Senate Revolt

After emerging victorious from a four-month bidding war for the coveted portfolio of P&O's ports, Dubai-based operator DP World could be forgiven for thinking that the worst was behind it. But before the ink was dry on the takeover agreement, a firestorm had broken out stateside.



On February 13, the P&O board of directors approved a $6.8bn takeover by DP World to acquire all of the British company's holdings - including major US ports in New York, Newark, Philadelphia, Baltimore, Miami and New Orleans.



Since then, in a rare bipartisan alliance, both US Republicans and Democrats have petitioned the Bush administration to block the deal.



"I would urge the president to freeze the contract, hold this contract, until a full and thorough and complete investigation can be conducted," said New York Republican Peter King, chairman of the House Homeland Security Committee, according to CNN.



Senator Bill Frist, the majority leader, is the highest ranking Republican to oppose DP World's takeover, threatening on February 21 to go as far as putting legislation in place to block the deal.



Also joining the growing cacophony of Republicans are high-profile Democrats such as Senator Hillary Rodman Clinton from New York and Senator Robert Menendez from New Jersey. Menendez has called for more due diligence into investigating DP World, echoing King's and Senator Frist's claim that there is too little known about the company.



Yet despite the swelling opposition from Capitol Hill, President Bush has strongly backed the deal. A committee of Bush's senior national security advisors, known as the Committee on Foreign Investment in the United States, signed off on the takeover mid February.



Bush has also continued to come out strongly in favour of DP World, saying that any attempt to block the deal would be met with his first veto in six years of office.



"I am trying to conduct foreign policy now by saying to the people of the world, 'We'll treat you fairly'," said Bush to reporters on February 21. "It would send a terrible signal to friends and allies not to let this transaction go through."



Bush went on to say that the acquisition would carry no threat to US national security and said that the UAE, the full owner of DP World, has been an invaluable ally in the "war on terror" since September 11, 2001.



Speaking to the Dubai-based Gulf News last week, DP World Chairman Sultan Ahmad Bin Sulayem said "We are very encouraged by those remarks and what [Bush] said."



However, this was clearly not enough to quell the rebellion on Capitol Hill. Faced with continuing opposition, DP World itself then called for the US government to conduct an additional investigation into the take over, to ease the concerns of the politicians.



This review was then agreed by President Bush, although it has so far failed to persuade some lawmakers, who on February 27 agreed to press ahead with legislation to block the deal.



Critics had early shown they were undaunted by the US president's views, claiming they were prepared to escalate the situation.



"If the president wants to veto this, go ahead - we'll override the veto," Pennsylvania Republican Curt Weldon, a member of the House Homeland Security Committee, told reporters.



This is not the first time that US lawmakers have risen to block a foreign acquisition on American soil.



In August 2005, the Chinese National Offshore Oil Corporation (CNOOC), China's third-largest oil producer, withdrew its $18bn bid for UNICAL Corp, the California-based oil company, after heavy opposition from politicians.



This is, however, the first time that an Arab company has tried to takeover interests that many see as vital to US national security. The reluctance to embrace a Middle Eastern interest has led to accusations of xenophobia - or even worse, of racism - by those who see this as another example of anti-Arab bias.



Some senators have made allegations that the UAE's ports have been used as transit points for weapons, while Emirati banks have been used to channel al-Qaida funds. They have also said that several September 11 hijackers came from the UAE.



Overshadowing this political debate, however, is another one about the viability of turning US ports over to government-owned foreign operators.



Many US ports are owned by foreign companies - such as APM (Demark), APL (Singapore) and P&O (UK) - but none of these companies is owned 100% by a foreign government, as DP World is.



While there is certainly concern over the fact that the company is run exclusively by Dubai's ruling family, the more pressing consideration is that DP World does not publish annual results, and is not listed on any stock market - meaning it lacks the transparency of other large port operators.



"I just don't believe that our ports should be handed over to foreign governments," Senator Menendez said, according to the New York Times, insisting that his objections are not based only on the fact that the company is from the UAE.



This is a far wider argument, and one that the US will certainly have to come to grips with as it considers whether control of port management by other countries presents a security risk.



Dubai as well would be wise to listen carefully to this dialogue, because many of its fully-owned government - and non-listed - companies are busily engaging in overseas infrastructure acquisitions, such as Etisalat in telecoms, Dubai International Properties in real estate, and Dubai Aerospace Enterprise in foreign airports, aircraft leasing, manufacturing and other international aviation ventures.



These are bigger picture questions, and for the time being DP World has not made any comments, leaving a UAE envoy set to arrive in Washington to sort through what has turned from an economic matter into a political one.



DP World knew that it would have to battle hard to win P&O's portfolio, but as the momentum keeps building, it seems that another tough round of negotiations lies ahead - this time swirling around the touchy flashpoint issue of US national security.