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March 10, 2006
DP World and U.S. Trade: A Zero-Sum Game
By Eduardo Porter
DP World's decision yesterday to transfer a handful of American port terminals, rather than chilling interest in investing in the United States, may actually have made it safer for foreigners by relieving some of the political pressure that was building up against them.
But as part of a pattern of other antiforeign actions in Washington, fears remain that the United States is becoming a less welcoming place for investment from overseas.
"We need a net inflow of capital of $3 billion a day to keep the economy afloat," said Clyde V. Prestowitz Jr., a former trade official in the Reagan administration who is president of the Economic Strategy Institute. "Yet all of the body language here is 'go away.' "
At least initially, those who support increased globalization were relieved that Dubai appears to have backed away from a confrontation with Congress.
"It is our hope that this relieves some of the political pressure," said Nancy McLernon, senior vice president of the Organization for International Investment, a lobbying group in Washington representing the United States subsidiaries of foreign multinationals.
"People were starting to question the benefits of foreign investment," she said. "We haven't seen this since the Japanese bought the Rockefeller Center."
DP World's takeover was a special case: a state-owned company from the Middle East buying a sensitive American asset. Most multinationals that invest in the United States come from Western industrial democracies and are unlikely to be subject to such scrutiny.
The flap over the ports acquisition alone is unlikely to make a consequential dent in foreign investment flows into the country, most economists agree.
"I don't think this is going to have a major effect on capital flows into the United States," said Ben Stapleton, a partner specializing in mergers and acquisitions at the law firm Sullivan & Cromwell in New York. "It will just affect a deal at the margin every once in a while."
Indeed, while protectionist sentiment in Congress is never far from the surface, so far it has done little to damage the intricate web of cross-border business deals that are going on just about every day. Last summer, animosity against the effort by a state-owned Chinese oil company to buy the American oil company Unocal helped force China to retreat. But there has been no letup in investment flows into the United States in its wake.
Foreign companies plowed $38.8 billion worth of direct investment into the United States in the third quarter of last year, according to government statistics, more than two and a half times the amount recorded in the second quarter and roughly 9 percent more than in the period in 2004.
Foreign investment in American financial markets is even stronger. Last year, capital flows into Treasury bonds, equities in American companies and other securities totaled more than $1 trillion, 14 percent more than in 2004. Much of it came from China and the Middle East.
Some economists argue that it is good that foreign investment in sensitive areas be subject to more scrutiny.
"There are some assets that are absolutely essential to U.S. security and today's action reflects the House and Senate actually drawing a line," said Robert E. Scott, a senior economist and trade specialist at the liberal Economic Policy Institute.
"The question," he added, "is whether or not this is going to be a one-time event or whether we are going to look more carefully at foreign acquisitions, particularly in the military sector."
But some analysts warn that further political hostility against foreign companies buying American assets could boomerang against the United States.
"I think it is very dangerous to enter a new world in which every purchase of an American asset by a foreign entity is scrutinized by the government," said Kevin Hassett, director of economic policies at the conservative American Enterprise Institute in Washington.
"It could make U.S. assets less attractive to foreign buyers because they wonder whether there will be potential future buyers if they decide later to sell what they have purchased."
Some observers worry that nationalist sentiment seems to be on the rise not just in the United States but in other prosperous countries where economic anxieties are present.
The attempt by Mittal Steel, a European company headed by an Indian executive who lives in London, to buy Arcelor, a Luxembourg steel company with many workers in France, is coming under intense scrutiny.
In Britain, officials have worried over the interest of Gazprom, the Russian government-controlled oil monopoly, in the British gas company Centrica.
"It may be well part of a global backlash against globalization," said Michael Grenfell, a partner at the law firm Norton Rose in London. "America could usually be relied on to champion free trade. If that changes, things could get quite chilly."
In the United States, the political flap over the ports deal is still not over. Ms. McLernon noted that members of Congress had submitted some two dozen bills in the last few weeks aimed at changing the review process for foreign investment. Many, without being specific, could end up blocking all kinds of deals.
A bill submitted in the House by Duncan Hunter, Republican of California, and H. James Saxton, a Republican from New Jersey, for example, would bar foreign-controlled concerns from buying any company that operated "critical infrastructure," which could include everything from water and energy companies to those involved in telecommunications.
"It's almost certain that one or another of those bills will pass," Mr. Prestowitz said. "The question is whether it will have sufficient votes to override a veto by the president."