By Jim VandeHei and Paul Blustein
Washington Post Staff Writers
Sunday, February 26, 2006
Sen. Charles E. Schumer, an outspoken liberal Democrat from New York, two weeks ago began publicly denouncing a deal to let a Middle Eastern firm take over terminal operations at six U.S. seaports. From the other end of the political spectrum, even more outspoken conservative radio host Michael Savage was doing the same -- and recruiting Republican lawmakers to his cause.
To anyone listening, it was clear that President Bush had a problem on his hands. But Bush was not listening. And his political team had its attention elsewhere. By the time they noticed, Bush's problem had grown a lot bigger.
A behind-the-scenes reconstruction of the ports deal's rapid evolution from obscurity to uproar shows how Bush was blindsided by the same emotion-laden politics of terrorism that he used to win elections in 2002 and 2004. It also raises anew questions of why the White House message machine, so sharply effective in the first term, seemingly has gone dull in the second.
It was on Feb. 13 that the Dubai Ports World deal -- after simmering unnoticed for months in the federal bureaucracy and the transportation trade press -- started to boil, as a result of Savage's blustery on-air alarms and an event by Schumer at the New York harbor with families who lost loved ones on Sept. 11, 2001.
It was not until Feb. 16 that Bush was informed by aides of the controversy -- and that his own administration had approved the port deal a month earlier. It was not until five days after that, on Feb. 21, that Bush spoke up in support of the port deal. By then, dozens of prominent lawmakers in both parties had joined Savage and Schumer in questioning the president's commitment to national security.
The consequences go well beyond political damage to Bush. Relations with the moderate Arab world may suffer as suspicions raised by lawmakers about a Middle Eastern company are now making headlines around the world. Congress is poised to rewrite the rules governing foreign investment, and possibly scuttle the deal altogether.
For a while, the effort by a major port operator based in the United Arab Emirates to take over U.S. operations of a British firm moved through government in a familiar manner. Investments that raise security concerns face scrutiny by a secretive interagency panel, the Committee on Foreign Investment in the United States (CFIUS), consisting of 12 departments and agencies, which can either approve or reject transactions or insist on changes in the terms. People familiar with the process say the committee's deliberations rarely involve top White House officials or command the president's attention, and they did not in this case.
At the same time, White House officials well know that potentially explosive issues are regularly churning through the federal bureaucracy. An effective operation seeks to identify and respond to such matters before they become political problems. That plainly did not happen here, as even White House officials acknowledge.
The political breakdown was partly a matter of timing. The controversy started to build when Bush's top aides were consumed with the fallout of Vice President Cheney's recent hunting accident.
Some Republicans, however, think the episode highlights a structural problem: Without Bush's own reelection to worry about, White House aides are less alert to the political implications of fast-moving issues or unexpected events. Compounding problems, White House staffers have seemed exhausted in general for much of the year, according to people in close contact with them.
"My sense is the people who are over there now are working with a very pronounced double-edged sword: they have been there from the beginning, they are experienced, knowledgeable and they know how things work and to get things done -- but they are tired," said former Bush spokesman Ari Fleischer.
Senior White House aides concede their tardy response but faulted Cabinet officials for failing to alert the White House to the potential controversy.
Still most mystifying to some Republicans on Capitol Hill is why Bush waited five days after learning of growing concern about the deal to address it publicly, even as GOP governors and usually friendly commentators were speaking out in opposition. The White House has always lived by the adage that a president is either defining the issue, or risks being defined by opponents.
"It would have helped in a very extraordinary way for Bush to" share his side of the story, said Rep. Mark Foley (R-Fla.), who appeared on Savage's show early on and became a vocal critic of the plan. "He could have stymied the issue or at least clarified it."
The process that approved the Dubai Ports World transaction is designed to be politically insulated. The rules are based on the idea that the United States should be generally welcoming to capital from abroad, except for transactions that pose a genuine security risk.
"It's not at all equipped to handle the political or emotional issues. That's the main flaw," said Edward M. Graham, a fellow at the Institute for International Economics who is co-author of a forthcoming book on the panel.
