The Peninsular and Oriental Steam Navigation Company was incorporated in 1840 in the UK by a Royal Charter, which, as noted on the company web site, explains why the company name doesn't carry the more recent identifiers PLC or LLC. The firm's flag includes the colors of the Spanish and Portuguese flags -- a reference to the Iberian Peninsula that was home to its earliest shipping destinations. "Oriental" refers to the company's early expansion to India, Australia, and the Far East providing Imperial mail service along with its commercial trade.

The completion of the Suez Canal in 1869 brought with it a variety of competitors for P&O's virtual monopoly on long distance steamer service to the Far East. To remain competitive the company cut overhead including "abolishing free liquor at meals." In the early 20th century the firm acquired more than a dozen shipping companies; during the World Wars its ships transported troops and supplies in support of the war efforts.

The company reorganized in 1971, and during the 80s converted nearly all its dry cargo operations to container shipping. It was during this period that it turned its attention to "the necessary on-shore infrastructure of container ports, inland depots, and road, rail and inland waterway transport links." P & O also briefly expanded into oil exploration in the North Sea and US, and into housing construction and industrial services. By 1999 "[t]hese interests, no longer needed to support the Group's core businesses, had largely been sold."

P&O Ports, the P&O Group company responsible for port development, investment, operating and stevedoring activities, began as an Australian terminal operating entity, and expanded internationally in 1986 with the privatization of the Port Kelang container terminal in Malaysia. The P&O Ports web site notes "This was one of the first privatizations of public port assets undertaken worldwide and its great success resulted in it becoming an international model. "

P&O Ports acquired US terminal operator ITO in 1999, and New Orleans-based Gulf Services in May 2000. In November 2000 it began operations in the Port of New York and New Jersey, with a capacity of 1 million TEU (twenty-foot equivalent unit, or the size of a standard container). In 2001 P&O Ports received a six-year contract to manage the Port of Baltimore. P&O also owns a 50% stake in Delaware River Stevedores, which has terminal operations in Philadelphia, PA and Camden, NJ.

In May 2005 Danish container-shipping firm A.P. Moeller-Maersk bought Royal P&O Nedlloyd NV of the Netherlands, a shipping company in which P&O held a 25% stake, for $2.78 billion. The sale allowed P&O to focus on worldwide port operations, and, the Wall Street Journal noted, made P&O an attractive takeover target.

According to a US Treasury Department press release, on October 17, 2005, Dubai Ports World (DPW) and P&O notified the Committee on Foreign Investment in the US (CFIUS), of their intention to file for a national security review of a potential acquisition of P&O by DPW. CFIUS, which, as its name suggests, reviews proposed foreign investments in the US, "brings together twelve department and agencies with diverse expertise to ensure that transactions are considered from a variety of perspectives and that all national security issues are identified and considered in the review of a foreign acquisition. The Secretary of the Treasury serves as the Chair of CFIUS."

DPW, owned by the emirate of Dubai, was formed in September 2005 by merging Dubai Ports Authority and Dubai Ports International. In 2004 Dubai Ports International had purchased the international terminal business of CSX for $1.142 billion in cash (before working capital and long-term debt adjustments). CSX's chairman until 2002 was John Snow, who left that position to become Treasury Secretary in the Bush administration. DPW's current general counsel, George Dalton, came to DPW through the CSX acquisition. At the time of DPW's purchase of the CSX terminal business, DPW's head of operations for Europe and Latin America was David Sanborn, who has been nominated to become the Department of Transportation's Maritime Administrator. During Snow's tenure as CEO of CSX, Sanborn was director of operations at CSX subsidiary Sea-Land. Earlier Sanborn served as head of Sea-Land's Middle East operations, based in Dubai.

The first public report of DPW's proposed acquisition came from the Sunday Times News Service (London) on October 30, which listed the bid as £3 billion ($5.2 billion).

