end items that we are seeking; and those appropriations are "Ships and facilities"; "Aircraft and facilities"; "Ordnance facilities"; and "Ordnance for new construction."

Whenever those procurement appropriations need a facility to support the procurement they are seeking, then they take moneys and transfer it to this facility head. It is not a new appropriation. It is merely a transfer. That transfer has to be approved by the Bureau of the Budget and the Secretary of Defense, and he appraises that to determine whether the moneys are necessary to be transferred to the facility.

Mr. FORRESTER. In other words, this is not a special appropriation. Mr. CHERMAK. You are right, sir.

Mr. FORRESTER. But when we go down on the floor voting for general appropriations for the military, we can understand that that is what we are voting on and that there are not other special appropriations that are going to come in that we will be unaware of.

Mr. CHERMAK. You are right, sir.

Mr. BRICKFIELD. Mr. Witness, these end items you are speaking ofthe ordnance and facilities, ships and facilities, aircraft and facilities, and so forth-what is the total amount of those appropriations?

Mr. CHERMAK. You are asking me a tough question. The total appropriations for the Navy are about $12 billion, and I am trying to remember these figures. I would say better than half of that was for procurement.

Mr. BRICKFIELD. In other words, would you say that out of $6 billion that is appropriated for these end items, only $100,000,000 is to be for the procurement of installations, construction, and things like that? Mr. CHERMAK. That is right, sir.

Mr. BRICKFIELD. In order to pin this point down, the Navy goes out and procures buildings and equipment and machinery, supplies them to the private contractor, and they in turn make a profit.

Mr. CHERMAK. But it is a limited profit. It is a profit related to the function they perform.

Mr. BRICKFIELD. Is it similar to a cost-plus contract?

Mr. CHERMAK. No. It may not be. The type of contracts that they will have in performance may vary. It may be a fixed-price contract. In evaluating the profit that the man gets, they will consider risk of capital; they will consider the management function; they will consider the type of product that has to be produced and the skill that is required to do it.

Mr. BRICKFIELD. Wouldn't they be items that they would decide first before letting the contract out?

Mr. CHERMACK. They negotiate the contract in an item of this type, and they will ask the fellow to submit a cost breakdown, if it is a fixedprice contract, of all the items included in the contract-his material costs, his labor costs, his overhead factors, his G. and A., and the profit that he intends to have.

They will then appraise the profit, after appraising all these other costs, and determine what goes into the profit factor. If we are going to furnish facilities, then the risk factor is reduced tremendously, so that part of the profit factor which was given to him for risk purpose is just eliminated. If we said that it was normal to give him 8 percent, they appraise the risk factor as being 4 percent. Then in a

contract where he received facilities, he would only get a 4-percent profit.

Mr. FORRESTER. Mr. Witness, I was just turning this around in my mind. I would like to have your opinion on it. What would be the effect on these facilities that you had to buy, which a contractor does not have, and which probably he would not want to entertain the idea of paying the price that the facility would cost, if the military retained those facilities even after the emergency and never put them up for sale, never gave them an opportunity to buy them, they remained the property of the military?

Would that to any extent cause the contractors to try to acquire more of these facilities in the first instance and let it be their property?

Mr. CHERMAK. It has been our policy to retain these as part of the reserve facilities that the Armed Forces have; and we have been retaining these facilities. Because of that, many of the contractors went to put up their own facilities. In fact, the billions of dollars of facilities that were put up under tax-amortization certificates indicates the desire of contractors to put up their own facilities. The $100,000,000 is just a small, small portion of that.

Mr. FORRESTER. It has been your experience that our potentially not selling does have that influence, then, in causing the contractor to try to get his own equipment?

Mr. CHERMAK. Yes, sir.

Mr. FORRESTER. I am glad to hear that. We are now operating with just one member of the subcommittee present. Certainly we would not want to continue further under a situation like that.

I understand that the chairman will not be back until probably Wednesday. So as a matter of prudence, we will have to adjourn subject to the call of the Chair.

(Thereupon, at 11:55 a. m., the subcommittee adjourned subject to the call of the Chair.)

EMERGENCY POWERS CONTINUATION ACT

WEDNESDAY, APRIL 2, 1952

HOUSE OF REPRESENTATIVES,
COMMITTEE ON THE JUDICIARY,

SUBCOMMITTEE No. 4,
Washington, D. C.

The subcommittee met, pursuant to call, at 10: 05 a. m., in room 345A, Old House Office Building, Hon. Michael A. Feighan, presiding. Subcommittee members present: Representatives Feighan (presiding), Pickett, Boggs, and Forrester.

