Papers Relating to the Foreign Relations of the United States, 1920, Volume II

462.00 R 29/44½

The Unofficial Representative on the Reparation Commission ( Rathbone ) to the Assistant Secretary of the Treasury ( Davis )

Paris , 23 January, 1920 .

Dear Davis: The pouch goes tonight and I have only a moment. I am enclosing a copy of Bayne’s opinion on Article 235 of the Treaty. It seems to me admirable. As you will gather, it is the only dissenting opinion. The majority opinion is indicated by the enclosed draft in French.⁶⁰ It is practically in its final form.

Confidentially I do not understand that the opinion of the British Delegate accords with the majority opinion on the proper construction of Article 235. The British legal expert has told Bayne that, while his opinion is as indicated in the majority opinion, he thinks it would be extremely inadvisable to exercise the power as applied to Germany’s neutral securities, and he shall so inform the British Delegation.

Bradbury has also told me informally that while America is making up its mind (within a comparatively short period, I assume) as to whether or not it will ratify the Treaty, against the unofficial objections of the American Delegation, he can assure me that there will be no unanimous decision of the other four Powers on this question, which requires a unanimous vote in order to make effective any interpretation of the Treaty.

Cordially yours,

Albert Rathbone

[Enclosure]

Dissenting Opinion of the American Unofficial Representative on the Committee of Jurists (Bayne) Concerning the Powers of the Reparation Commission over the “Neutral Securities” of German Nationals

I dissent from the conclusion of my learned associates that the Reparations Commission is empowered, under Article 235, to demand the delivery of securities owned by German Nationals other than those which by the terms of the Treaty are specifically subjected to the burden of reparations and are required to be delivered to the Commission, namely their securities in public utility undertakings or concessions in Russia, China, etc., referred to in Article 260.

In interpreting the powers of the Commission over the private property of German Nationals I think that there should be applied the following rules:—

a) The Commission being a body empowered to exercise limited powers only, it should be held to possess such powers only as are by the Terms of the Treaty clearly conferred upon it.

b) Powers in derogation of the private property rights of German Nationals should be presumed not to be conferred unless the provisions of the Treaty which are claimed to confer them admit of no other reasonable interpretation.

c) With reference to such powers the rule of interpretation should be applied that the Treaty having been drawn by the Allies, should be interpreted against them.

d) The specification of certain private property as property which the Commission is empowered to demand the surrender of implies, generally, the exclusion from its control of other private property not specified.

Article 297 of the Treaty subjects all of the securities of German Nationals representing rights or interests situated in the territories of the Allied or Associated Powers to appropriation by those Powers for purposes including the payment of reparations. As the Allied and Associated Powers constituted a large part of the civilized world this article subjects to the burden of reparations (tho the Reparations Commission does not administer them) a very substantial portion of the foreign securities of German nationals.

Under Article 260 the Reparations Commission is given power to demand within one year, delivery of the securities of German Nationals representing rights or interest in public utility undertakings or concessions in Russia, China, [Turkey,] Austria, Hungary and Bulgaria.

If my interpretation of the Treaty be correct all other securities owned by German Nationals are left free from the direct powers of the Reparations Commission, tho it may well be that the German Government may find it necessary to expropriate some of them and offer them, under Part VIII, Annex II, Paragraph 19, in payment of its reparation obligations. According to my interpretation of the Treaty, this class of property was intended to be left to the German Nationals to enable them to secure the credits necessary to supply themselves with food and raw materials, and to maintain their economic life.

Among the securities of German Nationals falling within the latter category are those representing property or interests in neutral countries. For convenience of reference I shall refer to these as “neutral securities”. As it is my understanding that the Reparations Commission desires to be advised immediately as to its powers under Article 235 relative to this class of securities of German Nationals, I shall direct my remarks mainly to that branch of the subject.

My associates are of the opinion that the provisions of Article 235 being transitory, and having for their special purpose the immediate restoration of the economic and industrial life of the Allied and Associated Powers, are to be read as conferring upon the Reparations Commission power to require the payment by Germany, before May 1, 1921, up to the equivalent of 20,000,000,000 gold marks, in any commodities, any ships, any securities and any other property of German Nationals, which the Commission may fix, without being limited to the classes and quantities of commodities, of ships, of securities or of other property specified in the Treaty as property which must be delivered to the Commission.

My associates concede that, according to this interpretation, the Commission might require the payment of the 20,000,000,000 gold marks in ships so as to require the delivery of all of the steam trawlers and fishing boats, altho Annex III requires that one-quarter thereof, only, shall be delivered; or in commodities so as to require the delivery of machinery, tools, etc., or coal, or dyestuffs beyond the requirements of the categories of commodities referred to in Annexes IV and V; or in iron ore, or in steam engines, or in cloth, or in wheat or in wine, or in any commodity, or in any property whatsoever, or in domestic securities or in neutral securities of German nationals, altho none of the above classes of commodities or property or securities is specified in the Treaty as subject to the powers of the Commission.

