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Sherman Katz of the Carnegie Endowment opened the talk by introducing Congressman Kolbe, currently chairman of the Foreign Ops Subcommittee and member of the Homeland Security Subcommittee of the House Appropriations Committee. Mr. Katz noted that Cong. Kolbe was one of only two members of the Appropriations Committee who, on March 8, 2006, voted against a measure to block Dubai Ports World from acquiring leases to operate terminals at six U.S. ports. DP World is owned by the government of the United Arab Emirates.
Cong. Kolbe began his remarks by reminding the audience that although he was nearly alone in the 62-2 Appropriations Committee vote, he was joined by 34 other dissenting members in the vote of the full House. He encouraged everyone to look at the Dubai issue instructively, in terms of its politics and its long-run implications for foreign investment in the U.S. economy.
From the moment the controversy erupted, Cong. Kolbe was convinced that it was not a legitimate security issue. Although there is no question that national security considerations are vital, he feared that the furor over the Dubai deal would only distract from genuine problems with port security, such as the fact that only 2% of containers are thoroughly screened upon entering the U.S. Such containers are ideal vehicles for the smuggling of drugs, contraband, and weapons of mass destruction into the major urban centers where ports are typically located.
Despite the sensational claims of some of the media, port management has very little to do with port security, which is always handled by the Coast Guard and Department of Homeland Security. Cong. Kolbe pointed out that 80% of American ports are already operated by companies based in foreign countries, such as the United Kingdom and China, among others. In the face of the Department of Homeland Security’s troubling inability to implement necessary reforms and existing recommendations, the nationality of a port’s management is largely irrelevant.
Why, then, many have asked, did members of Congress react the way they did? Cong. Kolbe was forced to admit that much of the underlying anxiety regarding the proposed takeover can ultimately be traced to a growing xenophobia, a general fear of any firms controlled by a Middle Eastern government. The handling of the controversy by the Bush administration did not help matters, and Cong. Kolbe stated that it was one of the most inept and “tone-deaf” political reactions he has witnessed in all his years in Washington. The problems with this response were twofold: (a) the administration found out about the issue too late and was caught completely unawares by the brewing firestorm, and (b) once tensions escalated, the president and his team exacerbated the situation by immediately threatening a veto rather than entering into dialogue with Congress.
Congressman Kolbe then identified some of the broader implications of the DP World affair. First, it jeopardizes the U.S.’s crucial strategic relationship with Dubai, which, while not a political democracy, is one of the most economically open regimes in the region and precisely the kind of country the U.S. should be encouraging. Dubai is the largest port for American warships outside of the U.S., with 56 warships and 590 supply ships docking there in 2005 alone. Since the U.S. has undertaken to draw down its military presence in Saudi Arabia in recent years, Dubai’s importance as a vital ally has risen accordingly. Cong. Kolbe applauded Dubai’s leadership for their remarkably restrained response to the DP World controversy but commented that the U.S. has emerged looking like a “banana republic.”
Although we have procedures to handle situations in which corporate mergers may have a bearing on national security—namely, review by the Committee for Foreign Investment in the United States (CFIUS)—in this case these were inexplicably jettisoned. The similar experience of China’s National Offshore Oil Corporation (CNOOC) last year in its failed bid for Unocal suggests that a worrying pattern may be developing that could dissuade foreigners from investing in the U.S. Cong. Kolbe noted that a friend from Singapore cited the Dubai affair as grounds for rethinking his firm’s American investment strategy. Cong. Kolbe reminded the audience that foreign direct investment in the United States is responsible for 35% of American jobs, far more than more traditional sources of employment such as domestic manufacturing.
Next, Cong. Kolbe turned to the near-term outlook for congressional action. Some reform of the organizational structure and procedures of CFIUS is likely, although these had no connection with what transpired in the case of DP World. In that instance, the established procedures were followed correctly and received no extra scrutiny because the deal was not viewed as a national security risk by anyone involved. Cong. Kolbe expressed his hope that Congress would not overreact by revamping the CFIUS process in a way that would discourage business transactions. CFIUS should not, for example, be required to publish public records of its reviews, not only because of the need to protect any sensitive data provided by foreign companies but also because it would be unduly cumbersome.
