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ICG Risk Blog - [ Before Dubai Ports World there was China Ocean Shipping (Group) Co. ]

Before Dubai Ports World there was China Ocean Shipping (Group) Co.


The purchase of Britain's declining transport line of empire, Pacific & Orient Steam Navigation company (P&O Lines) by Dubai Ports of the World (Dubai Ports World), a state firm owned by the United Arab Emirates, was a perfectly acceptable commercial transaction that met the economic and diplomatic needs of the US. The US will come to regret its hasty decision to thwart the transaction as it comes to confront more formidable opponents:

Today, Dubai’s main business is commerce, not dwindling oil. Dubai’s royal family wisely invested in scores of future-oriented businesses that are an example of smart business to the Arab World and Africa. Dubai and the United Arab Emirates, of which it is a member, are increasingly enriched by brains and entrepreneurship rather than oil.

"Dubai Ports enjoys an international reputation in its field… has been a leader in joining initiatives to secure American containers… [and had] agreed to adhere to existing security levels in US ports, retain employees, and share information on operations and employee backgrounds with the US government."

Of critical US infrastructure, the maritime infrastructure is most owned by foreign firms. US firms dwindled in the 1970s under competition from foreign firms with less rigorous regulatory constraints and cheaper crews. By the 1980s they were gone. Singapore's Neptune Orient Lines bought American President Lines (APL) while Maersk bought Sea-Land from CSX Corp.

There is an important reason why terminals are usually managed by foreigners: The shipping companies themselves are largely foreign, and they have generally sought to control terminals so that they can be certain of having the most reliable, efficient facilities possible for loading and unloading their vessels quickly to reduce costly time in port. That arrangement has suited local port authorities; they want to ensure that their ports will draw enough traffic to generate revenue and employment.

It is unlikely that the US at either national or state level can fund the forecast doubling of trade by 2020. Eighteen million containers will demand new and upgraded terminals and ports (dredging, real estate, gantry cranes, bridges, roadways, and rail heads). While other issues affecting the administration's recommendation may yet be made public, Bush43 was wise to support the Dubai Ports purchase (before Rove killed it).

Lebanon's Al-Hayat paid Bush43 a left-handed compliment in his support of the UAE purchase by described it as Ayoon Wa Azan or "Bush's First Wise Position" as it excoriated the "hateful combination of ignorance, racism and lies" that sank the deal. Yes, there is a measure of Republicans having to look out for themselves and Democrats seeing an opportunity to get the right of the administration, but it still seemed that morons abounded. Given that the majority of US ports and terminals are in foreign hands, and that "13 out of 14 cargo firms at Los Angeles Port are foreign, from countries like China, Japan, Taiwan and Singapore," Barbara Boxer (D – CA) "declared that all foreign companies should be banned from working at US ports" while Charles Schumer (D – NY) said that the US "should be very careful before we outsource such sensitive homeland security duties." (I might add that Al-Hayat also noted that Schumer "has never objected seeing Israeli companies tasked with sensitive security tasks" and I might add the US paid dearly for that in regards to sensitive official phone systems.)

"Most U.S. ports are owned by public or quasi-public authorities [which] frequently lease their terminal spaces to terminal operating companies. P&O is one such operating company, and a quick review of U.S. port facilities reveals that, like P&O, many terminal operating companies active in the United States are either foreign-owned or are subsidiaries of foreign conglomerates."

Among all the reasons to fret about vulnerabilities to terrorist attacks, the nationality of the companies managing the terminals is one of the least worrisome.

The US has done "an abysmal job in assisting ports in the developing world in improving security to even minimal acceptable standards." While the US "has arranged for customs officials to work in 42 foreign ports with rights to inspect containers before they head for U.S. shores," fully 20% of containers bound for the US enter from developing states where safeguards are nonexistent. Wide open ports lacking even the pretence of fencing, lighting and supporting security procedures need attention now. Just considering al Qaeda’s entrenched presence in West Africa (drawn there for laundering blood diamonds) should have lawmakers’ hair on fire but it is over the horizon.

Back in the US, aviation security has claimed "almost $20 billion" in federal grants while port security is below $700 million. Transferring ownership from Britain's P&O to Dubai Ports World does not affect local terminal arrangements.

It is not the port or terminal operator’s problem that Customs and Coast Guard staff are "not usually present" and that "private terminal operators are almost always responsible for guarding the area around their facilities" and sometimes X-raying incoming containers for manifest matching. Even then, the guards and longshoremen are locals.

"The security personnel employed by the terminal companies vary from port to port, but according to several companies, the guards are often supplied by local private security firms." Stephen Flynn notes, "The lowest-paying jobs on the waterfront are security people."

The shipping industry faces relatively few "Dubai Ports" events, taking for granted the global world in which it lives, and so was taken aback by the criticism from federal and state legislators. Most now forget that in a different political climate, the previous "Dubai Ports" event was the proposed leasing of the Long Beach Naval Station to an ocean carrier owned by the Chinese government, China Ocean Shipping (Group) Co. (COSCO). Left destitute by downsizing at the Long Beach Naval Station, the city of Long Beach was desperate to lease the abandoned port to COSCO on highly advantageous terms.

