DP World and U.S. Port Security


On March 2, 2006, state-owned Dubai Ports World (DP World) received final approval from the British High Court to acquire the British port operator Peninsular and Oriental Steam Navigation Company (P&O). Among its international operations, P&O provides terminal operations and stevedoring services to 21 ports along the U.S. Atlantic and Gulf coasts. The acquisition had previously received approval from the U.S. government's Committee on Foreign Investment in the United States (CFIUS, see below) on January 17, 2006. Attention was not drawn to the deal until Singapore-based PSA--another major terminal operator--dropped its competing bid to acquire P&O on February 10, 2006, leaving the way clear for DP World. Since then, debate over the DP World deal has engulfed Washington, D.C. in a political firestorm. Politicians in the U.S. Congress from both parties expressed anger that they had not been informed of the deal either before or after CFIUS approved it and expressed concern over the security implications of an Arab state-owned company being given access to U.S. ports. Some members of Congress have threatened to block the sale, and congressional hearings continue to examine the security implications of the takeover and the process by which the deal received Executive Branch approval.[1]

During an interview on Meet the Press on Sunday, February 26, 2006, Senator John Warner, chairman of the Senate Armed Services Committee, announced that DP World had agreed to an additional 45-day investigation of its controversial purchase of P&O. This development helped calm the political haranguing and averted a clash between the president and Congress. However new issues, some substantive, many political, continue to be brought forward by different communities. This has greatly complicated the ability to both examine the particulars of this proposed acquisition, and to bring attention to the serious challenges that confront authorities attempting to secure U.S. ports and maritime infrastructure.

This article provides an overview of the U.S. port system, corrects some of the misconceptions about DP World's acquisition of P&O, and examines the issues and security concerns being raised by both lawmakers and local interests. Next, the article will assess the process by which the Committee on Foreign Investment in the United States determined DP World poses no national security threat. Finally, the article will conclude with several recommendations on how Congress should proceed.

Overview of the U.S. Shipping System

Ports are vital, but largely misunderstood hubs in the international shipping system that underpins U.S. trade. A port consists of a number of separate shipping systems that operate quite independently, with facilities designed to handle the movement of bulk cargo, oil and natural gas, chemical materials or shipping containers. In recent years, the standardization of container design and the development of megaships capable of transporting over 3,000 containers at a time have led to explosive growth in container shipping. The 361 commercial ports in the United States receive 95 percent of U.S. imports by weight and 75 percent by value, with the 9 million shipping containers that arrive yearly accounting for 66 percent of total maritime trade value.[2]

At any one U.S. port, a number of different companies are contracted to provide the many services necessary to manage and monitor the flow of containers. Traditionally, these companies have been small-scale local enterprises, with stevedores loading and unloading containers from ships and port terminal operators managing the flow of cargo from the dock to be loaded onto other ships, trains or trucks. Security responsibilities are also divided, with terminal operators providing security to protect their own equipment and to prevent pilferage of containers in transit or in storage, while the U.S. Coast Guard and port authority polices forces secure the waterways and wharves. In addition, U.S. Customs and Border Patrol is responsible for verifying the accuracy of ship manifests and ensuring they match the contents of containers entering the country.

While ports are an array of local concerns, during the past decade the international maritime industry has become both increasingly globalized and concentrated, as major port operators in maritime nations have expanded their business operations by acquiring assets in a number of overseas ports. As an example of this trend, about 30 percent of port operations in the United States are performed by foreign-based firms, including 80 percent of the container terminals at the Port of Los Angeles.[3] This movement toward horizontal integration has increased efficiency in port operations in a number of ways and most maritime industry experts agree global port operations have seen resulting gains in economic performance and the capacity to enhance security.

Port operators at major transshipment centers, such as Hong Kong, Singapore and most recently Dubai, have led the charge towards increased integration, responding to the rapid growth in container shipping during the past decade by developing world class harbors, 24-hour processing of cargo, and the systems and technologies for moving containers efficiently and rapidly. Singapore was the world's busiest container port in 2005, handling 23.2 million twenty-foot equivalent units (TEU),[4] just ahead of Hong Kong at 22.4 million TEU.[5] It is no surprise that the top two port operators in the world are Hutchison Whampoa, based in Hong Kong, and government-owned PSA of Singapore. In comparison, the Port of Los Angeles, the largest container port in the United States, moved just 7.3 million TEU during the same period.[6] The Port of Dubai is a relative newcomer to the field, but has already grown to be the 10th largest and third fastest growing container port in the world, moving 6.24 million TEU in 2004.[7]

Hutchison Whampoa and PSA do not yet operate terminals in the United States. Instead the pattern here has been for major international shipping companies (those that transport containers from port to port) to enter the port terminal business in order to streamline their logistics services. A number of these large foreign companies are affiliated in someway with their respective governments. For example, China's state-owned China Ocean Shipping Company (COSCO) has become the eighth largest terminal operator in the world, operating terminals throughout China, and in Italy, as well as the Pacific Container Terminal at the Port of Long Beach in California.[8] Neptune Orient Line--of which the Singapore government holds a 68 percent share--acquired APL Limited in 1997, and now operates the APL Global Gateway South Terminal at the Port of Los Angeles, the APL Terminal at the Port of Oakland, and the APL Global Gateway North Terminal at the Port of Seattle.[9] The Taiwanese shipping giant Yang Ming Marine Transport Company,[10] which operates the West Basin Container Terminal at the Port of Los Angeles and the Olympic Container Terminal at the Port of Tacoma, is also partially owned by the Taiwanese government.[11] From an economic standpoint, these large international operators have proven more competitive than many domestic firms providing the same services.[12]

