The Middle East Policy Council, based in Washington, DC, does many things to advance its mission of contributing "to American understanding of the political, economic and cultural issues that affect U.S. policy in the Middle East." Among them is organizing a series of panel discussions, the Capitol Hill forums, that bring together distinguished specialists to examine issues of interest to policymakers. On April 7, 2006 the 43rd forum in this series tackled the question: "How can the U.S. Re-open for Business to the Arab World?"  MEPC President Chas Freeman moderated the panel. 

Today we are pleased to bring you the second installment from the panel, the presentation by Dr. Edward M. Graham, a senior fellow at the Institute for International Economics. We thank the MEPC for allowing us to share it with you. The remainder of presentations will be provided over the next several days.

If you agree that this forum series is important to improving the relationship between the United States and the Arab world we suggest you visit the MEPC web site to learn how you can support this important organization. [ http://www.mepc.org/about/support.asp  ]

[For information on the next forum in the MEPC Capitol Hill Conference Series -- "Is There a Responsible Exit from the Strategic Ambush in Iraq? (April 21) -- contact MEPC/Maria Arruda (202) 296-6767 or e-mail: [email protected]  ]

How Can the U.S. Re-Open for Business to the Arab World?
MEPC Capitol Hill Forum

Part 2 - Dr. Edward M. Graham
Senior Fellow, Institute for International Economics

Introduction by Ambassador Chas Freeman: We have in fact four excellent panelists. Monty Graham is a senior fellow at the Institute for International Economics here in Washington, and also an adjunct professor at Columbia. Jim Lewis, he's here at CSIS. And again, Jim, thank you for this use of the facilities. And his specialty really is precisely the one that we are talking about - the balance between homeland security issues and economics, which is a growing field, I imagine. And I look forward to his remarks. Don De Marino probably needs no introduction to people knowledgeable about the Middle East. Don has been involved over many years with business in this part of the world, and is currently chairman of the National U.S.-Arab Chamber of Commerce. And Bill Reinsch, finally, who I very much welcome here, is the president of the National Foreign Trade Council, which is the voice of the business community on many of these issues, that is, political skullduggery and malevolent interference with business are what Bill fights everyday. With these few words, I'd like to ask Monty to come up and lead off.

Dr. Edward M. Graham: It's a real pleasure to be here. I am not really -- by any stretch of the imagination -- I am not a specialist or an expert on the Middle East. In fact, over the last ten years I've done quite a lot of work in the Far East, but not the Middle East. And I'm here primarily because I'm coauthor with David Marchick of a book that will be out in about a month. It's called "U.S. National Security and Foreign Direct Investment," and so of course it would pertain to things like the Dubai Ports World crisis and the CNOOC transaction, both of which have been alluded to.

As long as I'm someone who does go to China fairly often, I thought that I might tell you that on the matter that Charles just raised of the visas that I, in fact, gave a lecture - I guess it was in November - at Fudan University. Fudan University is probably the number three university in all of China. It's located in Shanghai and is the premier university in the coastal Chinese area and possibly the school with the best economics department in China. It is where I gave the lecture, and one of the things that I actually said towards the end was that I felt that it was a real shame that students, which was the majority of the audience, were having such difficulty getting visas to come and pursue economics degrees in the United States. I said that I felt that, particularly given as far as I know there was not a single Chinese person involved in 9/11, that it was rather peculiar that the U.S. government had -- as it has -- drastically raised the bar for the granting of visas to Chinese students. And what I have to tell you is I got a standing ovation. They got up and they thundered. 

This issue is so pertinent in China, let alone the Arabian countries, that it was the only part of my lecture where I got a visible reaction, and when I did it was just thunderous applause. So, no, this whole matter of the xenophobic overreaction of the United States is something that goes way beyond the region that we're addressing today. 

A couple of things have already been mentioned that I liked. The main reason I'm here is because in the course of doing this book I had quite a close look at the Dubai Ports World transaction. In this close look I think I detected, well, xenophobia for certain and Arabiaphobia, if that's a word, certainly a lot of politics. I mean, what an opportunity for Hillary to put herself on defense to the right of George Bush. I would like to hope to think that will come back and bite her, personally, because I think that was one of the cheapest shots that any politician could have taken. But demagoguery for the purpose of, shall we say, padding one's political r�sum� when one is a possible presidential candidate, that certainly seemed to be a big part of the story. 

Now, just to be fair, I would have to say that I also, on this whole issue, saw a certain amount, in deed a rather large amount, of out-and-out White House bungling. The way that the White House handled this, and particularly in the early -- the first few days after this became a hysterical issue, I don't think that the White House could have acted less competently. And I would be willing to go into some of my observations on that were you to ask me to, but I think I'll just leave it at that for the moment. But it's really terrible that we have this demagoguery coming out of both the Senate and the House of Representatives with certain figures playing a prominent role, but the White House reaction couldn't have been less competent. I think of the irony that in the end, when all is said and done, as just indicated, that the White House tried to do the right thing but just somehow couldn't manage it, either here in Washington, nor, as we've just learned, was there any reward that went to Bush from the Middle East, where he I think is - is it to correct to say that those jokes that he wouldn't tell us have to do, as much as anything, with incompetence? 