CFIUS approved the DPW deal on January 17, but the action was not made public, which the Treasury Department asserts is consistent with section 721 of the Omnibus Trade and Competitiveness Act of 1988, also known as the Exon-Florio provision. The provision states that information provided by companies regarding a transaction with national security implications remains confidential "except in the case of an administrative or judicial action or proceeding."

The constraints on public disclosure specifically do not apply to Congress: "Nothing in section 721 shall be construed to prevent disclosure to either House of Congress or to any duly authorized committee or subcommittee of the Congress." As Anne Kornblut wrote in the the New York Times, however, "No one, it appears, mapped a strategy to break the news to Congress that the country where two Sept. 11 attackers were born would be running ports here, an obvious thicket, even if it posed no real security risk."

On January 25, 2006 Singapore's PSA International Pte. Ltd. formalized a competing bid for P&O. Similarly to DPW, PSA is wholly owned by an investment arm of the Singapore government, Temasek Holdings Pte. Ltd. After a brief bidding war, PSA withdrew its offer on February 11, P&O's board recommended the DPW bid to its shareholders, and the shareholders approved it on February 14. The final sales prices was $6.8 billion.

The day before the P&O shareholder vote, Senator Chuck Schumer of New York criticized CFIUS for approving the DPW deal "without a public report or evaluation," and "questioned whether the panel only considered the economics of the new arrangement instead of security." He called for the Homeland Security Department "to review the new arrangement and carefully and openly scrutinize all security issues before control is turned over."

Thus began what the New York Times "a paradigm of failed crisis prevention," creating bizarre political alliances, exposing a rift in the Republican party, and threatening to deprive Republicans of the issues most near and dear to Karl Rove: national security and the scary so-called "war on terror."

At the winter meeting of the Republican National Committee in January, Rove had grandly proclaimed:

At the core, we are dealing with two parties that have fundamentally different views on national security. Republicans have a post-9/11 worldview and many Democrats have a pre-9/11 worldview. That doesn't make them unpatriotic -- not at all. But it does make them wrong -- deeply and profoundly and consistently wrong.

He could not have imagined how his rhetoric would be turned against him -- and by members of his own party.

The day after Schumer's February 14 press conference, DPW advisors at the lobbying firm The Albright Group tried to arrange a meeting with the senator. Carol M. Browner and Thomas J. Downey have Democratic pedigrees -- Ms. Browner served as EPA administrator during the Clinton administration, and Mr. Downey is a former Democratic congressman. Schumer refused to meet with them in person, and continued to make public statements critical of the deal. Meanwhile, members of Congress, most of whom were at home in their districts, began to hear concerns from constituents.

Congressman Peter King, Republican of New York and chair of the House Homeland Security Committee, joined Senator Schumer in criticizing the DPW deal. King told reporters that members of the intelligence community had expressed concerns about how DPW operates the port of Dubai, saying "In the post-9/11 world, there should have been a presumption against this company." King added that he would consider holding a committee hearing on the matter, if the administration would not reconsider the deal. "This can't be treated in a pre-9/11 way," Mr. King said. "There was a tone-deafness here that indicates they didn't show the level of concern that it warranted."

On February 16, with Republicans Senator Tom Coburn of Oklahoma, Reps. Chris Shays of Connecticut, Vito Fossella of New York, Mark Foley of Florida, and Democrats Senator Frank Lautenberg of New Jersey, and Chris Dodd of Connecticut, Schumer sent a letter to Treasury Secretary Snow urging a new investigation. Anthony R. Coscia, chairman of the Port Authority of New York and New Jersey also wrote Snow requesting information about the security review. Coscia told reporters that he wrote the letter after previous attempts to obtain the information had failed. "Clearly, we would expect that information relative to a facility that we operate would be shared with us," Coscia told the NY Times. "It is not our role to review and approve this transfer," he said, but "given the fact that this is our port and these are employees for whom we feel responsibility, there are issues we would like to become comfortable with."

Two Republican governors, New York's George Pataki and Maryland's Robert Ehrlich, suggested on February 20, that they might try to cancel P&O's leases at ports in their states ahead of the DPW takeover. Ehrlich told reporters that he was "very troubled" that Maryland had received no advance notice of the deal. "We needed to know before this was a done deal, given the state of where we are concerning security," he said.

