COLLAPSE OF PORTS DEAL A MAJOR BUSH SETBACK

Analysis by Jim Lobe

(IPS) WASHINGTON -- The Mass Casualties in Collapse Of Ports Deal A Major Bush Setback Analysis by Jim Lobe

, Mar 10 (IPS) -- Thursday's effective collapse of the deal to sell operations in six major U.S. ports to a Dubai-owned company following a strident three-week Congressional campaign against it threatens so many different important interests that it is difficult to make a full accounting.

Pres. George W. Bush's fast-waning political authority is far and away the biggest immediate casualty in what the "Wall Street Journal" Friday called "a debacle of the first order."

But the U.S. "war on terror" may also have suffered a major blow from what is widely perceived as a gratuitous slap in the face given to the United Arab Emirates (UAE), a staunch ally and generous host to scores of U.S. warplanes and warships -- within a stone's throw of Iran -- as well as a major oil and gas exporter, and chronic consumer of billions of dollars of advanced U.S.-made weaponry and commercial aircraft.

Bush suggested as much Friday. "In order to win the war the war on terror, we have got to strengthen our friendships and relationships with moderate Arab countries in the Middle East," he said, noting that "Dubai services more of our military ships than any country in the world" and that the UAE, of which Dubai is a part, "is a valued and strategic partner."

But those are hardly the only potential casualties of the ports affair. The U.S. Treasury and corporations that are increasingly dependent on investment from overseas, particularly from cash-flush Arab oil exporters, are anxiously awaiting the aftershocks, as well.

Indeed, some analysts suggest that the deal's collapse will contribute mightily to a growing popular revolt both here and abroad against economic globalization and may even tip the balance in favor of economic nationalists against internationalists and "free traders," who find themselves increasingly on the defensive in many Western countries.

"This might be one of those turning points in economic and political affairs," wrote Irwin Stelzer, director of economic policy studies at the Hudson Institute here, in the neo-conservative Weekly Standard earlier this week.

"In economics, we might be seeing the end of the era of free trade. In politics, we might be witnessing the reemergence of nationalism and its close cousin, protectionism," he added, noting recent efforts by European governments to fend off takeovers of local companies by foreign interests.

Bush's political standing, already at its lowest ebb, according to the latest public opinion polls, has now taken yet another major blow, following last fall's fiascos over Hurricane Katrina, the aborted nomination of his long-time personal attorney to the Supreme Court, and the continuing flow of bad news from Iraq.

His domestic problems were underlined by the overwhelming 62-2 vote Wednesday in the Republican-dominated House Appropriations Committee to block Dubai Ports World from taking over management of port terminals.

Democrats, who have turned increasingly skeptical of the "free-trade" consensus that has long guided Washington's international economic policy, were more than eager to attack the administration's approval of the deal on national security grounds. But the speed with which the vast majority of Republican lawmakers deserted the president -- especially after he pledged to veto any effort to thwart the deal (reminiscent of his "bring-it-on" swagger in Iraq) -- confirmed that the White House's once-matchless ability to enforce party discipline is no more.

Bush's swift surrender after the House vote -- apparently designed to cut his losses as quickly as possible -- and the fact that his chief political adviser, Karl Rove, was reportedly tasked with informing Dubai Ports World of the bad news underlined the frailty of his political authority.

That he was so badly beaten on a policy on which he had taken an unequivocal position naturally raises major problems for foreign leaders who until now have generally ignored Congress, confident that its Republican leadership would push through whatever the White House desired. In the wake of Congress' defiance this week, however, that no longer appears to be the case.

"(T)he question for the world is now whether the U.S., in fact, will be better off if this White House is forced to cede more power to Capitol Hill than any president would normally allow," asserted "The Nelson Report," a closely-followed insider newsletter, Thursday night.

While foreign leaders may have to reassess Washington's power relationships, however, national security policy-makers, particularly those leading the "war on terror," are worried that their job of maintaining strong ties with strategic allies like the UAE, as well as winning "hearts and minds" in the Islamic and Arab worlds, has just been made more difficult.

That was made clear by none other than the head of U.S. military operations in the Persian Gulf and Central Asia, Gen. John Abizaid.

"I am very dismayed by the emotional responses that some people have put on the table here in the United States that really comes down to Arab- and Muslim-bashing that was totally unnecessary," he told reporters Thursday, praising the UAE's close cooperation with the U.S. military.

That concern translates into the economic sphere, as well. Policy-makers and corporate leaders here have expressed growing concern about the broader impact of the deal's collapse on inflows of desperately needed foreign capital that keeps the U.S. economy afloat in the face of unprecedented trade and fiscal deficits.

"I suspect America will pay a steep price for Congress's rejection of this deal," wrote Washington Post columnist David Ignatius from Dubai Friday. "It sent a message that for all the U.S. rhetoric about free trade and partnerships with allies, America is basically hostile to Arab investment. And it shouldn't be surprising if Arab investors respond in kind."

Nor might that be confined to Arab investors, even if, with the sharp rise in the value of their portfolios due to high oil and gas prices, they accounted for a major portion of the 1.4 trillion dollar increase in foreign investment here last year.

That the deal's collapse came only six months after the cancellation -- once again in the face of Congressional opposition -- of a multi-billion-dollar bid by a Chinese oil company for the California-based Unocal has compounded the concerns of both U.S. businesses and the U.S. Treasury that they will find it increasingly difficult to attract the investment they need to keep interest rates low and corporate profits healthy.

"This is the... second such mugging of a foreign investor in recent months," noted the Journal, in reference to the aborted Unocal deal. "If Members of Congress want a REAL security crisis -- a financial security crisis -- they'll keep this up."

While the Journal suggested that this may be the latest resurgence of "'national security' protectionists" who last appeared in the late 1980s when they opposed the acquisition by Japanese companies of blue-ribbon U.S. assets, others, like Stelzer, suggest that more fundamental shifts may be taking place.

The New York Times Friday pointed to recent controversies in Europe over foreign takeovers which, in light of the stalled European Union integration process, may be part of a broader trend. "It may be well part of a global backlash against globalization," THE paper quoted Michael Grenfell, a London-based international lawyer, as saying.

"America could usually be relied on to champion free trade," he said. "If that changes, things could get quite chilly."