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The DP World controversy began in February 2006 and rose to prominence as a national security debate in the United Statesmarker. At issue was the sale of port management businesses in six major U.S. seaports to a company based in the United Arab Emiratesmarker (UAE), and whether such a sale would compromise port security.

The controversy pertained to management contracts of six major United Statesmarker ports. The purchaser was DP Worldmarker (DPW), a state-owned company in the UAE. The contracts had already been foreign-owned, by Peninsular and Oriental Steam Navigation Company (P&O), a British firm taken over by DPW (completed in March 2006). Although the sale was approved by the executive branch of the United States Government, various United States political figures argued that the takeover would compromise U.S. port security.

U.S. President George W. Bush argued vigorously for the approval of the deal, claiming that the delay sends the wrong message to U.S. allies. Legislation was introduced to the United States Congress to delay the sale.

Background

DP World is a company owned by the government of Dubaimarker in the United Arab Emirates, via a holding company. This holding company is under the direct control of the ruler of Dubai, Sheikh Mohammed bin Rashid Al Maktoum, who is also the prime minister of the UAE.

Chronology

Charles Schumer brought the case to national attention.
In mid-October 2005, DP Worldmarker approached the Committee on Foreign Investment in the United States (CFIUS) to clear regulatory hurdles for a possible acquisition of the British firm P&O. The CFIUS is the multi-agency federal panel that passes judgment on deals with foreign corporations that raise antitrust or national security questions, Soon after, DPW began negotiating the terms of the takeover with P&O.[252500] They were advised by former President Bill Clinton to submit to a 45-day review of the acquisition.[252501][252502]

In December 2005, Coast Guard intelligence officials raised the possibility of significant security risks associated with the management of some U.S. port operations by a Dubai company, stating in a report that broad intelligence gaps prevented them from assessing the risks.[252503]

In February 2006, the stockholders of the Peninsular and Oriental Steam Navigation Company (P&O), a Britishmarker firm, agreed to a sale of that company to DPW over a bid by PSA International of Singaporemarker. As part of the sale, DPW would assume the leases of P&O to manage major U.S. port facilities in New Yorkmarker, New Jerseymarker, Philadelphiamarker, Baltimoremarker, New Orleansmarker, and Miamimarker, as well as operations in 16 other ports.

After P&O stockholders approved the deal, the arrangement was reviewed by the CFIUS headed by the U.S. Treasury Department. The transfer of leases was approved.

Once the deal appeared in the business press, it was noticed by Eller & Company, a Florida firm. Eller has two joint ventures with P&O and it feared becoming an "involuntary business partner of DP World", Said Michael Kreitzer, Eller's lawyer. According to Kreitzer, Eller hired semi-retired lobbyist Joe Muldoon as a last ditch effort to persuade Congress to block the deal. Soon Muldoon and Kreitzer got the attention of Democratic New York Senator Charles E. Schumer and an Associated Press reporter. Within days, Schumer held a press conference calling for a review and the AP ran the story nationally.[252504]

Congressional politicians were quick to respond after Schumer's press conference and the AP story put the Dubai Ports deal in the national spotlight. Both Democratic and Republican members of Congress started to question the approval. Republican leaders Dennis Hastert and Bill Frist, who usually work closely with the office of the President, publicly questioned the deal. Frist said "If the administration cannot delay the process, I plan on introducing legislation to ensure that the deal is placed on hold until this decision gets a more thorough review."[252505]

On February 22, 2006, President Bush threatened to veto any legislation passed by Congress to block the deal, a veto that would be his first. In a statement to reporters, Bush claimed, "It would send a terrible signal to friends and allies not to let this transaction go through." DP Worlds Chief Operating Officer, Ted Bilkey engaged a number of high profile lobbying firms to garner congressional support for the deal.[252506]

The controversy has created a public and unusually high-profile dispute within the Republican Party, and between the Republican-controlled Congress and the Republican-controlled White Housemarker.

On February 23, 2006, DPW volunteered to postpone its takeover of significant operations at the ports to give the White House more time to convince lawmakers that the deal poses no increased risks from terrorism.

On February 24, 2006, it was reported[252507] that there are 22 U.S. ports in the deal, not just the six major ports mentioned in initial news stories and reports. According to the website of P&O Ports, the port-operations subsidiary of P&O, DPW would take over stevedore services at 12 East Coast ports including Portland, Mainemarker; Boston, Massachusettsmarker; Davisville, Rhode Islandmarker; New York Citymarker; Newark, New Jerseymarker; Philadelphia, Pennsylvaniamarker; Camden, New Jerseymarker; Wilmington, Delawaremarker; Baltimore, Marylandmarker; and Virginiamarker locations at Newport Newsmarker, Norfolkmarker, and Portsmouthmarker.

