Dubai Ports World Acquisition

Dubai Ports World, a Dubai state-owned company, is attempting to purchase, for $6.8 billion, Peninsular & Oriental Steam Navigation Co., a London company.  The acquisition has attracted the attention of Congress and the press.  Peninsular runs commercial terminal operations in 17 ports in the United States, including ports in New York and New Orleans.  The prospect of a Muslim state running operations in major United States ports has aroused fears that the acquisition could facilitate a commonly understood potential calamity, that a terrorist will send a nuclear bomb or some other weapon of mass destruction to the United States in a shipping container.  It has become a political hot potato and once again put CFIUS in the spotlight.  The Committee on Foreign Investment in the United States (CFIUS), a multi-agency committee, has authority over foreign acquisitions that "impair national security", writing reports to the the President and recommend whether the President should exercise his authority under the Exon-Florio amendment to block the acquisition.  Exon-Florio and its rules require a "mandatory investigation" by CFIUS and the President whenever a state controlled entity makes an acquisition that "could affect the national security of the United States".  Apparently CFIUS found, on an informal inquiry, that the mandatory investigation requirement was not triggered by the acquisition.  Several members of Congress disagree and are proposing legislation to force CFIUS to do a mandatory investigation.  The President has threatened to veto the legislation.  Keep in mind that even if CFIUS does a mandatory investigation, the President makes the final decision (and must report his decision to Congress).  Since the President has already declared his support for the acquisition, such legislation, if passed, may not affect the outcome.   If Congress wants to stop the acquisition it would require specific blocking legislation and it would probably have to overcome a Presidential veto. The President's argument has three parts:  First, security at the ports is provided by United States law enforcement officials regardless of who is operating a terminal (t;typically the Coast Guard and the Customs and Boarder Protection).  The quality of this security is neutral of terminal ownership.  Second, Dubai Port World already has purchased a United States company (CSX Corp.) in the port terminal business.  Many other foreign owned companies already own terminal facilities in the United States (a state owned Chinese company owns terminals in LosAngeles, for example).  Dubai, after all, is purchasing a London based company, not a United State based company.  If the deal fails, the most likely new bidder is PSA International, a Singapore, state-backed company.  Third, and most important perhaps, international investment goes both ways.  We invest capital in other countries and they may invest capital in United States operation.  We cannot restrict foreign direct investment in the United States without causing other countries to restrict fore gin direct investments by United States companies within their borders.  In short, pulling out the the reciprocal foreign direct investment business would be an economic disaster for the United States.  In the end, Congress will probably make major changes to the Exon-Florio amendment as a result of this dust-up.  They could start by clarifying the act's open-ended triggering language-- "could affect national security" -- and whose interpretation of the language is determinative.