Congress tries to put brakes on DP World port sale
A group of bipartisan lawmakers demanded Thursday that the Bush administration conduct a thorough investigation of an international ports merger that would give the government of Dubai control of major U.S. marine terminals.
The members of Congress said they planned to launch hearings if the administration did not take a second look at the deal. Some suggested they would take legislative action to block the transfer of U.S. port assets if the president doesn’t veto the sale for national security reasons.
But analysts and industry observers said the deal is likely to stay on track because the security concerns are overblown.
At stake is state-owned Dubai Ports World’s proposed $6.8 billion takeover of London-based Peninsular and Oriental Steamship Navigation Co.’s (P&O) ports arm. P&O shareholders approved the sale Monday and the deal is scheduled to close March 2.
P&O Ports operates terminals in the Port of New York-New Jersey, Philadelphia, Baltimore, Miami and New Orleans. Critics contend that the United Arab Emirates, a loose federation of seven small states, has served as a financial transfer point for Al Qaeda and supports radical Islamic groups.
“Outsourcing the operations of our largest ports to a country with a dubious record on terrorism is a homeland security accident waiting to happen,” said Sen. Charles Schumer, D-N.Y. “This United Arab Emirates government-owned-and-operated company could be perfectly qualified to operate ports around the world. But the question that needs to be answered is whether or not they can be trusted to operate our ports in a post-9/11 world.
“How do we know they are not infiltrated? The UAE has had people involved in terrorism, some of its financial institutions laundered money for the terrorists. And to just blithely go ahead and treat this as just another economic transaction is all wrong,” Schumer said.
The four senators and three congressmen called on the Committee on Foreign Investment in the United States (CFIUS) to conduct a full, formal 45-day investigation of the proposed sale and whether it jeopardizes national security. The committee, which reviews foreign direct investments to make sure they don’t endanger U.S. national security, is led by the Treasury Department of Treasury and includes the secretaries of Homeland Security, Defense, Commerce, Justice, and State.
Schumer said the informal, 30-day staff review completed last week by the committee was inadequate for granting approval for such an important transaction. He also sent a letter to Homeland Security Secretary Michael Chertoff asking him to conduct a thorough evaluation of the security ramifications of the P&O sale and present his report to Congress within a month.
Some legislators said they were not necessarily opposed to DP World operating in the United States, but wanted the Bush administration to issue a report justifying its reasons for permitting the sale, rather than just letting it go through a “star chamber” proceeding behind closed doors. They said they were not satisfied by responses from administration officials that the panel’s discussions were private.
Schumer said he doubted the administration could satisfactorily address the security concerns surrounding DP World and Rep. Mark Foley, R-Fla., urged President Bush to deny permission for the sale.
“If the answers are not very good, we’ll move to get the administration to cancel this contract or do it legislatively,” Schumer at a news conference. “I approach this with a great deal of dubiousness. Even if the top of the company is pro-American, the chances of infiltration are just too great.”
Asked what remedies are available to Congress, a staff assistant for one senator said legislators could go as far as to pass a law that no foreign government entities can own or lease American ports, while expressing hope that such action would not be required.
In a letter to Treasury Secretary John Snow requesting the expanded investigation, the lawmakers expressed concern about Dubai’s role as a major transshipment point and lax controls that allowed Pakistani nuclear scientist A.Q. Khan to ship nuclear components through the port to Iran, North Korea and Libya. They also claimed that the UAE is one of only three countries that recognized the Taliban as the legitimate government of Afghanistan and that it did not cooperate with the U.S. government in trying to find Osama bin Laden’s bank accounts after Sept. 11, 2001.
The letter was also signed by Sens. Frank Lautenberg, D-N.J.; Tom Coburn, R-Okla.; and Chris Dodd, D-Conn., as well as Republican Reps. Christopher Shays, of Conn.; and Vito Fossella of New York.
Sen. Richard Shelby, R-Ala., and Rep. Ileana Ros-Lehtinen, R-Fla., have separately called for a full investigation.
