Bush: Ports Storm Sends Bad Message

President Bush said Friday he was troubled by the political storm that forced the reversal of a deal allowing a company in Dubai to take over operations of six American ports, saying it sent a bad message to U.S. allies in the Middle East.

Mr. Bush said the United States needs moderate allies in the Arab world, such as the United Arab Emirates, to win the global war on terrorism.

The president said he had been satisfied that security would be sound at the ports if the Dubai deal had taken effect.

"Nevertheless, Congress was still very much opposed to it," Mr. Bush said. He made his remarks to a conference of the National Newspaper Association.

"I'm concerned about a broader message this issue could send to our friends and allies around the world, particularly in the Middle East," the president said. "In order to win the war on terror we have got to strengthen our friendships and relationships with moderate Arab countries in the Middle East."

The United States sells a lot more to the UAE than it buys, says CBS News correspondent Jim Axelrod. For example, last November, the UAE signed a $9.7 billion contract with Boeing for 42 jets. But Mr. Bush feels the UAE is much more than a good customer.

"UAE is a committed ally in the war on terror," he said. "They are a key partner for our military in a critical region, and outside of our own country, Dubai services more of our military, military ships, than any country in the world.

"They're sharing intelligence so we can hunt down the terrorists. They helped us shut down a world wide proliferation network run by A.Q. Khan," the Pakistani scientist who sold nuclear technology to Iran, North Korea and Libya, he said. "UAE is a valued and strategic partner."

Shortly after Bush's appearance, the administration announced a postponement in the next round negotiations aimed at reaching a free trade agreement with the UAE, but wouldn't say whether it was related to the fallen ports deal.

The office of U.S. Trade Representative Rob Portman said merely that the next round of talks were put off to allow both sides more time to prepare.

Meanwhile, the Dubai-owned company that pledged to surrender its $700 million worth of U.S. port businesses amid a furor on Capitol Hill wants to guarantee it doesn't lose money on the deal. But now that DP World is out of the political frying pan, it could find itself confronting a fire sale of its American assets.

Faced with unrelenting pressure from Congress, Dubai's ruler said DP World will transfer to an unspecified American company all U.S. port operations it acquired when it paid $6.8 billion for London-based Peninsular & Oriental Steam Navigation Co.

CBS News senior White House correspondent Bill Plante reports the announcement came about after the company's consultations with White House political strategist Karl Rove.

In its statement, DP World said its decision was based on the understanding that "DP World will not suffer economic loss."

But experts believe it's unlikely DP World can sell its newly acquired U.S. business for $700 million, given the political pressure to quickly hand over those operations to an American company. They warned this could become an expensive case of buyer's remorse.

"It does seem like they're unloading this in the equivalent of a fire sale," said William Reinsch, president of the National Foreign Trade Council and a former senior Commerce Department official.

While the DP World deal gets all the attention, CBS News correspondent Bob Orr says it's far from the only foreign company operating key U.S. port facilities. It's not even the only Dubai-owned company. Orr notes that Inchcape Shipping Services already operates in more than two dozen American cities, moving cargo, tanker, and cruise ships in and out of ports — including those in New York, Baltimore, and Miami.

Investors from the United Arab Emirates bought Inchcape in January from a British firm — and not one U.S. senator squawked about that deal, Orr says. Since the 1970s, shipping companies from South Korea to Denmark have been unchallenged by U.S. investors, regulators, or elected officials as they've snapped up undervalued American port operations.

Foreign companies now own more than 70 percent of U.S terminals and control the overwhelming majority of the cargo that arrives here. About half of the ports in Los Angeles and Long Beach are run by Chinese companies.

"For the most part we live in an international society," says Richard Steinke of the Port of Los Angeles, "and the shipping lines that are moving cargo around the world reflect that."

When DP World offered a stunning $6.8 billion for Peninsular & Oriental in early February, analysts were surprised the price had risen so high during the two-month bidding fight between Dubai and Singapore-owned PSA International Ltd. PSA, the world's fourth-largest terminal operator, withdrew from bidding Feb. 10.

The British firm manages and runs important port operations in New York, New Jersey, Baltimore, New Orleans, Miami and Philadelphia. It also plays a lesser role in dockside activities at 16 other American ports.

It was unclear which company or companies might run the U.S. port operations. There are only a handful of recognized maritime firms with the resources to acquire all of Peninsular & Oriental's terminal operations in the United States, but DP World could sell the concessions for its U.S. port operations separately.

The largest maritime firms are not based in the United States, although nearly all of them own and operate U.S. subsidiaries.

It was unclear whether any overseas parent company, especially one run by a foreign government, would be acceptable to critics in Congress. In its statement, DP World promised to sell its domestic operations to an unspecified "U.S. entity."

A leading congressional critic of the ports deal, Rep. Peter King , R-N.Y., said, "It would have to be an American company with no links to DP World, and that would be a tremendous victory and very gratifying."

DP World's suitors could include PSA International; Hong Kong-based Hutchison Whampoa Ltd.; Chinese-owned China Ocean Shipping Co.; Hapag-Lloyd AG of Hamburg, Germany; Denmark-based A.P. Moller-Maersk; and Seattle-based SSA Marine.

At Miami's port, an early critic of the Dubai ports deal, Eller & Company Inc., said it was considering an offer to buy out Peninsular & Oriental's operations there and possibly at other ports.

Eller jointly manages and operates a Miami terminal with the British shipping giant. It raised alarms with U.S. lawmakers over the Dubai deal and filed lawsuits in Florida and London to prevent the takeover.

It said it objected to becoming an "involuntary partner" with Dubai's government but previously said it was not in the running to acquire P&O's Miami operations.

"This wasn't on our agenda and not something we had considered," lawyer Michael Kreitzer said Thursday. "But as Congress started to speak out and say there was a dearth of American companies doing this, we started talking to our board of directors about putting a proposal together.

"We could move very quickly, and we're certainly reaching out to see if there is an opportunity for us."

At Maersk, a spokeswoman said the company was always looking to expand its global commerce operations but declined to discuss the Peninsular & Oriental situation. Maersk and P&O jointly manage and operate a major cargo terminal in New Jersey's port.

Despite the furor, the company's U.S. operations were never the most prized part of the global transaction. DP World valued its rival's American operations at less than 10 percent of the nearly $7 billion total purchase.

But that portion of the deal set off a political chain of events unlike any other in Mr. Bush's five years in office. Mr. Bush defended the deal, calling the United Arab Emirates a strong ally in the war on terrorism and pledging to cast a veto if Congress voted to interfere.

Senate Republicans initially sought to fend off a vote to block the deal, and the administration agreed to a 45-day review of the transaction. That strategy collapsed on Wednesday with the vote in the House Appropriations Committee.