The consolidation of the maritime industry has also had positive effects from a security standpoint. Large port operators have both the economic incentive and the cash necessary to invest in novel security systems. For example, the five companies operating terminals in the Kwai Chung section of the Port of Hong Kong (including both COSCO and DP World) have worked together to deploy a state-of-the-art dual scanning system for closed containers.[13] With just a few dominant players in the port terminal market, it should be easier to reach consensus on international standards for such security technologies. In addition, if these firms have a presence in U.S. ports, the U.S. government will have some leverage to help influence these security standards as set over the domestic leg of their operations, possibly leading to adoption throughout the firms' supply chain services. With international shipping companies providing their own port services, the transfer of container responsibility is minimized.[14] For pure port terminal operating companies, standardized stevedoring and intermodal services on both sides of the trip allow the port terminal operators to develop closer relationships with the shipping companies and develop better communication networks for port-to-port relay of critical information.

Background on Dubai Ports World

Dubai Ports World (DP World) is an established international developer of container ports as well as a provider of stevedore and terminal services. Previously, Dubai Ports was owned by the government holding company called The Corporate Office (TCO) which also owns real estate developer Nakheel and the investment bank Istithmar.[15] In 2005, the Dubai Port Authority and Dubai Ports International were merged into DP World and consolidated with the Dubai Customs and Free Zone under the holding company Ports, Customs and Free Zone Corporation (PCFC).[16] Both PCFC and TCO are modeled on Singaporean government-owned holding companies and overseen by Sheik Mohammed Bid Rashid Al Maktoum, the Emir of Dubai.[17] Dubai Ports World grew out of the Dubai Ports Authority that was set up to manage the home ports of Rashi (dredging completed in 1976) and Jebel Ali (the world's largest man-made harbor, completed in 1979). In 1999, Dubai Ports International (DPI) was established to export these skills internationally. The company expanded rapidly, buying terminals in Saudi Arabia, Djibouti, India and Romania. In January 2005, DPI completed a $1.15 billion acquisition of the global port assets of American-based CSX World Corp., giving the company a strong presence in Asia and catapulting DPI to its current position as the seventh largest port operator in the world. DPI was renamed DP World in 2005, and currently operates terminals in the Dominican Republic, Venezuela, Germany, Romania, Saudi Arabia, Djibouti, UAE, India, China, and Australia, and its latest development project at the Port of Pusan in South Korea recently commenced operations.[18]

Seeking to enter the North American market, DP World approached the London-based Peninsular and Oriental Steam Navigation Company (P&O) in October 2005. P&O is the fourth largest port operator in the world, operating 29 global port terminals, including contracts to run container terminals and provide stevedoring and luggage services at a number of U.S. ports.[19] (See chart below) With the British High Court approving the acquisition on March 2, 2006, DP World has become the world's third largest port operator, after Hutchison Whampoa and PSA. The deal was originally set to take effect in the United States immediately upon approval by London. [20]

How and Why the Controversy Developed

Despite the fact that --by the White House estimates-- the pending DP World acquisition of P&O was mentioned at least 162 times in the international press between October 2005 and January 2006, only in February was there any sign that Congress or the U.S. public were at all concerned about this deal. Why did uproar about this public deal suddenly explode with such speed and ferocity? The answer appears to be a combination of the fact that the Bush administration did not expect any controversy to arise over the deal and the general lack of understanding, both in the public and in Washington, about the workings of the maritime industry and the intricacies of port security.

After DP World fought off the competing bid from Singapore's PSA on February 10, an Associated Press article on February 11, 2006, noted that the impending acquisition of P&O by DP World would leave "a country with ties to the September 11th hijackers with influence over a maritime industry considered vulnerable to terrorism."[21] Using a similar ominous tone, Eller & Co., a U.S.-based company currently involved in a joint venture with P&O at the Port of Miami, launched an aggressive lobbying campaign to sink the deal, targeting Congressional Democrats.[22] On February 13, 2006, while Democratic Senator Charles Schumer expressed his outrage over the deal at a press briefing at the New York Harbor,[23] the Center for Security Policy, a conservative think-tank, published a memo on its website on examining the acquisition and accusing the Treasury Department of pushing deals to sell U.S. critical infrastructure, "even those opposed by other, more national security-minded departments."[24] The controversy was quickly taken up by radio personality Michael Savage (who dubbed the affair "Portgate") and other conservative radio commentators in the United States. Within days, Dubai and the United Arab Emirates was vilified, at some points portrayed as having funded and staged the 9/11 attacks and responsible for advancing Iran's nuclear program.[25]

In many ways, the Bush administration was caught off-guard by the recent uproar. Administration officials failed to anticipate the very public collision between the ideal of free trade and investment and the currently prominent single-minded approach to U.S. national security.