Also present: Miss Velma Smedley, assistant chief clerk.

Mr. FEIGHAN. The committee will come to order. Mr. Burrus, whom did you have to testify and on what particular statute?

Mr. BURRUS. Mr. Metzger is here from the State Department, and the item he will testify on is 1 (b) (6), which is on page 25. It involves the Neutrality Act.

The Neutrality Act prohibits financial transactions by persons as distinguished from the Government with other governments that are at war with each other. This present subsection which we are asking to be extended suspends this section which prohibits the financial transactions.

I think in substance it is felt that the United States should not handicap itself by preventing Americans from assisting a country at war with another one when it may be in the national interest of the United States that that country should be assisted.

STATEMENT OF STANLEY D. METZGER, DEPUTY ASSISTANT LEGAL ADVISER, DEPARTMENT OF STATE

Section 447. Financial transactions.

(a) Whenever the President shall have issued a proclamation under the authority of section 441 (a) of this title, it shall thereafter be unlawful for any person within the United States to purchase, sell, or exchange bonds, securities, or other obligations of the government of any state named in such proclamation, or of any political subdivision of any such state, or of any person acting for or on behalf of the government of any such state, or political subdivision thereof, issued after the date of such proclamation, or to make any loan or extend any credit (other than necessary credits accruing in connection with the transmission of telegraph, cable, wireless, and telephone services) to any such government, political subdivision, or person. The provisions of this subsection shall also apply to the sale by any person within the United States to any person in a state named in any such proclamation of any articles or materials listed in a proclamation referred to in or issued under the authority of section 452 (i) of this title.

(b) The provisions of this section shall not apply to a renewal or adjustment of such indebtedness as may exist on the date of such proclamation.

(c) Whoever shall knowingly violate any of the provisions of this section or of any regulations issued thereunder shall, upon conviction thereof, be fined not more than $50,000 or imprisoned for not more than 5 years, or both.

Should

the violation be by a corporation, organization, or association, each officer or director thereof participating in the violation shall be liable to the penalty herein prescribed.

(d) Whenever any proclamation issued under the authority of section 441 (a) of this title shall have been revoked with respect to any state the provisions of this section shall thereupon cease to apply with respect to such state, except as to offenses committed prior to such revocation.

(e) This section shall not be operative when the United States is at war (November 4, 1939, 12:04 p. m., ch. 2, sec. 7, 54 Stat. 8, as amended February 21, 1942, ch. 104, 56 Stat. 95).

Mr. METZGER. Item 6 of section 1 (b) of the bill relates to one provision of the Neutrality Act of 1939. This provision, section 447 of title 22, United States Code, provides that when the President issues a proclamation of neutrality after finding that there exists a state of war between foreign states, it shall thereafter be unlawful for any person within the United States

to purchase, sell, or exchange bonds, securities, or other obligations of the government of any state named in such proclamation—

or of any person acting for or on behalf of such government or political subdivision, issued after the date of such proclamation, or—

to make any loan, or to extend any credit, except necessary credits in connection with telegraph, cable, wireless, and telephone services, to any such government, political subdivision, or person.

This prohibition also applies to the sale by any person within the United States to any person in a state named in the proclamation of articles considered to be arms, ammunition and implements of war, as listed by the National Munitions Control Board.

Any person knowingly violating these provisions is subject to be fined a maximum of $50,000 or imprisoned for not more than 5 years, or both. If the violation is by an organization or corporation, each officer or director participating in the violation is liable for the penalty prescribed.

Subsection (e) of section 447 provides that the section shall not be operative when the United States is at war; this subsection was added by resolution of February 21, 1942.

Item 6 of section 1 (b) would, in effect, change subsection (e) so that section 447 would continue to be inoperative until 6 months after the termination of the national emergency proclaimed by the President on December 16, 1950, or such earlier date or dates as the Congress by concurrent resolution or the President may provide.

If section 447 were not continued to be rendered inoperative after the state of war with Japan is ended, situations might develop where two foreign states might engage in war, the President issue a proclamation, and as a consequence, neither foreign state could market new securities or purchase needed supplies on credit from private American institutions, since any person in the United States participating in such transactions would be liable to criminal penalties.

Of

Since the United States may, for reasons of national policy, not desire to cut off one of the participants from being able to purchase supplies on credit, section 447, if operative, would inhibit transactions which it might be in the national interest to encourage. course, if the United States desired that no such transactions should be made on behalf of one or more of the belligerents, it could, under section 5 (b) of the Trading With the Enemy Act, as amended, prohihit, any transactions, including transactions of this type.