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American ShipperIntermodal

DP World agrees to second investigation of port sale

DP World agrees to second investigation of port sale

   After weekend-long negotiations brokered by Republican leaders in Congress, the Dubai state-owned company seeking to buy British ports operator Peninsular and Oriental Steam Navigation Co. took the unusual step of agreeing to resubmit its application for a security review of its purchase.

   Dubai Ports World and P&O asked the administration to open up a 45-day investigation, even though a multi-agency panel that looks at the security risk of foreign investment transactions signed off on the deal in January after a staff-level review that can take up to 30 days unanimously cleared the company.

   The move by DP World and P&O is an effort to calm fears that original approval by the Bush administration was too hasty and did not thoroughly consider United Arab Emirates’ ties to terrorism.

   “We are confident the further review by CFIUS (Committee on Foreign Investment in the United States) will confirm that DP World’s acquisition of P&O’s U.S. operations does not pose any threat to America’s safety and security. We hope that voluntarily agreeing to further scrutiny demonstrates our commitment to our long-standing relationship with the United States,” chief operating officer Edward “Ted” Bilkey, said in a statement.

   Members of Congress who got wind of the deal two weeks ago loudly complained that the United States should not turn over major port operations to a country that served as a financial and operational base for some of the Sept. 11, 2001 attackers, was a transshipment point for nuclear components sent to Libya, North Korea and Iran by a Pakistani scientist, and backed the Taliban regime in Afghanistan. Lawmakers, many of whom face mid-term elections later this year, took turns calling on President Bush to cancel approval for the contract or launch a 45-day review as permitted by law.

   Although the move will delay approval of the U.S. portion of the deal, P&O and DP World still plan to move ahead with the $6.8 billion sale as scheduled on March 2. Under the deal, DP World would gain significant terminal holdings in Europe and Asia, and in the process become the third-largest port operator in the world with 51 terminals in 30 countries.

   On Friday, DP World said it would leave U.S. terminals and stevedoring services at 22 ports, including New York-New Jersey, Philadelphia, Baltimore, Miami and New Orleans, under P&O management while consulting with American officials. U.S. operations only account for about 10 percent of P&O’s business.

   Those consultations led to the agreement to let the White House take a second look at DP World and how it does business. But DP World is also making it clear that it believes the original approval is valid and ultimately guarantees it the right to P&O’s U.S. assets.

   According to the Associated Press, DP World said in a letter to the White House that it is entitled to all profits during the review period, and that it could sue if the results of the second review differ from the original one and it is forced to divest.

   DP World has maintained all along that it will maintain the structure of P&O Ports North America as a domestic subsidiary incorporated in the United States. It reiterated Sunday its intention to not exercise control or influence the management of U.S. operations, which will still be managed by P&O headquarters in London, and that the current management of P&O Ports North America will be retained until May 1 or the CFIUS review process is completed.

   Worried that it may have little recourse if the sale goes through, the Miami-based cargo handling company that is fighting to get P&O to sell its U.S. terminal rights to American companies filed suit in Britain against P&O to block the deal.

   Eller & Co., which operates a cargo handling joint venture and is a minority partner with P&O at the Port of Miami Terminal Operating Co., asked a judge to halt the sale because U.S. authorities may rule against it, port authorities are considering revoking P&O’s leases, and P&O shareholders were not given the opportunity to approve the arrangement for delaying control of U.S. operations. Eller said its subsidiary, Continental Stevedoring & Terminal Inc., did not give its consent for P&O to transfer its interest in Miami to DP World and argued it would suffer millions of dollars in losses if it’s joint lease is terminated.

   In a statement issued Sunday night, Eller said the appropriate mechanism for handling the U.S. terminals while they are in regulatory limbo is to appoint a receiver to operate P&O’s U.S. facilities. Eller representatives say that DP World’s offer to leave P&O officials in charge during the interim period is a fig leaf because P&O will no longer exist as a legal entity once the sale becomes official.

