The Associated Press March 11, 2006
Ditching deal on ports has little cost
But trade experts said that, if laws on foreign investing were changed, the U.S. would suffer.
By Brad Foss
WASHINGTON - Congress' scuttling of a Dubai-owned company's bid to gain control of U.S. port operations is unlikely to trigger negative economic consequences unless it is followed by dramatic changes to the laws governing foreign investment in the United States, trade experts said yesterday.
Imposing new restrictions on foreign-company takeovers would shrink the field of potential investors on American soil and almost certainly lead to retaliatory actions by other nations, said Todd Malan, executive director of the Washington-based Organization for International Investment.
Malan, whose group represents overseas companies with operations in the United States, said the stakes are not small for Americans: They own $2.9 trillion worth of shares in foreign companies through mutual funds, pension funds and direct investments. Moreover, U.S. exports totaled $1.12 trillion in 2005, or roughly 10 percent of the country's gross domestic product, according to Commerce Department data.
Foreign direct investment in the United States exceeded $1.5 trillion in 2004, the most recent year for which statistics were available from the Commerce Department. Of that, roughly two-thirds came from Europe, compared with $17.8 billion, or about 1 percent, from the Middle East.
Security cited
Republican and Democratic lawmakers cited national security as their reason for defying President Bush and pushing to block the takeover of six ports throughout the country by Dubai Ports World, including Philadelphia's, much as they did last summer in threatening to stop a China-owned oil company from acquiring Unocal Corp.
"A year from now, we're all going to be embarrassed by this," said William Reinsch, a high-ranking Commerce Department official in the Clinton administration who is now president of the National Foreign Trade Council, which was founded by American companies in 1914 to promote free trade around the world.
On the other hand, critics who say Congress overreacted "might have a different appreciation of the ports deal if the various emirs of the United Arab Emirates were to be swept away by some sort of Islamic revolution," said John Pike, director of GlobalSecurity.org.
Some downsides
Outside experts said they fear that, as protectionism gains momentum in Congress, the process by which the government has reviewed foreign investment for the last 30 years will become more politicized. There also are concerns that American businesses will seize on the new political environment to gain advantages against international rivals when investment proposals come before the federal Committee on Foreign Investment in the United States, or CFIUS.
Fierce opposition in Congress to CNOOC Ltd.'s $18.5 billion bid for Unocal - much of it stirred up by lobbyists working for Chevron Corp. - paved the way for Chevron to acquire Unocal for about half a billion dollars less than CNOOC was willing to pay.
Uncertainty stirred up by the scuttled Dubai Ports deal - including a bill that would shift control of CFIUS from the Treasury Department to the Homeland Security Department and another that would broaden the definition of "critical infrastructure" - has already soured some defense-sector deals, according to Brett Lambert, managing partner of the Densmore Group, a defense industry consultant.
But if the anti-Arab rhetoric further escalates in Washington, U.S. energy companies might be affected, industry officials said. "It's not a good sign," said John Felmy, chief economist of the American Petroleum Institute. He said one of the biggest long-term challenges for Western energy companies is gaining access to foreign natural resources on terms that would be attractive to Wall Street.
© Copyright 2006, The Associated Press