Although the U.S. public appears to understand the strategic importance of ports, unlike airports, trains, and highways, few Americans have a deep understanding of the complex systems at work moving cargo from sea to land. The maritime sector is often invisible, and so the details surrounding port security are more difficult to grasp than aviation security, for example. Effective public demonizing of the UAE combined with the general population's lack of understanding of port security created a generic feeling of anxiety surrounding the ports deal. As Marshall Wittmann, senior fellow at the Democratic Leadership Council stated, "There's an inherent American fear that their ports are vulnerable and they are made even more so by this deal. Whether it's based on facts or fears is another matter, but it's real and it's bipartisan and it's visceral."[26]

With Congress out of session, most lawmakers--many facing battles in upcoming mid-term elections--were back in their home districts and directly confronted by a public extremely concerned that U.S. ports were being sold to a hostile government. Forced to respond on the spot, many politicians demonstrated their own limited understanding of the actual organization and workings of ports, as well as the details of the proposed sale.[27] The biggest misconception, emblazoned on newspaper headlines and parroted by lawmakers, has been the idea that entire ports were being sold to the UAE government. That misconception was borne out of a lack of understanding of the fact that ports are extremely large, complex operations, and the deal in question only involves contracted "rights-of-usage" on a number of specific terminals at certain ports. For example, P&O Ports is just one of eight terminal operators that lease cargo berths from the Port of New Orleans.[28]

Security Concerns in Washington over the DP World Deal

Since the uproar began, lawmakers have been voicing concerns about how the control of key national infrastructure such as ports by a UAE state-owned business would threaten U.S. national security, with much of the rhetoric focusing on Dubai and the UAE's questionable role in the war on terror and the spread of weapons of mass destruction. At the same time, no serious concerns have been raised so far about DP World's own reputation or history. This is not surprising since within the international maritime shipping industry, DP World is widely respected as an efficient, trustworthy firm.[29] While DP World is a commercial enterprise of the UAE, the government is not involved in the daily operations of the corporation.[30] Defenders in both DP World and P&O point out that after acquiring CSX, DP World left the operations and corporate management of its new ports largely unchanged.

Leaving aside the political grandstanding of politicians before midterm elections, most of the arguments in opposition to the deal point to problems with capacity and effectiveness of U.S. programs, rather than real concerns related to DP World or its ties with the UAE. For example, some critics argued that as an "Arab" company, DP World may be coerced into providing visas for Al Qaeda operatives to legally enter the United States. This, however, is not a problem specific to DP World or the UAE--and to a large part completely beyond their control--but rather a general concern about weaknesses in the U.S. government's vetting of visa applications. This risk accompanies any foreign company with non-residents doing legitimate business in the United States. Similar hysteria about DP World bypassing manifest checks or radiation detectors to smuggle in WMD technology or Al Qaeda operatives, or compromising port security measures to sabotage port operations, ultimately reflect fears that U.S. Customs and Coast Guard may not have the capacity to be effective at these tasks. Finally, a Coast Guard intelligence report, which has been cited by many of the deal's critics and which noted intelligence gaps in understanding the workings of the companies, referred to both DP World and P&O, implying that the Coast Guard did not have the information to perform a risk assessment on foreign operators already operating at U.S. ports.[31]

Additional concerns that foreign nationals will have access to containers as they enter U.S. ports are largely unfounded. All the workers handling cargo at the affected ports are U.S. citizens and members of the International Longshoremen's Association. As ILA spokesman James McNamara said, "Any movement of cargo from the bottom of the ship to the tailgate of the truck leaving the port is handled by ILA labor."[32] Management executives and employees rarely come into contact with containers and do not need to know their contents. Michael Seymour, head of North American operations for P&O, said that the workers currently handling security at the U.S. ports in question are also supplied through the longshoremen's union and would remain unchanged.[33] Seymour stated, "We will still exist, with the same workers, and the same facility security plan, regulated by the same Coast Guard and Customs officials. And we'll be audited just as often--maybe more often."[34] DP World Chief Operating Officer (COO) Edward Bilkey has promised that DP World "will fully cooperate in putting into place whatever is necessary to protect the terminals."[35]

Finally, critics have latched on to the idea that DP World was not required to maintain business records on U.S. soil as has been standard with other foreign acquisition arrangements.[36] However, as the company is involved in the shipping industry, information about container volume and contents will already be transmitted to U.S. Customs as part of required electronic manifests under the "24-hour rule." Additionally, DP World will have to submit security and response plans to the Coast Guard for regular review and approval as outlined under the 2002 Maritime Security Transportation Act.[37] Additionally, DP World has agreed to surrender records on demand about "foreign operational direction" of its business at U.S. ports. [38]

Other Voices

The controversy over the DP World deal is giving port security some long-overdue national exposure and helping to raise public awareness about some of the security risks associated with American ports. Both port authorities and unions representing longshoremen have been weighing in on the controversy, providing the American public an opportunity to hear from those who know port security best--those who run our ports and those who work at our ports.

