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Will killing Dubai deal hurt U.S. exporters?

Is the ports furor a bad omen for the employees of Boeing and other American firms that sell billions of dollars worth of goods to the United Arab Emirates, where the state-owned Dubai Ports firm is based?
Sheikh Nahyan Bin Mubarak Al Nahyan, U.A.E. minister of education, leads a group of visitors out of a Boeing 777 exhibited at the Dubai Air Show in November.
Sheikh Nahyan Bin Mubarak Al Nahyan, U.A.E. minister of education, leads a group of visitors out of a Boeing 777 exhibited at the Dubai Air Show in November.Aziz Shah / AP file
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Next week's expected vote by the House of Representatives to kill the deal in which a state-owned Dubai firm was to run several U.S. container facilities may be a good thing for Republicans seeking to toss aside what House Majority Leader John Boehner called “a very hot political potato.”

But is it a bad omen for the employees of Boeing and other American firms that sell billions of dollars worth of goods to the United Arab Emirates, where the state-owned Dubai Ports firm is based?

Last November Boeing clinched a mammoth deal: the sale of nearly $10 billion worth of commercial aircraft to Emirates, the U.A.E. airline. Once the 42 planes in the transaction are delivered, Emirates airline will be the world’s largest Boeing 777 operator.

Middle Eastern demand for jets is huge. According to the International Civil Aviation Organization, air traffic will grow in the Middle East by 12 percent this year compared to growth of 4 percent in North America.

Last year American companies exported $8 billion worth of merchandise to U.A.E. customers. The U.A.E. ranked 21st among America’s export markets, with sales to the U.A.E. topping the dollar value of what Americans firm sold to India, Russia, Turkey, or Spain, all of whose populations dwarf the U.A.E.'s 2.5 million people.

But now with the furor in Congress, relations with the thriving Persian Gulf federation seem more problematic.

Retaliation likely?
For Congress to kill the Dubai Ports deal would “send the exact opposite signal to the rest of the world and to the Middle East from the one the United States should be sending,” said Bruce Josten, executive vice president for government affairs at the U.S. Chamber of Commerce.

“If there’s going to be retaliation, which frequently takes place in the trade world — the kind of retaliation would be either tariff barriers, non-tariff barriers, or prohibitions similar to any that the Congress of the United States may choose to impose on the ports deal,” Josten said. “How could that be good for the world’s largest exporter, which is the United States, with 30 percent of our economy dependent on (international) trade?”

The anti-foreign investor sentiment isn't limited just to ports: Sen. Frank Lautenberg, D-N.J., renewed his push Wednesday for legislation to retain a 65-year old ban on foreign ownership of U.S. airlines.

“First our ports, now our airlines — President Bush is holding a fire sale of vital parts of our U.S. economy,” charged Lautenberg.

His New Jersey colleague and fellow Democrat Sen. Robert Menendez, who has sponsored legislation to ban any entity that is owned or controlled by a foreign government from leasing, operating, managing, or owning facilities at a U.S. port, said even if port leases were closed to Dubai investors, there were other opportunities in the United States for them to invest their money.

“You want to buy a golf course? You want to buy an office building? Those don’t have a security component to them. My only problem is this particular (ports) case is that there is a huge security component,” he said.

Cai von Rumohr, an aerospace industry analyst with the investment firm Cowen & Co., said the Emirates is considering the Boeing 787 instead of the Airbus 350 and has already committed to the Boeing 777 due to its superior fuel economy versus the Airbus 340. Boeing's rival Airbus is based in Europe.

An eye on Airbus
But given the Dubai ports furor, von Rumohr said, “I assume it’s something Airbus would try to use in their favor.”

As for the executives running Emirates, von Rumohr said, “I don’t know how they view it — whether they’ll say, ‘It’s just the crazies in Congress.’”

A symbol of international trade is the commercial aircraft which Boeing workers make. Boeing means jobs for the state of Washington, where the company employs more than 63,000 people.

When asked about the potentially chilling effect on Boeing and other exporters if Congress kills the Dubai ports deal, Washington’s senior senator, Democrat Patty Murray, said, “I have not heard that concern personally at all. What I have heard is that people are concerned about port security. If our ports were secure and we had a strong regime, I believe this would not be such a critical question about who is running our ports.”

If the United States begins closing sectors of its economy to foreign investors, would they respond by restricting imports from the United States? “That’s difficult to assess,” said Murray. “Most countries know that we have to protect ourselves and that national security is part of that issue. It’s too early to guess where we’re going to be after this 45 day review.”

Effect on U.S. port operators
The House member in whose district Boeing’s largest aircraft assembly plant is situated, Rep. Rick Larsen, a Democrat, said, he didn’t know whether the Dubai tussle would chill US exports but he added, “I would expect there may be some reciprocal action by other countries if we ban foreign ownership of port terminal operations. We do have to address the security concerns that many people have about this (Dubai Ports) deal. But the flip side of that is that we should expect reciprocal action by other countries.... If there are reciprocal actions it may focus strictly on U.S. terminal operators operating in other countries as opposed to spilling over into larger economic transactions between those two countries.”

Larsen cited a Seattle firm, SSA Marine, which operates port facilities in Mexico, Panama, Chile, New Zealand, and Iraq, as well as in the United States, as one that might be affected by a backlash to congressional action limiting foreign firms running U.S. port operations. SSA Marine is the world’s largest privately held container terminal operator and cargo handling company.

Another Washington member of the House who is closely watching the Dubai furor is Democrat Norm Dicks, a firm ally of free trade — he was one of only 15 House Democrats to vote for last year’s Central America free trade accord. Dicks has been a Boeing supporter for years.

'Highly emotional issue'
Asked if a Dubai backlash might hurt American exporters, Dicks said “I certainly hope it won’t. I hope that they (Dubai investors) will realize that this is a very highly emotional issue here in the United States.”

Reprising the arguments on both sides — some of the 9/11 hijackers' financing flowed through Dubai banks, yet, according to Joint Chiefs of Staff Chairman Gen. Peter Pace the U.A.E. has been a reliable ally of the United States since 9/11 — Dicks concludes, “this is a very tough issue.”

As for Boeing employees, Dicks said, “Boeing is going to continue to survive with or without a future order from the U.A.E. In fact, they’re having a hard time producing all the planes people want right now.”

So far the ports furor has not become a big issue in the Senate race in Washington state where first-term Democrat Sen. Maria Cantwell faces GOP challenger Mike McGavick, the former CEO of the Safeco Insurance Cos.

Cantwell said last month that she was “deeply disturbed” by the Bush administration’s decision to OK the Dubai Ports World proposed acquisition of port operations.

McGavick said the right approach to the ports controversy is to "slow down and learn more."

He said, "the thing I'm most interested in learning is the security risk — if any — in this transaction." On that issue, he said, "the jury is still out."

He described much of the reaction to the ports deal as "everybody decides immediately according to a political calculus." He added, "I refuse to jump in" and join "the reactionary behavior I'm seeing. To immediately assume this (deal) is a security risk is false."

He said among the factors to be weighed is "the exposure of companies like Boeing" if the Dubai deal is killed.

"If we decide we will reject allowing the U.A.E. to have relations with us that many other nations have, it's going to be a clear offense to them. The risk we run is that they'll re-evaluate the relations they have with us."