Dubai Ports World under Exon-Florio: A Threat to National Security or a Tempest in a Seaport?

I. INTRODUCTION In January and February of 2006, Congress and the public played a variation of the game "Which of these things does not belong?" This variation instead asked "Which of these transactions does not belong?" The list included a Singaporean company taking over a U.S. telecommunications business, (1) a Dutch company acquiring a U.S. semiconductor company, (2) a German company buying a U.S. telecommunications provider, (3) a Chinese company acquiring a U.S. personal computer business, (4) and a United Arab Emirates (U.A.E.) company named Dubai Ports World (DP World) acquiring rights to run terminal operations at six U.S. ports. (5) The answer seemed obvious. The DP World transaction did not belong. Congresspersons of both parties vociferously opposed this transaction, causing the Executive Branch, which had championed it, to withdraw its support. This Article examines the debacle of the DP World transaction, in light of the statute and regulations that govern foreign acquisitions of U.S. assets, to see if the brouhaha was warranted. It concludes that the statute and its implementing regulations protect U.S. national security and that the reaction to the DP World transaction was a tempest in a seaport. As a result of ever-increasing foreign investment in the United States, Congress created a mechanism to review transactions in which foreign companies seek to acquire U.S. companies. This is the Exon-Florio Amendment to the Omnibus Trade and Competitiveness Act of 1988 (1988 Trade Act). (6) Under Exon-Florio, the Committee on Foreign Investment in the United States (CFIUS), which is composed of representatives of twelve U.S. government agencies and departments, may review proposed transactions to see if they pose a threat to national security. (7) If CFIUS believes a transaction does pose such a threat, it recommends that the President take action. (8) The President has the power to block a contemplated acquisition or to order divestment of a transaction already completed. (9) From the beginning, implementation of Exon-Florio has resulted in pitting the goal of "[s]purring the U.S. [e]conomy" (10) against the goal of enforcing national security. (11) Part II of this Article discusses foreign investment in the United States as background for understanding passage of Exon-Florio in 1988. Part III discusses how Exon-Florio works. Part IV discuses two transactions that prompted calls for revision of Exon-Florio, culminating in the passage of the Byrd Amendment (Byrd). Part V discusses the passing of Byrd in 1993. Byrd's changes remain in effect today. Part VI discusses economic and political concerns as they affect transactions subject to Exon-Florio review. If there is a fly in the Exon-Florio ointment, it is the intrusion of economic and political protectionism during CFIUS review or thereafter. The proposed acquisition of Unocal in 2005 by a subsidiary of the state-owned China National Offshore Oil Corporation (CNOOC) was derailed by a combination of political and economic protectionism. This kind of protectionism is further complicated by the national preoccupation with terrorism. DP World, a company owned by the government of the United Arab Emirates, wanted to acquire Peninsular and Oriental Steam Navigation Company (P&O), a U.K. company that ran terminal operations at six U.S. ports. (12) The acquisition passed CFIUS review. (13) The transaction ultimately failed, however, because of the enormous political backlash that followed the announcement of the deal. (14) While the politicizing of decisionmaking is often decried, CNOOC and DP World present textbook cases where this happened. Part VII examines the implications of the CNOOC and DP World transactions. As a result of the CNOOC transaction, some in Congress called for changes to Exon-Florio by demanding more reviews in a more public manner, focusing more specifically on economic protection. (15) The DP World deal also generated criticism of Exon-Florio that focused, predictably, on the ownership of the acquiring company. …