Additionally, DPW will take over P&O stevedoring operations at nine ports along the Gulf of Mexicomarker including the Texasmarker ports of Beaumontmarker, Port Arthurmarker, Galvestonmarker, Houstonmarker, Freeportmarker, and Corpus Christimarker, plus the Louisianamarker ports of Lake Charlesmarker and New Orleansmarker.

Former Senate Majority Leader and 1996 Republican presidential candidate Bob Dole was hired by Dubai Ports World to lobby Congress on its behalf against bipartisan criticism of the deal. Mr. Dole is a special counsel in the Washington office of the law firm of Alston & Bird. DP World hired the firm in 2005 to help shepherd its purchase of the British-based firm Peninsular and Oriental.[252508]

On March 8, 2006 the House Panel voted 62–2 to block the deal, and senator Charles Schumer added amendments to a senate bill to block the deal, causing an uproar in the senate.[252509]

On March 9, 2006, Dubai Ports World released a statement saying they would turn over operation of U.S. ports to a U.S. "Entity".[252510] Later that same day, American Enterprise Institute scholar Norm Ornstein reported on PBS's "News Hour" that DP World was considering selling its U.S. operations to Halliburton.[252511]

Dubai Ports World eventually sold P&O's American operations to American International Group's asset management division, Global Investment Group for an undisclosed sum.

Opinions and comment

According to Bill Gertz, author of Breakdown: How America's Intelligence Failures Led to September 11:
"Intelligence and security officials opposed to the deal with Dubai Ports World said ports are vulnerable to the entry of terrorists or illicit weapons because of the large number of containers that enter U.S. territory, regardless of who manages them." [252512]


Frank Gaffney, president of the Center for Security Policy wrote:
"At the very least, the company will have to be read-in on these ports' security plans as it will have some role in their implementation." [252513]


Susan Collins, Republican Senator from Maine (and Homeland Security Committee chairwoman at the time) wrote:
"[A] careful review of the 'assurances letter' reveals that DP World is not, in fact, bound to provide the U.S. government with the information it would need to close the intelligence gaps the Coast Guard identified...The language is weak... Indeed, the assurances appear to amount to little more than a restatement of what the FBI or other law enforcement agenc[ies] could gather anyway in the course of an investigation." [252514]


After the DM World announced its decision to transfer the U.S. port operations to a U.S. entity, the BBC quoted Daniel T. Griswold, director of the Cato Institute's Center for Trade Policy Studies, as saying that the affair would "send a chilling signal": "It is just assuming that if a company is from the Middle East it is de facto disqualified from investing in the United States, and I think that is a terrible message to send." [252515]

Opposition to the deal

The objections to approving the sale centered on arguments about who controls U.S. ports, especially after the September 11, 2001 attacks. Some opposed to the sale have argued that no foreign government should be permitted to own such strategic assets while others argue that port security should remain in the hands of American firms under American control at the very least. Few had offered similar objections to the P&O's ownership, until the proposed DPW takeover brought attention to the situation. Over 80 percent of the terminals in the USA are already controlled by foreign owners. While the UAE's past actions regarding funding terrorist organizations (notably Hamas) and DPW's state-ownership increased discomfort across major party lines in the United States few thought to reflect that significantly more holders of British passports are in Guantanamo Bay than Emirati. There are no UAE nationals in Guantánamo.

Those who expressed opposition to the deal included: The New York Times, Michael Savage, Lindsey Graham, The New Republic, The John Birch Society, Sean Hannity, Lou Dobbs, Laura Ingraham; Bill Frist and Hillary Clinton, prominent politicians from two different parties; Bob Menendez, John Gibson, Jon Corzine, and Peter King. Senator Barack Obama stated his opposition to the deal. So did Senators Carl Levin and John Kerry.

The objections commonly raised in public discourse differ from those lodged by Eller & Company, the Florida firm responsible for bringing national attention to the deal. Eller has two joint ventures with P&O and it feared becoming an "involuntary partner of DP World". For them, business rather than security or concerns over the approval process were the overriding factors driving their lobbying efforts to sink the deal. In fact, Eller & Company has a disreputable history and several exposes have been written about them by prominent print media.

Several additional arguments have circulated among critics of the deal, including:

  • Review and approval of the acquisition by CFIUS was not sufficiently transparent and thorough, and never reached the proper level within the administration.
  • Personal ties between the Bush administration and DP World, such as the appointment of David C. Sanborn to the Transportation Department's Maritime Administration portray a conflict of interest.
  • Joining the debate, the Anti-Defamation League has protested the deal, stating that "The UAE's boycott of Israel alone should torpedo this deal"[252516]


The contracts under consideration are for the management of numerous American ports. Critics of the deal claim that this is tantamount to “outsourcing” national security, given the vulnerability of ports for terror attacks or as an entry point for Al-Qaeda operatives. This outsourcing argument comes in several forms, including:
  • “America would not be in control of her own security”
  • “Foreign states, especially those related to terrorism in the past, cannot be trusted with strategic American assets”
  • “Foreign countries should not have managerial responsibilities over ports due to divided loyalties and concerns over national independence"


Support for the deal

Editorial support for the deal came from publications including the Financial Times, The Wall Street Journal, the Los Angeles Times, The Washington Post, The Economist and commentators including Tony Snow, Thomas Friedman, Rush Limbaugh, former president Jimmy Carter, John Warner, and Bill O'Reilly. In addition Senator John McCain stated he believed Americans "should trust the President on this issue."