   DP World’s concession allowing the U.S. government to start a fresh investigation from scratch is intended to assuage lawmakers who said that the sale should have raised a red flag and undergone a formal 45-day investigation, with participation by Cabinet secretaries, the first time to make sure that the deal doesn’t jeopardize national security.

   Few foreign investments have risen to the investigative stage. The CFIUS review panel is not required to pursue a formal investigation unless a participating agency voices concern. Only 25 transactions out of more than 1,500 have required an expanded investigation during the past 18 years and only one sale was blocked by a president, although some deals fell through when the parties could not meet certain security conditions. The dearth of investigations is a function of U.S. policy that places more weight on open investment than national security concerns, some experts say.

   At a Senate Armed Services Committee hearing last Thursday, Democratic senators Carl Levin, Mich., and Hillary Clinton, N.Y., castigated administration officials for not conducting the full investigation, saying they ignored a requirement in the foreign investment law that mandates an additional 45-day review when the entity involved is government-owned and the investment affects national security.

   Sen. John Warner, R-Va., who along with Majority Leader Bill Frist, was instrumental in putting together the compromise offer after meeting with Bilkey, said on NBC’s “Meet the Press” that the port sale to Dubai has foreign policy implications because the UAE is a critical ally in the war against terrorism.

   “We cannot mess this deal up,” Warner said.

   The Defense Department says it has strong military-to-military relations with the UAE, which supports U.S. activity in Iraq and Afghanistan by allowing overflight clearances, serving as a home base for 590 military supply ships and 56 warships last year, and providing naval repair and air flight training facilities. State Department officials have said the UAE has been very helpful in unraveling Pakistani scientist A.Q. Khan’s nuclear smuggling network by taking action against people in the country who assisted the network and providing information that led to the interdiction of the BBC China vessel that was carrying parts to Libya and eventually led Libya to give up its nuclear program.

   “The near hysteria about this (sale) is not warranted,” said Sen. John McCain on ABC’s “This Week” program. McCain was one of the few legislators last week who did not rush to criticize the sale of terminal rights to a commercial arm of the government of Dubai.

   Clinton and Sen. Robert Menendez, D-N.J., intend to file legislation to prevent foreign government-owned companies from operating U.S. ports. But McCain said the implications of such a manoeuver would mean that the United States would have to launch a campaign to force companies in a similar situation to disinvest, and flies in the face of the trade deficit which has foreigners awash in U.S. dollars and looking for ways to invest their money.

   Neptune Orient Lines, controlled by Singapore government entity Temasek, bought U.S. container line APL in 1997 and operates terminals in Long Beach, Calif.; Oakland and Seattle. China Ocean Shipping Co., a state-owned firm, has a joint operating agreement with APL subsidiary Eagle Marine Services in Long Beach. And Yang Ming Marine Transport Co., which is partially owned by the government of Taiwan, operates terminals at the ports of Los Angeles and Tacoma, Wash.

   NOL’s acquisition of APL and its terminal operating unit didn’t go to a 45-day review period either, Treasury Deputy Secretary Robert M. Kimmitt, said at the hearing on Thursday.

   Rep. Peter King, chairman of the House Homeland Security Committee and one of the loudest critics of the deal in the past few days, said on “Meet the Press” that the DP World offer has caused him to reserve judgment on the sale and eliminates the need to press forward with legislation he had promised to stop the acquisition.

   Frist, who last week said he would push legislation to delay the port sale if the administration didn’t agree to put it on hold until it could receive closer examination, said he will recommend that the Senate wait to see the outcome of the CFIUS review before taking any action.

   But Sen. Charles Schumer, D-N.Y. said he remains skeptical about the compromise approach and plans to move ahead this week without King to introduce a bill, along with Clinton and Menendez, that would place an immediate stay on the DP World takeover, require the administration to open a 45-day investigation and give final authority to approve the sale to Congress.