1. According to my interpretation of Part VIII the powers relative to commodities, ships, securities and other property conferred by Article 235 upon the Reparations Commission relate to those commodities only, to those ships only, to those securities only, and to those other kinds of property only, which are by the terms of the Treaty specifically named as property to be surrendered to the Commission, and do not, therefore, include neutral securities belonging to German Nationals.

The scheme of reparations set forth in Part VIII enumerates with great particularity the kinds and quantities of private property to be surrendered to the Commission, as was proper in order that German property owners should know in advance and prepare themselves for the necessary sacrifices. That scheme did not, I believe, contemplate conferring upon the Commission power to disregard the limitations of the general scheme, during two years, by designating for surrender during that period 20,000,000,000 gold marks worth of private property which was not included in the categories of private property designated for that sacrifice. The possession of such a vast power by the Commission could render the limitations of the categories wholly illusory.

The terms of Annex II specify so clearly what classes of ships and what quantities thereof shall be surrendered to the Commission that I find it impossible to believe that it was intended by the term “ships” in Article 235 to empower the Commission to require the delivery of ships additional to those specified. Likewise the terms of Annexes IV, V and VI so carefully designate the classes and quantities of commodities as, for instance, machinery, tools, etc., (Annex IV, Par. 4), the quantities of coal and when it may be taken (Annex V, Par. 2), the character and quantities of dyestuffs and drugs (Annex VI, Par. 1), that I find it impossible to believe that the terms “commodities” as used in Article 235 of the same Part was intended to refer to any other commodities than those referred to in the above annexes, nor to permit the Commission to demand quantities thereof in excess of the quantities specified.

If it be conceded that the expressions “ships” and “commodities” as used in the brackets of Article 235 refer not to all ships and to all commodities, but only to the classes and quantities of ships and of commodities which elsewhere in the Treaty are specifically described as devoted to the burden of reparations the ordinary rules of interpretation require that the expression “securities”, as used in the same bracket, should be read in the same sense.

I conclude therefore, that Article 235 confers upon the Reparations Commission power to fix the manner of payment of the 20 billion gold marks, whether in gold, or in commodities, ships, securities, or otherwise, within the limits of the Articles specifying what commodities, what ships, what securities and what other property must be surrendered to the Commission for the purposes of reparation; and that, as the Treaty nowhere provided that neutral securities owned by German Nationals in Germany shall be applicable to reparations, the Reparations Commission has no power to compel their application to that purpose.

2. The provisions of Article 260 for the surrender within one year of certain German foreign holdings in China, Russia, etc., would be unnecessary, if Article 235 conferred upon the Reparations Commission the power to demand within two years the surrender of any or all property or interests of German Nationals in foreign countries, up to the value of 20,000,000,000 marks gold. The fact that the Allies specified that class of German foreign holdings as liable to surrender implies that they did not intend to subject to the powers of the Commission any other foreign holdings privately owned in Germany. This view finds confirmation in the facts set forth in Par. 4 of this memorandum.

. . . . . . . . . . . . . .

4. That my foregoing interpretation of Article 235 is correct finds, I believe, conclusive support in the following clause contained in the Reply of the Allied and Associated Powers accompanying their letter dated June 16th, 1919, to the German observations on the conditions of Peace, especially the objections of the Germans on the financial clauses:

“Outside the Empire the Allied and Associated Powers have abstained from claiming the transfer of German property and interests in the neutral countries.”

It seems that in a note of June 20 the German Peace Delegation pointed out that these concessions with respect to reparations were not embodied in the Treaty text as modified; that the answer of the Reparations Commission, in response to the above objection (which was approved by the Council of Four), stated that no alteration had been made in the Treaty text because the concessions which had been made were within the scope of the provisions already laid down in the Treaty and related simply to the manner in which these provisions might be carried into effect. The Commission admitted that the Reply of the Allied and Associated Powers had binding force as interpretive of the articles on reparations.

(C.F. 76; Appendix II)

This formal and authoritative interpretation of the meaning of the Treaty by the framers, communicated to Germany as an inducement to obtain her signature to its terms, seems to me to settle its meaning, and would render it improper to contend that under Article 235 the Reparations Commission has power to compel the surrender of German interests in neutral countries.

