Why the Dubai deal collapsed

Dubai Ports World, the United Arab Emirates-owned company that was to take over operations at six major US ports, has blinked in the face of strong opposition by Congress and the American public.

Sen. John Warner (R) of Virginia, chairman of the Senate Armed Services Committee, announced Thursday afternoon from the floor of the Senate that Dubai Ports World (DPW) would transfer the US operations of the British company it was purchasing - P & O North America - to "a United States entity."

Some critics of the deal were skeptical that DPW might still have ultimate control over the ports in question, including New York, Miami, and New Orleans. Sen. Charles Schumer (D) of New York called Thursday's announcement promising, but said this new arrangement needed to be studied carefully.

"What they've done, at least, is to give themselves a little breathing room from what was going to be a really ugly confrontation, and one that was a complete lose-lose for Republicans, no matter what," says Norman Ornstein, a resident scholar at the American Enterprise Institute in Washington.

On Wednesday, the House Appropriations Committee had sent the strongest signal yet to President Bush, who firmly supported the original DPW port deal, that his back was against the wall. The committee had voted 62-2 to approve an amendment to block the DPW deal and attach it to an emergency spending bill that funds the wars in Iraq and Afghanistan and hurricane recovery on the US Gulf Coast. Mr. Bush had put his clout on the line in defending the port deal, arguing it was good for business and the US economy, and had threatened to veto any legislation that would block it.

But the deal proved deeply unpopular with Americans across the political spectrum, and was eroding Bush's job approval in polls, which had sunk below 40 percent. Most distressing to the Bush White House was the decline in his support among Republicans. That made it very difficult for GOP lawmakers - already anxious about this fall's midterm elections - to support the deal.

Going forward, analysts say that DPW's announced plan must represent a genuine takeover of the US port operations by a real American company that is qualified to run the ports in question, not some kind of shell company with DPW behind it.

In a way, the Dubai Ports flap was similar to the uproar over Bush's nomination of Harriet Miers to the US Supreme Court. That choice was deeply unpopular with his own party, and forced an embarrassing retreat by the White House. But with Ms. Miers, as soon as her nomination was withdrawn, the issue ended.

Though DPW has said it is relinquishing control of the US ports to a "United States entity," there will be lingering repercussions. In international relations, the backlash makes Americans look xenophobic and nativist toward the globalizing economy, analysts say, though they note that in the hard-headed world of international trade, foreign firms looking to invest in the US will hardly be swayed by emotion.

One persistent question has been why Bush has clung so tightly to the DPW deal. "Part of it was arrogance," says Mr. Ornstein. "Bush did not want to admit a mistake."

Beyond that, Ornstein adds, is the question of whether Bush's loyalty to the United Arab Emirates, of which Dubai is an emirate, was mainly because of its cooperation in the war on terror, or whether other considerations played a role. "These issues are not going to go away," says Ornstein.

In a stunning moment on the Senate floor, Senator Warner interrupted a speech by Senator Schumer to make a statement on behalf of H. Edward Bilkey, chief operating officer of DP World.

"Because of the strong relationship between the United Arab Emirates and the United States and to preserve this relationship, DP World has decided to transfer fully the US operations of P&O Ports North America, Inc. to a United States entity," the statement said.

Upon hearing the news, other senators expressed the need for continued vigilance on security.

"What has not gone away is the need for us to do rigorous scrutiny of all transactions involving foreign investments in the US regarding our critical infrastructure, such as our ports and airports," said Sen. John Cornyn (R) of Texas.

"Dubai deal or no Dubai deal, it's clear that this is just the tip of the iceberg of the administration's failure on port security," said Sen. John Kerry (D) of Massachusetts.