   “For the administration to initiate the 45-day review at the request of DP World is certainly a significant step forward, but the devil is in the details,” Schumer said in a statement.

   “If the report from the 45-day investigation is kept secret and only sent to the president, who already is in support of the deal, the American people’s fears will not be allayed. Furthermore, the safeguards that prevent DP World from exercising any control over U.S. ports while the investigation proceeds must be strong and the details must be public.”

   President Bush last week threatened to veto any attempts to stall the deal, and administration officials flatly stated they had no intention to reopen an investigation in DP World. The compromise offer from DP World was characterized as the product of negotiations between and the company and Congress, with the White House only acceding to a request from the company to conduct a second review. But the White House was kept abreast of the negotiations and administration officials were involved in the discussions to give the administration a way to save face once it became clear that Congress would force a new investigation, according to the Associated Press.

   King said he wants to be convinced that no officials in United Arab Emirates government still have any ties to al Qaeda or the Taliban, and that the country won’t change allegiances before he gives his blessing to the sale.

   “Even if nothing turns up now, the fact is this government could shift overnight, the way it has done in the past, and then we’ll be stuck. I don’t want to prejudge it, but I think certainly a real possibility at the end of this process is to have U.S. officials monitoring it on a regular basis” in the same way that courts impose monitors over a union or company, King said.

   “I don’t believe you can treat the United Arab Emirates the same as you treat Great Britain. We certainly treat them better than other countries, but not like Great Britain or Australia or other countries who’ve stood side-by-side with us from the beginning. Not just, you know, Johnny-come-latelies,” King said in response to whether opponents of the sale are anti-Arab.

   Warner chided host Tim Russert for asking questions about foreign ownership of U.S. ports. “Tim, you got to stop using this (term) foreign ownership. They’re not buying the port. That remains in domestic control, whether it’s a municipality, the state or private. They’re just getting leases to operate the terminals, the cranes, the handling, the transportation. It’s wrong, we got off on the wrong foot . We’re not selling our ports to the foreigners,” he said.

   California Gov. Arnold Schwarzenegger, who appeared later on the program, said it was smart for the Bush administration to agree to a postponement to give time to educate all sides about the merits of the sale.

   “I think when you see complaints coming in like this, you got to study it further, and I think that’s what they’re doing right now. And it’s a very complex issue, because, you know, we have the globalization, we want to do trades with everyone all over the world, but at the same time, globalization crosses with terrorism now, and there’s that whole fear. And then we have villainized the Arab world also so much that now Arab country or company taking over our ports and maybe have some influence in our security, it freaks everyone out, and rightfully so,” said Schwarzenegger, whose state is home to several major ports but none of which include P&O operations.

   Schwarzenegger has been engaged on port issues during the past year. He proposed spending up to $20 billion to promote intermodal goods movement in the state and has stated that California needs to invest in its ports to maintain California’s competitiveness with other states and Mexico who are trying to attract more ocean trade.

   “In the end, the number one responsibility of government is to protect the people of California and the United States. This is really the responsibility. That is what you have to watch out for. And if we can accomplish that, then this company should be able to manage these ports. I mean, we have in California, Chinese managing our ports and have facilities that are leased. We have other countries like Japan and South Korea and Denmark and so on occupying space. So I think that the trick is just how do you do it and protect the people and protect our ports,” he said.

   Asked if he is concerned that China operates a terminal in Los Angeles, Schwarzenegger replied: ” Well, we have the ultimate control over security. I mean, they occupy space. They lease space. They don’t own it. And we have Long Beach, for instance, controlling the Long Beach, the ports there. We have the Coast Guard, we have the Customs service, we have the local law enforcement, we have the port authority. We have all of those agencies, various different agencies that control it. It’s not the Chinese or any other country that control our security. So I feel very confident with that. And I also feel very confident with the kind of relationship that we have with the national Homeland Security Office with Secretary (Michael) Chertoff. They have always responded really well to every single one of our concerns that we had.”

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