Gulftainer concession undergoes U.S. security review

The Canaveral Port Authority and the United Arab Emirates port operator submitted the application to the Committee on Foreign Investment in the United States.    Port Canaveral required Gulftainer to obtain a U.S. government security clearance as a condition of its lease for operating control of a new container terminal and requested officials conduct a full investigation, rather than a 30-day informal review, to ensure complete transparency, the port’s director said.
   Furthermore, the Canaveral Port Authority and the United Arab Emirates port operator submitted the application to the Committee on Foreign Investment in the United States, an inter-agency group which reviews foreign acquisitions to make sure they do not threaten U.S. security, even though it technically isn’t required to under the law, and did so at least 10 days prior to Rep. Duncan D. Hunter’s recent request for the Obama administration to vet the deal, Chief Executive Officer John Walsh told American Shipper.
   “We feel very comfortable that they do a full, in-depth review,” he said in an interview.
   The request to go directly to a second-stage review likely reflects lessons learned eight years ago when another global terminal operator from the U.A.E., Dubai-owned DP World, was forced to divest U.S. assets obtained as part of a larger acquisition after lawmakers cast the transaction as outsourcing critical infrastructure to a Middle Eastern country with possible terrorist ties. National and local politicians seized on the fact that mid-level Bush administration officials approved the deal without notifying Congress and undertaking a more thorough review, with final approval coming from agency and cabinet heads.
   Lost in the debate was the fact that the majority of U.S. port terminals are operated by foreign companies, some of which are owned by foreign governments.
   Port Canaveral signed the contract for the container terminal with Gulftainer’s newly created U.S. subsidiary.
   Gulftainer is headquartered in the emirate of Sharjah and owned by two shareholders, one of whom, Sheikh Sultan bin Mohammad Al Qassimi, is the ruler of Sharjah. Founded in 1976, it operates the Sharjah and Khorfakkan container terminals in the U.A.E., as well as terminals in Brazil (Recife), Russia, Saudi Arabia, Pakistan and Iraq. The company moved 7 million standard shipping containers last year, and has said its goal is to triple volumes and operate 35 terminals across five continents by 2020.
   In 2008, the company created a third-party logistics business, Momentum Logistics, which offers a full range of supply chain management services, container repairs and inland depot operations.
   “What we liked about Gulftainer is that the ports they operate are very high productivity. They move boxes very efficiently and are very customer focused for the shipping lines,” Walsh said. He anticipated that Canaveral would average 40 lifts an hour under Gulftainer’s management, which is higher than all but a handful of U.S. ports.
   In 1988, Congress passed the Exon-Florio amendment delegating to CFIUS the task of investigating foreign acquisitions of U.S. companies.
   The CFIUS process is officially launched when the Treasury Department receives a written notice of a transaction, but in most cases, companies consult with executive agencies ahead of time to head off potential problems and make sure they have a good chance of getting approved. Other agencies represented on CFIUS include the National Security Agency and the departments of Defense, Homeland Security, State, Justice and Commerce.
   Applications typically go through a 30-day staff review. If questions are raised, the background check can be bumped up to a 45-day investigation. The president has the authority to prohibit any acquisition that could harm the nation’s security. 
   Theoretically, filing a notice is not mandatory, but companies that don’t face the financial risk of having their investment reversed if the government initiates a review on its own.
   Legislation passed after the DP World fiasco made several procedural changes to the CFIUS process, including broadening the definition of the national security purview to critical infrastructure and requiring a second-stage review if the acquiring company is a state-owned enterprise.
   Between 2008 and 2012, companies filed 538 notices of transactions for review by CFIUS. About 6 percent (32 cases) of filings were withdrawn during the review stage, 31 percent (168 cases) resulted in investigations and 7 percent (38 cases) were withdrawn during the investigation stage. There was one transaction that resulted in a presidential decision, according to the latest CFIUS annual report to Congress. In that case, President Obama blocked a Chinese-owned company from buying several wind farm projects in Oregon because of their proximity to a U.S. Navy weapons training facility. 
   Some transactions that were withdrawn were refiled at a later stage.
   More than 40 percent of acquisition notices filed with the government involved manufacturing companies, while a third of the notices were in the finance, information and services sectors. Eight percent of the notices covered wholesale, retail and transportation sectors. 
   The unclassified report did not mention the specific deals reviewed by CFIUS. Companies that work directly for the military are obvious candidates for CFIUS review, but many other transactions get scrutinized, too. Last year, CFIUS reviewed the $4.7 billion purchase of U.S. pork producer Smithfield by Chinese firm Shuanghui International Holdings.
   Deals that get the most government scrutiny are ones that involve Chinese companies because of China’s industrial espionage and perceived military threat, Bill Reinsch, president of the National Foreign Trade Council, said.
   Otherwise, objections tend to be raised when an American company is disgruntled about a deal and draws attention to the situation, he added.
   Ralls Corp., the Chinese-owned company blocked by the president, subsequently sued, but an appellate court declined to hear the case because presidential decisions cannot be challenged. It recently ruled, however, that CFIUS had not followed proper procedures during its investigation and the company was entitled to receive all unclassified information CFIUS utilized to make its decision—providing a pyrrhic victory since the president’s decision stands.
   How the court’s decision will affect future CFIUS cases is unclear. Some legal experts speculate that it will force CFIUS to be slightly more open about sharing information, but ultimately will have little impact on their final decisions.
   In reality, the Gulftainer deal, as in the case of DP World, involves no purchase of port assets. The transaction is only a concession granting the terminal management company exclusive operating rights for a long-term period. Still, port authorities in the post-Sept. 11, 2001 environment are likely to get deals with foreign operators checked in advance because of the sensitive nature of port infrastructure and border security.
   Hunter, chairman of the House Transportation and Infrastructure subcommittee on Coast Guard and maritime transportation, asked Treasury Secretary Jack Lew to review the Port Canaveral-Gulftainer deal. His father, Duncan L. Hunter, served 14 terms in the House and helped instigate the opposition to the DP World takeover of container terminals at six major ports, amid accusations that Dubai turned a blind eye toward smuggling of nuclear and chemical components. He also tried to pass legislation that would limit ownership of critical infrastructure to American firms, and called for all cargo containers and trucks entering the United States to be scanned for terrorist weapons. 
   Walsh said Gulftainer is a world-class port operator that would load and unload vessels with a workforce that is 95 percent American and be subject to all U.S. Customs and Coast Guard security requirements for vessels and cargo. GT-USA’s general manager is British, and the chief operating officer is an American who has operated terminals in New York, Houston and Saudi Arabia. 
   “Our request is that, regardless, they go to the second stage” review, Walsh said. “We want to make sure that every ‘t’ is crossed and every ‘i’ dotted — put all our cards on the table” with full disclosure of the company’s executive teams, finances and operating practices.
   In an Aug. 25 statement, Port Canaveral said it expects a response to the CFIUS filing by early September. The Gulftainer contract has also been submitted to the Federal Maritime Commission for review and has not met with any objections, according to Walsh.
   “We remain confident that the container terminal will receive all needed clearances and approvals to begin operating in March 2015,” the Canaveral statement said.

This article was published in the October 2014 issue of American Shipper.