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The CHAIRMAN. You have been in active politics down there. You are president of the Senate, are you not?

Mr. HODGE. Yes.

The CHAIRMAN. You mean to tell me you lived all these years and did not know they would only give contracts to a very limited few?

Mr. HODGE. No, sir; I would not agree with that. Maybe nobody else applied for a contract of that molasses.

The CHAIRMAN. Do you know of anybody else who has had a contract from this company?

Mr. HODGE. No, sir; I don't know of anybody else who applied to the Virgin Islands Corporation to get its molasses.

The CHAIRMAN. If we produce the fact that somebody did apply, then you would change your testimony, would you?

Mr. HODGE. Then I would be convinced, but at that time we called the distillers in, the only people who were

The CHAIRMAN. What distillers did you call in, the ones you protected ?

Mr. HODGE. Sir, we called in the distillers—there was no protection. We protected the treasury of the island.

The CHAIRMAN. You mean by paying out a subsidy you protected the treasury?

Mr. HODGE. Definitely, because if this rum was not sold in the United States we would not have gotten any internal revenue with which to carry on our own public program.

The CHAIRMAN. The internal revenue from distilleries in Kentucky comes in the Federal Treasury, it does not come from your area?

Mr. HODGE. No, sir. The Congress gave the people the same privilege as they gave Puerto Rico to help them to develop themselves by returning the revenue to them.

Mr. Chairman, I want to go further. I want to go further and state here that much of this testimony which has been put in the record has come about because a few people in the Virgin Islands imported spirits from Peru, distillers, not the Skeoch distillers, not the Paiewonsky distillers, imported stuff from Peru, high wines

The CHAIRMAN. You have me now. What is high wine? Mr. HODGE. I don't know what it is. I don't know what high wine is.

Mr. LEVENTHAL. I think they are wines fortified to a certain proof. They are called high wines.

Mr. HODGE. It is not my term. It is an alcohol or rum, subject to the internal revenue tax. They attempted to bring this stuff in from Peru and pass it through the Virgin Islands and ship it into the United States.

The CHAIRMAN. Now, you are under oath, to whom are you referring? · Mr. HODGE. I can refer especially to one Haymes & Co. because they came before the legislature on this question and Mr. Brauer approached the legislature on the question because he was handling some of the high wines at that time.

Senator DWORSHAK. Mr. Hodge, you have heard some testimony during this hearing indicating that the Pajewonsky Distillery purchased alcohol from Public Liqueur Co. in Philadelphia and from

sources, allegedly the Schenley Co. in Cuba, which were brought in to the Virgin Islands, processed and handled then transshipped. Do you approve of that? Was that helpful? Mr. HODGE. I don't know about that, sir. Senator DWORSHAK. You do not know a thing about that?

Mr. HODGE. I don't know a thing about that. I know what I am talking about here, what I am testifying about before the committee. · Senator DWORSHAK. You only know the things which are beneficial to your viewpoint. You do not know about anything else? Mr. HODGE. If I knew I would testify. But I don't know.

Senator DWORSHAK. How long have you lived in the Virgin Islands? Mr. HODGE. All my life.

Senator DWORSHAK. You do not know that the Paiewonsky distillery has purchased or imported alcohol from outside the islands? Mr. HODGE. I never knew it, sir, until now.

Senator MILLER. I do not believe that the chairman's question was answered. He asked you what distillers or their representatives appeared before the legislature at the time this subsidy bill was pending?

Mr. HODGE. At the time we had the distillers before us on two occasions. At the time of the subsidy bill I don't think that the distillers as such, appeared.

The Governor appeared in executive session of the legislature, and presented his case. Governor Merwin did.

The CHAIRMAN. A while ago I thought we had a statement about the people producing their books and showing they could not get along.

Mr. HODGE. I said that was not before the legislature, sir.
The CHAIRMAN. Not before the legislature ?
Mr. HODGE. Before the Governor or the administration.

What I am talking about is that this stuff was brought in from Peru and attempts were being made to ship it into the United States.

I remember that when Senator Butler, the chairman of this committee, was passing this legislation he said to me. "Now, are you people down there going to bring spirits in from outside, pass them through the Virgin Islands and send them up and collect internal revenue taxes on it?"

We told him no, that the rum was going to come from the islands for the basis of internal revenue collection beginning in 1954, or 1955, was going to be rum processed and manufactured out of molasses in the islands.