Not to be left out, the next day Senate Majority Leader Bill Frist called on the administration to delay its final approval of the deal until "a more extensive review" could be conducted. Frist threatened to introduce legislation to do so, if the administration "cannot delay this process." Bush responded that he would veto any legislation blocking the deal; Bush has not used the veto in his more than five years in office.

"It defies the imagination to allow a company controlled by a country that has had a nexus with terrorism to control our five ports," Senator Schumer said in Rochester, NY on February 22. Critics noted that two of the September 11 hijackers came from the UAE, and Dubai was a transfer point for Abdul Qadeer Khan, the "father" of Pakistan’s nuclear bomb, who sold information and equipment to other countries. Evidence also shows that banks in Dubai laundered terrorist money.

On February 26 DPW offered to submit to the 45-day review that is required by the CFIUS process in cases where "it is necessary to undertake an extended review." The deal was actually finalized on March 2, but DPW pledged to allow P&O operations in the US to maintain the status quo until May 1 or the completion of the review. Frist, who helped broker the compromise with DPW, reversed his previous opposition to the deal, prompting accusations of "flip flopping" from some Democrats.

The next day Senator Susan Collins, Republican of Maine, and chair of the Homeland Security and Governmental Affairs Committee released a document uncovered by her staff in which the Coast Guard cited broad "intelligence gaps" that made it impossible to assess national security threats that the DPW deal might present. "How, given the red flag questions that the Coast Guard raised, very serious questions about operations, personnel and foreign influence, how could there not have been the 45-day investigation that's clearly required by law?" Senator Collins asked. Officials testifying before Collins's committee called the Coast Guard's concern "internal," and said that they had obtained "assurances from these two companies with respect to their security practices...."

The testimony at Senator Collins's hearings resonated with an Associated Press report from February 22 that detailed conditions negotiated during the CFIUS process approving the DPW deal. In exchange for agreeing to cooperate with future US investigations, which is what officials were apparently referring to in the Senate hearings, the US waived other routine restrictions. In particular, the US waived the requirement that copies of the firms business records be kept on US soil so that they would be subject to court orders. The government also did not require DPW to designate a US citizen to respond to requests. "Outside legal experts said such obligations are routinely attached to U.S. approvals of foreign sales in other industries," the AP report stated.

Public debate found conservative voices criticizing Bush administration approval of the deal, sometimes in quite harsh terms, while some liberal voices criticized opponents of the deal for Arab-bashing.

Speaking to Wolf Blitzer on CNN's Situation Room, former President Jimmy Carter minimized security concerns:

My presumption is, and my belief is, that the president and his secretary of state and the Defense Department and others have adequately cleared the Dubai government organization to manage these ports. I don't think there's any particular threat to our security.
 
Obviously, the Homeland Security would have to be involved directly with, and in a partnership with, the Dubai people as they clear folks to work in their ports, particularly in sensitive areas. So the overall threat to the United States and security, I don't think it exists.

NY Times columnist Nicholas Kristof declared, "[T]his fuss about ports is really about Arabs." Dubai, Kristof suggested, is "the Disneyland of the Arab world." He described its vision of the Arab future as pro-business, staunchly pro-American, and "absolutely the opposite of Osama bin Laden's." DPW, Kristof wrote, "is run mostly by Western executives, under an American chief operating officer. Nothing is going to change on the ground in Newark." Critics of the deal, Kristof claimed, are "engaging in quasi-racist scaremongering."

By contrast, former Reagan Defense Department administration official Frank Gaffney, writing on the web site Military.com, framed the question this way:

How would you feel if, in the aftermath of 9/11, the U.S. government had decided to contract out airport security to the United Arab Emirates (UAE), the country where most of the operational planning and financing of the attacks occurred

Gaffney, who seems to belong to the group of conservatives that believes that all departments of the federal government other than defense are superfluous, was primarily concerned with the CFIUS process itself. Because it is chaired by the Treasury department, Gaffney argued, the process is biased toward encouraging foreign investment, and so tends to approve deals even when they are "opposed by other, more national security-minded departments."

