COMPANIES ENGAGED IN FOREIGN TRADE HEARING BEFORE THE 1920 OMMITTEE ON THE JUDICIARY (SUBCOMMITTEE NO. I-CIVIL AND CRIMINAL LAW) HOUSE OF REPRESENTATIVES SIXTY-FIFTH CONGRESS THIRD SESSION ON H. R. 15499 Serial 72 STATEMENT OF HON. CHARLES DENBY FEBRUARY 19, 1919 WASHINGTON 1919 TO PROVIDE FOR THE INCORPORATION OF CERTAIN COMPANIES SERIAL 72. COMMITTEE ON THE JUDICIARY, SUBCOMMITTEE No. 1, HOUSE OF REPRESENTATIVES, Washington, D. C., February 19, 1919. The subcommittee met at 10.50 o'clock a. m., Hon. Charles C. Carlin presiding. Present: Members of the committee; also Mr. Grosvenor S. Jones, Assistant Chief of the Bureau of Foreign and Domestic Commerce, Department of Commerce; and Mr. Charles Denby, special assistant, Department of State, attached to the War Trade Board. Mr. CARLIN. The bill under consideration this morning is H. R. 15499, to provide for the incorporation of certain companies engaged in foreign trade. 3 . STATEMENT OF MR. CHARLES DENBY, SPECIAL ASSISTANT, DEPARTMENT OF STATE, ATTACHED TO THE WAR TRADE BOARD. Mr. DENBY. The desirability, for the advancement of American trade abroad, of incorporating limited liability companies, under Federal rather than State laws, was discussed by me with Mr. Redfield, Secretary of Commerce, in December 1917, although the idea was not new in the records of his department. A memorandum which I prepared for him on the subject was submitted to President Wilson, who approved thereof, as stated in his letter to Secretary Redfield, set forth on page 46 of the hearings before the Senate Judiciary Committee, a copy of which I desire to file with this record. (The letter is as follows:) THE WHITE HOUSE, Washington, December 31, 1917. MY DEAR MR. SECRETARY: Mr. Charles Denby's suggestion strikes me very favorably indeed and I am going to take the liberty of calling it to the attention of Mr. Sims, the new chairman of the Committee on Interstate and Foreign Commerce. Cordially and sincerely yours, Hon. WILLIAM C. REDFIELD, Secretary of Commerce. WOODROW WILSON. Following the receipt of this letter from the President, Secretary Redfield instructed Mr. Thurman, Solicitor of the Department of Commerce, to prepare a pro forma act. This he did, and I took the same with me to China, in April, 1918, and submitted it to the American Chamber of Commerce of China. The American Chamber of Commerce of China approved of the bill as prepared by Mr. Thurman with some changes; a copy of the China draft is included in the hearing before the Senate Committee on the Judiciary. In the meantime, Senator Fletcher introduced a bill, S. 5194, along the lines of the Thurman draft, and that is the House bill now before the committee. In discussing the subject of the incorporation of companies for foreign trade, I wish to consider the matter under two main heads: First. What is the advantage to Americans of incorporating companies under American charter to operate in foreign countries. Second. What advantage would Federal incorporation offer as compared with incorporation under the laws of one of the States of the United States. My remarks are to be chiefly concerned with China, although the subject is of importance in other countries. The statement of Mr. Cutler, Chief of the Bureau of Foreign and Domestic Commerce, pages 40 and 41 of the hearings before the Senate subcommittee, deals with other countries. In the first place, it evidently may become necessary for a merchant to incorporate his business in order to avail himself of limited liability provisions and in order to secure, in a centralized way, the use of capital of various nationalities in certain enterprises. It is particularly advantageous in conducting business to use a limited liability company for some lines of business where local capital participation is desired to facilitate operation of local franchises. The hinese themselves are disposed to furnish money for corporate purposes if they can intrust it to the right people and to the right organizations. In fact, the Chinese are large investors in foreign companies and there are large sums of Chinese capital ready to engage in such investments. The Chinese merchants somewhat distrust organizations under the control of their own officials and they feel more security when investing in business in which foreigners participate. It is evident that it would be advantageous for an American in China to be able to avail of the capital of his Chinese and other friends; also it is an advantage to any country interested in the Chinese trade to have as much Chinese capital as possible engaged under its own flag. The Chinese who is an investor in a successful company, for instance, for electric light or waterworks equipment, or any business requiring materials from abroad, is naturally inclined to turn to the country under the laws of which his company is incorporated, in placing orders for such material as may be required. This is a matter of daily experience in China. The British Government is well aware thereof, and there are millions of dollars of Chinese money invested in British companies operating under the laws of Hongkong, which is a British colony. The general practice in China is for people using international capital-that is, capital of more than one nationality--to apply to Hongkong for a charter, and considerable American money is thus invested under the British flag. Under the treaties between the foreign powers and China, foreigners maintain their nationality as against Chinese sovereignty, and a British company is liable only to the British courts and to the British law. Therefore capital incorporated in a British company becomes, for that purpose, a British subject-an asset of Great Britain in the community-an instrument for the advancement of British trade. Now, if you are going to put Americans on the same level, you have to give us a proper company act. Americans must have charters under their own flag if they are to compete with this system which Britian has found so advantageous in increasing her stake in the country. Mr. CARLIN. Is there any law in China which prohibits an American corporation doing business in China? Mr. DENBY. There is no law in China dealing with American corporations at all. American corporations in China are under American laws exclusively. Mr. CARLIN. Do they have any laws there regulating foreign corporations? Mr. DENBY. NO. The Chinese Government has no jurisdiction over foreign corporations or foreign individuals. Mr. CARLIN. Do you mean to state China has no jurisdiction over foreign corporations, or that it does not exercise any? Mr. DENBY. China has no jurisdiction over foreign corporations. Under treaties between foreign powers and China, all foreign corporations and individuals are under the laws of their own nationality. A British corporation, for instance, can be sued only in British courts, and is under the control of the British consuls. Mr. CARLIN. You do not mean to say that China has entered into treaties surrendering her own jurisdiction to regulate foreign corporations operating in China? |