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The UAE purchase of American port facilities

Author: Eben Kaplan
February 21, 2006

Introduction

Dubai Ports World (DP World), a United Arab Emirates (UAE)-owned company, recently bought the British-owned Peninsular and Oriental Steam Navigation Company (P&O). Effective March 2, the purchase gives Dubai Ports World control over facilities in six U.S. ports: New York, Miami, Newark-Port Elizabeth, Philadelphia, New Orleans, and Baltimore. Politicians in affected states and cities have raised alarms in the media over vital infrastructure "falling into Arab hands." Others in Washington are questioning the Bush administration's quick approval of the sale and are working with local officials to block the takeover through legal and legislative channels.

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What is the primary objection critics cite?

Critics point to the fact that two of the 9/11 hijackers were from the UAE and that the emirate was used as a financial and operational hub by al-Qaeda. Some say the UAE-owned company operating portions of U.S. ports could provide a link for terrorists to transport operatives and/or weapons into the United States.

Congressman Peter King (R-NY), chairman of the House Homeland Security Committee, told the Associated Press federal approval of the sale was focused on how the "company carries out its procedures, but it doesn't go to who they hire, or how they hire people. They don't address the underlying conditions, which is how are they going to guard against things like infiltration by al-Qaeda or someone else; how are they going to guard against corruption?"

Does foreign ownership of terminals make ports more vulnerable?

Not really, experts say. The UAE is considered a U.S. ally in the "war on terror," and many experts see the fact that the 9/11 hijackers used the UAE as a hub are irrelevant. As Stephen Flynn, CFR's Jeane J. Kirkpatrick Senior Fellow for National Security Studies, points out, shoe-bomber Richard Reid was a British citizen, yet no objections were raised over the U.S. operations of P&O, a British company. Senators Hillary Rodham Clinton (D-NY) and Robert Menendez (D-NJ) have indicated they will propose legislation banning the sale of terminal operations at U.S. ports to foreign entities. But the majority of port terminals across the country are foreign-run. For instance, more than 80 percent of the terminals in the largest U.S. port, the port of Los Angeles, are operated by foreign companies. Representative King's objections over internal workings of DP World are more reasonable, experts say, but the same concerns could be raised over most other shipping companies, U.S. and foreign-owned alike.

Who runs DP World?

The company is a state-owned entity of the UAE, a Persian Gulf monarchy. Yet many of its senior leaders are Americans, including the Chief Operating Officer Edward "Ted" H. Bilkey, who was sent to Washington to assuage fears over the company's recent acquisition. A former DP World executive, David Sanborn, was recently nominated by the Bush administration to be the U.S. Maritime Administrator. With the $6.8 billion purchase of P&O, DP World is now the third-largest port-operator in the world.

Was there any government oversight of the sale?

The Bush administration signed off on the February 13 sale of P&O to DP World only after unanimous approval by the Committee on Foreign Investments in the United States (CIFUS), a twelve-member, interagency body that evaluates the security implications of such transactions. Any dissenting objections within that committee would have triggered a 45-day review. Congress had thirty days to object to the sale once CIFUS approved the deal, but no objections were raised. Many lawmakers are now calling for an in-depth review, but their thirty days have expired. Speaking at CFR on January 19, Deputy Secretary of the Treasury and CIFUS Chairman Robert Kimmitt said his committee does "good job of assessing the risk" of this sort of foreign investment.

What’s the significance of a foreign company operating terminals in a U.S. port?

While foreign and U.S. companies are able to lease terminals in American ports, the ports remain publicly owned. Each company is responsible for moving ships and goods in and out of their terminal, and may even hire a private security firm, but the U.S. Customs and Border Protection remains responsible for checking the cargo and the U.S. Coast Guard is charged with overseeing security. These responsibilities are mandated by the Maritime Transportation Security Act of 2002. An analogous relationship may be seen in U.S. airports, where foreign airlines may lease a terminal, but the U.S. Transportation Security Administration is responsible for security.

Which nationality will the workers be at the ports in question?

The workers who load and unload cargo from ships at U.S. ports are represented by the International Longshoremen's Association (ILA) on the East Coast and the International Longshore and Warehouse Union (ILWA) on the West Coast. These powerful unions deal with shipping companies directly and all the union members are U.S. citizens. As ILA spokesman James A. McNamara told the New York Times, "Any movement of cargo from the bottom of the ship to the tailgate of the truck leaving the port is handled by ILA labor." While not as highly organized as the dock workers, experts say most private security personnel and shipping company staff at U.S. ports are also likely to be U.S. citizens.

What are some other security concerns at U.S. ports?

The greatest security concern is the estimated 9 million containers that enter U.S. ports every year. The volume is so vast, that only a small percentage of these containers can be effectively searched, Flynn says. In many ports from which U.S.-bound cargo originates, there is little security oversight, which makes it possible to fill a container with people or weapons intended to harm the United States. The gravest concern is that terrorists could smuggle a weapon of mass destruction into the United States in an unchecked container. Another growing concern is the vulnerability of shipments of liquefied natural gas—an increasingly important energy source—to terrorist attacks while in U.S. harbors.

Why are the majority of U.S. port terminals operated by foreign companies?

Most U.S. port terminals are operated by foreign companies because most shipping companies are foreign owned. These companies want to have their own terminals to ensure their ships can quickly discharge and receive new cargo, Flynn says. Operation of a port terminal is first and foremost "a commercial activity," says Chuck Carroll, executive director of the National Association of Waterfront Employers. "[Companies] want to control the terminal business for their customer relations."

What sets DP World apart from other foreign companies controlling terminals at U.S. ports is that DP World is state owned. According to Carroll, the only other state-owned shipping company to have leased a U.S. port terminal is the Singaporean company Neptune Orient Lines.

Have there been other objections to foreign ownership of U.S. resources?

Yes. Most recently, congressional uproar prevented the sale of Unocal, a U.S. energy company, to CNOOC, a Chinese company. In 1999, much uproar was caused when Hutchison Whampoa, another Chinese company, signed a lease giving them control of the shipping yards that line the Panama Canal.

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