A victory for the scaremongers

In the sorry saga of DP World, fear and partisanship trumped geopolitical and economic sense.

Protectionism is not a uniquely American political failing. It's just that when it takes hold there, it matters more. So if you haven't been paying attention to the political dust-up over the purchase of a handful of American port operations by Dubai Ports World, you should start–and you should be concerned.

Dubai Ports World, a company owned by the United Arab Emirates government, was supposed to come into possession of six U.S. ports as part its purchase of a company called Peninsular & Oriental Steam Navigation. The Committee on Foreign Investments in the United States, the proper arbiter in such cases, cleared the deal in mid-January. But in mid-February, the media's bully boys of protectionism (like CNN's Lou Dobbs, the Geraldo Rivera of business TV) caught wind of an opportunity to sound the alarm about foreigners–Arabs, no less, from a place that had served as a jumping point for 9/11 terrorists–taking over vulnerable sectors of the economy.

Never mind that the operations were already owned by “foreigners” (P&O Steam Navigation Co. is based in England). Or that security at ports is handled by U.S. government agencies. Or that the UAE is an important ally in America's war on terror. Never mind all that: congressional Democrats smelled a political winner. Carefully wrapping their rabble-rousing in folderol about procedural mishandling and security concerns, they demanded the deal be scuttled. As polls showed, most Americans opposed the transaction (hardly surprising); congressional Republicans, apparently deciding to get in while the getting was good, joined the hue and cry against it. That was a huge embarrassment to George Bush, about the only commendable political figure in this saga, who supported the deal in the name of economic liberalism and geopolitical common sense.

In the end, DP World settled the matter on its own, in much the same way Chinese-owned CNOOC did a few months ago when, amid similar xenophobic ravings, it dropped plans to purchase U.S. oil company Unocal. On March 9, DP bowed out, saying it would offload operations of the ports to a “U.S. entity.”

Case closed? Well, maybe. But the legacy of this sorry saga could be especially discomforting for Canadian businesses and investors. One reason is that Congress is reportedly contemplating bills that would limit or ban foreign investment in a wide range of sectors, not just shipping. Another big concern revolves around the ongoing Doha Round of the World Trade Organization negotiations, in which Canada as a middling power has a lot to gain. The negotiations are at a critical juncture as they approach an April 30 deadline. They have relied so far on strong leadership from the Bush administration; to be successful, they will need more. But that will be much more difficult if protectionist forces at home undermine U.S. trade representatives.

Just as worrying to those who believe in the importance of free trade and investment are the international optics. America has long championed the free flow of investment and goods as a boon not just to itself, but to the world in general. But imagine you're the leader of a developing country, and Americans come to you and ask you to freely allow U.S. investment and goods into your market in return for free access to their market. What would you say? Would you now be inclined to believe them?

Here's hoping the DP World debacle goes down in history as just another episode in America's biennial electoral follies, and not as the shape of things to come.