Dubai firm to shed stake in U.S. ports

THE BALTIMORE SUN

WASHINGTON -- Bowing to extreme public and political pressure, a United Arab Emirates company said yesterday that it would give up its management stake in U.S. seaports, including Baltimore's, rather than continue to fight what increasingly appeared to be a lost battle.

For more than three weeks, the pending sale of British-owned Peninsular & Oriental Steam Navigation Co. to state-owned Dubai Ports World has generated controversy, splitting many congressional Republicans - especially in the House of Representatives - from President Bush, who had said repeatedly that he supported the deal.

Republican leaders told Bush at a White House meeting yesterday morning that the backlash was too extreme to overcome. Within hours, Virginia Sen. John W. Warner was on the Senate floor, announcing that DP World had decided to shed the U.S. holdings.

Warner, a Republican who helped run interference between the company, the White House and his colleagues, said the prime minister of the United Arab Emirates, Sheik Muhammad bin Rashid al Maktoum, had told the company that giving up the U.S. portion of the deal was the best course for the interests of both countries.

H. Edward Bilkey, the chief operating officer of DP World, said in a statement that "because of the strong relationship" between the United States and the United Arab Emirates, the company had decided to "transfer fully" the American operations involved in the sale to a U.S. entity. The decision, Bilkey said, is based on the assumption that the company "will not suffer economic loss" in transferring those holdings.

The company's move, however, left open a number of questions, such as who might buy the U.S. interests and what, if any, relationship would exist between DP World and an American company that takes over the holdings.

P&O; runs major port operations in Baltimore, New York, New Jersey, Philadelphia, Miami and New Orleans, and has smaller stakes in seaports from Portland, Maine, to Corpus Christi, Texas. The American assets make up about 10 percent of the $6.8 billion sale, which includes operations all over the world.

The White House - which drew blistering criticism because an administration panel decided that the sale had no potential national security implications - greeted the news with relief, saying that the divestiture provides "a way forward" and clears the way for Bush to move on to "other important priorities."

But DP World's move was a decidedly mixed blessing for Bush. It appears to have spared him an embarrassing and potentially drawn-out public tug of war with his party over national security, the issue that is supposed to be Republicans' strong suit. The episode left Bush stung by congressional disdain, his influence diminished by the speed and decisiveness with which lawmakers were willing to rebuke him.

Bush administration officials played down yesterday's confrontation with congressional Republicans. But aides to the Republican leaders said they made it clear to the president that he had backed himself into a corner on the port deal and that there was nothing they could to do stop the momentum in Congress for killing it.

"There was something of a sense of checkmate," said a senior aide to one of the participants.

After DP World's announcement, lawmakers who had fought the deal declared the move a positive development, though some said they needed to see the details behind the announcement before they could be completely satisfied.

Rep. Peter T. King, a New York Republican and leading critic of the deal, said that if DP World plans to divest itself completely of its interests in U.S. ports, "as of today, this is an absolute victory for the American people."

King, who had pushed for a more in-depth, 45-day review of the transaction by the Committee for Foreign Investment in the United States, which initially signed off on it, said there was little reason to keep fighting for legislation to block the deal if DP World's offer proves genuine.

Others were more cautious, saying that it was up to DP World to prove that the transfer would go to an independent company and not a subsidiary.

"We now smell the scent of victory," said Sen. Charles E. Schumer, a New York Democrat. But "the devil is in the details," he added. "We need to make sure that all U.S. operations are totally removed from the United Arab Emirates and Dubai Ports World control."

In Maryland, where the DP World deal enveloped the race for governor, Baltimore Mayor Martin O'Malley and Montgomery County Executive Douglas M. Duncan, both Democrats, said they welcomed the chance to focus on the broader issue of port security. Republican Gov. Robert L. Ehrlich Jr. said the outcome of the deal and Congress' persistence in opposing it was not a surprise.

