United States, and which affirmatively required surrender of gold holdings to Federal Reserve Banks. On January 30, 1934, Congress again ratified all actions taken by the President under section 5(b) c.6,

48 Stat. 343, 12 U.S.C. 213.

The courts sustained the validity of the President's acts

in this emergency period.

Section 5(b) was also the statutory basis for broad Executive actions to freeze the assets of nationals of enemy or occupied countries during World War II. A series of Executive blocked transactions in foreign exchange, transfers of credit and the export of currency, to the extent such transactions related to property owned by enemy or occupied countries or their nationals. (n. 3. Sec., e.g. EO 08389, Apr. 10, 1940, 5 F.R.. 1400; 8405, May 10, 1940, 5 F.R. 1677; 8446, June 17, 1940, 5 F.R. 2279 and 8484, July 15, 1940, 5 F.R. 2585)

The vesting provisions of section 5(b) served as the basis for the series of Executive orders and regulations issued during WWII which effected seizure of enemy assets by the Alien Property Custodian Sec. e.g. Executive Order 9095, Mar. 11, 1942, 7 F.R. 1971; 9747, July 3, 1946, 11 F.R. 7518, and 9788 July 14, 1946, 11 F.R. 11981.

In the domestic aspect, the statute was also the basis for

the system of consumer credit controls in force during WWII, part of the postwar period and the Korean War. E.0. 8843, Aug. 9, 1941, 6 F.R. 4035; see also First War Powers Act, Dec. 18, 1941, c. 593, 55 Stat.

838, Joint Resolution of Aug. 8, 1947, c. 517, 61 Stat. 921, Joint Res. of Aug. 16, 1947, c. 517, 61 Stat. 921, Joint Resolution of Aug. 16, 1948, c. 836, 62 Stat. 1291; Defense Production Act, Sept. 8, 1950, c. 932, sec. 601, 64 Stat. 812.

The Exec. authority under section 5(b) has not lapsed with the end of the economic crisis of the 1930's or World War II. Execu

tive Order 6260, Aug. 28, 1933, issued pursuant to section 5(b) by President Roosevelt on Aug. 28, 1933, to prohibit the holding or export of gold, was expressly confirmed and extended by Pres. D.D. Eisenhower in 1960 and 1961, and by Pres. J.F.K. in 1962.

Regulations issued by

the Secretary of the Treasury, pursuant to a general delegation of Presidential authority under section 5(b) made in 1942, continue this date to serve as the basis for blocking trade and financial transactions with North Korea, Mainland China, Cuba and North Vietnam.

Judicial decisions have sustained these current exercises

of authority under section 5(b). In 1965, the United States Court of Appeals for the Ninth Circuit upheld convictions for possession of gold, in violation of E.O. 6260. Pike v. U.S., supra. Exec. authority under section 5(b) was also sustained by the U.S. Court of Appeals for the Second Circuit in a 1966 decision which held valid the prohibition of transfer of property owned by Cuban nationals.

Dund M. Sale

David M. Sale

Legislative Attorney

pelada

Raymond J. Celada.

Senior Specialist in
American Public Law

APPENDIX 6

STATEMENT OF JOHN E. CLUTE, PRESIDENT, SHANGHAI POWER CO., CONCERNING H.R. 1560

This statement is submitted on behalf of Shanghai Power Company, a Delaware corporation which qualifies as a "national of the United States" under Section 502 (1) (B) of the International Claims Settlement Act of 1949, as amended (22 U.S.C. §§ 1643-1643k, Supp. II). The Company holds the largest adjudicated claim of a U.S. national against the People's Republic of China under that Act.

Our specific concern with respect to the repeal or modification of Section 5(b) of the Trading with the Enemy Act is the possibility that such an action might delay or even seriously prejudice the settlement of all American claims against China. This could be the result if Section 5(b) were repealed or if it were modified without due regard for the interests of the American claimants.

