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U.S. image takes a hit

WASHINGTON – A United Arab Emirates-owned maritime company at the center of a furious port security controversy bowed to pressure from Congress Thursday and announced it would sell off its U.S. operations to an American owner.

The announcement, issued by Dubai Ports World Chief Operating Officer H. Edward Bilkey, came hours after House and Senate Republican leaders told President Bush that Congress would kill the company’s $6.8 billion acquisition of London-based Peninsular & Oriental Steam Navigation Co. and its operations at six major ports.

Although the demise of the deal was sure to leave bruised feelings in the Emirates, analysts predicted the United States would be able to preserve its extensive security and economic ties given the mutual interests at stake. The bigger problem, they said, will be the fresh damage done to the U.S. image in the Muslim world.

Even before the deal fell through, Arab media had been portraying U.S. opposition as an anti-Arab racist slur, contrasting the resistance to the acceptance generally afforded to investments from Asian and European entities.

“This can only make the already damaged image worse,” said Youssef Ibrahim, managing director of the Strategic Energy Investment Group, based in Dubai. “The problem is, for four or five years we haven’t found a way to repair that damaged image.”

The company’s decision climaxed an extraordinary three-week furor that pitted Republicans and Democrats in Congress against Bush on a volatile national security issue in a midterm election year. Opposition to the port deal mushroomed to the point where even Bush’s veto threat proved ineffective and, if anything, aggravated once-loyal GOP allies.

The White House praised the UAE for its decision and reaffirmed the “strong relationship” between the two nations. “This decision provides a way forward and will allow us to continue working on other issues,” White House Press Secretary Scott McClellan said.

It is not clear what U.S. company is willing to buy DP World’s North American properties. About 75 percent of containers that enter U.S. ports go through terminals that are foreign owned.

The administration quietly approved the sale of the British-owned company to Dubai Ports World on Jan. 17 following a review by its secretive Committee on Foreign Investment in the United States (CFIUS). But stung by the public and political outcry once the decision became widely known last month, the White House and the Dubai company tried to placate critics by agreeing to a 45-day investigation into the national security implications of the deal.

Congress began taking action this week to revoke the sale, driven by constituent fears that Arab state ownership of U.S. port operations would compromise security. Senate Majority Leader Bill Frist, R-Tenn., and Senate Armed Services Committee Chairman John Warner, R-Va., warned company officials Wednesday that they would be prudent to cut a deal allowing them to sell off their newly acquired U.S. operations through normal business channels rather than risk congressional action that would force a fire sale.

Dubai Ports World acquired management control of 24 of 829 container terminals at the ports of Baltimore, New York, New Jersey, Philadelphia, Miami and New Orleans. Terminal operators are primarily responsible for transferring containers from ships to railroad cars and trucks, administration officials have noted, while port security is primarily the responsibility of the Coast Guard and U.S. Customs and Border Protection.

Opposition to the deal has dogged Bush for weeks, and Republican congressional leaders who gathered at the White House for a regularly scheduled meeting Thursday morning used the opportunity to warn him that he faced defeat. Bush tried to smooth over the dispute, aides said, declining to repeat his veto threat during the meeting and dispatching spokesmen with talking points assuring that the “lines of communication remain open.”

In practical terms, several specialists on the region said the end of the Dubai deal will likely have little impact on UAE’s willingness to continue serving as a major Middle East outpost for U.S. warships, spy planes and combat aircraft. That is because the extensive U.S. military presence is seen by UAE’s leaders as serving their own security interests.

But the UAE may now be less inclined to respond as favorably as it has to U.S. appeals for other kinds of military assistance outside the country’s borders, analysts said. In the past, UAE troops have helped provide cover for U.S. military operations in Somalia, sent humanitarian forces into Kosovo and delivered humanitarian assistance to Iraq after the U.S. invasion.

“They’ve been doing such things because they’ve felt they had a special relationship with us,” said David Mack, vice president of the Washington-based Middle East Institute and a onetime U.S. ambassador to the UAE. “Now, I would expect less eagerness on their part to be as accommodating.”