Dubai port deal off; Arab firm will sell its U.S. operations

WASHINGTON — A United Arab Emirates-based maritime company at the center of a furious port-security controversy bowed to pressure from Congress on Thursday and announced it will sell off its U.S. operations to an American owner.

The announcement, issued by Dubai Ports World (DP World) Chief Operating Officer Edward Bilkey, came just hours after House and Senate Republican leaders bluntly told President Bush that Congress would kill the U.S. portions of the company's $6.8 billion acquisition of London-based Peninsular and Oriental Steam Navigation (P&O) and its operations at six major U.S. ports.

The company's decision climaxed a three-week furor that pitted both Republicans and Democrats in Congress against Bush on a volatile national-security issue in a midterm-election year. Fueled by fear of terrorism, opposition to the port deal mushroomed to the point at which even Bush's veto threat proved ineffective — and, if anything, further aggravated GOP allies.

The White House praised DP World for its decision and reaffirmed the "strong relationship" between the United States and the UAE. "This decision provides a way forward and will allow us to continue working on other issues," White House press secretary Scott McClellan said.

Although the demise of the U.S. port deal is sure to leave badly bruised feelings in the UAE, of which Dubai is a part, analysts predicted that the United States will be able to preserve its extensive security and economic ties with the tiny country, given the strong mutual interests at stake. The bigger problem, they said, will be the new damage done to the U.S. image in the Muslim world.

Even before the deal fell through, Arab media had been portraying U.S. opposition as an anti-Arab slur, contrasting that resistance to the acceptance generally accorded in the United States to investments from Asian and European entities.

"This can only make the already damaged image worse," said Youssef Ibrahim, managing director of Dubai-based Strategic Energy Investment Group. "The problem is, for four or five years, we haven't found a way to repair that damaged image."

It is not clear which American company is willing to buy DP World's U.S. operations. About 75 percent of containers that enter U.S. ports go through terminals that are operated by foreign-owned firms.

The administration quietly approved the sale of British-owned P&O to DP World on Jan. 17 after a review by its secretive Committee on Foreign Investments in the United States. But stung by the public and political outcry once the decision became widely known last month, the White House and the company owned by the Dubai government tried to placate critics by agreeing to a 45-day review of the deal's national-security implications.

Congress began acting this week to revoke the sale, driven by constituent fears that Arab state ownership of U.S. port operations would compromise security. Senate Majority Leader Bill Frist, R-Tenn., and Senate Armed Services Committee Chairman John Warner, R-Va., warned company officials Wednesday that they would be prudent to cut a deal allowing them to sell off their newly acquired U.S. operations through normal business channels.

"Because of the strong relationship between the United Arab Emirates and the United States and to preserve this relationship, DP World has decided to transfer fully the U.S. operations of P&O Ports North America Inc. to a United States entity," Bilkey announced. "This decision is based on an understanding that DP World will have time to effect the transfer in an orderly fashion and that DP World will not suffer economic loss."

DP World acquired management control of 24 of 829 container terminals at the ports of Baltimore, New York, New Jersey, Philadelphia, Miami and New Orleans. Terminal operators are primarily responsible for transferring containers from ships to railroad cars and trucks, administration officials have noted, while port security is the responsibility of the U.S. Coast Guard and U.S. Customs and Border Protection.

Company officials and Republican congressional aides said DP World intends to cut all ties to U.S. ports.

"To me, there's nothing more to be done," said House Homeland Security Committee Chairman Peter King, R-N.Y., a fierce opponent of the acquisition. "This deal is over."

In practical terms, several specialists on the region said the end of the Dubai deal will likely have little impact on the UAE's willingness to continue serving as a major Middle East outpost for U.S. warships, spy planes and combat aircraft. That is because the extensive U.S. military presence is seen by the UAE's leaders as serving their own security interests.

But the UAE now may be less inclined to respond as favorably as it has to U.S. appeals for military assistance outside the country's borders, analysts said.

"They've been doing such things because they've felt they had a special relationship with us," said David Mack, vice president of the Washington-based Middle East Institute and a former U.S. ambassador to the UAE. "Now, I would expect less eagerness on their part to be as accommodating."