Unlike the COSCO deal which apparently had no federal oversight or examination, the Intelligence Community Acquisition Risk Center, which performs a threat analysis of foreign commercial entities that seek commercial relations with US intel agencies, approved the Dubai Ports World acquisition to the Committee on Foreign Investment in the United States (CFIUS). A sister firm of Dubai Ports World, Istithmar, had already purchased the British firm Inchcape Shipping Services, a transaction that CFIUS had apparently "determined that approval was not required."

The 105th Congress was as active on China-related issues as it was anti-Clinton issues into which some China-related items were lodged:

[P]pending human rights legislation [including] prison conditions and prison labor exports (H.R. 2195, H.R. 2358); coercive abortion practices (H.R. 2570); China’s policies toward religion (H.R. 967, H.R. 2431); more general human rights issues (H.R. 2095)… China’s missile proliferation activities (H.Res. 188), Radio Free Asia broadcasting to China (H.R. 2232), China’s participation in multilateral institutions (H.R. 1712, H.R. 2605),… activities of China’s military and intelligence services (H.R. 2647, H.R. 2190) [and] several multiple-issue bills, such as the Defense Authorization Act (H.R. 3616), the Foreign Relations Authorization Act (H.R. 1757), the China Policy Act (S. 1164), and the U.S.-China Relations Act (S. 1303), which combine some, or even most, of these issues.

After the Port of Long Beach was "officially stripped of their ability to lease the former Navy land to COSCO", a local harbor commissioner said, "Congress has thrown two years of effort out the window due to a ridiculous political climate." This was at a time when COSCO was being described elsewhere as "a front for the People's Liberation Army and Beijing's intelligence arm."

(It did not help that in 1996, a COSCO vessel, Empress Phoenix, attempted to smuggle 2000 Chinese-made fully automatic AK-47 assault rifles into the port of Oakland, CA. The intended recipients were Los Angeles street gangs. "Operatives nabbed after the seizure told investigators that they were ready to smuggle in everything from grenade launchers to shoulder-fired Red Parakeet surface to air missiles, which they boasted could "take out a 747."")

COSCO continues to operate at Long Beach, belying local fears that its tenant would move across the harbor to the Port of Los Angeles (who had presented COSCO with a proposal). Although it was barred from relocating to the former Naval base, other firms did move there, freeing land adjacent to COSCO’s facilities enabling it to expand.

Few remember the brouhaha when Hong Kong’s Hutchison Whampoa took over management of the Panama Canal. If one were to be interested in any of the current foreign port operators it would be the Chinese who have done an excellent job of following the 18th century British model of gaining port and tideside rights around the globe. Some have already described the Port of Long Beach as a Chinese exclave. If it had the slightest curiosity, Congress could glace over Chinese facilities in the Caribbean and South America rather than pounding on Dubai Ports.

Burning Allies -- and Ourselves
By David Ignatius
Washington Post
March 10, 2006

Overseas Firms Entrenched in Ports
By Paul Blustein
Washington Post
March 10, 2006

Chinese shipping aims for global leadership
By Michael Mackey
Asia Times
March 1, 2006

Are good business relationships good for security?
By Rep. Elijah E. Cummings (D-Md.)
The Hill
March 1, 2006

Eric Margolis
Posted by Eric Margolis on February 28, 2006 05:17 PM

Ayoon Wa Azan (Bush's First Wise Position)
Jihad el Khazen
Beirut, Lebanon

U.S. Intelligence Agencies Backed Dubai Port Deal
By Walter Pincus
Washington Post
February 25, 2006

Port Problems Said To Dwarf New Fears
By Paul Blustein and Walter Pincus
Washington Post
February 24, 2006

Growing Criticism Puzzles Many in Shipping Industry
'We haven't done a good job of explaining how we work'
by Meredith Cohn
The Baltimore Sun
February 22, 2006
Arab American Institute

By Lynn A. Stover, Major, USMC
Maxwell Air Force Base, Alabama
April 2000

'Dirty' war in Panama
Congressional investigators say China to wreak havoc in Central America
By Charles Smith
December 8, 1999 1:00 a.m. Eastern

The Panama Canal in Transition
Threats to U.S. Security and China's Growing Role in Latin America
Al Santoli
An American Foreign Policy Council Investigative Report
June 23, 1999

China: Pending Legislation in the 105th Congress
Kerry Dumbaugh
Specialist in Asian Affairs
CRS 97-933 F
Updated June 19, 1998


Proposal raising plenty of eyebrows
By Karen Gullo and John Solomon
Associated Press
Date likely March, 1997 (The Washington Times (3/10/97) was quoting the same texts.

Cited in: 'They Were Against Foreign-Run Ports Before They Were For Them'
The Political Mine Field
February 27, 2006

Long Beach won't give up on COSCO
Congress kills bid by Chinese to take over naval base
By Joseph Farah
September 21, 1998

Chinese Port Operator Linked to Weapons Smuggling
Feb. 28, 2006 11:45 a.m. EST

Pending lease of Navy base to Chinese firm questioned
Associated Press
March 9, 1997

Cited in 'The Democrats: Weak on Port Security and Sell-outs to Red China'
(Emphasis added by Levin)
Mark Levin
March 1, 2006

Gordon Housworth

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