Yesterday's move was DP World's third attempt to put an end to a situation that caught nearly everyone by surprise. While the company's purchase of P&O; was initially reported last fall, it drew almost no attention until news in mid-February that the Bush administration committee, known as CFIUS, had approved it.

Within a week, members of Congress from both parties were rushing to express concerns, questioning whether the United Arab Emirates - a U.S. ally that was among the handful of nations to recognize the Taliban as a legitimate government - was a safe bet as an operator of American ports. The top two Republicans in Congress, House Speaker Dennis Hastert and Senate Majority Leader Bill Frist, were among those openly skeptical of the deal.

With the issue smoldering, Bush threatened to veto any effort by Congress to stall or block the deal. Many lawmakers said his threat only added to the controversy, which was driven by cable news, talk radio and a flood of calls from constituents.

After prodding from the White House, DP World first offered a brief delay in closing the deal and then agreed to submit to a second review by CFIUS. Frist of Tennessee backed off slightly. But while Hastert remained largely silent in public, he did not step in to keep King or Rep. Duncan Hunter of California, the Republican chairman of the powerful House Armed Services Committee, from protesting the sale.

And earlier this week, when House Appropriations Committee Chairman Jerry Lewis, a California Republican, moved to include language to block the deal in the $91 billion supplemental spending bill, Hastert and other House leaders agreed to it. Lewis' committee voted 62-2 on Wednesday to add that provision to the must-pass spending measure that would fund the wars in Iraq and Afghanistan, yet another signal that time was running out to salvage the ports deal.

In the end, Republicans couldn't stomach the idea of being outmaneuvered by Democrats in an election year on one of their signature issues: national security.

Rep. Mark Foley, a Florida Republican, said Hunter and Lewis were people the White House didn't want to tangle with. But it was Hastert's concerns, he said, that really set off alarm bells in the administration. "The tipping point was one person, and that was Speaker Hastert," Foley said.

The scuttling of the deal came as even Bush's staunchest allies were questioning privately how he and his team could have allowed the Dubai Ports World episode to spiral so far out of control.

One senior lobbyist close to the White House mused that it was three full days after the controversy erupted before the White House message machine kicked in and distributed talking points to its allies defending the deal. By then, the lobbyist said, lawmakers were already locked into positions bitterly opposing the deal, and Bush had - in what many said was a rash move - already made his veto threat, which further enraged Congress.

"The whole incident has not been good for the president, and feeds into this long line of incidents since last summer in which members of his party are declaring their independence from him," said John Fortier, an analyst at the conservative American Enterprise Institute. "It reinforces further this idea that the president can be rolled."

Hunter said he did not expect the flap to permanently damage Bush's relationship with the House, but that the president had been given bad advice on the deal. "I think the committee on foreign investment let the president down," he said.

The end of the deal may have cooled a firestorm on Capitol Hill, but it left Arab-Americans and Muslim advocacy groups alarmed at what they called the triumph of intolerance.

"If it's a victory, it's a victory for bigotry and Islamophobia," said Ibrahim Hooper of the Council on American-Islamic Relations.

The debacle has been a wake-up call for the Bush administration on how difficult it is to counter public stereotypes in the wake of the Sept. 11 attacks, said Shibley Telhami, a Middle East specialist at the University of Maryland, College Park.

"There's a mood in the country that has been allowed to take hold over the past four years to be very suspicious of Arabs and Muslims broadly, even as the government was continuing to say, 'Look, terrorism is limited to a few, and we know that most Arabs and Muslims are not [terrorists],"' Telhami said. "That hasn't taken hold on the public psyche."

The Dubai Ports chapter will cause pro-American governments in the Arab world - not just the United Arab Emirates, but Qatar, Bahrain and others - to rethink their relationships with the United States, Telhami added.

"They were in some ways stunned to see that people don't perceive them positively," he said. "Many of them are going to take a deep breath and think about this a little bit."

gwyneth.shaw@baltsun.com julie.davis@baltsun.com

Sun reporters Andrew A. Green and Brent Jones contributed to this article.

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