February 24, 2006
by Irwin Stelzer
Dumb, dumber, dumbest. Dumb: Democrats who think voters will ignore all of their votes against tighter security if they oppose the transfer of the management of some operations in six ports to state-owned Dubai Ports World (DP World). Dumber: Republicans who immediately hopped on the anti-deal bandwagon for fear of being outflanked on the right by the Democrats. Dumbest: President Bush’s staff, none of whom thought to mention to the president that a company owned by an Arab government was spending $6.8 billion to buy P&O, the venerable Peninsula & Oriental Steam Navigation Company, established in the year in which Queen Victoria acceded to the throne. The company manages 29 ports around the world, among them facilities in Miami, New York, New Jersey, Baltimore, Philadelphia and New Orleans.
Bush, forced to admit that he didn’t know about the deal or its approval until he read about it in the papers, was late engaging his critics. In addition to the usual gaggle of politicians eager to position themselves to the right of the president on national security issues by pandering to public fears about terrorist shipments of nuclear and other materials, he faced opponents genuinely worried about national security. After all, two of the attackers on the World Trade Centre were citizens of the United Arab Emirates (UAE), of which Dubai is a component state; Dubai is alleged to be home to some of the banks that laundered money for the attackers; and A.Q. Kahn’s nuclear-smuggling network hid behind a Dubai front.
In his fight-back Bush is pointing out that Dubai has cooperated with the US in the war on terror: it has arrested several key Al Qaeda operatives, welcomed visits by American naval vessels, provided landing rights for US aircraft at its strategically located airport, and cooperated in the inspection of cargoes headed for American ports.
That record might have been enough to ease public concerns had the administration not badly mishandled the approval process. The transaction was approved by the Treasury’s Committee on Foreign Investment in the United States (Cifus), a multi-agency body set up in 1975 to consider the national security implications of foreign acquisitions. But the Committee operates in secrecy, and has no formal obligation to keep congress informed of its deliberations and decisions. That it should have done so anyhow is now clear, as administration backers from Karl Rove on down freely admit.
Even the president’s natural supporters were caught on the hop, leaving them little choice but to ride the negative wave of public reaction lest they drown in it. Unlike the president, many congressmen must face the voters later this year and in 2008.
Unfortunately, the White House has been piling new errors on old. First, the president threatened to veto any legislation that might force a reevaluation of the security implications of turning port management over to a Dubai company. But the president has never used that power, no matter how spendthrift or antithetical to his views the legislation put on his desk has been. That history, combined with his decision late last week to delay final approval to give congress time to consider the transaction, has led some in congress to conclude that the president is bluffing, and at minimum will give lots of ground before uncapping his veto pen.
Second, the White House trotted out Homeland Security Secretary Michael Chertoff to reassure the public – just as congress was issuing a report detailing his agency’s inept handling of the aftermath of hurricane Katrina.
Third, it sent confusing messages. Defense Secretary Donald Rumsfeld issued a statement saying, “Nothing changes with respect to security under the contract.” Simultaneously, an official at the Department of Homeland Security contradicted Rumsfeld by listing a series of changes made with respect to security, implying that additional “safeguards” are required precisely because the acquirer is owned by an Arab state. Not unreasonable, given the facts that so many terrorists are Arabs, and that DP World, being government-owned, has no obligation of transparency to shareholders, as did P&O, and might some day come under pressure from terrorists to cooperate lest Dubai’s immunity from terrorist attack become a thing of the past.
All of this sturm und drang will probably result in congressional legislation forcing further review that includes congress in an oversight role. But there is no question that the president will eventually bless the transaction, and that Senator Hillary Rodham Clinton and other Democrats preparing for a presidential run in 2008 will continue to oppose it, attempting to override a veto should it come to that. This is the best chance they have had to appear tougher on terrorists and national security than the Republicans since the twin towers were brought down.
Most important, the trade-offs involved in this decision are now more complicated than they were before the public furor. Against any possible security problems created by Arab control of some port operations, and all disinterested experts say these are negligible, must be weighed the geopolitical consequences of telling a friendly Arab state that it is unwelcome in America after a widely publicized brawl about its suitability to replace another foreign investor (Britain’s P&O) to which there were no objections.
That’s not all. If America puts down an unwelcome mat for Dubai, it will also be sending a signal to foreign investors in China, Russia, and the Middle East that hostility to foreign investment is so great that they might wish to dump their hoard of dollars onto the currency markets, rather than invest them in US assets. America might, indeed, properly decide after careful consideration that foreign investment by companies owned by states hostile to the US is a bad thing. Such enterprises operate in the geopolitical interests of their countries, rather than solely in response to market forces. But such a policy should be adopted only after calm study of the effects of higher interest rates and other consequences of such a move towards autarky, not during a highly politicized debate between Democrats seeking to embarrass the president, and a White House that has elevated inarticulateness to new heights.
A version of this article appeared in The Sunday Times (London) on February 12, 2006.
Irwin Stelzer is a Senior Fellow and Director of Economic Policy Studies for the Hudson Institute. He is also the U.S. economist and political columnist for The Sunday Times (London) and The Courier Mail (Australia), a columnist for The New York Post, and an honorary fellow of the Centre for Socio-Legal Studies for Wolfson College at Oxford University. He is the founder and former president of National Economic Research Associates and a consultant to several U.S. and United Kingdom industries on a variety of commercial and policy issues. He has a doctorate in economics from Cornell University and has taught at institutions such as Cornell, the University of Connecticut, New York University, and Nuffield College, Oxford.
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