Avoiding Another Dubai
Nearly all objective observers of the uproar over "selling American ports to the Arabs" agree on three key elements of the situation. First, the purchase of port management operations by Dubai Ports World from a British-owned company will have no operational impact on the national security of the United States. Port owners and managers are not responsible for port security. There are risks at our ports, but they stem from the fact that the American agencies responsible for our security -- U.S. Customs and Border Protection and the Coast Guard -- examine only about 5 percent of incoming cargo, along with a modest portion of shipments at the point of export.
Mid-level officials at 12 agencies of the U.S. government, including the Department of Homeland Security and the Pentagon, reviewed the Dubai investment in considerable depth, apparently with full cooperation from the company. They unanimously concluded that there was no reason to refer it to their own superiors, let alone the president. The substance of the government's vetting process, conducted through the Committee on Foreign Investment in the United States (CFIUS), worked precisely as intended by the legislation under which it operates.
Second, that process contains a major flaw: its failure to inform Congress of pending transactions in a way that would enable lawmakers to express meaningful objections in an orderly manner. The CFIUS process is opaque and secretive, requiring after-the-fact notification of the Hill for only the very few deals that have already been acted on through the president's personal intervention. Congress can therefore express its concerns only by leaping into individual cases with great fanfare, as in the current case and, even more so, when it in effect vetoed the bid for Unocal by the China National Offshore Oil Corp. last year even before that deal was considered by the CFIUS.
Third, it would be a grave mistake to enact new legislation that permitted Congress to exercise case-by-case review of individual applications for foreign investments in the United States. Such congressional micromanagement exists in other specialized policy areas such as arms exports to foreign countries. But applying it to commercial transactions would generate such uncertainties and potential delays for foreign investors that it would have a huge chilling effect on their proclivity to buy American assets. The United States needs to attract almost $1 trillion of foreign financing annually to fund our huge and growing trade and current account deficits. It would be the height of national folly to erect any such deterrent to one of the most desirable channels for such flows.
Drawing on my experience as the second chairman of the CFIUS after it was created in 1975, and on an in-depth study of the CFIUS process to be published shortly by the Institute for International Economics, I offer two suggestions. To help deal with the immediate problem, the administration should obtain and make public immediately a letter of assurance from the government of the United Arab Emirates committing itself to avoid any involvement in the business operations of Dubai Ports World and to take all steps necessary to guard against security problems. Both the government and the company have proclaimed that Dubai Ports would act solely as a commercial entity, and the company has pledged its full participation in all U.S. security programs, so it should be routine to obtain such a letter. Any violation of these commitments, by the UAE government or the company itself, would subject the company to cancellation of its approval to operate in the United States and thus force its immediate divestiture, presumably at a fire-sale price. We obtained a similar statement from the French government in 1979 to resolve concerns about the acquisition of American Motors by Renault, which was then partially government-owned.
The more fundamental problem of inadequate CFIUS transparency should be resolved by a structural change in the governmental review process. The CFIUS should henceforth provide to the leadership of the relevant committees of Congress, on a confidential basis to preserve legitimate business interests, quarterly (or even monthly) reports and briefings on pending as well as completed applications for approval of specific investments. The responsible members could then register any concerns they might have directly with the relevant government agencies for consideration during the CFIUS review itself.
Similar procedures are followed in a wide range of policy areas, especially with respect to sensitive intelligence issues. They have also been used for other economic issues; for example, the Treasury Department, which chairs the CFIUS, used to conduct frequent interventions in the foreign exchange markets, and informed the members of Congress responsible in that area. The administration could simply adopt this reform on its own, or Congress, if it wants to be seen as taking action on the current issue, could amend the governing legislation.
The debate over the Dubai investment could result in real damage to U.S. economic and security interests. Foreign investment in this country might be deterred by imposition of an overly intrusive approval process; our economy would then lose the multiple benefits of such investment, and it would become even more costly to finance our external deficits. Major foreign policy costs could ensue from another rejection based solely on the nationality of the investor. The very real issues raised by this case and, more important, the government's procedures for handling such transactions on an ongoing basis, should be resolved through much more moderate and balanced measures.
The writer is director of the Institute for International Economics and a former assistant secretary of the Treasury for international affairs (1977-81). He will answer questions today at 1 p.m. on www.washingtonpost.com.