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INCREASING THE LENDING AUTHORITY OF EXPORT

IMPORT BANK OF WASHINGTON

TUESDAY, FEBRUARY 20, 1940

HOUSE OF REPRESENTATIVES,
COMMITTEE ON BANKING AND CURRENCY,

Washington, D.C. The committee met, pursuant to adjournment, at 10:30 a. m., Hon. Clyde Williams presiding.

Present: Messrs. Williams, Spence, Ford, Brown, Barry, Gore, Mills, Folger, Monroney, Hull, Wolcott, Gifford, Luce, Crawford, Gamble, Simpson, Johnson, Kean, Miss Sumner, and Mr. Miller.

Mr. WILLIAMS. The committee will please be in order. We have with us this morning Mr. Hackworth of the State Department. We will be pleased to hear you, Mr. Hackworth.

STATEMENT OF GREEN H. HACKWORTH, LEGAL ADVISOR,

DEPARTMENT OF STATE

а

Mr. HACKWORTH. Mr. Chairman, I have no prepared statement. I came for the purpose of answering, if I may be able to do so, any questions that may be asked.

Mr. FORD. May I ask, Mr. Hackworth, if commercial aircraft are included in the President's proclamation under the Neutrality Act?

Mr. HACKWORTH. Aircraft of all kinds, I believe, is included in the President's proclamation as implements of war. That is to say, the President has defined arms, ammunition, and implements of war, and aircraft of various kinds is included.

Mr. MILLER. In that same regard, may I ask this question: Do you not think that aircraft manufacture and construction has developed to the point where the State Department, or whatever Department involved, might well make a definite distinction between commercial and military aircraft?

Mr. HACKWORTH. Well, I think, Mr. Chairman, that the difficulties in that regard lie in the fact that practically any aircraft can readily be converted into military craft.

Mr. MILLER. That is perhaps the general understanding but I think if the Department will go into it a little more thoroughly you will find that there is as much difference between military aircraft and commercial aircraft as there is in trying to make a tractor with the ordinary truck. You permit the sale of trucks.

For example I am thinking of the Douglas E-C-3, and the land transport ships, to make a bomber plane out of the land transportation plane, to have the proper equipment and everything required would

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cost about $100,000; and if you put that plane in a foreign country where they do not have the factory equipment, the dies, and so forth, it would involve an exorbitant figure and would not even be practicable.

We are far away from war development as it existed in 1916, and still farther away so far as planes used for military purposes are concerned. Do you not think we should give some consideration to that side of it?

Mr. HACKWORTH. I can understand how there may be some difficulty; it might involve considerable expense to convert what might normally be regarded as a commercial craft into a war craft but that subject was very carefully considered by the National Munitions Control Board and it was thought to be the better conclusion that all aircraft should be regarded as potentially of a military character.

Mr. MILLER. May I ask if the officers of the Air Corps, the Chief of the Air Corps, and the officials of the Aeronautics Bureau were consulted, and whether they agreed to it?

Mr.' HACKWORTH. The War and Navy Departments are represented on that Board.

Mr. MILLER. The thing I am afraid of is this: I do not want to see a repetition of what happened following the end of the World War, with countries with large air service just dumping their equipment one place or another, at a time when we are endeavoring to do all we can and spending a lot of money to develop the markets, particularly in South America, and they have sold planes down there solely on their superiority, and now for us to make it difficult for them to ship them to foreign countries, as I believe the bill does whether there is a war or not, will handicap our industry when the present war ends, and these countries would have a large number of planes that could be sold irrespective of the needs within our own industry.

I hope, if possible, the State Department can reconsider that, so as to control the situation. Of course, if some country wants to buy from us one commercial plane and wants 500 extra motors, the State Department, of course, could easily determine that the shipment of 500 engines is nothing more than a subterfuge.

But the value of the industry and the number of planes in this country is such as to indicate that further consideration can be, and I hope will be, given to this question of defining commercial planes.

