[Mb-civic] An article for you from Michael Butler.

Fri Mar 10 10:50:57 PST 2006

- AN ARTICLE FOR YOU, FROM ECONOMIST.COM -

Dear civic,

Michael Butler (michael at intrafi.com) wants you to see this article on Economist.com.

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BOWING TO THE PRESSURE FROM A HOSTILE CONGRESS
Mar 10th 2006  

Dubai-based port operator DP World has said it will divest its American
port operations, in response to the hostile reaction of Congress to its
planned takeover of the facilities as part of a wider acquisition. The
Bush administration, which had backed the deal, has been left looking
embarrassed. America's image as an advocate of free trade has been
tarnished, and it has alienated many in the Muslim world

SINCE the 2004 elections returned them to power, America's Republicans
have been battered by the continuing chaos in Iraq, weak economic data
in critical sectors and a festering lobbying scandal. Yet the
opposition Democrats could not seem to find a way to press their
advantage. In recent weeks, however, the Democrats have been happily
contemplating the potential of a return from exile--and all thanks to a
few ports.

In late February, the Republicans were left reeling when it emerged
that the Bush administration had approved the purchase of British port
operator P&O by DP World, a firm owned by the government of Dubai, in
the United Arab Emirates (UAE)--which would leave DP World operating
six large American ports. A fracas ensued. Many in Congress, including
top Republicans, said the deal posed an unacceptable threat to national
security and vowed to block it. President George Bush threatened to
veto any legislation to that effect. But the lawmakers refused to back
down, and the president saw his approval ratings plummet to new lows.
On Thursday March 9th, those opposed to the deal got their way when DP
World announced (possibly at the behest of the White House) that it had
decided to sell the six ports to an American-owned entity. 

Legislators remain wary, however. It is not clear what sort of deal DP
World envisions; it stressed in its announcement that it was unwilling
to sell its American operations at a loss. It may not be able to avoid
it. All the potential buyers are well aware that Congress means to
block DP World from operating the ports, which presumably means that
bidders can hold out for fire-sale prices. Several legislators have
indicated they will want to make sure that whatever American firm ends
up operating the ports is genuinely independent of DP World. And there
are voices urging Congress to push ahead anyway with blocking
legislation, just to make sure that no foreign state-owned company will
ever again bid for an American port.

This stance seems to be popular with the American public, which has had
all its fears about terrorism and its protectionist instincts aroused
by the prospect of the deal. To be fair, America's ports remain one of
the biggest holes in its security. Two billion tonnes of cargo move
through them every year, tucked inside opaque containers that might
just as easily contain a "dirty bomb" as Chinese electronics. Only
around 5% of these containers are inspected, a higher proportion than
before the September 11th attacks of 2001, but still odds that a
terrorist might favour. 

Nonetheless, opposition to the DP takeover comes across as racist to
much of the Muslim world. It seems unlikely that the American lawmakers
would have kicked up a fuss had Temasek, a state-controlled group from
Singapore, beaten DP World in the bidding war for P&O. On Friday, trade
officials announced that the UAE and America had postponed talks on a
free-trade agreement, scheduled for next week, presumably in reaction
to the unfriendly noises coming from both sides. Nor is the perception
of racism limited to foreigners. General John Abizaid, the commander of
American forces in the Middle East, spoke out publicly against those
who opposed the deal, saying it "really comes down to Arab- and
Muslim-bashing that was totally unnecessary."

Piqued Middle Eastern governments may now turn away from America as
they look for places to stash their petro-profits. This could be a
problem for the world's largest economy, dependent as it is on a flood
of foreign investment to finance its trade deficit, which stood at
$68.5 billion in January alone. America may also find that the
unsavoury episode has tarnished its credibility as an advocate free
trade, at a time when it is trying to salvage the stalled Doha round of
world-trade negotiations. And the damage to America's image abroad will
not help its quest to stabilise Iraq and fight Islamist terrorism. On
Friday, Mr Bush said he was concerned that the deal's collapse would
send out a worrying message, adding that "In order to win the war on
terror, we have got to strengthen our relationships and friendships
with moderate Arab countries."

Yet for all the damage the Bush administration is suffering abroad, it
may not be enough to rescue the Democrats, despite all their hopeful
talk of a congressional comeback akin to that enjoyed by the
Republicans in 1994. Then, Mr Bush's party had the benefit of many
vulnerable seats and a simple, clear policy platform. It also had, in
Newt Gingrich, a charismatic leader in Congress who could push those
goals. The current Democratic leadership is, by contrast, fractured;
and so far, it has not produced anything to rival Mr Gingrich's
Contract with America.

At the very least, however, the ports debacle may help improve the
Democrats' standing on national security, an issue on which they have
trailed the Republicans for decades. And even if they don't retake the
House of Representatives in the mid-term elections due in November,
those Democrats who are genuinely worried about port security can take
comfort that the harassment of DP World may finally have put the issue
on the map.

See this article with graphics and related items at http://www.economist.com/agenda/displaystory.cfm?story_id=5620236&fsrc=nwl

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