Arab Firm Gives Up Ports Deal

Amid unyielding congressional opposition, an Arab company Thursday retreated from taking over operations at several U.S. ports, rescuing President Bush from a politically embarrassing showdown with fellow Republicans over a national security dispute.

Dubai Ports World said in a statement that it would “transfer fully” its stake in the U.S. facilities to a “United States entity.”

It was not clear how soon that would happen or what American firm would assume the port management. And some lawmakers said they wanted further assurances that the company, a state-owned entity of the United Arab Emirates, would completely divest itself of any financial link to the U.S. port operations.

But many of the deal’s GOP opponents declared victory.

“It’s over,” said Rep. Peter T. King (R-N.Y.).

As chairman of the House Committee on Homeland Security, King had helped lead a Republican attack on the ports deal that showed no signs of diminishing.

Despite White House efforts to defuse the controversy and defend the United Arab Emirates as an important ally in the war on terrorism, the Bush administration seemed relieved by the company’s decision.

“It does provide a way forward and resolve the matter,” said Scott McClellan, the president’s spokesman.

The company’s statement came hours after GOP congressional leaders told Bush at a White House meeting that lawmakers appeared determined to pass legislation blocking the deal. The legislators have been concerned that port security could be compromised.

Bush had threatened to issue the first veto of his presidency if he was sent such a bill. Although he apparently will be spared that step, the furor still may have cost him.

Emboldened congressional Republicans -- many up for reelection in November -- could be more willing to challenge the administration on national security, federal spending and other issues.

At the least, GOP leaders are hoping the episode spurs White House officials to improve communications with Capitol Hill allies.

“They’re going to have to be a little more sensitive” to the opinions of Republican House and Senate members on crucial issues, said Rep. Thomas M. Davis III (R-Va.), referring to the White House.

The president “has not handled the port issue well,” said Sen. Rick Santorum (R-Pa.), who is facing reelection. “I think we’ve been pretty clear about that” on Capitol Hill.

Broader debates also lay ahead.

Lawmakers from both parties pledged to press ahead with legislation that would restrict foreign management of facilities viewed as crucial to national security. That measure would affect the Los Angeles-Long Beach port complex, where many terminals are operated by foreign companies.

Other measures would tighten security at U.S. ports, a matter some say was shortchanged by the focus on protecting airliners from hijackers after the Sept. 11 terrorist attacks.

“If there is any silver lining to this issue, it is that it has highlighted the vulnerability of our ports and the need for a greater emphasis on security,” said Sen. Susan Collins (R-Maine), chairwoman of the Senate Committee on Homeland Security and Governmental Affairs.

Also likely to remain in the spotlight is the process the administration follows in determining whether to allow foreign companies to purchase or invest in U.S. operations.

The ports deal was approved in January by an inter-agency panel that includes representatives of the departments of Defense, Treasury and Homeland Security. In an initial effort by Dubai Ports World to calm criticism of the deal, it agreed to an additional review by the group.

But many lawmakers want the panel to revise its overall procedures, charging that it focuses on financial issues at the expense of potential security concerns.

The planned takeover of managing cargo terminals at U.S. ports in New Orleans, Miami, Baltimore, Philadelphia, New York and Newark, N.J., was part of the United Arab Emirates company’s $6.8-billion purchase of Peninsular & Oriental Steam Navigation Co., a private British firm. The transaction had been in the works since last year and was completed Thursday.

Little attention had been paid to the acquisition until late February. But within days, criticism of the deal came to dominate discussions on Capitol Hill.

The flak from an array of Republicans underscored the issue’s political volatility. Try as the White House might to build support for the deal, GOP lawmakers who in the past had been Bush loyalists showed no qualms about continuing to challenge it.

Bush suggested that an anti-Arab bias was at the heart of the disagreement and warned that the congressional bid to derail the deal could harm his efforts to improve U.S. relations with Arab countries.

After Thursday’s announcement by Dubai Ports World, some lawmakers and foreign policy experts expressed similar concerns, questioning whether the political opposition to the deal would damage relations between the U.S. and United Arab Emirates, a crucial staging area for military operations in Iraq.

“It demonstrates to other countries that the United States is not a reliable place for investment when politics are involved,” said Rep. Jim Kolbe (R-Ariz.), chairman of the House Appropriations foreign operations subcommittee. He added that, in his view, the U.S. “looks a little bit like a banana republic” in its handling of the controversy.

David L. Mack, a former U.S. ambassador to the United Arab Emirates who is vice president of the Middle East Institute, a Washington think tank, said Congress had “hung out a sign: Help wanted in the war on terrorism -- Arabs need not apply.”

The White House, however, insisted relations with the United Arab Emirates had not been harmed. McClellan said: “We have a strong relationship with the UAE and a good partnership in the global war on terrorism, and I think their decision reflects the importance of our broader relationship.”

Democrats, who had seized on the ports deal to bolster their credentials on national security -- an issue that has been Bush’s greatest strength -- showed no sign of letting the issue go away.

Some lawmakers said they still might press for a vote next week on legislation to make certain Dubai Ports World had no ties to the company that would eventually manage the U.S. ports.

“It must be a total break, and the language [by the company] does not indicate anything like that,” said Sen. Charles E. Schumer (D-N.Y.). “I’m dubious of anything where the United Arab Emirates has any control at all.”

On Wednesday, the House Appropriations Committee voted 62 to 2 to attach a measure to a bill funding the war in Iraq to kill the ports deal.

Rep. Duncan Hunter (R-El Cajon) said he thought the vote sent “a strong message to Dubai Ports World that they weren’t going to be allowed to make this acquisition.”

The company’s decision to back away from the U.S. component of the deal was revealed on the Senate floor by Sen. John W. Warner (R-Va.), chairman of the Armed Services Committee. Warner had been among the few Republicans sympathetic to the deal.

The company’s statement, approved by Sheik Mohammed ibn Rashid al Maktum, vice president and prime minister of the UAE, said that it was taking the action to preserve “the strong relationship between the United Arab Emirates and the United States.”

It said the company’s decision was based “on an understanding that DP World will have time to effect the transfer in an orderly fashion” and that the company “will not suffer economic loss.”

The port terminals at issue are owned by local authorities and leased to operators; they are vast open-air facilities where freight containers filled with imported goods are stored after they are unloaded from ships, and before they are whisked away by trucks or railroads.

The U.S. port operations represent a relatively minor and less profitable part of the overall transaction between the UAE company and the British firm.

Maritime experts said they expected Dubai Ports World to have little difficulty finding a buyer for its U.S. business, even though the number of candidates able to buy the assets is small. An estimated 80% of U.S. port terminals are operated by foreign companies, usually huge shipping lines -- a business abandoned by U.S. companies over the last two decades.

One likely candidate is the biggest of the port terminal operators in the U.S.: SSA Marine, a company based in Seattle.

A spokesman for SSA Marine, Bob Watters, said “we never comment on speculations on any kind of corporate deal.”

Another is the Pasha Group, a company with headquarters in the San Francisco Bay Area. It manages terminals in Los Angeles and San Diego and operates vehicle shipping and processing centers in Baltimore.

Attempts to reach the Pasha Group for comment were unsuccessful.

Times staff writers Maura Reynolds in Washington and Ronald D. White in Los Angeles contributed to this report.