Wednesday, February 22, 2006

Ports acquisition issue

As someone who has seen the CFIUS process first-hand, I agree with Kevin Drum on the ports issue. This isn't a matter of the existing company, the London-based P&O (Peninsular and Oriental Steam Navigation Co.), being replaced by a Dubai company, Dubai Ports World, it's a matter of acquisition. This will likely legally involve the transfer of the assets to a new corporate entity to replace the existing top-level structure of P&O, with a new board of directors, but if it's like the process I've seen, there may be restrictions on the composition of that board to make sure that U.S. interests are protected. There will probably be few changes in the staff actually performing jobs at the ports, and there will likely be screening requirements for employees as part of the security requirements that the acquirer has agreed to through the CFIUS process. If any of the agreement documents that came out of the CFIUS process are a public record (as was the case when the company I work for was acquired by a Singapore company), we'll be able to see some of the specific requirements that will have to be put in place, which will most likely be greater than the requirements that P&O has today.

Sean Lynch at Catallarchy calls this a win for free trade, which is disputed by The Modulator on the grounds that the acquiring company is owned by a government--the United Arab Emirates. The alternative acquirer, PSA International of Singapore, is also owned by a government (the Republic of Singapore), through Temasek Holdings. It's clearly not "free trade" in the sense of a normal voluntary transaction between two private entities both in light of the government ownership and the whole CFIUS process and mandated agreements imposed by the U.S. government.

UPDATE: Ed Brayton argues against the deal at Dispatches from the Culture Wars, and I've offered some comments there, including this paragraph that I think Sean Lynch would agree with:
I'm not sure I see what the big deal is about P&O being owned by Dubai Ports World being owned by the Dubai government (the Hong Kong of the United Arab Emirates), vs. P&O being owned by PSA International being owned by Temasek Holdings being owned by the Republic of Singapore--apart from a general objection to government-owned businesses. I also don't see a big deal in Haier (Chinese company) making Maytag washing machines, or Lenovo making IBM ThinkPads. It seems to me that the more economic interests that cross national boundaries, the less likely we are to have wars.
UPDATE 2: At least some provisions of the agreement (presumably negotiated as part of the CFIUS process) have come out, and while the DHS described the terms as "unprecedented among maritime companies," they sound lax by comparison to the terms that have been used in such agreements for foreign acquisitions of U.S. telecommunications companies. Apparently the Bush administration is more concerned about the flow of information than the movement of physical materials.


MichaelBains said...

Apparently the Bush administration is more concerned about the flow of information than the movement of physical materials.

I think the last 5 years supply plenty of evidence to support that supposition.

There is a major political difference between Singapore and Dubai though. It is essential because of the nature of Dubai's Islamist govenment -v- Singapore quasi-socialistic regime: Socialists - at least of the Singaporan variety - are not known as being amongst the world's current leaders in anti-western terrorism. The fact that Dubai is one of America's closest middle-eastern allies in the battle against such doesn't change the political assumptions of extreme anti-islamist Americans though. That little factoid is easily dismissed when fear overrides reason.

This observation is from a person who sees much to warrant extra concern when dealing with Islamic governments.

I've just seen a story where the Admin is asking Dubai for non-standard assurances in order to let the deal proceed. I'm sure you're aware of the latest developments in this regard, so will just say thanks for providing an alternate view.

A little balance in one's POV helps make any decision more coherent and relevant to the issue at hand.

Jim Lippard said...

Michael, thanks for your post. I agree with you that the last five years supply plenty of evidence to support the supposition...

I'm not entirely clear on the structure of the government in Dubai--I've read that in the UAE, if the federal courts provide no solution then Sharia courts are invoked, but also that Dubai is not part of the UAE federal court system, but operates independently.

One website says:
"Laws are issued in the following ways. First consideration is given to federal law, if no solution is provided then to the provisions of Dubai's relevant laws, if still no solution was found, then Sharia law is applied. Though in normal cases only inheritance and family issues are subject to Sharia."

Jim Lippard said...

BTW, TPM recently wrote (
"See the problem here? They aren't just hoisted on their own petard here; the petard is engaging them in an unnatural act, presumably pre-detonation. The White House's whole premise seems to be that the DPW just isn't involved in the security side of port management. Since that's the case, the whole security argument is bogus.

But if they need to pledge to cooperate and assist with security and counter-terrorism then clearly they are involved in port security."

Mr. Marshall is assuming that there are no security considerations for a company that isn't directly involved in the providing of security services, but that's just a mistake. There are security implications in *any* business. P&O is not responsible for providing security to the ports, but the mere fact that the company is operating at the ports means that it has its own internal security to be concerned about. It's not as black-and-white as Mr. Marshall's comment suggests.

Einzige said...

Sheldon Richman over at Free Association makes a couple salient points here and here, and here.