Gaffney went on to highlight several aspects of the DPW deal that might raise national security concerns:

• Ports are among our most vulnerable targets, and "port managers who might conspire to bring in dangerous containers, or simply look the other way when they arrive" can only exacerbate the situation.
• It is reckless to entrust port security plans to a country "known to have been penetrated by terrorists."
• The DPW deal would provide "legitimate grounds" for young male Arab nationals (who he characterizes as "potential terrorists") to be "in and around some of this country's most important strategic assets."
• A large portion of US oil imports come through the ports that DPW would manage.

Gaffney suggested that the CFIUS decision might have been influenced by David Sanborn's appointment as Maritime Administrator, or by the administration's determination "to portray ... the United Arab Emirates as a vital ally in this war for the Free World." The latter, Gaffney warned, mirrors US policy toward Saudi Arabia, who he described as repressing terrorism at home while abetting it abroad.

Observers have described three core constituencies within the Republican party: social conservatives, economic and pro-business conservatives, and national security conservatives. The uproar over the DPW deal has exposed a rift between the pro-business and national security factions. Appearing on MSNBC's Countdown with Keith Olbermann, author and commentator David Sirota discussed the conflict between business and national security objectives.

SIROTA: ... The fact is, this is not a scandal about one deal with one company. This is what's motivating this, what's especially motivating the president in his threat to issue a veto, is the fact that he knows that if Congress is allowed to override this, a precedent is set.
 
And the precedent would be that trade, America's trade policy, which, for the last two decades, has been entirely corporate-owned free trade, but if this deal is allowed to be blocked, it would set a precedent that security concerns are now going to be put into our trade policy. And that is something that his big corporate donors do not want.
 
OLBERMANN: So the threat is not to ports, the number one threat to this nation, it's not to security, it's to unfettered international business?
 
SIROTA: That's exactly right. And that's really honestly the only thing that can explain why a president of the United States would threaten a veto, his first veto of his entire term, to go to bat for one company in the United Arab Emirates, a country that has connections to terrorists?
 
There's got to be—there is a much, much bigger thing at play here, and that is, over the last two decades, we've seen these trade deals. I mean, during NAFTA, we saw labor and environmental standards thrown out the window. During China, the China PNTR deal, we saw human rights standards thrown out the window.
 
And now what we are seeing here is essentially security concerns being thrown out the window, basically to have government policy allow corporations to pursue the profit motive no matter what they want.

Olbermann commented that the administration's policy of protecting big corporations had subjected it to criticism previously -- in connection with the mismanaged Halliburton contracts in Iraq, and tangentially from the collapse of Enron. Sirota responded that there was actually "bipartisan complicity not to talk about how America's trade policy not only sells out American workers, but clearly puts our security at risk."

"[M]aybe this port deal is not really that big a threat to US security,but then neither was Saddam Hussein,"" Robert Scheer wrote recently on The Nation's web site. "That didn't stop Bush from ripping up Iraq and turning it into a showcase for religious fratricide," To many Americans the administration now is seen to be sending mixed messages. On the one hand, as Scheer observed, the administration has preached that in a "war on terror" we should trust the government -- the Transport Security Administration, Michael Chertoff, and others in Bush's administration who he tells us to trust. Now the same administration has said, in effect, it's ok for "some Arab guy" to be in charge of our ports.

As was noted in the February 24th Economist Global Agenda, Dubai will operate the ports, but it will not own them, and the US will remain fully responsible for security. Moreover, the UAE participates in the US Container Security Initiative, which allows US customs officials to inspect shipments bound for the US while they are still in foreign ports.