Ambassador Freeman: That's the central theme, yes.

Dr. Graham: Let's put it this way, that I think that in this whole instance that there was a great deal of overt incompetence that was shown, and that made things vastly worse. What I certainly didn't see was any threat to U.S. security arising were the deal to have been completed. And indeed, when you look in detail, as we did, at the measures that the CFIUS took - I mean, this much-maligned CFIUS that supposedly is a pushover -- when you look at what they did, well, I think they pretty much did do the right thing. The only thing they didn't do was what I think might have been something that would have been advisable just on political grounds, and that is to go ahead with the extended 90-day review. But in terms of what you might ask on a technical basis for security arrangements, well, it pretty much was all in place. 

Incidentally, in the course of doing this work, I talked with quite a number of people who are specialists in port security, and the obvious point that came out of this discussion is something that I hope that I don't have to tell you, but it's simply this, the main threat at the ports is that some sort of nuclear device is secreted through the ports. For that to happen, the device has to get into a container to begin with, and that has nothing to do with the port of entry here in the United States; it has everything to do with the logistics prior to the container being even put on a ship. The real security issues - the most important security issues are at that end. Think about it - that if a container ship comes floating under the Verrazano Narrows Bridge or goes right past Annapolis, where there is a container onboard with a nuclear device in it with a little remote control device. They can do a nasty amount of damage before the container even arrives at the port. What happens at the U.S. port, it's not irrelevant but - it's about 10 percent of the security story, and really very little threat that could be ascertained pertaining to Dubai Ports World taking over these ports. That which could be ascertained, if you go and look at the details, was quite well addressed. 

What I also see, and what I'll spend the remainder of my time on, is what could be the consequences and the fallout of this particular action, and I think this is where things look, to me, rather bleak. In the first place, I think that the major fallouts are likely to be in what I might call the political and social domain, and these have already been alluded to - the possibility that that there will be extreme caution and suspicion on the part of - particularly the Middle East but also investors around the world. Remember, CNOOC involved a Chinese company, and shall we say that the sort of fallout that has been alluded to in the Middle East also does exist in China. And so the Middle East, China, large parts of the world, as it were, where the money is, this is likely to be something quite severe. It goes way beyond the economics. Just the sort of anti-Americanism, the suspicion that the United States is not wholly to be trusted, this sort of reaction is widespread. 

Now, getting specifically to economics. We have quite a lot of legislation being proposed. Shelby-Sarbanes, I think, is the one that probably stands the biggest chance of being passed. A very interesting question is would Shelby-Sarbanes, in itself, create some sort of a chilling effect on foreign investment coming into the United States? And I don't think I need to tell you that the United States needs foreign investment. In fact, the United States requires - by our estimates, in the coming year it will require very close to a trillion dollars of net inward foreign investment just to finance its current account deficit. 

This is speculative, whether Shelby-Sarbanes is going to have a chilling effect or not. If you look at the actual provisions of the bill, I'd have to say that I don't find them all that onerous, particularly given the way the bill has been modified since it was first introduced. We could go into particulars, but maybe not right now because there just simply isn't enough time. What I'm really more worried about is the signal that it sends. In terms of the CFIUS process we had a process in place that was working awfully well. People say, well, is it? Has the CFIUS ever blocked a transaction? Well, only once de facto; probably about 20 times de jure, or effectively, transactions have been blocked. 

But let me just close by noting one thing, and that is that during the time that the Exon-Florio CFIUS process has been in place there have been about 600 foreign transactions a year that have occurred, and this is over quite a few years. What I'd like to ask those that say that the CFIUS process doesn't work is what specific instance of a national security threat that was overlooked by the CFIUS has later come back to plague us? Zero. And the CFIUS process has - if there have been national security threats posed by foreign investment, the CFIUS seems to have gotten every single one, and that is without modification. 

Ambassador Freeman: Thank you. 

Dr. Graham: Sure. 

Ambassador Freeman: Admirable. I'm very grateful to you for putting this in the broader international global context. My son, by the way, is a graduate of the Fudan University economics faculty, so I share your admiration for that institution. 

I want to just comment very briefly on two things that you said, just to buttress your points. Whether the White House's performance was adroit or not, Dubai Ports World's performance was superb. They did everything right. They hired the right people. They made the right moves. They even stimulated - for example, you mentioned Senator Clinton - a letter from the president of ZIM, the Israeli state shipping line, to Senator Clinton, advising her please to lay off this issue because Dubai Ports had a superb relationship with them, and they considered Dubai Ports to be the most effective security manager that they'd encountered anywhere in the world. Another ironic element in this was that Senator Clinton, when addressing this issue, cited her visit in Hong Kong to the CSX port facility there as a model for what she thought ought to be done. Well, CSX is owned by Dubai Ports World. So demagoguery is probably not an inaccurate word to apply. 

And finally, Sarbanes-Oxley, as you know, is often cited as the biggest single inhibitor of large-scale foreign investment in the United States. The prospect of further legislation inhibiting foreign investment is something Bill Reinsch may want to comment on. 

TOMORROW: James Andrew Lewis

Source: MEPC.org 

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