Mr. HaCKWORTH. At the present time there is no embargo on shipment of aircraft.

Mr. MILLER. No. But the aircraft industry could not be assisted under the Export-Import Bank if the language in this bill stays

as it is.

Mr. HACKWORTH. That is correct.

Mr. MILLER. They can export, but I think it is one industry, and I am sure there are many others that need help with their exports. The industry has been developed during the depression, but could not be under this provision.

Mr. HACKWORTH. Aircraft could not be sold under the formula laid down by the President in his letter to the two Houses of Congress.

Mr. MILLER. Do you see any objection to making an exception to commercial aircraft, assuming that an adequate definition could be arrived at?

Mr. HACKWORTH. I am not sufficiently well versed in aircraft matters to entertain any intelligible view on that subject. I just know in a general way, from what has been told to me, that commercial aircraft may readily be converted.

Mr. MILLER. I think that is a misconception. No country in the world is going to buy a plane that is 50 to 75 miles an hour slower than the military plane and try to convert it for that purpose. Furthermore it would be of no use to try to use a plane that was 50 to 75 miles an hour slower; it would be of no value to them.

Mr. HACKWORTH. That would be true, I think, generally speaking, but at the present moment countries are hard pressed to obtain a sufficient number of aircraft for their present needs, consequently they are not any too discriminating in the matter of purchases.

Mr. MILLER. Is there any country in the world, provided it has the funds, that cannot buy military aircraft?

Mr. HACKWORTH. They can buy the aircraft but they cannot buy them in sufficient quantities, or in the quantities they would like to have. That is to say, the aircraft industry is not turning out airplanes with sufficient rapidity to supply the demand.

Therefore, while countries might prefer the high-powered bomber planes or the other high-speed craft, they cannot obtain them in quantities they would like and naturally are willing to take other craft with less speed.

Mr. MILLER. I might say that the other craft, I believe, is absolutely of no value to them. They cannot take a transport plane and use it for a bomber. The plane could not stand the stress and strain if they were to undertake to install in the plane the bomber equipment. And if they were installed the bomber equipment could not be used; it would not stay in the air 10 minutes against a wellequipped airplane. It would not stand the gaff or the strain, the tremendous strain of the bomber in action.

Mr. HACKWORTH. It may be that some distinction should be made between the ordinary commercial craft and war craft,

Mr. MILLER. I would like to suggest at least before any definite conclusions are reached, that the State Department and the others responsible will give the aircraft industry a chance to present their engineering data to prove the contention that transport or commercial planes would not be worth anything as military craft. I am sure they can convince any reasonable body that is true, and that it would be a waste of money for any foreign country to buy commercial planes and attempt to convert them into military craft.

Mr. HACKWORTH. It may well be that that subject should be reconsidered. I am not qualified to discuss it myself.

Mr. MILLER. I am not either. I am not involved, but I have in my district those interested in the industry; I was in the aviation service and have been trying to follow it ever since, and I am thoroughly convinced that there would be no difficulty in arriving at a definition which would exempt commercial airplanes if further consideration were given to the subject. I do not want the industry to violate the Neutrality Act nor do I believe the industry itself would, but I think there can be a definition developed which would make commercial aircraft exempt and I am just hoping, before the matter is closed, that some further consideration be given to that.

Mr. HACKWORTH. The point might very well be considered.

Mr. MILLER. I think Mr. Ford has the Douglas plant in his district.

Mr. FORD. It is in my city.
Mr. MILLER. In your city ?

Mr. FORD. Yes. The only thing, since the point has been raised, is we are shipping commercial planes to many places for 4 or 5 years and a good many people are trying to get commercial planes for export delivery, and they cannot do it.

I would like to ask Mr. Jones if he has had any application from airplane concerns.

STATEMENT OF JESSE JONES—Resumed

Mr. JONES. No. I will say that someone representing the aircraft industry has been to see us with a view to getting some modification that would permit us to make loans to finance the exportation of commercial planes and it occurred to me that all they would have to do to get the exemption would be to ask the President to change his order.