On the contrary, Cong. Kolbe advocated an increase in Department of Homeland Security funding for port security to improve all operations from cargo screening to personnel security. Some proposals have called for CFIUS to block deals based on “economic security” or “critical infrastructure” concerns, but Cong. Kolbe worried that these criteria were overly vague; since food supply would be included in most definitions of critical infrastructure, he jokingly suggested that the sale of the ice cream chain Ben and Jerry’s might have to undergo CFIUS review. Cong. Kolbe did, however, argue that CFIUS should brief Congress more regularly and should publish aggregate data from its reviews, at the same time recognizing that Congress has a reciprocal responsibility to push for greater oversight. This data should include information about companies that withdrew their bids, since much of the most important activity of CFIUS occurs in such preliminary stages.
Cong. Kolbe next addressed the role of the media in the Dubai affair, claiming that “talking heads” on radio and cable television—not the mainstream media—were largely responsible for the public backlash. After casting his dissenting vote in the Appropriations Committee, Cong. Kolbe received a flood of negative correspondence from his constituency. Once he returned to his district and was able to explain his position, he found that most people were eventually persuaded. This reinforced his belief that public officials and leaders should do the right thing rather than the politically expedient one.
In light of the DP World situation, Congressman Kolbe warned of growing xenophobia directed at China. Contrary to the confrontational approach advocated by Senators Lindsey Graham (R-SC) and Charles Schumer (D-NY), he argued that sanctions would be the wrong approach, both politically and economically.
Cong. Kolbe concluded reiterating his belief that the reaction to the DP World deal was the wrong approach at the wrong time. Although the administration had the correct position, it was “ham-handed” in handling the issue. He urged more thoughtful consideration of such issues in the future, on the part of the government as well as the American public.
Discussion session
Mike Miyazawa of the Miyazawa Report wondered whether “Islamophobia” or the broader term “xenophobia” was a more apt description of the Dubai affair. Cong. Kolbe responded that the backlash was not just directed against the Middle East but against any country seen as a political or economic threat to the U.S. He pointed to the example of Japan in the late 1980s and of the intensifying rhetoric currently aimed at China.
Wolf Brueckmann of the American Chamber of Commerce in Germany asked for additional detail on possible changes to CFIUS and whether these might include congressional approval of all controversial deals. Cong. Kolbe said Congress would be better equipped to selectively exercise veto power than to have to approve every deal. He warned against constructing more procedural barriers to investment and cited the Sarbanes-Oxley Act as an example of overregulation.
Islam Siddiqui, a former undersecretary of agriculture in the Clinton administration, said he found it difficult to believe the DP World issue was never flagged or brought to the attention of the National Security Council. Cong. Kolbe reconfirmed his own understanding that since the deal was never viewed as a national security threat, there was no reason for it to cross the threshold into being a serious concern. He expressed some surprise that no one on the bottom levels grasped the potential political significance of the buyout and thought to “buck up” the issue, but he was convinced by the reactions of both President Bush and National Security Advisor Stephen Hadley that DP World had not been brought to their attention. Cong. Kolbe suggested that CFIUS improve its ability to handle the political and public relations aspects of some of the deals it reviews.
Joel Wishengrad, an independent journalist with World Media Reports, asked the speaker to comment on Pakistan’s role in disseminating nuclear materials and on Congress’ response to recent news stories about Iranian missile tests. Cong. Kolbe agreed that shipping weapons of mass destruction between countries is a major concern that needs to be addressed but said it had no bearing on port management. Thus far the U.S. has used its intelligence resources to try to prevent such transfers, but he was not sure how long America’s luck will hold. Cong. Kolbe echoed the general concern about Iran, suggesting that a nuclear Iran could ignite an arms race in the region and cause countries such as Saudi Arabia and Turkey to seek their own arsenals.
Chris Rugaber, a journalist from BNA International Trade Reporter, asked if maintaining secrecy for the CFIUS process was really necessary to encourage investments in the U.S., mentioning the openness of antitrust review procedures as a potential alternative model. Cong. Kolbe replied that publicity is generally good in such matters except when sensitive data is involved. He pointed out that CFIUS reviews many more small deals than blockbuster ones; it is often these small transactions that involve sensitive or military technologies and thus constitute genuine national security risks.
Vinod Busjeet of the Embassy of Mauritius asked the speaker to elaborate on the role of the media in the Dubai controversy. Cong. Kolbe said the media was central to bringing the issue to light but that it quickly devolved into fodder for “talking heads” who, for better or worse, inflamed the situation. He warned that the rise of blogs and internet journalism, while sometimes serving an important investigative role, has further blurred the line between truth and fiction.
