Dubai ports deal

Issue in Brief

In January 2006 the US okayed the sale of P&O, a port management firm that leases terminals in six US cities, to a United Arab Emirates company, Dubai Ports World. The sale set off a political frenzy with lawmakers railing over the risks of giving a Muslim Arab state-owned company - with a once questionable terrorist record - any role in US ports.

While most in Congress jumped on the tough-on-terrorism soap box, the president - along with most experts, think tanks and editorial boards - say the reaction to the port deal was just shy of silly. Nonetheless, Republicans and Democrats alike lined up to pass bills to tank the sale, to revamp the rules for future sales of security-related companies to foreigners and to beef up port security.

In March 2006 Dubai Ports announced it would "transfer" P&O to an American company (it later clarified that "transfer" means "sell" - which it did indeed do in December). While the deal got killed quickly, it took Congress longer to move on legislation to change how foreign deals are okayed and how port cargo
is inspected. A final port security bill was passed in September 2006, but cargo security is back on Congress' homeland security agenda in 2007. New rules on approving foreign purchases of security-related US companies were passed in July 2007.

The critics - and their critics

Those that questioned the sale said it was poor judgment to give a company that is owned by a Muslim Arab nation control over US ports without a thorough investigation to make sure the company is safe from terrorist infiltration. As a point of procedure, they also said the administration flubbed up its own rules which require a 45-day investigation if a buyer is owned or controlled by a foreign nation. Although experts mostly agree that the Dubai Ports deal is safe, the worriers are not completely without sense: an undated Coast Guard memo also states concerns about the Dubai Ports purchase.

Pretty much everyone who's not a politician - including the conservative Heritage Foundation, the Washington Post, LA Times (calling the reaction to the deal a "bipartisan hissy-fit") and Wall Street Journal - agreed the concerns about the deal were mostly political hype (the NY Times, however, gives the politicians some cred). They point out that foreign owned companies already run 30% of our port terminals (NYT) (or "most" according to CFR)
and that the UAE has become a strong ally in the fight against terrorism since 9/11. Also, even though Dubai Ports would own a port operation, all the cargo handlers and most other staff would still be US citizens (CFR) and all security issues would be run by the US government. And then there's the argument that Dubai Ports has a big incentive not to blow, literally, a $7 billion investment.

Some say the political ado could have its own negative impact on the war on terror - that the over-the-top reaction to the deal, which smacks of anti-Arabism/Islam, could harm our efforts to make nice with Muslim Arab nations. It could also put a chill on foreign direct investment in the US, at a time when the US economy (due to its trade deficit) depends on growing foreign investment.

Even though the editorialists and think tanks of America think the port fracas is a lot of hot air, many agreed a 45 day investigation wouldn't hurt any. Some urged Congress, however, to look at some of the larger problems with port security (see facts and explainers below for a glimpse of those concerns).

More on the sale and how it was originally okayed

Since 1988, the Committee on Foreign Investment in the United States (CFIUS) has been in charge of approving foreign buyouts that could have national security implications. Normally CFIUS only does a 30 day "review" of sales, but if necessary it can add on a 45 day investigation (only 20 of 1,500 CFIUS deals have received the 45 day treatment, according to Forbes). Under some circumstances - if the committee doesn't unaninously approve the sale (CFR) or if the buyer is under the control of a foreign country (UST)
- the 45 day investigation should kick in automatically. Once CFIUS okays a deal, the president has 15 days to give his stamp of approval and inform Congress of his decision. Congress then has a 30 day window to put a deal on hold and request an investigation if one hasn't happened already. (UST)

For the P&O sale, Dubai Ports filed its formal notice of the deal on December 16, 2005, and CFIUS gave their okay on January 17 (Congress Daily), with the sale slated to go into effect on March 2. No 45 day investigation happened, even though Dubai Ports World is state controlled. (It's not crystal clear, however, that this was breaking any rules; according to the Treasury Department's website, an investigation is necessary if a company is state controlled and the deal poses a national security risk. At the same time, CJ thought that was true of all deals that CFIUS had to approve. We dunno.)

Status of Dubai Sale

Dubai Ports World announced on March 9 it would "transfer" P&O to an American firm. The dailies were all at a loss to what "transfer" means - sale? put under new management? - but on March 15, Dubai Ports clarified they mean "sell." At the same time, some wonder who will want to buy the hot potato holding. (WP, NYT)

Follow up in Congress

The pullout announcement didn't stop congressional fervor to get tough on port security. Some lawmakers pushed to stop all future sales of port operations to foreign state-owned companies (NYT) or, going even further, to require that all foreign companies that own US operations critical to national security sell off those holdings. (USAT)

In the end, Congress opted for less radical action: in 2006, both chambers voted to revamp CFIUS to give Homeland Security and Congress more involvment (AP, WP). A final bill was passed in July 2007.