Mr. FORD. Yes.
Mr. JONES. That would not require legislation.
Mr. FORD. That is the point I wanted to bring out.
Mr. JONES. Yes. This is a good place to talk about it.

Mr. MILLER. Mr. Chairman, could I have permission to insert in the record at this point a brief letter on this subject from the Aeronautic Chamber of Commerce?

It is not more than two pages in length.
Mr. WILLIAMS. Yes; that may be received.
(The letter referred to will be supplied later.)
Mr. WILLIAMS. Are there any other questions along that line?

Mr. Hackworth, there is one question here that has been in the minds of some members of the committee with reference to the loans that may be made to Finland under this act. If the loan is made, a question has arisen for what purpose could the money or the credit extended to Finland be used in the purchase of materials in this country? And in view of what took place in the discussion on that matter in the Senate the question has come up here as to whether or not that money or the credit could be used for the purchase of any other materials except food products and raw materials, as defined in the Habana Convention as it was presented and argued in the Senate.

Mr. HACKWORTH. Mr. Chairman, the Habana Convention, in speaking of credits, puts them in two categories, namely, food products and raw materials.

The President went a step further in his communication to the Speaker of the House and the President of the Senate and suggested that the loan might be used to finance the export of agricultural surpluses and manufactured products not including implements of war.

If we assume that it is not improper to sell and export food supplies and raw materials, I know of no reason why we should not be able to go as far as the President has suggested; that is, I cannot see any material distinction from the point of view of neutrality, if that is what we have in mind, between food supplies and raw materials and many other products, excluding war materials.

For example, I see no reason why we should not be able to sell shoes, clothing, and medical supplies or things of that nature that are so essential to the welfare of civilians, and that, after all, is what the President has in mind, namely, to provide the civilian populations in Finland with the necessities of life.

Clothing is just as important in that direction as food; civilian medicine, likewise, is as important as food, and therefore I see no reason why we should feel limited by the terms of the Habana Convention. I do not think that the negotiators of that convention had in mind laying down a strict rule from which there could be no departure. I think that what they undertook to do was to lay down a broad principle.

Mr. WILLIAMS. Well, is it your idea then, if this legislation is passed and a loan is made to Finland, that that money can be used for the purchase of any materials, outside of contraband laid down by the President's proclamation!

Mr. HACKWORTH. I think so. That is, I do not see any reason for drawing a sharp line of demarcation between supplies which are ordinarily regarded as intended for civilized populations. If we say that it is not proper to sell implements of war, that is, war materials, it seems to me we have gone about as far as we are required to go.

Mr. WILLIAMS. In the first place, the Habana Convention or the international law, or principles underlying them, apply only in case there was some act between neutrals and belligerents. In other words, the question would be whether or not Finland is now a belligerent within the terms of international law.

Mr. HACKWORTH. That is a very pertinent question. The Habana Convention was laying down a rule to be observed between neutrals and belligerents; that is, assuming the existence of a state of war, and was speaking of transactions between a neutral country and country at war.

If we assume that Finland is not at war, and I might say that both Finland and Soviet Russia have stated that they are not at war, we are not confronted with the question of neutrality. If they are not at war, we can sell Finland anything we like, and the question of neutrality does not arise.

Whether they are or are not at war is not for me to say. But I am wondering whether we are not privileged to take them at their own word; in other words, if they say they are not at war, why should we say that they are at war, unless our interests are such as to require us to come to some conclusion on the subject.

I think it is conceivable that a situation might develop where we would be under the necessity of passing judgment on that question but until such a situation does develop, any action on our part in that direction would be, it seems to me, gratuitous. And I am just wondering whether we are under any obligation, particularly at this time, to pass judgment on that situation.

I might mention, for the information of the committee, that on December 5, 1939 the Union of Soviet Socialist Republics sent a com

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