The port authorities affected by the proposed acquisition have taken different stances concerning the appropriate relationship between the federal and local levels of government. On the one hand, Gary LaGrange, president and CEO of the Port of New Orleans, has distanced himself from the debate, acknowledging the authority that the federal government has in making decisions on whether or not a foreign company can operate in U.S. ports. According to LaGrange, neither the port nor its board of commissioners has control over company sales of one of its tenants.[39]

In contrast, the governors of Maryland, New York, and New Jersey have publicly questioned the deal, citing their concerns over their states' lack of involvement in the process.[40] In fact, the Governors Office of New Jersey and the Port Authority of New York and New Jersey have initiated several lawsuits that ultimately call into question the federal government's right to unilaterally make decisions that affect the security of local levels of government without providing adequate information to those affected.[41]

On February 24, 2006, New Jersey Governor Jon Corzine filed a lawsuit on behalf of the State of New Jersey in United States District Court in Trenton (later transferred to Federal District Court in Newark) against the Committee on Foreign Investment in the United States, the federal agencies represented by CFIUS, and P&O in order to halt the deal until all transactional and security-related information had been shared and reviewed by the state.[42] The suit argued that CFIUS failed to provide the Governor with the information he needs to protect the state's residents and that by withholding such information, the federal government violated state sovereignty as protected under the 10th Amendment. The suit also called for a full investigation and that all information be shared with New Jersey's Office of Counterterrorism.[43] Judge Jose Linares of Federal District Court in Newark responded by signing an order requesting that federal officials explain why a 45-day investigation was not initially conducted and why they were not required to share information with state officials,[44] but ultimately ruled against the state.[45]

Concurrently, the Port Authority of New York and New Jersey filed suit in State Superior Court in Newark, New Jersey, arguing the transfer of the contract with the Port of Newark violates a 30-year lease reached in 2000 because the Port Authority was not consulted. According to the Port Authority, the case is a tenant-landlord issue, where the tenant has illegally sublet the property without receiving the landlord's approval.[46]

The International Longshoremen's Association (ILA, representing cargo handlers on the East Coast) and the International Longshore and Warehouse Union (ILWU, representing those on the West Coast) appear pleased that port security is receiving such close scrutiny. The press release from the ILA[47] echoes the critiques of lawmakers opposed to the sale. In slight contrast, the press release for the ILWU shows the union wanting to ride the wave of negative public sentiment, calling for further investigation of the acquisition, while in the same breath declaring that "the controversy over this particular contract detracts from what is the real concern of dockworkers and millions of Americans who live in close proximity to our nation's ports: the lack of real improvements in port security since the terrorist attacks on September 11, 2001 focused national attention on the vulnerability of our ports."[48] The release instead points to the federal government's inability to enforce existing regulations passed under the 2002 Maritime Transportation Security Act (MTSA) and details a number of specific violations that have been occurring in their ports.[49] Speaking before the Senate Homeland Security Committee, ILWU Port Security Director Michael Mitre focused on the "problem of system-wide noncompliance with existing port security regulations" that occurred when companies were allowed to place their commercial interests above security interests.[50]

The ILWU can be excused for the mild inconsistency in both supporting the extended investigation of DP World and downplaying the importance of this particular acquisition. For the union, port security is viewed as an issue of life and death for its members, but for the majority of Americans, it is an issue that rarely resonates. Anytime port security makes the news, the unions must jump ahead and ride the wave in hopes they can direct attention to the issues that truly matter to them. The important message the ILWU hopes to get out is that the government has yet to take full advantage of current legislation already in place to help regulate security practices.

Committee on Foreign Investment in the United States

In addition to concerns over port security, the DP World deal has focused attention upon the procedure used by the executive branch to approve foreign acquisitions of U.S. assets, with many Senators accusing the executive branch of either ignoring the legal procedures or rushing the deal to completion.

The President and the inter-agency Committee on Foreign Investment in the United States (CFIUS) have been given the authority to suspend or prohibit any foreign acquisition, merger or takeover of a corporation in the United States that is determined to threaten national security, provided two conditions are met. First, a determination must be made that the "foreign entity exercising control might take action that threatens national security" and second, that the provisions of other laws will not provide adequate protection. Currently CFIUS is composed of the Secretaries of State, Defense, Commerce, Treasury, Homeland Security, the Attorney General, Director of the Office of Management and Budget, the U.S. Trade Representative, the Chairman of the Council of Economic Advisers, Director of the Office of Science and Technology Policy, the Assistant to the President for National Security Affairs, and the Assistant to the President for Economic Policy.[51]

In 1993, CFIUS authority was amended, requiring an additional 45-day investigation in cases where "the acquirer is controlled by or acting on behalf of a foreign government and the acquisition "could result in control of a person engaged in interstate commerce in the United States that could affect the national security of the United States."[52] However in actual practice, CFIUS has interpreted this investigation as only being required in instances where there are unmet security concerns. The Department of Treasury has argued that a determination of FOCI (foreign ownership, control or influence) leading to an additional 45-day delay without significant security concerns, could disrupt the predictability of foreign investment contracts in the United States. During the last five years of President Clinton's administration, CFIUS considered 21 cases involving foreign state-owned companies without triggering the 45-day investigation. During President Bush's first term, only 4 of 43 cases triggered the additional 45-day investigation.[53]

Provided with no precise definition of national security, CFIUS has focused its authority on protecting defense contracts and the flow of classified information or sensitive technologies to competing governments. [54] This is why CFIUS review will likely be more intense in its examination of Dubai International Capital's bid to acquire Britain's Doncasters Group, a manufacturer that has a number of defense contracts to supply components for military planes and helicopters to the U.S. military.[55] However, while this limited view of national security is effective for blocking the flow of technology out of the United States, it does little to address infiltrative risks to critical infrastructure.