In a more general sense we believe it is essential that Section 5(b), or its functional equivalent, be preserved so that there will be no doubt that the Executive and Legislative branches share the conviction that our Government must be able in the future to act in the international economic sphere promptly and decisively to protect the interests of the country and of its nationals in those unusual situations that require this type of action.

Shanghai Power Company was probably the largest single industrial enterprise in China in 1950, and it is proud of the contribution that it made to the deve.opment of the Chinese economy both before and after World War II.' Its claim against the People's Republic of China is based on the seizure of its properties in China by that Government in 1950 without offer or payment of any compensation. The loss suffered by the Company has been certified by the Foreign Claims Settlement Commission of the United States at $53,832,885 plus interest at 6% per annum from December 28, 1950 to the date of settlement.

In addition, a subsidiary of Shanghai Power Company named Western District Power Company of Shanghai Federal Inc., U.S.A. ("Western District Power Company"), a China Trade Act corporation, likewise had its properties seized by the People's Republic of China in December 1950. The Foreign Claims Settlement Commission of the United States has certified the loss of Western District Power Company at $1,758,684 plus interest at the rate of 6% per annum from December 28, 1950 to the date of settlement. Thus, the properties of these two American companies seized by the People's Republic of China had a total value of $55,591,569. Taking into account the fact that this amount is expressed in 1950 dollars, and considering the severe decline in the purchasing power of the dollar, it is evident that this figure does not come close to reflecting the real economic loss suffered by Shanghai Power Company. Even if Shanghai Power Company were paid some $90 million of interest to date in accordance with the decision of the Foreign Claims Settlement Commission (for a total in excess of $145 million), this would not wholly offset the companies' losses.

For many years the hostility between the Governments of the United States and the People's Republic of China precluded any discussions with respect to the settlement of the American claims. In recent years the claims have been recognized as one of the principal items that will require solution before full resumption of normal ties between the two countries can be achieved, including full diplomatic representation and the resumption of trade and commercial relations without the overhanging threat of litigation. There have been reports from time to time that serious discussions of the claims have taken place between representatives of the two nations since 1973.

1 See Encyclopedia Britannica, Vol. 20, p. 346 (1971 ed.); Zumwalt, On Watch, p. 16 (New York Times Book Co., Inc., 1976).

We understand that the key to a possible settlement is the fact that there is in the United States a total of, perhaps, $80 million of Chinese assets that are blocked under the Foreign Assets Control Regulations (31 CFR Part 500) and that the settlement talks contemplate that the People's Republic of China will assign those blocked assets to the United States for application toward the payment of the American claims against the People's Republic of China totaling about $197 million exclusive of interest since 1950. If such a settlement were reached and if no further payment were made by the People's Republic of China on account of the American claims, the American claimants would receive some 40 cents on the dollar of their losses (exclusive of interest and of any adjustment for depreciation of the dollar). Such compensation could hardly be characterized as either prompt or adequate but it would at least be something more than purely nominal.

The blockage of the Chinese assets rests squarely upon the statutory foundation of Section 5(b) of the Trading with the Enemy Act, which has been on the statute books (though modified from time to time) for approximately 60 years. Its precursors date back to an Act of Congress of July 13, 1861, and the 1861 Act itself was grounded upon the common law of both England and the United States.

Section 5(b) is operative during "the time of war or during any other period of national emergency declared by the President . . ." When the National Emergencies Act (Public Law 94-412) was adopted by the Congress in 1976, it was recognized that Section 5(b) of the Trading with the Enemy Act was of a particular importance that required its exemption from those provisions of the National Emergencies Act terminating the powers and authorities possessed by the Executive Branch as a result of a declaration of national emergency. We believe that this was and continues to be a correct perception and that Section 5(b) should remain in effect with only such changes, if any, as are necessary to satisfy the Congress that the Executive will review periodically the advisability of continuing in effect measures founded upon emergency conditions.

