Tuesday, February 21, 2006

UAE Port Controversy is Much Ado about Nothing

The debate over the "ownership" of "security" at U.S. ports is fraught with ignorance, hyperbole, false assumptions and incorrect information. When the facts are examined, the controversy can be seen for what it is, which is much ado about nothing.

To summarise the facts: The P&O company, a stockholder-owned foreign company based in England, put itself up for sale. In the end, only one company bid for ownership -- DP World, a UAE-based company owned by the UAE government. The U.S. had nothing to do with the sale. We didn't ask for it, didn't push it. We didn't lobby for a company to bid. We signed lease deals with P&O back in 2000 for the port operations of some terminals at 6 ports.

U.S. law requires that the administration evaluate the purchase of a company operating u.s. subsidiaries to ensure there is no security issues. The Administration therefore performed this duty, and concluded there were no pressing security issues which would legally justify blocking the sale. That was the extent of the Bush involvement in this transfer of ownership.

An argument could be had about whether U.S. ports should be owned, even tangentially, by foreign companies. But that argument is years too late to fuel the hysterical rantings of today, since most ports in this country have long been under foreign operation.

Yes, a majority of the terminals in our ports are owned by, or run by, foreign companies. Just like most of the shipping is done by foreign countries.

But that is misleading. Many ports are run by U.S. companies that are subsidiaries of foreign companies, which bought them out. For example, the Miami port which is leased to the P&O company is an american firm (and is suing to block this purchase, for what it's worth).

All port workers must make it through background checks. They don't have to be americans, but it's similar to airport security checks. Note that foreign companies operate airlines in this country, which means that have control over employees and gates at airports where cargo and luggage is unloaded from airplanes that come from other countries.

There are no major U.S. companies in the business -- I will simplify and blame this on democrats who made the business environment too harsh for U.S. companies to compete. But the workers are entirely U.S. residents, since the work can't be "outsourced".

There are several americans on the board and in positions of leadership in the company DP World, which is the UAE-owned company trying to buy the publicly traded firm P&O. David Sanborn currently holds the position of Director of Operations for Europe and Latin America for the company, and is in the U.S. Naval Reserve (and was a Merchant Marine). He is now nominated for U.S. Maritime Administrator in the Bush administration.

Clearances are not cheap, and it is unlikely DP world will want to significantly change employees. I would speculate that they might send new executives to underperforming ports, if there are any. A vast majority of the workers are union laborers, and those contracts aren't up for change.

Ports are owned mostly by states, with long-term leases used to get private companies to run the ports. These leases are signed with many different companies, one of which is the publicly traded foreign company P&O. These leases are for operations, not security. Just as Airlines lease space at airports, but TSA runs security. Obviously security is integrated at all levels, and the existing foreign operators (P&O and others) are included, just like foreign airlines are included at airports.

The change in ownership has nothing to do with the U.S. government. The P&O company board decided they weren't returning value for stockholders, and offered the company for sale. Two companies entered bidding, but one (a singapore company PSA), dropped out, leaving only DP World. DP World offered somewhere around 6.7 BILLION dollars, and the stockholders overwhelmingly took the offer to sell (99%). For their 6.7 billion, I presume DP World hopes that P&O operations will generate a cash flow large enough to justify the investment.

DP World will now be the owner of P&O. So if you want to trace lineage: Ports owned by states and guarded by U.S. Homeland security, leased to american firms owned by the P&O company, which is owned by the DP World company, which is owned by the UAE government. In other words, UAE government will have about as much say in how containers are handled at a U.S. port as Warren Buffet has on whether Geico grants you car insurance.

Put another way. After the sale, the same workers with the same clearances will perform the same tasks they now perform at our ports. The same people will be in charge of security both at the ports, and inspecting containers. The same U.S. companies will be in charge of the ports as are in charge now. The money they earn will go to the same company it goes to now. The only difference is that after P&O gets the money, instead of it going to the P&O stockholders, it will now go up to the DP World company and it's private owners, the UAE government (in the U.S. we don't have government ownership, the government takes it's cut by taxation).

