CO885-(25-26) — Page 272

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PUBLIC RECORD OFFICE

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PUBLIC RECORD OFFICE, LONDON

direction of their head offices, so that it was almost impossible (in the early condi tions of war organization) to prevent communications passing between the two; partly because it was found necessary for military reasons to intern or deport all enemy subjects,, and it therefore became incumbent on the local Governments to take some measures for the protection of the assets of the businesses thus left derelict, and of the interests of their non-enemy creditors. A contributory cause was the attitude of native populations, who were unable to understand how our enemies In certain could be allowed to carry on business as though no war were in existence. cases a gradual realization of assets under supervision was necessitated by the long credit system of the German firms. The native traders were heavily indebted to them at the outbreak of war, and it was feared that if these debts were left out- standing the enemy firms would realize them wholesale at the end of the War in a way which might mean ruin to many of the native debtors. The policy, being mainly consequential upon the policy of internment and deportation, did not aim expressly at the extermination of German trade in the British territory affected. In fact, its object was rather to liquidate what may be termed the fluid assets of the firms in question, such, e.g., as their existing stocks and book debts, and to preserve, so far as could be done without cost to the Government, their goodwill, trade-marks, land and buildings, and other permanent assets, such as shipping, to get rid of which might have meant the extirpation of the firms concerned. It was thought desirable, having regard to modern views on the question of the confisca- tion of enemy property on land and to the possibility of reprisals by Germany, to avoid anything which might look like confiscation.

The three parts of the Empire principally affected by the liquidation policy

were :-

(1) The Eastern Colonies.

(2) West Africa.

(3) East Africa.

In (1) and (2) the policy was initiated in the late autumn and early winter of 1914. In East Africa the first steps towards a Government liquidation were taken in the early part of the present year, and the actual liquidations are only now beginning to be carried out. In each of these districts local conditions vary considerably.

(1) The Eastern Colonies. By far the most important of these, for the present purpose, is Hong Kong, which has a large German business community intimately connected with the German houses in China, the Hong Kong establishments being, in most cases, branches or agencies of head offices in China or in enemy territory.

The majority of these houses depended very largely on the importation of English goods, and they also enjoyed profitable agencies for German products, such as aniline dyes.

They also enjoyed remarkable credit facilities from British financing houses, the course of trade being, generally speaking, that known as the London acceptance system; according to which the head office in Germany drew six months' bills against each consignment on a London discount house, which were immediately discounted by the discount house on the market in the ordinary way, the shipping documents being sent out to the German houses in Hong Kong with a letter of lien attached for the German firm's signature. This letter bound the German house to keep the goods and their proceeds of sale separate from all others, in trust for the discount house, and to remit the amount of the bill before its due date. It has been estab- lished that in almost all cases (whether or not with the connivance of the discount houses) this trust was ignored by the German house, who proceeded to sell goods to Chinese dealers on long credit, thus in effect reducing the discount house to the position of an ordinary unsecured creditor. Generally speaking, the Hong Kong houses appear to be solvent, though they do not seem to have made larger profits than British houses in Hong Kong, their position being subsidiary to the more important offices of the same firms in China. There were, however, at the outbreak of war, very large stocks in Hong Kong belonging to these firms, and there were also forward contracts for large amounts of goods from Lancashire.

In order to avoid excessive dislocation of trade it was thought desirable not to hurry the realization of stocks unduly, and not to repudiate current contracts, and, in consequence, these liquidations have in very few cases yet been completed. Indeed, the delay has led to a good deal of criticism from British traders, and attention has been drawn to the fact that in this Colony the liquidations have been entrusted to British firms working on commission.

Apart from other considerations which appear to make the substitution of a complete for a conservative system of liquidation desirable at the present time, and which will be mentioned later, the issue of the Trading with the Enemy, China, etc., Proclamations, of 25th June and 24th September, introduced a new element with regard to the Hong Kong firms. The attack on German trade in China, which those Proclamations were designed to promote, has made the Hong Kong policy of conservative liquidation appear rather inconsistent, and has, moreover, raised the question whether it would not be desirable also to put an end to the German houses in Hong Kong, in order that these may not serve as foundations from which Germany can reorganize her trade after the conclusion of hostilities.

Next to Hong Kong in importance, as a centre of German trade, are the Straits Settlements. Details with regard to the organization of enemy trade in this Colony are scarce. The most important firm is that of Behn, Meyer & Company, which was a limited company registered in Singapore without a head office in enemy territory, but acting as the head office of numerous establishments throughout the East. This company is in liquidation under the policy above described, while its Batavian and Siamese branches have apparently organized themselves as separate companies. There are also three or four other German houses which are known to be in liquidation.

Singapore is the principal port of transhipment for Siam, and the above considerations arising out of the Trading with the Enemy, China, etc., Proclama- tions, apply to the Straits Settlements in the same way, though not to the same degree, as to Hong Kong.

Of the German houses in Ceylon by far the most important is that of Freuden- berg & Company. This firm has no head office in enemy territory, and it possesses oil mills of great importance to the welfare of the Colony. Having regard to the importance of keeping these mills going, the Governor did not recommend the introduction of the liquidation policy in Ceylon, and the businesses of Freudenberg & Company, and other enemy houses, have been put in charge of Government con- trollers. It should, however, be stated that Messrs. Freudenberg carry on a large import business from Europe, as well as the business of the mills, which are devoted to the manufacture of local produce. Even if the suggested change of policy is not applied to Messrs. Freudenberg's there would appear to be no reason why these two portions of the business should not be treated differently, the import business being wound up on the Hong Kong principle, and the mill left in operation under a controller.

In all the Eastern Colonies above mentioned a very important feature is that of the trade-mark. In Hong Kong certain trade-marks, both registered and un- registered, have been used by the German importers on goods manufactured in Lancashire. These marks appear to be either the sole property of the German importer or the joint property of the British manufacturer and the German importer. Instructions have been given that the employment of these marks in the Colony is to be prevented, since they cannot properly be transferred without the goodwill of the enemy business with which they have been connected. More- over, to allow their continued use under present conditions would be merely to keep them before the public for the ultimate benefit of the German trader. More- over, it was hoped that by definitely preventing their use British manufacturers might be encouraged to attempt to supersede them by the introduction of new marks. There can be little doubt that the difficulties which have arisen in con- nexion with these marks have caused considerable interference with the British export of piece goods to Hong Kong.

In Ceylon and the Straits Settlements the import business appears to be carried on principally by means of "face plaits." These are combinations of (1) a trade- mark belonging to the British manufacturer; (2) a trade-mark belonging to the German importing house; (3) a quality number indicating the quality of the goods. Steps have been taken to enable the British manufacturer to use his own trade- mark with the quality number, formerly part of the "face plait," and a new mark belonging to the British agent who will supersede the German importing house.

Should it be determined to turn these liquidations into complete liquidations the German enemy's marks would be sold with his goodwill, and the difficulties indicated above would disappear.

(2) West Africa.-The special features of the German West African houses are (1) that all the local houses appear to be mere agencies of head offices in enemy territory, all contracts with the United Kingdom export houses being made by the

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