Stephen Flynn, a retired Coast Guard commander who advised the Hart-Rudman Commission on National Security and is now a fellow at the Council on Foreign Relations, testified before the House Armed Services Committee that the DPW purchase of P&O "will not qualitatively effect the overall state of global and American maritime transportation security. But Flynn expressed the hope that widespread awareness and concern about the transaction would help focus concern on "far more serious supply chain, maritime, and port security issues" that the Bush administration has not addressed.

Flynn then outlined a scenario in which a shipment of designer sneakers from Indonesia is driven by a local driver sympathetic to al Qaeda who allows a portion of the cargo to be replaced with a radioactive "dirty bomb" enclosed in lead shielding. The container is transferred to an Inter-Asia ship that sails to Hong Kong where it is loaded onto a super-container ship bound for Vancouver, BC, Canada. Because the designer label company participates in the Customs-Trade Partnership Against Terror, the container is not inspected in Vancouver, and is loaded on a Canadian Pacific railcar headed for Chicago. The lead shielding prevents the bomb from being detected at the US-Canadian border, and a trigger on the door sets it off when it has reached a distribution center near Chicago.

Flynn identified four consequences of such an event:

• Local deaths and injury from the conventional explosives in the bomb.
• Environmental damage from the dispersion of industrial-grade radioactive material.
• The entire supply chain would be presumed to be a risk, because there would be no way to determine where security was compromised.
• All container and port security initiatives would be compromised by the incident

In the aftermath, government officials at all levels, and the public at large would lose faith in "entire risk-management regime" established since 9/11. The public would demand inspection of 100% of container traffic, where currently 5% is inspected, "effectively shutting down the flow of commerce at and within our borders." The large scale result, Flynn suggested, would be "global recession -- or worse."

Flynn went on to argue for "a comprehensive global container inspection system that scans the contents of every single container destined for America’s waterfront before it leaves a loading port—rather than scanning just the tiny percentage we do now, after they have already arrived within a seaport." Flynn noted that a pilot project for such a system is underway in the Port of Hong Kong, and suggested that the DPW deal could be used as an occasion to adopt a similar system globally.

Ordinary voters, the Economist suggested, have a hard time accepting such arguments, as the deal activates fears both of terrorism and foreign control of the US economy. Some observers have drawn a comparison to last year's CFIUS approval of the purchase of Unocal by the China National Offshore Oil Company during a period of high oil prices. Political concerns about yielding control of US assets to foreign interest led Unocal management and shareholders to accept a lower bid from Chevron.

The public, as measured by a recent Rasmussen poll, opposes the administration's decision on the ports deal by a margin of 64% to 17%. For the first time ever in a Rasmussen poll, voters preferred Democrats to Bush on the topic of national security. Scott Rasmussen put this in perspective in a March 3 commentary by reminding readers that support for Bush on national security was so strong in 2002 that Republicans regained control of the Senate even though only 23% of the public rated the economy good or excellent. In 2004 the percentage of the electorate that voted for Bush was identical to the percentage that thought the US and its allies were winning the so-called "war on terror" (51%).

The ports story, Rasmussen observed, is more important politically than the issue itself, because "It gives people an opportunity to re-evaluate the President on a whole range of issues relating to national security." Rasmussen found that less than 40% of the public now believes the US is winning the so-called "war on terror," and that "[b]y a 2-to-1 margin, Americans think things in Iraq are likely to get worse in the next six months." This, he noted, is the "bleakest assessment" since Iraqis first voted.

Rasmussen asserted that "Republicans cannot retain control of Congress following November's election if the Democrats are competitive on national security issues." Moreover, he suggested, if the Dubai ports story helps Democrats win key Senate seats in 2006, the impact will last "far beyond this campaign season." "Any Red State Senate seats that the Democrats can pick up in Election 2006 place a lasting dent in the structural majority," Rasmussen wrote.

Larry Sabato of the University of Virginia summarized Rasmussen's findings:

Since 9/11, Bush's consistent political advantage has been the public's confidence in him to handle the terrorist threat. The Iraq War has weakened Bush's edge, and now the Dubai ports misstep may destroy it. This has become a troubled and tone-deaf Presidency.