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 fourth installment from the panel, the presentation by Mr. Don De Marino, Chairman, National US-Arab Chamber of Commerce.  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
Don N. De Marino
Chairman, National US-Arab Chamber of Commerce

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. Graham's presentation: Click here // Dr. Lewis' presentation: Click here ]

Let me now invite Don De Marino to tell me why Arabs are really doing more than I think and why the National U.S. Arab Chamber of Commerce is going to reverse all of this in the near future - or immediately. 

Mr. Don De Marino: Or immediately.

Ambassador Freeman: Yeah. 

Mr. Don De Marino: Thank you, Chas. 

The collapse of the Dubai port deal sparked fierce outcries on both sides of the issue, as you know. Free trade advocates were up in arms and organizations supporting trade and investment with the Arab world, such as the US-Arab Chamber, where I am chairman, warned of the dire consequences, not just for future investment flows but of various political and diplomatic retaliation. 

I know that in Dubai there was considerable surprise. Here was a business transaction that had been in the world press for months, as Singapore and Dubai fought it out for P&O. The U.S. part of the deal had been dutifully submitted to CFIUS and all the "T's" had been crossed. Dubai was a partner in our "Container Security Initiative," and a favored port of call for the U.S. Navy. Americans, after all, would be managing and stevedoring the American operation. 

What surprised Dubai was that it got caught in the cross hairs. It had similarly surprised Saudi Arabia five years ago, and now the effect is that it will no longer be surprising to any Arab investor, government or private, who attempts a direct investment in the U.S. Despite how carefully you try to frame the issue with Arabs, few investments require a CFIUS review. Only a few U.S. industries are off-limits to foreigners. There is a firm belief among virtually all Arab investors of my acquaintance that a definite political risk is to be assumed for any direct investment in the United States in any sector for any amount and virtually anywhere in this country. It is not a risk guaranteed to occur, like an exchange conversion problem might be in another country. It is a latent risk, but one that could explode on you suddenly and make the political and cultural context so challenging as to moot the investment. 

This sense of the latent political risk was deeply exacerbated by the Dubai Ports World fiasco, but it certainly did not originate there. It has been building for years. It is partly the sorry saga of visas where Arab businessmen with long histories of investing in the U.S. have to wait for weeks for a visa, and their kids are simply unable to attend school here because of consular vagaries. And then there were the subpoenas served at the airport on behalf of class action terrorist suits, but these are mere inconveniences compared with the workings of the Patriot Act. The draconian penalties for failure to, quote, "know your customer," under the act, have given the compliance officers at financial institutions in the United States a nearly impossible task, particularly when the funds transfer is coming from the Middle East and you are expected, as the act states, to report, quote, "any instances of known or suspected illegal activity," end of quote. But there are no precise definitions or guidelines from the United States Government. 

And on top of all this, there is the culture war where Islam and the Arabs are continuously under the scope of the U.S. media. And while I condemn the treatment of Dubai in the port deal, and I agree that it can only harm our relationships throughout the Arab world, I must respectfully disagree that it will have a chilling effect on Arab-direct investments in the U.S. In my opinion, Arab investors have taken this political risk, the xenophobic factor, if you will, carefully into account. It pretty much goes the same way as our own U.S. investment decisions for overseas investments. They assign it a value, actually a cost, and if the underlying deal still has a sufficiently attractive return and other investment criteria, like diversification by country or sector, et cetera, are satisfied, they will do it. But it does mean that the financial return has to be that much higher and other considerations or factors, like tax rates and liquidity, had better be fully competitive. 

You might ask, competitive with what? Competitive with the kinds of returns they can get in their own booming markets and in the emerging markets of places like India and China, which are attracting them as they attract to us, but with the definite difference that today Arab investors are far more willing to accept, quote, "The emerging market risks" because they see the high potential returns, and in part, let's be clear, because there is a disenchantment, a political risk, a xenophobic factor, if you will, in the American market that makes it somewhat less competitive. 