In reality there is nothing to take the place of Section 5(b) except for the broad constitutional powers of the President in respect of the foreign relations of the United States. Its invocation by the President has on a number of occasions been supported by the Congress such as its enactment of Titles II and IV of the International Claims Settlement Act of 1949 involving the vesting of the properties of Hungary, Romania, Bulgaria, and Czechoslovakia. These actions served well the interests of this nation, and the measures taken by the Executive and Legislative Branches have consistently been upheld by the Courts against legal challenge.'

It is hoped that the Congress will give serious consideration to the possible effects that revisions to Section 5(b) might have upon existing foreign asset controls as well as such controls as may be called for in the future. During the Subcommittee's hearings several authorities have stated that they are uncertain as to whether the United States Government's blockages of foreign assets now in effect (e.g., China, Cuba, Czechoslovakia, and Viet Nam) could, as a legal matter, be maintained in the face of a Congressional declaration that the national emergencies that gave rise to such blockages no longer exist for the purposes of Section 5(b). For example, reference was made to the opinion of Judge Leventhal in Nielsen v. Secretary of the Treasury, 424 F. 2d 833 (1970), which indicates that the Presidential national emergency proclamation was regarded by the United States Court of Appeals as an important element sustaining the constitutionality of the freezing of assets within the United States belonging to foreign nationals. Assuming that in the text of any legislation modifying or replacing Section 5(b) and in the legislative history of any such modification Congress would express its clear intent that blocked assets are not to be released by virtue of the modification, the likelihood of such release occurring as an unintentional consequence of the legislation is remote. Even so, there is some danger that in its desire to clear away what some regard as stale national emergencies, the

2 For example, in an opinion rejecting an attack upon the blocking of foreign assets pursuant to Section 5(b) Judge Friendly, speaking for a unanimous Court, said:

"The unquestioned right of a state to protect its nationals in their persons and property while in a foreign country, see 1 Oppenheim, International Law, 319, at 686-87 (8th Ed. Lauterpacht 1955), must permit initial seizure and ultimate expropriation of assets of nationals of that country in its own territory if other methods of securing compensation for its nationals should fail."

(Sardino v. Federal Reserve Bank of New York, 361 F. 2d 106, 113 (2d CCA 1966)).

Congress could by inadvertence open the door to a legal challenge of the continuance of foreign asset controls. Such a result could occur, for example, if the Congress were to recast the legislation in the form of a nonemergency statute. The consequences would be most unfortunate and would include:

(a) the disruption of claims settlement negotiations between the United States Government and governments that have confiscated American poverty;

(b) the prolongation of American claims as a barrier to normal commercial relations between the United States and the countries eoncerned;

(c) litigation that, to the detriment of the American claimants and the U.S. taxpayer, could clog the dockets of trial and appellate courts in the United States for years to come;

(d) frustration of the legitimate expectation of American nationals that the United States Government, including the Congress, will act in such a manner as to protect American interests to the fullest extent possible; and

(e) weakening of the position of the U.S. Government that governments have an international obligation to pay prompt, adequate, and effective compensation for the taking of foreign owned property.

If, as we believe, the legal and political arguments are compelling in favor of preserving the authority found in Section 5(b) as to the blocking of foreign assets, the practical arguments are overwhelming. The likelihood of a settlement of the claims of United States nationals against the People's Republic of China with the consequent removal of a serious impediment to normal relations between the two countries is greatly enhanced by the retention of the blocked Chinese assets. This is not simply a question of feverage; it is a matter of carrying to its logical conclusion the action taken by the United States Government in 1950 with precisely this possibility in mind. If, on the other hand, the blocked assets were to be released, the result could be a greatly reduced desire on the part of the People's Republic of China to settle the claims, protracted litigation, and the perpetuation of an international irritant in a most exacerbated form.

Shanghai Power Company and Western District Power Company oppose the repeal or emascu'ation of Section 5(b) of the Trading with the Enemy Act. If amendments to Section 5(b) are proposed, they should state clearly that the existing foreign asset controls are to continue on the basis of the President's national emergency declarations. They should also confirm the authority of the President to place such emergency controls in effect in the future and to maintain them as long as the national interest may require.

JOHN E. CLUTE.