A setback for free trade

March 14, 2006|By TERRENCE GUAY

The decision by Dubai Ports World to have a U.S. entity manage the operations of several U.S. ports is the latest indication that dubious security concerns outweigh economic policy in this country.

While the outcome has been supported by a broad segment of Americans, including economic protectionists, political opportunists, xenophobes and even some security experts, it will probably come at a high price. The United States is likely to find it ever more difficult to persuade other countries to open their markets for trade and investment.

The uproar from Congress and the American public over DP World's acquisition of a British company has been startling and revealing. It shows that despite the "globalization" buzzword being heard everywhere, Americans really have little idea how the international economy works.

The state-owned United Arab Emirates company announced Thursday that it would give up its management stake in U.S. seaports rather than continue to fight congressional opposition to that part of its deal to buy British-owned Peninsula & Oriental Steam Navigation Co. It said it would transfer operation of the ports to a "United States entity." The British company operates parts of six U.S. ports, including Baltimore's.

When it comes to foreign direct investment in the United States, DP World's banishment from U.S. ports is the exception. The cumulative stock of foreign investment in the United States is more than $1.5 trillion, of which about $1.1 trillion comes from European companies. Only $8 billion (or one-half of 1 percent) of all investment in the United States comes from the Middle East - and half of that amount comes from Israel. Arabs, Muslims and terrorists are not buying up our country.

All of this foreign investment employs about 5.2 million Americans - about 5 percent of all U.S. private-sector employees.

American companies that cut their domestic work forces while expanding abroad raise legitimate concerns about U.S. job losses. It is highly likely that the many Americans who have become unemployed as a result of these global moves are the most skeptical of a Middle Eastern company operating U.S. ports. But the last thing the U.S. government should be doing is erecting obstacles to foreign investment at the expense of more American jobs.

And even the security argument is ambiguous. Yes, DP World is owned by the UAE government. And, yes, a handful of UAE citizens have been found to have links to terrorist groups. But the UAE is a close ally of the United States, and the Bush administration considered approval of the DP World operations as a reward for UAE support of U.S. foreign policy. We cannot hold governments responsible for the actions of a few of their citizens.

But let's assume that national security is truly at risk and that it would be imprudent to have U.S. ports operated by a Middle Eastern company - or any foreign company, for that matter. After all, we use this excuse to limit foreign ownership of domestic airlines to 25 percent. The Jones Act uses it to restrict shipping between U.S. ports. The Helms-Burton Act even aims to prohibit non-U.S. companies from investing in Cuba. And there are numerous other regulations like these that are intended to protect American firms from international competition.

The point is, the United States is already on a slippery slope whereby the government uses national security as an excuse for protectionism. The DP World situation makes it much more difficult for the U.S. to persuade other countries to open their markets to trade and investment by American companies.

It now will be easier for the Europeans to claim that agricultural subsidies are necessary for security reasons, or that imports of genetically modified products should be restricted for health security reasons, or that limits should be in place on non-European media for reasons of cultural security.

Last summer, partly in response to PepsiCo's rumored interest in acquiring Danone, the French government produced a list of 11 strategic sectors that should be protected from foreign takeover. It is now trying to block a hostile takeover of Arcelor by India's Mittal Steel, and it recently persuaded two French utility companies to merge rather than have one of them acquired by an Italian electricity company. And Spain is trying to do the same in the energy sector to thwart a takeover by a German firm.

Essentially, any government can claim the need to protect just about any industry for national security reasons. That makes it much harder for all countries to agree on international rules to govern trade and investment. A conclusion in the World Trade Organization's Doha round of trade talks will be more difficult to reach given the economic nationalist sentiment that will come from moves like this one.

Those who argue that such an outcome would be a good thing may indeed get their wish. U.S. trade negotiators will find it even harder to persuade other countries to open their markets when the United States seems to be closing more of its markets. Thus is the double-edged sword of economic nationalism in a security sheath.

Terrence Guay is clinical assistant professor of international business at Penn State's Smeal College of Business. His e-mail is trguay@psu.edu.

Baltimore Sun Articles
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.