Arab investment makes up a tiny part of U.S. direct investment. I believe it is something less than 2 percent. Portfolio investment in paper, however, is considerable, but I have not seen, as yet, an appreciable decline in this as a result of the Dubai port deal, and probably because indirect investment is not affected by many of the factors I've mentioned. And we need to remember that many major Arab investors have been at this a long, long time. They remember the hysteria of Arabs buying up America in the 1980s. The recall when Congress opposed investments in the U.S. by the Kuwait Investment Office, and they know that America never really stays xenophobic. 

They also know that they are not alone. This has happened to the Japanese -- can we forget Rockefeller Center? -- or more recently the Chinese when CNOOC had the gall to want to buy Unocal, whose assets were mostly outside the U.S., and many in Asia, a nice fit for the Chinese. So much for the business logic of the deal. Yet Arabs also recognize that while the port deal collapsed, the same Dubai government investor also recently bought the Essex House, smack on Central Park. And to the plaudits of Mayor Bloomberg, patient and sensible, and I believe able to compose their fears and frustrations into a political risk formulation. The Arabs will go on with their direct investments in the U.S. pretty much as before. Ask Rupert Murdoch and Sandy Wild about the long-term value investors from the Middle East. 

Arabs will not retaliate in economic terms against U.S. investors. They recognize that this is still the largest and safest economy. U.S. returns in growth can be tremendous, and no serious international direct investor can afford not to be in the U.S. economy, Arab or otherwise. This is not to defend the idiocy of the so-called debate on the Dubai port deal, and if the Shelby bill on reforming CFIUS passes, I believe it will have a chilling effect on foreign investment. Probably not as much from the Middle East as where we get 75 percent of that foreign direct investment, but namely Europe, the law of unintended consequences. 

I would not expect, however, anytime soon, to see a foreign state-owned company try to buy a U.S. operating company in any field remotely connected with national security. But the real price, the real chilling effect, the real cost, will be in the lost opportunities we will pay in the Middle East in the greater reliance by Arabs on non-American companies for oil and gas development, on European companies for defense and security, on investment going to Asia, on kids going to Europe for education and so forth. While direct investment in the United States will probably remain strong, these costs in the long run will be very high for us as Americans. 

Ambassador Freeman: Thank you. That was a very thoughtful statement which I think made a number of very important points. First, that the specific problem of the CFIUS process, or indeed the legislation that's been proposed is in fact a limited one, whatever the perception may be. Second, that investors do factor in political risks and continue to invest where they can make money. And so far the United States is a good place to make money. That will limit the effect of this. And finally, I agree wholeheartedly with your observation that Americans will never really stay xenophobic. It's not our nature. Post-9/11, it seems to me we're suffering from the effects of a national nervous breakdown, from which we will in due course recover. 

Mission

The mission of the National US-Arab Chamber of Commerce (NUSACC) is to promote, support and strengthen US-Arab business and economic cooperation.

Overview

In 2002, total trade between the US and the Arab world exceeded $42 billion. This bilateral trade is of vital importance to both U.S. and Arab interests. For over thirty-five years, NUSACC has been the leading organization promoting commercial ties between the US and the Arab world. NUSACC's contacts, including an international array of corporations, consulates, chambers of commerce, and government organizations give it a peerless advantage in furthering and fostering American and Arab economic partnership.

NUSACC is regularly called upon to assist the U.S. government, as well as individual Arab countries, in promoting commercial cooperation through initiatives such as the U.S.-GCC economic dialogue and the U.S.-North Africa Economic Partnership. These services, coupled with the integrity and enthusiasm of a growing membership base, provide the foundation for NUSACC's corporate mission and its vision for the future.

• Prospects for Business in the Arab World - Panelists Examine Post-'DPW' Environment - By Patrick W. Ryan - SUSRIS IOI - Apr. 13, 2006

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

• Part 1 - Ambassador Chas Freeman - President, Middle East Policy Council

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

• Part 3 - James Andrew Lewis, Senior Fellow, Center for Strategic and International Studies   

• Part 4 - Don N. De Marino, Chairman, National US-Arab Chamber of Commerce   

• Part 5 - William A. Reinsch, President, National Foreign Trade Council   

• Part 6 - Panel Questions and Answers   

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