CONGRESSIONAL RECOIL FROM LATEST DUBAI TAKEOVER

By Diane M. Grassi


The silence on Capitol Hill has been deafening. On April 28, 2006 the White House announced the approval by President George Bush regarding the Committee on Foreign Investments in the United States (CFIUS) of its recommendation that Dubai International Capital LLC (DIC), a subsidiary of Dubai Holding and a Dubai government owned conglomerate, to assume the U.S. operations of Doncasters Group Ltd.

Just seven weeks prior, there was political posturing, grandstanding and outrage expressed by both political parties in the U.S. Congress when it was revealed, through the U.S. media, that Dubai Ports World, also of Dubai Holding, would takeover the United Kingdom company, Pinisular and Oriental Steam Navigation Co. (P&O), and its port operations of six major East Coast ports. It too had been approved by CFIUS. But now, the American public has heard nary a discouraging word, following this latest transaction.

On December 14, 2005, DIC purchased Doncasters, a privately held United Kingdom-based company, for US$1.24 billion. Doncasters is a leader in international engineering, manufacturing precision components and assemblies for the aerospace industry and military aircraft, components for industrial gas turbine engines used in military tanks, in addition to automotive turbochargers and medical orthopaedic devices. Also, DIC manufactures precision parts for defense contractors such as Boeing, Honeywell, Pratt & Whitney and General Electric.

Presently, Doncasters operates 9 industrial plants located in the U.S., which includes manufacture of turbine fan parts for the U.S. Abrams Battle Tank, and sensitive components for the new F-35 Joint Strike Fighter jet. The plants are based in Connecticut which has two factories and two in Alabama, with one each in Georgia, Massachusetts, California, Oregon, and South Carolina.

Connecticut and Georgia, however, are locations where manufacture of most of the sensitive technologies takes place. Georgia is home to Ross Catherall U.S. Holdings Inc., owned by Doncasters, which now must divest its interest to DIC. Ross Catherall supplies turbine engine blades for the U.S. Department of Defense and the military’s tanks. In Connecticut, New England Airfoil Products and Doncasters Precision Castings, manufacture precision alloy parts for both aircraft and tank engine parts.

But the national security implications of a foreign entity operating key factories that are Department of Defense suppliers might well have demanded the same call for scrutiny from the Congress as the P&O deal. According to Senator Charles Schumer, (D-NY), who launched the immediate outcry for the lack of disclosure from both the Bush administration and CFIUS on the ports deal, stated on April 28th that “There are two differences between this deal and the Dubai ports deal. First, this went through the process in a careful, thoughtful way, and second, this is a product not a service and the opportunity to infiltrate and sabotage is both more difficult and more detectable.”

Schumer’s statement, however, is so transparent that it is now clear to those who were skeptical about the theatrics on Capitol Hill over the ports deal, were more right than they were wrong. For example, the only difference between the CFIUS investigation over the ports and Doncasters deals is that the port deal went through a 30-day investigation, rather than both a 30-day and 45-day review as in the Doncasters deal. The contents of the CFIUS review for the ports deal was revealed but to a handful of Congressional leaders and only subsequent to its recommendation to approve it, due to the outcry to the White House, which was so politically overwhelming.

To date, we do know that the President did distribute some of the classified information on the Doncasters deal to House Speaker, Dennis Hastert, and other undisclosed lawmakers on April 28th. Chairman of the House Homeland Security Committee, Peter King (R-NY), also joining Schumer in his relentless criticism over the ports deal, has been brief in his latest statements regarding the Doncasters deal. “This investigation was a significant improvement over what happened before.” But the CFIUS review, presided over by the Secretary of the Treasury, remains a secret process by law, accounting to no party or entity, during its review process. And CFIUS need only enjoin appointed underling representatives of 12 government agencies, including the Department of Defense and the Department of Homeland Security.

Representative John Barrow (D-GA) who represents the Congressional district, in which Ross Catherall is located, has a different point of view than his colleagues in New York, however. “We’ll never know if continuing down this path of selling of our national defense industries will end up hurting us in the long run. We all have to draw the line when it comes to selling our national defense establishment. We don’t want to outsource our military industrial complex one piece at a time.”

Barrow was not satisfied with denial of access as to the status of the CFIUS review or any details forthcoming since the deal has been approved by the President and remains unconvinced that American companies could not make the tank components necessary for the tank engines. He recently visited the Doncasters’ facility in Rincon, Georgia, joined by Rep. Ike Skelton (D-MO), ranking member of the House Armed Services Committee. “Doncasters was more forthcoming than our government,” Barrow commented, with respect to the proposed deal.

Barrow and various other members of the Congress have proposed numerous pieces of legislation, since the ports deal, to provide more transparency between CFIUS and the Congress. This, they believe, would enable more Congressional input as well as oversight on key transactions involving U.S. national security assets and interests. But when and if such legislation will ever be realized remains in question. And the Congress as a governing body does not have a good track record for oversight generally of any legislation it passes, nor does the Congress project commitment in doing so.

The Bush Administration did add some conditions to the agreement with DIC, however. One included that there would be assurances made that there would be no interruption of the supply stream of product, necessary for military operations, especially in a time of war. In addition, all manufacturing is to remain in the U.S. The need for those two agreement amendments alone implies the dangerous precedent being set with foreign entities having control of strategic U.S. assets. The absence of such language in the agreement would have left the flow of supply and the source of manufacture up to Dubai. Yet, the mechanisms in place in the agreement to police such requirements have not been publicly disclosed nor does the public know if the Congress will eventually get access to the agreement’s requirements.

Many U.S. economists project that as long as the U.S. is saddled with an over $800 billion trade deficit as well as being dependent on foreign oil from the Middle East, that more and more U.S. assets, whether strategic or otherwise remain at risk of being sold. While at the moment we do not have any alternatives for direct sources of petroleum, we do have control over which U.S. assets are sold off, keeping in mind the best interests of the American people and the U.S. economy.

But sadly, it appears that the ruckus from Congress over the ports deal not only inflamed the emotions of the American people, with respect to national security being put at risk, but was but a pretense in the name of political expedience. And such equivocation and lack of fortitude from U.S. lawmakers will continue to remain the biggest liability to U.S. national security and for the foreseeable future.