Foley said the UAE is also undermining U.S. interests because it is in talks to develop more bilateral trade with Iran, which is moving forward with plans to build a uranium enrichment plant against the will of the United States, the European Union and the United Nations, which suspect Iran is building a nuclear weapons program.
“What happens if tensions between the United States and Iran escalate? Whose side do you think the UAE will land on?” Foley said.
Schumer acknowledged after the press conference that he doesn’t lump the UAE together with Saudi Arabia, which has been widely portrayed as having turned a blind eye to Al Qaeda operations and planning prior to 9/11, but added, “I’m worried about any kind of outsourcing (and) in the area of terror you look closer.”
The political maneuvering raised questions about whether legislators intend to make the approval process difficult enough that P&O or DP World might pull out of the deal on their own. At a minimum, the closing date could be postponed.
DP World’s offer contains conditions that CFIUS approve the acquisition in writing without an investigation, or in the event of an investigation, that the president lets the deal proceed, according to a copy of the bid presented to P&O shareholders. Under the Exxon-Florio amendment, CFIUS has 30 days from the time a seller notifies the government of an acquisition to determine if national security issues warrant a full investigation. If so, the panel has 45 days to make a recommendation to the president, who in turn has 15 days to determine whether to block the transaction.
Last year the Chinese oil company CNOOC pulled out of a bid for U.S. multinational oil company Unocal after Congress held hearings and decried the potential threat to national security.
More than four years after the 9/11 attacks, the U.S. government is still trying to implement a comprehensive maritime security strategy for port facilities, vessels, crews, and cargo to prevent a large-scale attack on a port that could shut down commerce for an extended period. Under a law passed in 2002, port facilities are required to take steps to protect maritime commerce, such as designating security officers, developing and submitting security and incident response plans, implementing approved security measures for access control, employee background checks, cargo handling, and physical infrastructure (fencing, video surveillance, etc.) and complying with maritime security levels.
The lawmakers suggested that DP World could compromise homeland security because it might not comply with these rules. Schumer even said that DP World would have complete control for screening the 95 percent of cargo not inspected by Customs and Border Protection, and that the vast majority of cargo would go uninspected, notwithstanding the fact that cargo inspections are strictly a government function.
Forella said handing control of strategic ports to the UAE is equivalent “to an official announcement that Dubai was taking over security at our airports,” an act that would outrage Americans because their government was delegating security to a foreign nation.
The congressman, who represents a district near the Port of New York-New Jersey, asked Homeland Security Chairman Peter King, R-N.Y., to hold hearings on why CFIUS agreed to allow DP World to operate U.S. ports, its impact on national security and what steps are being taken to make sure there are no security breaches.
“We just need assurances that there is going to be special care given to an examination” of DP World, Lautenberg said. “We are selling a major national resource.”
The Port Authority of New York and New Jersey also asked the Treasury department to share the results of its finding on DP World to help the port assess how the sale would impact its 30-year lease with P&O Ports to operate the Port Newark Container Terminal and conduct due diligence of a prospective tenant, according to a copy of the letter obtained by Shippers News Wire.
Lautenberg, a former commissioner for the port authority, also questioned whether DP World would discriminate against Zim Integrated Shipping Services Co., an Israeli container line, considering the fact that the UAE does not recognize Israel as a state.
But DP World handles cargo for Zim at many ports around the world. Tommy Stramer, president of Zim operations in the Americas, told Shippers News Wire his company has no concerns about DP World as a business partner.
“Zim welcomes the purchase by Dubai Ports, and we feel that most lines will get more fair treatment” because P&O often gave favorable access and rates to ships operated by P&O Nedlloyd, the company’s vessel arm recently acquired by Maersk Line. “We welcome this move very much,” Stramer said.
Other observers similarly downplayed Congress’ concerns as posturing because the United States has sufficient controls in place to make sure foreign companies comply with U.S. laws and national interests.
“They could be infiltrated whether they are owned by Americans too. This is something that should not amount into something that is a big deal,” said Harlan Ullman, a senior advisor on national security affairs at the Center for Strategic and International Studies in Washington.