The depth of that flaw is evident from the relatively low level of officialdom that participated in the CFIUS review of the ports transaction. At the Treasury Department, which chairs the panel, the highest-ranking official to know about the deal before the furor began to erupt over the weekend of Feb. 11-12 was Clay Lowery, the recently appointed assistant secretary for international affairs, a former career staffer at the Treasury and at the National Security Council.
At the Department of Homeland Security, it was Stewart A. Baker, the assistant secretary for policy, who acknowledged that he was caught flat-footed by the controversy: "I concluded, once we had the assurances we needed [about the security issues], that this was a relatively noncontroversial decision," he said in an interview. "So I didn't brief" either DHS Secretary Michael Chertoff or Deputy Secretary Michael P. Jackson.
The process began on Oct. 17, when representatives of the Dubai company informally approached the Treasury Department to disclose that they were planning to purchase the British firm, Peninsular and Oriental Steam Navigation Co., according to testimony by administration officials at a Senate hearing last week. Treasury officials directed them to consult with Homeland Security because of the port security question.
The executives of Dubai Ports World -- several of whom are American -- well understood that they might face extensive scrutiny.
"You don't have to do this, but I brought a small team here [from Dubai] to meet with the CFIUS agencies in early December," said Edward H. "Ted" Bilkey, the company's chief operating officer and former U.S. Navy officer. The idea was to give the panel plenty of time even before the company formally filed to start a standard 30-day review.
Homeland Security officials, especially in Customs and Border Protection, had high regard for the company, which is owned by the government of Dubai and operates terminals in 19 ports in Asia, Europe and South America. It was the first in the Middle East to participate in a post-Sept. 11 program in which Customs agents are posted overseas to screen containers before they are loaded onto U.S.-bound ships. U.S. intelligence agencies -- who were asked on Nov. 2 for any information they had on the company -- produced nothing "derogatory" about it, Baker said.
Even so, the department had enough qualms to insist on a number of legally binding conditions for approving the deal -- a frequent CFIUS practice. The company pledged to maintain its participation in the Customs program, "and they agreed to open their books, and give us access to records, without any formal legal process," Baker said.
The department also wanted to ensure that the personnel at the U.S. terminals to be taken over by the company would remain almost entirely American. So it extracted a pledge that the company intended to keep the current management of U.S. operations in place.
At the Pentagon, meanwhile, officials were well aware of the United Arab Emirates' checkered history in combating terrorism; it was the home of two of the Sept. 11 hijackers and home of the banking system through which some of the hijackers' money flowed. But far overshadowing those concerns were the country's current role as a key U.S. ally in the Persian Gulf region, said Deputy Defense Secretary Gordon R. England, who noted at last week's hearing that more U.S. Navy ships dock at UAE ports than any port outside the United States.
Accordingly, once Dubai Ports World had agreed to the conditions required by Homeland Security, none of the agencies on CFIUS objected to the transaction when the 30-day review was completed on Jan. 17. If even one agency had objected, the matter would have gone to a 45-day investigation -- which would have required a presidential decision at the end. Moreover, a single dissent would have meant bringing the matter before higher-ranking officials in each department.
But instead, the matter stayed with assistant secretary-level officials, who told the company the transaction could go forward. Treasury officials planned to inform congressional leaders at a regularly scheduled quarterly meeting on Feb. 17. By then, however, the Associated Press had already reported a statement from the firm trumpeting its approval.
Schumer said he sensed the public would be outraged if they knew about the deal and heard bipartisan objections. His Feb. 13 press event was sparsely attended because New York was consumed by a snowstorm and Washington by the Cheney accident. But two days later, after a flurry of private discussions between Schumer and key Republicans, Foley and Rep. John E. Sweeney (R-N.Y.) were pressing Treasury Secretary John W. Snow and Chertoff in public hearings for details on the deal.
The next morning, White House Chief of Staff Andrew H. Card Jr., alerted to the controversy by a lower-level aide in his office, briefed Bush, but there was a general feeling inside the White House that the political storm would blow over. Now, officials are ruing that judgment, and the failure to consult more broadly.
"We've learned from this that we have to make a more affirmative effort to give Congress the input they need to exercise their oversight function," said Deputy Treasury Secretary Robert M. Kimmitt. "Even in cases where security work is done diligently and professionally, we need to make sure broader considerations are taken into account."