It started out as a straightforward business deal between two international companies owned by American allies - the Dubai Ports World acquisition of Peninsular and Oriental Steam Navigation Co. (P&O). In one short week, it has erupted into a political firestorm that could have far-reaching diplomatic implications for United States relations with the Arab world.
The deal was little noticed outside of the elite international business world until port officials learned that a company owned by the United Arab Emirates would be in control of certain operations at major American ports in New York, New Jersey, Philadelphia, Baltimore, Miami, and New Orleans.
With the memory of 9/11 still fresh and continuing concerns about a lack of adequate security at US ports, alarms sounded from New York to New Orleans. Mayor Michael Bloomberg talked of canceling New York's contract with the company. Gary LaGrange, president and CEO of the Port of New Orleans, said he didn't "feel real warm and fuzzy about it." On Monday, the governors of New York and Maryland threatened legal action to try to stop the deal. And this week, Congress is stepping in. Senate majority leader Bill Frist said "the decision to finalize this deal should be put on hold until the administration conducts a more extensive review of this matter."
Sen. Charles Schumer (D) and Rep. Peter King (R), both of New York, also introduced emergency legislation Tuesday to "suspend the handover" of certain port operations. "Approving this contract in the dark of night and ignoring all of the many questions asked about this takeover is an affront to anybody who cares about our nation's security," Senator Schumer said in a statement Tuesday.
The Bush administration, which approved the sale, says it thoroughly reviewed all the national security implications. Homeland Security Secretary Michael Chertoff made the rounds of TV talk shows Sunday morning, trying to assure skeptics that the administration had put proper security precautions into place. But he said that information was classified.
Despite the administration's efforts, the controversy continues.
"What we're seeing is a very unfortunate knee-jerk reaction in terms of the Muslim world," says Lester Lave, an economist at Carnegie Mellon University's Tepper School of Business in Pittsburgh, noting the United Arab Emirates is a key US ally in the Muslim world. "If you treat your strong allies this way - this is like a poke in the eye - then what in the world should people who are not our strong allies expect from us?"
In past two years, the US has been negotiating a free-trade agreement with the UAE. Professor Lave agrees that security is important, but he believes it can be negotiated in the contract. Some homeland- security experts say the interagency review, which was led by the Bush administration's Treasury Department, may have provided even greater security guarantees than most international business deals do.
"In a weird way, the interagency review allows the US to hold international companies to a higher level of standards and accountability," says Frank Cilluffo, director of the Homeland Security Policy Institute at George Washington University. "There are some legitimate security concerns, but it's going to come down to enforcement, and arguably at a higher standard than we have had in the past."
Companies like P&O don't provide security at the ports. The US Coast Guard and Homeland Security's Immigration and Customs Enforcement do. For instance, in New Orleans, P&O is one of eight terminal operators responsible for marketing the port, signing agreements with shipping lines, hiring labor, loading ships, and moving cargo.
But P&O has no responsibility for security. "We have our own police force, harbor patrol, customs officers, and Coast Guard," says Chris Bonura, spokesman for the Port of New Orleans. "That won't change no matter who is operating the terminal."
P&O is not commenting on the political uproar over the deal. But a source within the company worries that the media and politicians are misrepresenting the arrangements. Other who work within the port communities agree. They note that P&O will not be "managing" the ports, as many news organizations have reported. Instead, the company is one of many that leases terminals at the port.
"I've never quite seen a story so distorted so quickly," says Esther de Ipolyi, a public-relations executive who works with the port of Houston. "It's like I go to an apartment building that has 50 apartments, and I rent an apartment. This does not mean I took over the management of the whole building."
Security is a top priority at the ports, but there's concern the Bush administration has not provided enough funds to properly pay for it. Earlier this month, the president of the American Association of Port Authorities complained that the $708 million allotted for maritime security over the past four years amounted to only one-fifth of what the port authorities had identified as needed to properly secure the ports.
• Ron Scherer contributed to this article.