Buy Lines: Dubai ports deal may create unneeded restrictions

Dubai ports deal may create unneeded restrictions

Stan Soloway

Predictably, the debacle over the Dubai ports deal is having some disquieting ripple effects. Proponents and detractors went nose to nose around the role that was ? or should have been ? played by the Committee on Foreign Investments in the United States or other government reviews, and now we're seeing the fallout from the conflict.

Duncan Hunter, chairman of the House Armed Services Committee, has introduced a bill that would prohibit foreign-owned companies from winning contracts to operate any critical U.S. infrastructure. Several recent contract solicitations have included flat prohibitions on foreign-owned companies competing even for work that is unrelated to critical infrastructure requirements.

The restrictions that Hunter proposes would prohibit an award to a foreign company for work at any "national defense critical infrastructure," unless the company is majority owned by American citizens, a majority of the company's board of directors is U.S. citizens, and at least half of the board members are approved by the Secretary of Defense.

Under law, a foreign-owned company engaged in security work for the federal government is required to take numerous steps to ensure protection of U.S. security interests. This typically includes creating special U.S. subsidiaries that are governed by government-approved "proxy boards" and subject to special security agreements.

The proxy board chair, who must be an American citizen and approved by the government, controls, under a range of established rules, the degree and nature of all communication between the U.S. subsidiary and the foreign parent.

However, the Hunter bill also requires that every company doing work associated with critical infrastructure be majority owned by U.S. citizens, a test that would appear to eliminate all non-U.S. companies from such work, regardless of the nature of the company's governance structure.

This kind of blanket prohibition could have a devastating effect on a wide array of successful business relationships and effectively could cut the U.S. government out of the global technology market.

The proxy board structure is relatively common and has worked well. But it is not clear whether it would be satisfactory under the Hunter bill, or whether the foreign ownership preclusions we have seen in recent solicitations exempt companies covered by such proxy arrangements.

There are those, including Hunter, who have long sought strict limits on spending U.S.-appropriated dollars on contracts with foreign-owned entities.

Their antipathy predates 9/11 and has been founded principally in concerns about domestic jobs and economic security.

But the bitter nature of the port debate, combined with the Hunter legislation and what appears to be unprecedented, rogue market preclusions, highlight the need for a thorough, thoughtful review of law and policy to ensure that both are appropriate and effective in today's environment.

The lineage of security regimes is inextricably entwined with that of weapons systems and other hardware programs, and simply may not be appropriate for an increasingly global, services-dominated economy. It also is essential for rules to be clear and consistently applied governmentwide.

This is not the time for hysteria and prejudice. We need serious, nonpartisan discussions about the vital balance between valid security needs and the realities of the global marketplace. The government simply cannot afford to detach itself from those realities.

Making up the rules on a case-by-case basis is not the way to go. The question is whether the requisite dialogue is even possible in the current environment.

Stan Soloway is president of the Professional Services Council. His e-mail is soloway@pscouncil.org.

About the Author

Stan Soloway is president and chief executive officer of the Professional Services Council.

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