Both of these issues--the legal inconsistency of CFIUS practices concerning the 45-day investigation for transactions involving state-owned operations and the narrow definition of national security used to vet transactions--had been outlined by the Government Accountability Office (GAO) well before the Dubai port deal shined light on the murky CFIUS process. The GAO had specifically advised updating the definition of threats to national security and replacing the 30-day audit and additional 45-day investigation with a 75-day audit period. [56]

Apart from the procedure as set out in law, CFIUS has developed its own informal iterative system of vetting proposals before companies file official requests for approval. This has the advantage of giving the federal government agencies more time to review individual cases and provide suggestions to the companies that will make the merger or acquisition more palatable. Companies are also able to feel out which contracts are unviable. The CFIUS process is best understood not as a "thumbs up or thumbs down" proposition, but rather an opportunity for U.S. federal agencies and the companies involved to design structures that will protect U.S. national security interests.

CFIUS operates with a great deal of discretion and secrecy, but according to the process as outlined above and information in the media, there does not yet appear to have been any inconsistencies in how CFIUS carried out its review of the DP World acquisition of P&O. The Committee worked with the company to resolve national security interests (as narrowly defined) and once these were resolved, concluded there was no need for an additional 45-day review. For example, when the acquisition was first brought before the committee, Stewart Baker, senior Homeland Security official and the Department of Homeland Security representative on CFIUS initially objected to the deal.[58] The U.S. Coast Guard intelligence assessment also cited many intelligence gaps that precluded a final threat assessment.[59] However, representatives for both DHS and Coast Guard have said that these concerns were settled, through the assurances letter that DP World provided on January 6, 2006.[60]

Conclusions and Recommendations

On February 23, 2006, DP World announced that it was willing to suspend takeover of P&O's U.S. operations indefinitely while Congress and the President mulled the issue. DP World COO Edward Bilkey said, "We need to understand the concerns of the people in the United States who are worried about this transaction and make sure they are addressed to the benefit of all parties." On February 24-25, lawyers and representatives for DP World met with Congressional leaders in order to craft a solution to the stand off and give the president a face-saving way out. Under the deal announced on February 26, 2006, DP World voluntarily requested an additional 45-day investigation of the national security implications of the acquisition and agreed to spin off their U.S. operations as a separate independent subsidiary within DP World. During the interim period, DP World offered to keep Robert Woods, current executive of P&O North America, in place and agreed to choose an American citizen as chief security officer. These arrangements will remain in effect until May 1, 2006, or until the review is completed, whichever is first. [61] As one official noted, "Everybody needed a way to get off this train and this seemed to be the best one."[62]

Despite DP World's attempt to diffuse, or at least delay the controversy, lawmakers remain indignant that they were left out of the loop on such a hot-button issue as national security, and are seizing this opportunity to introduce legislation prohibiting state-controlled companies from operating in U.S. ports. In addition, Congress wants greater legislative oversight over the workings and decisions of CFIUS. The danger is that Congress may overstep its bounds in its zealous desire to react. Instead, Congress should listen to the states and port employees and focus on how it can improve communications with other levels of government, improve the capacity of programs and legislation already in place, and work with the CFIUS process to reflect current concerns over national security.

Overcoming Lack of Communication

The cases submitted by the state of New Jersey and the Port Authority of New York and New Jersey raise the question of how much communication should there be between the federal government and state and local governments on issues that are likely to affect local security. A common complaint of local port officials is that they are never privy to the kind of sensitive information they need in order to be effective at securing their ports. Part of the problem stems from the lengthy protocols and expense in getting security clearances for local law enforcement and port officials. This lack of inter-agency communication is a systemic problem throughout the federal government. Put bluntly, with federal agencies unable to communicate relevant intelligence amongst themselves, there is little reason to believe that the federal government has the ability to create effective lines of communication with lower levels of government. Creating these necessary channels to communicate sensitive intelligence is perhaps the biggest challenge to improving the security of locally administered critical infrastructure assets, ports included.

Implementation and Capacity Building

With Congress calling for increased legislation on port operations and security, it is important to note that, as pointed out by the ILWU, many terminal operators have either failed to absorb new security protocols or rejected the current regulations outright. Even the best legislation is ineffectual if it is not supported by proper monitoring and the funds to support sustained implementation. A coordinated long-term program by the federal government to train and monitor terminal employees would help each terminal operator raise the level of its own capacity to perform security operations on its own property.

The good news is that we do not have to start from scratch to improve port security. The federal government already has programs and legislation in place to inspect vessels and containers, develop and approve port security plans, provide worker identification cards, run safety and security drills, develop high-tech solutions for inspecting and sealing containers, and install radiation detectors both domestically and internationally. However, these programs have not been nurtured to fruition. The worst thing that could happen now would be for Congress or the President to feel pressured to introduce a new wave of programs and initiatives when the current set remains woefully unfunded and poorly manned. Instead, the government should search for ways to enhance the capacity of all the instruments already in place.

Relevant Review Process

Members of Congress should focus their attention on ensuring that the CFIUS review process is effective rather than taking over the authority to monitor acquisitions and mergers themselves. Intelligence failures and the poor response to Hurricane Katrina have fractured the faith in the capabilities of both the intelligence agencies and the Department of Homeland Security. However, these failings should not be used as a justification for lawmakers to enter into the business of risk assessment. Expanded legislative oversight over each case brought before CFIUS will not be welcomed by the private sector. The flap over DP World demonstrates the dangers of allowing political interests too much say in a process that should appear apolitical and predictable. Foreign investment in the United States might slow if companies become concerned about the lack of predictability or that all acquisitions will be subject to politicking. The parochial interests of legislators may sink otherwise beneficial acquisitions and threaten the perception of the United States as a stable destination for foreign direct investment. This could have repercussions on a number of upcoming politically charged deals such as Japan's Toshiba Corp.'s interest in acquiring Westinghouse.