DP World would create a legal U.S. subsidiary to do business in the United States and the board could be comprised of Americans who have security clearances, he said.
“They may own the company, but they don’t exercise complete leadership,” Ullman said. And if serious problems arose, “we could nationalize it.”
Legislation could also fix any deficiencies in the law without requiring the sale to be blocked, he said.
The Exxon-Florio law “mandates we can control how that company is run and if we are not smart enough to do it then it’s our problem, not theirs.”
Similar concerns were raised several years ago when Hong Kong-based Hutchison Whampoa, a giant conglomerate with holdings in telecommunications, real estate, hotels and port operations, sought to open terminals on the Panama Canal. Hutchison Port Holdings is the largest port operator in the world, and operates terminals on both sides of the Panama Canal.
“People were saying (the canal) will be dominated by mainland China. That was nonsensical because this was the capitalist of all capitalists,” Ullman said of Hutchison Chairman Li Ka-shing. “There was no way he was going to be the cat’s paw” and disrupt trade.
“Plus, the Chinese are as dependent on trade as we are. The problem was more of an invention than a reality,” Ullman said.
There are also other precedents for foreign companies operating in areas in which the United States has national security interests.
Maersk Line, a Danish vessel operator, acquired Sealand in the late 1990s and formed a North American subsidiary so it could comply with U.S.-flag requirements for chartering cargo ships to the U.S. military. Maersk is now the largest provider of commercial vessel transport and related services to the military under the Military Sealift Program.
U.S.-flag requirements were instituted when the U.S. maritime fleet began to disappear in the 1970s and 1980s because U.S. regulations and wages made it too hard to compete with foreign operators. Ullman said there are thousands of merchant ships, many owned by companies in NATO countries, which would be readily available if there was a wartime need.
“It was a non-issue where they were flagged. The issue was people wanted to keep the domestic fleet going,” but that was a tough argument for Congress to accept, he said.
The United States has also taken a back seat to the rest of the world when it comes to port operations, practically ensuring that foreign companies will operate and control domestic port operations. Many terminals in the United States are operated by foreign companies. The only significant American terminal operators left are SSA Marine and Maher Terminals, at the Port of New Jersey.
Last February, DP World completed the acquisition of CSX World Terminals from Jacksonville, Fla.-based CSX Corp., which owns a major U.S. railroad. CSX owned terminals in Hong Kong, Tianjin and Yantai in China, and had operations in Australia, Germany, Dominican Republic and Venezuela, but none in the United States.
If the U.S. government was concerned about a foreign entity controlling a significant amount of activity in U.S. ports it should have made that decision a long time ago, said Mark Johnson, a vice president for SSA Marine.
“The United States generally encourages investment in infrastructure regardless of nationality, unless of course there are antitrust or national security concerns,” Johnson said. “In so far as our maritime industrial base is concerned, U.S. policy has consistently allowed acquisitions by foreign entities that have generated American jobs and a considerable amount of tax revenue for states and the federal government.”
Johnson, who previously worked at Maersk, said foreign ownership of port facilities does not pose a security threat and predicted that the DP sale will still go through.
“When you go through these acquisitions, there is fair amount of scrutiny. The endeavor is not taken lightly and therefore the government takes a serious look at transactions that could have national security implications,” he said.
The Financial Times quoted a Treasury Department spokesman as saying the administration would not reopen its review unless evidence emerged that DP World had given CFIUS false information.
U.S. Surface Deployment and Distribution Command recently renewed a contract with P&O Ports to provide stevedoring services for military equipment at ports in Beaumont and Corpus Christi, Texas, an indication that the Defense Department also appears comfortable with the DP acquisition.
DP World was created last November when the government combined the Dubai Ports Authority with Dubai Ports International, essentially merging the domestic and international port businesses.
If the acquisition goes through, it would make DP World the world’s third-largest port operator with a combined throughput of more than 33.3 million TEUs.