US Firms Fear Blowback on Ports Debacle

U.S. lawmakers who killed a deal that would have transferred management of terminals in six U.S. ports to an Arab company say they will forge ahead with legislation targeting foreign ownership of critical U.S sectors.

The plans sent shockwaves through U.S. business groups, who are worried that such a move could discourage international investment in the U.S. and invite retaliation against U.S. corporations abroad.

The United Arab Emirates-owned company, DP World, said Thursday that it was abandoning its quest to take over six U.S. ports, a day after Congress’ House appropriations committee voted 62-2 to bar DP World from holding leases or contracts at U.S. shipping facilities.

However, Congressional leaders vowed that they would still pursue new regulations banning foreign ownership of infrastructure related to national security, such as domestic airlines, and alter what is now a controversial review process of such deals.

One proposal under consideration in Congress would establish citizenship and other requirements for companies that own or control critical infrastructure assets, and would require existing foreign owners to divest their shares in those companies.

The proposals would change how Committee on Foreign Investment in the United States (CFIUS), which represents 12 U.S. departments and agencies, vets deals for their national security implications.

This week, Duncan Hunter, a California Republican and chairman of the House Armed Services Committee, co-sponsored the National Defense Critical Infrastructure Protection Act of 2006, which defines "critical infrastructure" as "any system or asset, physical or virtual, that is so vital to the United States that the incapacity or destruction of the system or asset would have a debilitating effect on national security, economic security or public health and safety."

Democrats in Congress also vowed to make the controversial ports deal a major issue in the upcoming midterm congressional elections.

"We feel Dubai Ports World has given us a great opportunity to talk about these issues and how we would do things differently," said Senator Charles E. Schumer, a Democrat from New York who had sponsored an amendment to bury the DP deal.

U.S. businesses initially stayed silent during the firestorm, giving only tepid backing for the DP deal, but the rising opposition in Congress that has now extended to possible action against all foreign investments in the United States has clearly nudged them to speak out.

Bill Reinsch, president of the National Foreign Trade Council (NFTC), a business lobby group, said that such an action "would send the wrong message to our allies and potentially backfire on the United States."

This concern was echoed by numerous other business groups, including the U.S. Chamber of Commerce, the U.S. Council for International Business (USCIB), the National Association of Manufacturers (NAM) and the Business Roundtable, all important trade and industry lobbies.

The U.S. Chamber of Commerce said in a statement Thursday that Congress should not interfere in the review process, and warned that any legislation that alters the role CFIUS plays in deciding the viability of these types of sales could have dangerous implications for the future of foreign direct investment in the United States.

"While the security of the American people and our critical infrastructure must always be a top priority, implementing laws that could harm the health of our economy in the name of national security would be a grave mistake," said Bruce Josten, executive vice president for government affairs at the Chamber.

Several business groups have also written to congressional leaders urging them not to change the regulations.

"Foreign investments in shipping terminals at U.S. ports in particular have been significant. Yet while foreign companies may own and operate these terminals, U.S. national security at our ports has been and will continue to be managed by the U.S. government, including U.S. Customs and Border Protection and other units of the U.S. Department of Homeland Security," the groups said.

The United States has spearheaded a drive to eliminate trade barriers, often admonishing countries that protect their own local industries and using its political and economic clout to force open markets in developing nations.

U.S. business groups fear that the now-derailed DP ports deal could harden resistance to ongoing attempts by the George W. Bush administration and U.S. corporations to take a bigger bite of markets in the cash-rich Gulf nations, including the United Arab Emirates (UAE).

Meanwhile, talks were postponed Friday on a U.S.-UAE free trade agreement – a major step in the larger plan to establish a Middle East Free Trade Agreement (MEFTA), which the administration hopes will link the United States to 22 Arab nations and Israel.

MEFTA could potentially open a market of more than 300 million people to U.S. companies.

The USCIB said in a statement that the failure of the DP deal "damages both the credibility of the U.S. government and its ability to further our national security interests."

Business Roundtable President John J. Castellani warned that pending legislation in Congress "would also provide a road map for discrimination against U.S. foreign investment overseas."

According to the Roundtable, foreign investors in the U.S. employ over five million people here and invested almost 80 billion dollars last year alone.

In 2004, the most recent year for which data is available, foreign direct investment in the United States grew by eight percent, to 1.5 trillion dollars, following five percent growth in 2003. Foreign-owned companies have contributed almost 500 billion dollars per year to the U.S. gross domestic product, and account for one-fifth of U.S. exports.

Direct investment by Arab companies in the United States totaled roughly 9.3 billion dollars in 2004.

Read more by Emad Mekay