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Questions Loom After Dubai Pullout

Prepared by: Eben Kaplan
Updated: March 10, 2006

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In a globalized world, preserving national security while promoting economic strength is a daunting challenge for any nation's leadership. Determining the proper balance between these interests is at the heart of a debate that has raged in Washington in recent weeks. As explained in this CFR Background Q&A, the furor began when Dubai Ports World bought the British shipping company P&O, giving the United Arab Emirates-owned company control over terminals in six major U.S. ports. Originally slated to take effect March 2, the deal was postponed at the behest of Congress so that the Committee on Foreign Investments in the United States (CFIUS), the body responsible for considering the security issues of foreign investment, could conduct a 45-day review. In the midst of the review, on March 9, Dubai Ports World bowed to continued pressure from Congress (LAT). The chief operating officer said in a statement the company will give up its stake in American ports and "transfer fully the U.S. operations...to a U.S. entity" (PDF).

The case of Dubai Ports World highlights the broader issue surrounding security of what is known as "critical infrastructure" in the United States. Foreign companies already are heavily invested in many of these sectors, as explained in this CFR Background Q&A. On March 2, Todd Malan, chief executive officer of the Organization for International Investment, told the House Financial Services Committee that foreign companies produce more than one-fifth of U.S. exports (PDF). One Congressional Research Service report looks at the process for weighing the security risks of foreign investments, while another examines the extent of such investments in the United States (PDF).

The debate in Congress has focused new attention on port security in general. Testifying before the House Armed Services Committee, CFR Senior Fellow Stephen Flynn said this is "long overdue given the enormous national security and economic security stakes." As political tensions subside, it remains imperative that policymakers stay focused on this larger issue (NYT).

The specifics of the new deal, including which U.S. company will take over, remain unknown. Also unclear is to what extent the maneuver will subdue the heated debate in Congress. More than a dozen bills (NPR) have emerged in the House and Senate in response to the initial deal. One far-reaching proposal (PDF), submitted by Representatives Duncan Hunter (R-CA) and Jim Saxton (R-NJ), would essentially ban foreign ownership of critical U.S. infrastructure. The bill leaves "critical infrastructure" open to the interpretation of the Bush administration, which in a 2003 report (PDF) used the term to include such industries as food, water, energy, telecommunications, and banking.

For Dubai, the decision to cede control comes at a time when Dubai is taking big steps to enter the global economy. Youssef Ibrahim, a Dubai-based investment consultant and former Middle East correspondent for the New York Times, tells cfr.org's Bernard Gwertzman recent changes in Dubai are "nothing less than revolutionary."

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