The legislature was forced to pass legislation, to put a stop to the shipping of these Peruvian spirits.

Senator GRUENING. What is the bearing of this testimony on the issue before the committee which is the question of confirmation of Mr. Paiewonsky's nomination ?

Mr. HODGE. What I am trying to show here is that a statement was made here that the legislature was favorable to these two particular distillers. I am also saying that the legislature also had a responsibility of protecting the revenue against some methods that were contrary to general procedure of bringing Peruvian spirits in and shipping it into the United States.

Senator DWORSHAK. You condemn that practice ?

Mr. HODGE. Yes, sir.

Senator DWORSHAK. Then logically you would have condemned the importation of alcohol or high spirits from Cuba or from Philadelphia by any distillery or by anybody in the islands to be transshipped later as rum or some other product which originated in the islands?

Mr. HODGE. If at that time, sir, the Virgin Islands were getting the benefit of internal revenue. If that was done prior to the passage of the new organic act I would not.

Senator DWORSHAK. That is basic. If you do not like the importation of Peruvian high spirits, you do not want spirits or alcohol to come in from any source whatsoever ?

Mr. HODGE. Yes, sir; that is when we were not—that may be when we were not getting the benefit of internal revenues.

But while we were getting the benefit of the internal revenues, we must have it on the proper basis.

Senator DWORSHAK. Then you are willing to have imports of alcohol into the islands. Mr. HODGE. No, sir.

Senator DWORSHAK When you get the benefits of not having to pay the duties on transshipments into this country? Mr. HODGE. No; if it is rum, I don't condone it.

Senator DWORSHAK. I am trying to find out whether you knew about anything that was done along that line?

Mr. HODGE. I do not know, sir, and it would not have been highlighted to the members of the legislature or the government until such time as we would have been collecting internal revenues on it.

Senator DWORSHAK. How did you know that Peruvian spirits were coming into the island ?

Mr. HODGE. Because at that time we were qualifying for internal revenue. We had to protect that system that the Congress set up for us.

Senator DWORSHAK. You would have been against the importation of alcohol or spirits from any source in the islands? Mr. HODGE. If it was done on an illegal basis, sir. Senator DWORSHAK. Do you know how? Mr. HODGE. On an illegal basis.

Senator DWORSHAK. Anything coming in from Peru is illegal. Coming in from other places, it would have been legal.

Mr. HODGE. It would have been legal when we were qualifying for internal revenue. Every gallon that was shipped would have caused us trouble with customs.

Senator DWORSHAK. It enhanced the shipments of alcohol and rum from the islands into the United States or elsewhere by having these foreign imports increase the amount of the exports that would have then entitled you to get larger financial returns from duties which were not paid. Mr. HODGE. Yes, sir. Senator DWORSHAK. That would have been all right? Mr. HODGE. No, sir; because then the U.S. Customs Service and the Treasury Department would have asked the Congress to remove that clause.

We would have again been a poorhouse. It was then our responsibility to protect that so that the benefit we get through the Government of the United States and the Congress would continue.

Senator DWORSHAK. Then, finally, you put all imports into the islands of alcohol or any other such production, high spirits, in the same category? Mr. HODGE. That is right.

Senator DWORSHAK. And you are opposed to all such imports in the island ?

Mr. HODGE. That is right.
The CHAIRMAN. Are there additional questions?

Senator METCALF. Mr. Chairman, I am not quite sure about the whole chronology of this thing.

Is it your statement that the reason that you only called in two distillers and gave the benefit of this subsidy to two distillers because these other people who have said they were distillers were not actually distilling, but were importing Peruvian high wine?

Mr. HODGE. At the time the subsidy was given, sir, not a single one of them except these two distillers was processing rum on the basis of molasses through a distillery.

At that time the legislature granted the subsidy.

Subsequent to that the legislature had to pass a law clamping down on these people who were bringing Peruvian spirits subsequent to the subsidy.

We had to pass a law clamping down on these people who were bringing Peruvian spirits in and shipping it into the United States. · Senator METCALF. Mr. Hodge, did you hear Mr. Brauer testify that he was operating a distillery in 1956% Mr. HODGE. Yes, sir. Senator METCALF. And in 1955 ? Mr. HODGE. That is what Mr. Brauer says. Senator METCALF. Was he consulted ? Mr. HODGE. Mr. Brauer, if he was consulted about the subsidy? Senator METCALF. Yes. Mr. HODGE. I would not know, sir. The administration handled that.