There are currently only four major firms in this industry: P&O (publicly traded british firm), PSA (singapore), Hutchinson Lampoa (Hong Kong -- Chineese), and Maersk Sealand(which is more of a shipping company than a port operator).

This is much ado about nothing. The deal was announced weeks ago. At the time little was made of it beyond hte British press lamenting the loss of another great industry (something we lost years ago). The mayor of Baltimore praised the deal when it was announced, but now he is against it.

As I said, the U.S. had nothing to do with this. We signed the lease in 2000, and had no intention of selling the leases again. This was a private deal between two foreign companies.
However, the law requires the administration to evaluate deals like this to assess security impact. But the existing law primarily applies to U.S. companies being bought. And the law is very specific and demanding in the proof needed to override a sale. There is no suggestion in any record that this sale would meet the demanding rules of the law.

So the administration researched and analysed the purchase of a foreign company by another foreign company which is owned by an ally of the U.S. in the war on terror, and determined that there was no evidence that the deal would weaken our port security.

Which is not surprising. Not only does the deal have nothing to do with security, but in fact a major part of our port security is inspecting containers in foreign ports before they are loaded on ships bound for our country. Obviously we don't own those ports. So who does those inspections?

Well, a majority of the inspections are done at ports owned and operated by -- DP World. They have already been cleared as a company as a strategic partner in our port security, one of the first to be brought online.

So we have the DP Company, which is working hand-in-hand with DHS to inspect containers in foreign ports for us, and is owned by a country that since 9/11 has become one of our best allies (so much so that the terrorists are regularly attacking people in that country trying to punish it for helping us), a company which operates ports in Australia, Germany, India, and other allied ports, and which will now take over ports in England and elsewhere with no complaints.

And the democrats claim that this company can't be trusted to own the foreign company that already runs our port management. And why do the democrats tell us this? Why, because they are Arab.

In other words, they have profiled the companies, and decided that without any direct evidence we should deny work to arab companies and instead give it to a british company, or better still Halliburton (who doesn't want the job, didn't bid on the company or the contract, and has not operated ports -- might as well ask Ben and Jerry's to take over).

According to the democrats, we can't search 25-year-old male muslims unless we also search 85-year-old white grandmothers, or else we would be racially profiling, but we can block the sale of companies to arabs just because they are arab.

That would be a disastrous message to send to the middle east.

It may well be that in the end, we will be at war with all of the Muslim world. But we are not now. And we can't act like we are, or we will surely be.

Last point. UAE does not have a great record. It has been helpful to us in the past, it was an ally int he first gulf war, but it also has been lax on terrorists, especially before 9/11. And it was one of only three countries to recognise the taliban as a legitimate government. However, after 9/11 it has greatly improved. It could improve further, it's not a democracy, and there are things we would want to change in the country.

Well, in 1980 President Carter was faced with a choice. The Shah of Iran was an "ally" but we had issues. Carter chose to push against him to fix his country to our liking. In response, we got the Ayatolah Khomeni. Now, 25 years later, Iran is the single greatest threat in the history of the world -- a militant radical fundamentalist muslim dictatorship with billions of dollars, unlimited oil supplies, a strong military, and on the verge of a nuclear arsenal.

Let's not turn UAE into the next Iran. They aren't perfect, but remember this -- the attacks on 9/11 happened in airports run by our own government, not arab countries. The terrorists lived here, got drivers licenses in Virginia, were trained to fly by U.S. companies. They took down buildings controlled by the N.Y. Port authority, not a foreign company.

If this deal is allowed to complete, we won't be any safer. But nobody tried to push this deal to improve security. The question to be answered is, should we stop the stockholders of a foreign company from selling their company to another foreign company simply because that other company is owned by arabs? Is it clear that security will be so harmed that we should take that extraordinary step?

I suppose we could argue that we never should have allowed foreign ownership of ports. But to be safe, we would really have to take over ownership of foreign ports inother countries that SHIP stuff here. And take over foreign airports that fly planes here. And we aren't going to do that.

And since there are no big american companies ready to take over P&O, the only option if we force U.S. control would be either a false shell game where foreign companies set up shadow U.S. companies for the contracts, or a U.S. government takeover of the operations of the ports. Neither of those are useful solutions.