Instead, Congress should focus on the case at hand and identify the substantive security risks that were not investigated by CFIUS, and what information DP World needs to provide in order to address these outstanding issues. For example, Congress should use the current 45-day investigation to push CFIUS to demonstrate that the committee has received adequate information defining the exact relationship between the company and the Dubai government, and the types of firewalls present to shield the company from undue influence. Additionally, several critics have raised legitimate concerns about military equipment being transferred from Fort Hood to Iraq and Afghanistan through the Ports of Beaumont and Corpus Christi.[63] These defense contracts to load and unload supplies could be reassigned to other terminal operators or reworked to ensure that the management structure is not informed of the contents of this cargo. Once this is completed, Congress could then consider adopting GAO's recommendations to redefine national security and restructure the timing of the review process.

Noted maritime security experts have discussed other serious problems and presented suggestions on how the federal government should move forward to secure our ports.[64] Lawmakers need to drop back from the hyperbole thrown at DP World and the UAE and begin to face the tough questions about port security: Should local governments and private businesses continue to be shouldered with the lion's share of port security expenses?[65] Should inland states assist coastal states in protecting ports that benefit everyone? How can we make it politically feasible to allocate port security grants based on risk? Can federal regulations be properly implemented and enforced if port operators are not brought in as equal partners when standards are designed? These and other questions should be dominating the discussion on port security, rather than opportunistic politicking.