Congress also passed a bill to increase dollars and security requirements for US cargo inspections, which was signed into law by the president in October 2006. The final bill fell short of its earlier more generous versions, only okaying a total of $4 billion in local funding through 2011, but it required radiation scanning at the US's busiest 22 ports for all containers and sets a deadline for a transportation screening and IDing system. (WP) A pilot program to screen all US-bound cargo at foreign ports for nuclear material will start in February, 2007 - at three ports (WP).

In 2007, Congress put port security back at the top of their agenda, with the House voting to require that all incoming cargo be inspected for WMD at foreign ports by 2012. The Senate is slated to follow up with a similar - but possibly less far-reaching - bill in early 2007. (WP)

Some facts and explainers on ports and port security

Since 9/11, the US has put considerable energy and money into improving port security, but many critics worry its efforts fall short of what's needed to keep us safe. Two post-9/11 intitiatives are responsible for most of the progress; the Container Security Initiative (CSI) sets up deals with foreign ports to vet and inspect suspicious containers before they arrive in the US; the Customs-Trade Partnership Against Terrorism (C-TPAT) gets companies to voluntarily follow security measures in return for getting an easier ride through customs.

  • How much container cargo are we talking about: 90% of the world's cargo travels in containers and half of our imports (by value) arrive in ship containers (GAO) (pdf). 10 million containers (CRS -pdf) arrive at US ports a year.

  • How much gets inspected:

    • About 5.6% of containers that come to the US are inspected for WMD (NYT and Heritage). That's almost triple the 2% that were inspected before 9/11. (Brookings)

    • 60% of containers are screened for radioactive material, but - according to the GAO, even when the alarm bells go off it's easy to hoodwink the border guards (NYT). As reported in CongressDaily, Homeland Security says it will be screening 98% of of containers by the end of 2007.

  • Mo' money. Many say port security needs more money, but the numbers vary. (Grain of salt alert: there's not a governmental agency that doesn't think Congress should give it more money).

    • The Coast Guard's budget has gone up from $2.5 billion to $3.7 billion from '01 to '05. (CBO - pdf)

    • The US has spent $1.6 billion on port security since 9/11, but the Coast Guard estimates that it would need $7 billion to meet security standards, according to NYT.

    • The Association of Port Authorities (pdf) clarifies that the Coast guard would need $5.4 billion over the next 10 years to get up to snuff. It also advocates that ports get $400 million a year in Homeland Security grants (so far they say they've only got $700 million since 9/11).

  • Container Security Initiative (CSI):

    • How CSI works: Foreign ports wire the US info on all cargo 24 hours before being shipped. That gives US customs time to weed out suspicious cargo that the foreign port will then inspect with heavy duty scanning machinery before setting sail. A NYT's article and graphic give a bigger picture.

    • CSI's record: Today CSI is working in 42 ports around the world, including the port of Dubai (NYT), covering at least 2/3rds of all cargo coming to the US (GAO - pdf). In 2004, the Government Accountability Office found a lot of cargo slipping through the system: 35% of containers weren't even considered for inspection and 28% of containers flagged as high risk didn't receive a high tech scan before coming to America (of those that were scanned, btw, none had WMD). GAO (pdf)

    • $: The CSI budget was $126 million in 2005.

  • Customs-Trade Partnership Against Terrorism (C-TPAT)

    • How C-TPAT works: Customs set up a multi-step process for "certifying" and "validating" shipping companies as an incentive to improve internal security measures. In return, shippers are less likely to go through rigorous customs inspections.

    • C-TPAT's record: Again looking at the 2005 GAO report, 9,000 companies had signed on as C-TPAT members, but only 5,000 shippers' applications were strong enough to get them "certified" and only 550 had since gone through the second, more rigorous step of being "validated." Congress Daily reported in March, 2006 that the number of validated companies was up to 1,545 out of 10,000. If that doesn't make you nervous, you'll be unhappy to hear that the validation process doesn't use any universal standards, but leaves it up to the company to set its own goals (GAO - pdf).

Also worth looking at:

  • A Council on Foreign Relations' fellow's recommendations for improving port security.

  • A previous CFIUS chairman recommends how Congress can have more oversight over CFIUS without chilling foreign investment.

  • Anne Applebaum lists some "critical infrastures" that are already foreign owned.

  • The Council on Foreign Relations looks at the lingering questions of port security and foreign ownership of critical infrastructures.

  • The Wall Street Journal explains why foreign investment in the US is a good thing, and getting Congress involved is not.

Updated July 15, 2007

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