Middle Eastern Investment in the US: Avoiding Another DPW

By Michael Jacobson

I wrote a piece today (with my brother David, who is a Research Assistant at the Institute) on the Administration's recent "open investment" initiative, and how it ties into last year's DPW controversy and the CFIUS process.

On May 10, 2007, President Bush and U.S. Treasury secretary Henry Paulson launched an "open investment" initiative to encourage foreign investment in the U.S. economy. In a statement, the president emphasized that his administration "is committed to ensuring that the United States continues to be the most attractive place in the world to invest." Washington's focus on this issue is at least partly a reflection of the ongoing fallout from last year's Dubai Ports World (DPW) controversy. Although it is still premature to gauge the long-term economic impact of the DPW case, the process for reviewing foreign investments has already changed significantly.
Background

In early 2006, the Committee on Foreign Investment in the United States (CFIUS), the interagency body charged with reviewing requests by foreign companies to purchase U.S. entities, approved DPW's bid to purchase the Peninsular & Oriental Steam Navigation Company (P&O). The deal would have given DPW -- a company owned by the government of Dubai, part of the United Arab Emirates (UAE) -- ownership of a firm with terminal operations at six U.S. ports.

The decision thrust CFIUS into the limelight, setting off a congressional and media firestorm. Members of Congress argued that the deal posed a serious national security threat, pointing to the UAE's historical ties to the Taliban (it had recognized the regime before September 2001), and to the fact that two of the September 11 hijackers were citizens and, with other hijackers, used Dubai as a transit point. The thoroughness of the CFIUS review was also questioned, and there were threats of legislation to block the sale. Once it became clear that the controversy was not subsiding, DPW backed down and sold its newly acquired U.S. port operations to an American buyer.

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