[1] In the Senate alone, hearings were held by the Senate Armed Services Committee on February 23 and February 28, the Senate Homeland Security Committee on February 27, the Senate Commerce Committee on February 28, and the Senate Banking Committee on March 2. On Monday, Senators Charles Schumer (D-New York) and Norm Coleman (R-Minnesota) introduced legislation to require both an additional 45-day review and Congressional approval before the deal can be finalized in the United States. Also on Monday, Senator Hillary Rodham Clinton (D-New York) and Robert Menendez (D-New Jersey) introduced legislation to ban foreign governments from assuming control over any U.S. ports operations. Source: William Douglas and James Kuhnhenn, "Coast Guard: Intelligence Gaps Limited Ports Deal," Knight Ridder, February 27, 2006, www.mercurynews.com.
[2] John Fritteli, "Port and Maritime Security: Background and Issues for Congress," CRS Report for Congress, Report RL31733, updated May 27, 2005, www.fas.org.
[3] David Sanger and Eric Lipton, "Bush Would Veto Any Bill Halting Dubai Port Deal," New York Times, February 22, 2006, www.nytimes.com.
[4] TEU means twenty-foot equivalent and refers to the volume in a twenty-foot container. Most containers in usage are approximately forty feet long, and therefore are two TEUs.
[5] "Hong Kong Trails Singapore in 2005 Container Volume," Bloomberg, January 16, 2006, www.bloomberg.com.
[6] "About the Port," Port of Los Angeles, (no date) www.portoflosangeles.org.
[7] Sultan Ahmed Bin Sulayem "Executive Chairman's Message", Dubai Port Authority, (no date), www.dpa.ae.
[8] "Terminal Operation," COSCO Group, (no date), www.cosco.com;
[9] "Investor Relations," NOL, (no date), www.nol.com.sg.
[10] For information on Yang Ming Groups terminal operations, see www.yangming.com.tw.
[11] White House, "Fact Sheet: DP World: Myth vs. Fact," Press Release, February 25, 2006, www.whitehouse.gov.
[12] Simon Romero and Heather Timmons, "U.S. Companies Weighed Anchor on Ports Years Ago," New York Times, February 24, 2006, www.iht.com.
[13] The five companies, working under the HK Terminal Operators Association have deployed a dual system that first scans a container for nuclear radiation and then uses a gamma ray imager to take an image of the density of the contents. These images are then stored electronically along with the tracking code for the container. Source: Alex Ortolani, and Robert Block, "Hong Kong Port Project Hardens Container Security," Wall Street Journal, July 29, 2005, in Lexis Nexis.
[14] An average container journey involves 25 different handlers and 40 different sets of documents. Vertical integration of the supply chain helps improve transparency about where a container has been and who has had access to it. Source: Michael Richardson, "A Time Bomb for Global Trade: Maritime-Related Terrorism in an Age of Weapons of Mass Destruction," Viewpoints, Institute of South East Asian Studies, February 25, 2004, pg. 5.
[15] Incidentally, in January 2006, Istithmar bought Inchcape Shipping Service, the world's largest private shipping manager, whose operations include handling tankers and dry bulk shipping in Houston. Source: Michael Hedges, "UAE-Based Firms Have Operated in Houston for Years," Houston Chronicle, February 24, 2006, www.chron.com.
[16] DP World, "DP World Guaranteed by Ports, Customs and Free Zone Corporation, Dubai," Press Release, February 18, 2006, www.ameinfo.com.
[17] Jim Krane, "Dubai's Growth Hinges on State-Run Cos.," AP, February 26, 2006, www.chron.com.
[18] DP World, www.dpiterminals.com.
[19] From the P&O Ports, ww.poports.com.
[20] Judged Nicholas Warren ruled on the acquisition on March 2, 2006, after considering challenges from P&O shareholders and Miami-based Eller & Co. Sources: Jane Wardell, "Judge to Rule on P&O Deal This Week," AP, February 28, 2006, www.chron.com; Jane Wardell, "British Court OKs Dubai Company Takeover," AP, March 2, 2006, www.forbes.com.
[21] Ted Bridis, "UAE Company Poised to Oversee Six U.S. Ports; Administration Not Blocking Deal," AP, February 11, 2006, in Lexis-Nexis.
[22] Israel Klein, spokesperson for Senator Charles Schumer has termed Eller & Co, the "canary in the mineshaft for many people on the Hill and in the media," The company has initiated lawsuits in both Florida Court and the British High Court ultimately responsible for approving the deal in the UK. Source: "Miami Firm Behind Arab Ports Deal Flap," UPI, February 28,2006, http://news.monstersandcritics.com.
[23] Jim Vendehei and Paul Blustein, "Bush's Response to the Ports Deal Faulted as Tardy," Washington Post, February 26, 2006, pg. A05.
[24] Center for Security Policy, "Port of Entry," Decision Brief No. 06-D 08, February 13, 2006, www.centerforsecuritypolicy.org.
[25] Before 9/11, the United Arab Emirates banking and immigration systems were poorly regulated and monitored. UAE was also an important transshipment point for the A.Q. Khan network that helped funnel technology from Europe and Southeast Asia to the nuclear programs of Libya and Iran. In his Democratic response to President Bush's weekly radio address on Saturday, February 25, 2006, Senator Jon Corzine (D-New Jersey) characterized the UAE as a country of "dangerous men, tainted blood money and nuclear technology."
[26] Linda Feldmann, "Port Flap Serious Test for Bush," Christian Science Monitor, February 24, 2006, www.csmonitor.com.
[27] For example, House Representative Sue Myrick (R-North Carolina) sent a simple letter to the President: "In regards to selling American ports to the United Arab Emirates, not just NO--but HELL NO!" In justifying why he was signing a letter calling for a temporary halt to the deal, U.S. Rep Gene Green, democrat from Houston stated "If a company comes in and does business and leases facilities, that is one thing, but managing a port is something else." See Sue Myrick, Letter to President Bush, dated February 22, 2006, http://myrick.house.gov; Michael Hedges, "UAE-Based Firms Have Operated in Houston for Years," Houston Chronicle, February 24, 2006, www.chron.com.
[28] Port of New Orleans, "La Grange Statement Regarding Potential P&O Sale," Press Release, February 21, 2006, www.portno.com.
[29] For example, Peter Shaerf, managing director of AMA Capital Partners, a merchant banking firm said, "They have a sterling reputation. They have never done anything that would expose them in any way as a security risk. They run first-class ports." The Guardian has characterized DP World "as one of the most efficient port organizations in the world. It's port operations are breathtakingly fast and efficient." Source: Adam Nicolson, "P&O: The End of Another Empire," The Guardian, November 30, 2005, www.guardian.co.uk.
[30] Ben White, "As Dubai Rapidly Expanded, Its Port Authority Followed Suit," Washington Post, February 24, 2006, www.sfgate.com.