Senator METCALF. He was not entitled to a subsidy? · Mr. HODGE. He was not if he was not manufacturing rum by the molasses process when we granted the subsidy, sir.

The CHAIRMAN. If you do not know whether he was consulted because it was an administrative process, now how do you know that the others were consulted ?

Mr. HODGE. I knew they were. : The CHAIRMAN. How do you know? · Mr. HODGE. The Governor told me. He came to an executive session of the legislature. He said upon his investigation by the attorney general he found that there were only two members who were processing rum by the molasses process at that time.

The CHAIRMAN. Who was then Governor?
Mr. HODGE. Governor Merwin.
The CHAIRMAN. And his first cousin was one of them!
Mr. HODGE. Yes, sir; he was one.
The CHAIRMAN. And Mr. Paiewonsky was the other?

Wore.

: Mr. Hodge. He just happened to be in the rum business. I don't think the subsidy was granted because he was his first cousin.

The CHAIRMAN. Are there any other questions. . Senator BURDICK. In other words, what you are telling this committee is that in 1954, and 1955, that this gentleman, Mr. Brauer, was not using molasses in the process of distilling rum?

Mr. HODGE. In 1957 when the molasses subsidy was granted, sir.

Senator BURDICK. How about 1955? :- Mr. HODGE. I don't know, sir.

Senator BURDICK. What about 1954? Mr. HODGE. I don't know. I am talking about when the subsidy was granted for molasses.

Senator BURDICK. You heard his testimony when he said he could not get molasses in 1957 because it was all allocated to the two companies ? Mr. HODGE. I don't know, sir. Senator BURDICK. That is all.

The CHAIRMAN. The committee will now recess, subject to the call of the Chair.

(Thereupon, at 1:30 p.m., the committee was recessed, to reconyene subject to the call of the Chair).

(Committee note: The text of the 1957 rum-producing industries law, to which reference is made above, follows:)

TITLE 33, VIRGIN ISLANDS CODE
CHAPTER 203. RUM-PRODUCING INDUSTRIES SUBSIDY

SEOTTON ANALYSIS
4201. Emergency Molasses Fund; administration by Commissioner of

Finance.
4202. Procedure for paying out monies from fund.
4203. Amount of subsidy."
4204. Verification of amount of subsidy due.
4205. Use of molasses purchased with subsidies.
4206. Allocation of subsidies among producers.

4207. Penalties. 8 4201. Emergency Molasses Fund; administration by Commissioner of Finance

(a) There is established, within the Department of Finance, a Special Fund to be known and designated as the "Emergency Molasses Fund.”

(b) This fund shall be administered by the Commissioner of Finance in accordance with regulations promulgated to give effect to the intent and various provisions of this chapter.-June 11, 1957, No. 197, 8% 1, 2. Codification : Subsec. (a) is from section 1 of Act June 11, 1957, cited above. Subsec. (b) is from section 2 of such Act. Repeal : Section 10 of Act June 11, 1957, cited above, provided : "All laws or ordinances or parts thereof, including rules and regulations, in conflict with this Act ( chapter], are hereby repealed."

Separability of provisions: Section 9 of Act June 11, 1957, cited above, provided : : "If any clause or other portion of this Act (chapter] is held to be invalid, that decision shall not affect the validity of the remaining portions of this Act. The Legislature here by declares that all such remaining portions of this Act are severable, and that it would have enacted such remaining portions if the invalid portions had not been included in this Act."

Appropriation: In order to implement the provisions of this chapter, and to provide a molasses subsidy program from March 1, 1957, until June 30, 1958, Act June 11, 1957, No. 190. appropriated out of the General Fund of the Treasury the sum of $150,000, "which shall be paid over into the 'Emergency Molasses Fund' " as required under section 4202 of this title.

Preamble: The preamble to Act June 11, 1957, cited above, provided :

"WHEREAS the rum-producing industry in the Virgin Islands is one of the few major industries of the territory, and

"WHEREAS due to a highly competitive market and increasing cost factors over the past several years, most of the rum producers have been obliged to discontinue operations leaving only two producers presently manufacturing molasses into rum; and

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