Former President Bill Clinton advised top United Arab Emirates officials on how to address growing U.S. concerns over the acquisition, but later stated "He told them that he didn't know the details about the deal". In a press conference his spokesman Jay Carson stated Clinton "felt that any ports deal should be subject to the full scrutiny process and should also take steps to make ports safer, not maintain the status quo". However, his wife Senator Clinton was publicly opposed to the deal. Clarified in the same interview: "Like Senator Clinton and many others, he is concerned about foreign state ownership of our ports, and, to this end, he is supportive of her legislation," Carson told CNN.

Former Senate Majority Leader and 1996 Republican presidential candidate Bob Dole was a special counsel in the Washington office of the law firm Alston & Bird. DP World hired the firm in 2005 to help shepherd its purchase of the British-based firm Peninsular and Oriental. His wife, North Carolina Republican Senator Elizabeth Dole, has also raised questions about the Dubai-based company. The chairman of the North Carolina Democratic Party, Jerry Meek, publicly called on Sen. Dole to remove herself from "any congressional oversight" of the Dubai port deal and stated "The fact that Dubai is paying her husband to help pass the deal presents both a financial and ethical conflict of interest for Senator Dole".

The Bush administration and other supporters of the deal made the following arguments:
  • The U.A.E. has proven itself a strategic partner by allowing the U.S. military access to its land, ports and airspace for basing and operations in Iraqmarker and Afghanistanmarker;
  • The U.A.E. has allied with the U.S. in the Global War On Terror;
  • Blocking the transfer of operating rights held by a Britishmarker firm to an Arab firm appears discriminatory against Arabs;
  • Security would remain a government responsibility as always, and performed by the United States Coast Guard and U.S. Customs and Border Protection.


Israel's largest shipping firm, Zim Integrated Shipping Services, came out in support of the deal.
"During our long association with DP World, we have not experienced a single security issue in these ports or in any of the terminals operated by DP World... We are proud to be associated with DP World and look forward to working with them into the future." Zim Integrated Shipping Services CEO, Idan Ofer, February 22 2006.


The controversy came shortly after the World Trade Organisation's Doha Round of global trade talks. At which many member states called for the U.S. to open up its ports to international competition, in the same way that other industrialized nations have pushed poorer countries into opening up their service sectors (e.g. water, telecoms, etc.).

The DP World controversy has reinforced fears in the Middle East that investments in the United States have become politically risky for Arabs and Muslims. Some commentators, have expressed concern that the controversy is being driven by racist hysteria, notably James Zogby of the Arab American Institute. This view is also shared by business leaders active in U.S.-Arab trade such as David Hamod, president of the National U.S.-Arab Chamber of Commerce.

References

  1. Lou Dobbs told to Shut up, Crooks and Liars, February 27, 2006, retrieved March 11, 2006
  2. Hillary Clinton 'unaware' of Bill's Dubai ties by Stephanie Kirchgaessner, MSNBC, March 4, 2006, retrieved March 11, 2006
  3. John Gibson: U.S. Ports Should Be Off Limits to Foreign Companies by John Gibson, FOXnews.com, February 24, 2006, retrieved March 11, 2006
  4. Peter King: Dubai Ports Company in 'al-Qaida Heartland', NewsMax.com, February 20, 2006, retrieved March 23, 2006
  5. Barack Obama stated "we're allowing our port security to be outsourced to foreign governments"
  6. 02-23-2006 - Opening Remarks at Senate Armed Services Committee Briefing on Port Security : Senator Carl Levin: News Release
  7. Tony Snow: It's time for cooler heads to prevail, by Tony Snow, townhall.com, February 24, 2006, retrieved March 11, 2006
  8. Port controversy could widen racial chasm - Thomas L. Friedman, New York Times, February 25, 2006
  9. Limbaugh, O'Reilly favor deal, while Savage, Hannity oppose, WorldNetDaily, February 24, 2006
  10. Jimmy Carter backs Dubai Ports World deal, NewsMax.com, February 21, 2006, retrieved March 11, 2006
  11. Dubai Firm Sought U.S. Security Probe, by Jonathan Weisman, washingtonpost.com, February 27, 2006, retrieved March 11, 2006
  12. (subscription required)
  13. (subscription required)
  14. (subscription required)
  15. Page expired - MSN Money


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