[31] "Coast Guard Intelligence Coordination Center Assessment of the DPW Purchase of P&O," U.S. Senate Homeland Security Committee, unclassified document released February 27, 2006, http://news.findlaw.com.
[32] Patrick McGeehan, "How Safe are Ports?" New York Times, February 23,2006, www.presstelegram.com.
[33] Paul Blustein and Eric Rich, "Security Programs, Unions Would Stay at Ports," Washington Post, February 22, 2006, www.washingtonpost.com.
[34] Quoted in David Sanger, "Big Problem, Dubai Deal or Not," New York Times, February 23, 2006, www.nytimes.com.
[35] Quoted in Ted Bridis, ""Bush Says Ports Deal Will Stand," AP, February 22, 2006, http://abcnews.go.com.
[36] "Bush Says Ports Deal Not a Security Threat," AP, February 23, 2006, http://cnn.netscape.cnn.com.
[37] For information on current U.S. maritime security policies, see Jon Havemna, Howard Shatz, and Ernesto Vilchis, "U.S. Port Security Policy After 9/11: Overview and Evaluation," Journal of Homeland Security and Emergency Management, Volume 2, Issue 4, 2005, www.bepress.com.
[38] "Bush Says Ports Deal Not a Security Threat," AP, February 23, 2006, http://cnn.netscape.cnn.com.
[39] Port of New Orleans, "La Grange Statement Regarding Potential P&O Sale," Press Release, February 21, 2006, www.portno.com.
[40] Devlin Barrett, "GOP Governors Question Port Turnover," AP, February 20, 2006, www.breitbart.com.
[41] In addition, Eller and Company, Inc, current partner of P&O in the Port of Florida filed suit in state court arguing that the acquisition would force it to become an "involuntary partner" with Dubai and called for $10 million in damages. Eller and Company also filed suit with the High Court in London to block the takeover. Source: Ted Bridis, "Lawsuits Filed to Block Ports Takeover," AP, February 24, 2006, www.sfgate.com.
[42] Governor Corzine sent a letter to the governors of the other five affected states to invite them to join him in his lawsuit. State of New Jersey, Office of the Governor, "Corzine Invites governors to Join in Lawsuit to Halt Dubai Ports," Media Release, February 24, 2006, www.state.nj.us.
[43] Patrick McGeehan, "Port Agency to Break Lease in Bid to Block Dubai Sale," New York Times, February 24, 2006, www.nytimes.com.
[44] David Cloud and David Sanger, "Action on Port Deal Fails to Sway Critics," New York Times, February 25, 2006, www.nytimes.com.
[45] Janet Frankston, "Judge Nixes NJ Lawsuit Against Ports Deal," AP, March 1, 2006, www.dailyrecord.com.
[46] Patrick McGeehan, "Port Agency to Break Lease in Bid to Block Dubai Sale," New York Times, February 24, 2006, www.nytimes.com.
[47] International Longshoremen's Association, "ILA Joins With Lawmakers Asking Bush Administration to Hold New Hearings and Federal Review of P&O Takeover by Middle East Company," Press Release, February 21, 2006, www.ilaunion.org.
[48] International Longshore & Warehouse Union, "Dubai Ports World Contract Controversy Must Focus Attention on Lack of Real U.S. Port Security," Media Alert, February 23, 2006, www.ilwu.org.
[49] Numbers refer to the 2002 MTSA:
• Thoroughly screen all vehicle drivers and riders at every port terminal gate (CFR 105.265(b)(3)).
• Check seals on cargo containers upon their offloading and entering dockside storage (CFR 105.265(b)(4)).
• Identify containers accepted for temporary storage in restricted areas before they are picked up (CFR 105.265(a)(5)).
• Restrict cargo from entering terminals that does not have a confirmed date for loading (CFR 105.265(a)(6)).
• Create and maintain a continuous inventory of all dangerous goods and hazardous substances from receipt to delivery (CFR 105.265(a)(9)).
• Routinely check cargo, transport units and storage areas within a terminal for evidence of tampering (CFR 105.265(b)(1)).
• Check that information on cargo, containers, and trucks carrying them matches their delivery note (CFR 105.265(b)(2)).
[50] "Republicans Deeply Split Over Dubai Ports Deal," Transcript of Lou Dobbs Tonight, aired February 28, 2006, http://transcripts.cnn.com.
[51] "Committee on Foreign Investments in the United States (CFIUS)," U.S. Department of the Treasury, www.treas.gov.
[52] "Committee on Foreign Investments in the United States (CFIUS)," U.S. Department of the Treasury, www.treas.gov.
[53] Edward Epstein, "Showdown Looms Over U.S. Ports Deal," San Francisco Chronicle, February 23, 2006, http://sfgate.com.
[54] James Jackson, "The Exon-Florio National Security Test for Foreign Investment," CRS Report RS22197, July 15, 2005.
[55] David Andelman, "Dubai: Another Big Deal," Forbes, March 2, 2006, www.forbes.com.
[56] See Government Accountability Office, "Defense Trade: Implementation of Exon-Florio," Report GAO-06-135T, October 6, 2006, www.gao.gov.
[57] For information on these security policies, see Jon Havemna, Howard Shatz, and Ernesto Vilchis, "U.S. Port Security Policy After 9/11: Overview and Evaluation," Journal of Homeland Security and Emergency Management, Volume 2, Issue 4, 2005, www.bepress.com.
[58] Ted Bridis, "Homeland Security Objected to Ports Deal," AP, February 25, 2006, www.forbes.com.
[59] Unclassifed document release February 27, 2006, U.S. Senate Homeland Security Committee, http://news.findlaw.com.
[60] "Spy Chief Calls Threat From Port Deal Low," CNN, February 28, 2006, www.cnn.com.
[61] Ted Bridis, "Arab Company Agrees to Review of Risks in Ports Deal," AP, February 26, 2006, www.startribune.com.
[62] David Sanger, "Dubai Expected to Ask for Review of Port Deal," New York Times, February 26, 2006, www.nytimes.com.
[63] Steve Quinn, "Lawmakers Have Military Concerns at Ports," AP, February 24, 2006, www.dallasnews.com.
[64] See Stephen Flynn, "Port Security is Still A House of Cards," Far Eastern Economic Review, 169:1, Jan/Feb 2006, pp. 5-11; Stephen Flynn, "U.S. Port Security and the Global War on Terror," The American Interest, 1:1, Autumn 2005, pp. 92-96; Jon Haveman, Howard Shatz, and Ernesto Vilchis, "U.S. Port Security Policy after 9/11: Overview and Evaluation," Journal of Homeland Security and Emergency Management, 2:4, 2005, www.bepress.com.
[65] The federal government has provided approximately $629 million in port security grants since 9/11, but according to Coast Guard projections, the actual costs of implementing new port security measures under the Maritime Transportation Security Act will approach $5.4 billion over ten years. Angie Marek, "Port Security Pitfalls," AP, February 23, 2006, www.usnews.com.

March 1, 2006

Randall Beisecker discusses the political controversy surrounding a deal which could give Arab state-owned Dubai Ports World (DP World) access to U.S. ports.

Randall Beisecker

Research Assistant, Center for Nonproliferation Studies

This material is produced independently for NTI by the James Martin Center for Nonproliferation Studies at the Middlebury Institute of International Studies and does not necessarily reflect the opinions of and has not been independently verified by NTI or its directors, officers, employees, or agents. Copyright 2016.