war damage claims. It does not ease the sense of discrimination in respect of the

Italians which Germans and Japanese feel as a result of our treatment of their property. It does not further respect for international law. It does not enhance the security of our $27 billion of private investments abroad.

It is, in my view, an inadequate bill, as any effort to compromise with principle is bound to be.

H. R. 12261, as I have said, is the product of several years of effort devoted to finding a solution to the war damage claims and vested assets problems. The bill is not perfect but it is carefully drawn and solidly grounded in principle, in precedents, in law, in morality, and in self-interest.

I have no doubt that as a result of these hearings ways will be found to improve the bill. My purpose in appearing here today has not been to expose and debate the details but rather to make clear the foundations on which the bill has been built. In my view these foundations are sound and solid and the structure one in which the Congress and the country can take satisfaction. I commend it to you.

Mr. KLEIN. I have not had an opportunity to see your statement before this morning. There are a few questions, Mr. Hale, I would like to address to you relating to the financing of the return.

I think you covered it in your prepared statement, though you did not read that portion of it, stating that we can finance the return called for in your bill out of repayments by Germany on her postwar debt?

Mr. HALE. On the basis of the information I have I will answer that question in the affirmative.

Mr. KLEIN. If we find thatwe cannot use that money, or there is not enough, or if for one reason or another it is not paid by Germany, would you favor the appropriation of public funds to do this?

Mr. HALE. I definitely would.

Mr. KLEIN. I did not hear you. Did you say you would?

Mr. HALE. I would. I was here in 1948. One of the first bills heard in our committee after I went on the committee was a bill to indemnify the people who were imprisoned in Manila.

The testimony was very moving, and the committee reported a bill which indemnified them out of confiscated Japanese assets.

My impression is that I was weak enough to vote for that legislation, but I do not think-maybe I didn't—but at any rate I don't think I should have.

It seems to me if citizens of the United States have suffered damage in a war in such a way that they should be indemnified they should be indemnified from the Treasury of the United States.

In other words, they should not be indemnified just because we happen to have some foreign property with which we can indemnify them.

Either they should be indemnified or not. If they should be indemnified it should be at the expense of the American taxpayer. If they should not be indemnified then that is the end of it.

Mr. KLEIN. It is a fact, is it not, that the repayment of this German debt, for instance, if we didn't set up this program, would go into the Treasury; would it not?

Mr. HALE. You mean property held by the Alien Property—