My associates admit, I believe, the binding force of the foregoing clause of the Allies’ reply, but deny that a requirement by the Commission under Article 235 that Germany pay the 20,000,000,000 marks in securities (belonging to it or to its nationals) of companies owning property or other interests in neutral countries would constitute the taking of “German property and interests in neutral countries”. If I apprehend aright the distinction they seek to make it is that the transfer of property and interests, in the above clause, refers solely to property and interests directly owned by Germans and does not refer to shares or other securities of a corporation owning such property or interests.

I cannot admit that distinction. It seems to me to be highly technical, and not defensible even as a technical distinction. It would be a very narrow technical construction of the expression “German property in the neutral countries” to confine its meaning to property directly owned and to exclude from its meaning the indirect but substantially similar proprietorship which arises from the ownership of the shares of the corporation in which is vested the legal ownership. But if the expression “German property in neutral countries” does not include shares or securities representing interests in such property, certainly the expression “and interests” which follows the word “property” includes the interests represented by shares and securities. But I prefer to rest my argument on the broader ground that by the plain intendment of the clause in question it was the intention of the Allied and Associated Governments to assure Germany that the Treaty did not contemplate conferring upon the Reparations Commission power to demand the transfer of her property interests in neutral countries whether those property interests consisted of property directly owned or of securities representing an interest in such property.

5. If the interpretation placed upon Article 235 by my learned associates were correct nevertheless the Commission should not demand the delivery of neutral securities or other property the right to demand which was conferred by that article only, until it was known that the other payments required to be made by Germany under the Treaty and which Germany was entitled to claim as a credit on account of her obligation under Article 235 to pay 20,000,000,000 marks before May 1, 1921, would not in fact aggregate that sum by that date; for if such payments equalled or exceeded that sum the Commission would not have power to demand payments in neutral securities or in other securities or property not deliverable under other articles of the Treaty. It does not seem that the credits referred to in Article 243 would constitute credits on account of the payment of the 20,000,000,000 marks referred to in Article 235; but it is clear that she would be entitled to credit thereon [for?] payments made on account of the expenses of the Armies of Occupation, and the expenses of the supplies of food and raw materials essential to enable Germany to meet her obligations for reparations, and the last clause of Article 236 providing that what she had done on account of the direct application of her economic resources to reparations as specified in Annexes III (Ships), IV (Commodities), V (Coal), and VI (Dyestuffs and Drugs), “shall be credited to her towards liquidation of obligations under the above Articles”, implies that these payments in kind shall also be credited.

Until the amount of all of the foregoing credits had been determined the Reparation Commission could not with safety require the delivery of any substantial values in neutral securities or other securities which it had no right to demand except to make up the payment of 20,000,000,000 marks. As the expenses of the Armies of Occupation could not be ascertained before May 1, 1921, and as many of the other items of credit could not be practically computed for a long time, it is not perceived how the Commission could know at this time what amount of neutral securities (or other securities not deliverable except to make up any deficit in the 20,000,000,000 marks payment) it had the right under Article 235 to demand the delivery of.

6. In the course of the opinion of my learned associates their following remarks require comment:

At page 2, they say:

“In the first place nowhere is there found a stipulation specifying a payment in gold and paragraph 2 of Annex III concerning the delivery of certain ships stipulates that these ships must be delivered within two months of the coming into force of the Treaty. It is not perceived how this stipulation can be reconciled with the provision of Article 235 that until 1921 the payment of the 20 milliards can be required to be made in ships.”

In reply to the above I beg to remark that:

a) No special stipulation that a promise to pay a sum of money in gold seems to me requisite, when the currency of all of the contracting parties is based on a gold standard. But Annex II par. 12, (a) provides that “Whatever part of the full amount of the proved claims is not paid in gold, or in ships, securities and commodities or otherwise” shall be guaranteed by bonds, and these bonds are payable in gold.

b) All of the ships deliverable under Annex III are not required to be delivered within two months. Germany agrees, in Par. 5 of that Annex to build and deliver further ships, laying down in each year up to 200000 gross tons.

At page 3, they say:

“In the first place Article 236 and the Annexes applying its provisions, establish for Germany an obligation presented as perfectly distinct from the one contained in Article 235. The text says expressly that Germany “further agrees”.

I think that the above argument attaches an unwarranted significance to the expression “further.” The obligation directly to apply her economic resources is, in a sense, a further obligation additional to her obligation to pay the cost of the Armies, etc., provided by Article 235.

But it does not follow that the power to determine in what installments the 20 milliards shall be paid and whether in gold, ships, commodities, securities, etc., authorizes the exercise of that discretion on other ships, other commodities, other securities or other property than that specified in the Annexes as subject to delivery to the Commission.

Hugh A. Bayne

[ Paris ,] January 20, 1920 .

60. Not printed.