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Opposition to the DPW deal sends ''the wrong message to our allies,'' says Bush

WASHINGTON, DC - 03/08/06 - For all the rhetoric about the Dubai Ports World (DPW) acquisition, experts believe that foreign investment in the US will continue to grow strongly in coming years.

The deal would have allowed the United Arab Emirates (UAE)-owned terminal operator to manage ocean terminals at several US ports after the purchase of the British-owned Peninsular & Oriental Steam Navigation Company (P&O). 

The transaction was approved last year by a US interagency committee, but the takeover of US operations has been delayed for a 45-day investigation after intense, bipartisan criticism from Congress and in the media based on national security fears.

But, the backlash around the country over the DPW acquisition doesn't seem to be resonating much on the waterfront, according to the Bloomberg News Agency.

The clamor over DP World's acquisition of P&O "has been driven by politics, because companies such as Singapore's Neptune Orient Lines Ltd. and Denmark's A.P. Moeller-Maersk A/S already dominate US container terminals," said Don Frost, a Stamford, Connecticut-based private shipping consultant. 

"It's been going on for 25 years" or more," he told the press agency.

According to the Department of Transportation (DOT) in Washington, DC, foreign-controlled companies operate as many as 80% of the container terminals at US ports, a shift that began when Jimmy Carter was in the White House,

Jacksonville, Florida-based CSX - the third-biggest railroad in the US - sold nine cargo terminals to DPW last year for more than $1 billion, completing the divestiture of its maritime interests.

On the US West Coast, a pair of Taiwan-based companies - Evergreen Marine Corp. and Yang Ming Marine Transport - also lease or operate their own container terminals, as do two Japanese shipping lines - Nippon Yusen Kaisha (NYK), Japan's biggest shipping line, and Mitsui OSK Lines - and South Korea's Hanjin Shipping Co.

The 45-day delay in the DPW deal may have short-term implications in terms of how investors perceive the US, but experts believe that the US will likely remain one of the world's most open economies to foreign investment.

"Foreign investment in US ports is not a new development," said Christopher Koch, president of the World Shipping Council, a Washington-based trade group. "I am aware of no fact that would support that there is a security threat in this ownership."

Foreign direct investment figures are notoriously difficult to gather, but US Commerce Department (DOC) data shows that in 2004, the most recent year available, foreign direct investment in all business sectors in the US grew by 8%, to $1.5 trillion, following 5% growth in 2003.

Direct investment by Arab companies in the US totaled roughly $9.3 billion in 2004, including investments through second countries.

In fact, all foreign-owned companies have contributed almost $500 billion per year to the US gross domestic product recently, according to the DOC.

These companies are not just selling to Americans but also helping the US trade balance - they currently account for a full one-fifth of US exports and employ more than 5 million US workers. 

On average, these jobs pay $60,000 a year, according to Nancy McLernon, vice president of the Organization for International Investment (OII), which represents US subsidiaries of foreign companies. She said that compensation level is 34% above the average pay by US companies.

While their investment is a small share of the total, Arab countries are investing in such US economic activities, as real estate, computer software, and fast-foods.

Last week, Miami-based retailer Bijoux Terner, which has 400 stores in duty-free shops around the world, announced that the Bahrain-based investment firm Arcapita acquired the company for $90 million.

In 2005, Istithmar, a UAE-based company, bought the landmark, gold-domed office tower that straddles Park Avenue in New York, and Investcorp International Inc., a company listed on the Bahrain stock exchange, bought American Tire Distributors in North Carolina and an insurance-software company in Chicago.

While Arab investment in the US has been robust, some US businessmen are concerned that Arab investors will look elsewhere if they perceive difficulty completing transactions here.

Charles Ogburn, the Atlanta-based director of Arcapita, said the firestorm about allowing a UAE-based company to manage port terminals in the US is worrisome.  "It has the potential to be a watershed event for how investors perceive the US," he said.

But Peter Bowe, president of Baltimore Dredge Enterprises, a small company with material investment from an Egyptian named Gamel el Saeed, told Bloomberg that the scrutiny of the Dubai Ports World deal has not seriously worried the owner, who does not see problems ahead for foreigners buying US businesses.

"We've sold dredging equipment for works in the Dead Sea, which is partly owned by companies in Israel and Jordan," Bowe said.  "They use the machines to make salt for fertilizer and road salt. Then some road salt gets exported to Baltimore. World trade works that way."

David Hamod, president of the National US-Arab Chamber of Commerce, said some Arab businesses "might feel discriminated against because of the DP World situation and turn to other investment opportunities in the Gulf region."

Last month, President Bush expressed a similar concern when asked about the controversy that the proposed deal had stirred up.  

"What I find interesting," he said, "is that it's okay for a British company to manage some ports, but not okay for a company from a country that is also valuable ally in the war on terror."

The president went on to say, "it's really important we not send mixed messages to friends and allies around the world…"

In 2003, the Bush Administration announced its proposal to establish a US-Middle East Free Trade Area by 2013, while in February a bipartisan group of lawmakers in the House of Representatives launched a congressional "Middle East Economic Partnership Caucus" to strengthen trade ties with the region.

Edward Graham, a senior fellow at the Institute for International Economics, said he expects any effect on future foreign investment because of the firestorm over the ports deal to be "marginal."

"I think foreign companies that invest in the US are viewing what is happening here as an anomaly, not a shift in the US's historical, open-investment policy," said McLernon of the OII.

DOC economist William Zeile concurred with that view. 

Foreign direct-investment, he said, is not "footloose," he said. "Investments in US businesses are generally by affiliates who want to manage a given company for years.

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