- SECURITY OF TERMINAL OPERATIONS AT U.S. PORTS

[Senate Hearing 109-1158]
[From the U.S. Government Publishing Office]

S. Hrg. 109-1158

SECURITY OF TERMINAL OPERATIONS
AT U.S. PORTS

=======================================================================

HEARING

before the

COMMITTEE ON COMMERCE,
SCIENCE, AND TRANSPORTATION
UNITED STATES SENATE

ONE HUNDRED NINTH CONGRESS

SECOND SESSION

__________

FEBRUARY 28, 2006

__________

Printed for the use of the Committee on Commerce, Science, and
Transportation

_____

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SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

ONE HUNDRED NINTH CONGRESS

SECOND SESSION

TED STEVENS, Alaska, Chairman
JOHN McCAIN, Arizona DANIEL K. INOUYE, Hawaii, Co-
CONRAD BURNS, Montana Chairman
TRENT LOTT, Mississippi JOHN D. ROCKEFELLER IV, West
KAY BAILEY HUTCHISON, Texas Virginia
OLYMPIA J. SNOWE, Maine JOHN F. KERRY, Massachusetts
GORDON H. SMITH, Oregon BYRON L. DORGAN, North Dakota
JOHN ENSIGN, Nevada BARBARA BOXER, California
GEORGE ALLEN, Virginia BILL NELSON, Florida
JOHN E. SUNUNU, New Hampshire MARIA CANTWELL, Washington
JIM DeMINT, South Carolina FRANK R. LAUTENBERG, New Jersey
DAVID VITTER, Louisiana E. BENJAMIN NELSON, Nebraska
MARK PRYOR, Arkansas
Lisa J. Sutherland, Republican Staff Director
Christine Drager Kurth, Republican Deputy Staff Director
Kenneth R. Nahigian, Republican Chief Counsel
Margaret L. Cummisky, Democratic Staff Director and Chief Counsel
Samuel E. Whitehorn, Democratic Deputy Staff Director and General
Counsel
Lila Harper Helms, Democratic Policy Director

C O N T E N T S

----------
Page
Hearing held on February 28, 2006................................ 1
Statement of Senator Allen....................................... 15
Statement of Senator Boxer....................................... 10
Prepared statement........................................... 11
Statement of Senator Burns....................................... 14
Prepared statement........................................... 14
Statement of Senator Cantwell.................................... 8
Statement of Senator DeMint...................................... 16
Statement of Senator Dorgan...................................... 13
Statement of Senator Ensign...................................... 14
Statement of Senator Hutchison................................... 6
Statement of Senator Kerry....................................... 2
Statement of Senator Lautenberg.................................. 7
Statement of Senator Lott........................................ 17
Statement of Senator McCain...................................... 4
Statement of Senator Bill Nelson................................. 20
Statement of Senator E. Benjamin Nelson.......................... 5
Statement of Senator Pryor....................................... 61
Statement of Senator Rockefeller................................. 9
Statement of Senator Smith....................................... 18
Statement of Senator Snowe....................................... 17
Statement of Senator Stevens..................................... 1
Statement of Senator Sununu...................................... 19
Statement of Senator Vitter...................................... 3

Witnesses

Bilkey, H. Edward, Chief Operating Officer, DP World............. 21
Prepared statement........................................... 24
Article, dated October 31, 2005 from the Wall Street Journal,
entitled ``P&O Attracts Buyout Overture Amid Shipping-
Industry Boom.............................................. 27
Article, dated November 14, 2005 from the Journal of
Commerce, entitled ``P&O Ports in Play; Unsolicited Offer
for Port Operator Could Be Followed by Other Bids''........ 28
Article, dated November 29, 2005 from the London Times,
entitled ``Dubai's DP World Seals Pounds 3.2bn Purchase of
P&O''...................................................... 29
Article, dated November 17, 2005 from the Financial Times,
entitled ``DP World Moves Closer to P&O Bid''.............. 30
Article, dated October 31, 2005 from the Financial Times,
entitled ``Dubai State Ports Operator Approaches P&O''..... 31
Jackson, Hon. Michael P., Deputy Secretary, U.S. Department of
Homeland Security; accompanied by Rear Admiral Thomas H.
Gilmour, U.S. Coast Guard, and Jayson Ahern, Assistant
Commissioner for Field Operations, Customs and Border
Protection, Department of Homeland Security.................... 58
Koch, Christopher, President/CEO, World Shipping Council......... 42
Prepared statement........................................... 44
Mitre, Michael, Director, Port Security, International Longshore
and Warehouse Union (ILWU)..................................... 52
Prepared statement........................................... 54
Scavone, Robert, Executive Vice President, Strategic Planning and
Development, P&O Ports North America, Inc...................... 34
Yoshitani, Tay, Senior Policy Advisor, National Association of
Waterfront Employers (NAWE).................................... 34
Prepared statement........................................... 36

Appendix

Inouye, Hon. Daniel K., U.S. Senator from Hawaii, prepared
statement...................................................... 87
Response to written questions submitted by Hon. Daniel K. Inouye
to:
Christopher Koch............................................. 94
Michael Mitre................................................ 95
Robert Scavone............................................... 88
Tay Yoshitani................................................ 92
Response to written questions submitted by Hon. Frank R.
Lautenberg to:
H. Edward Bilkey............................................. 87
Michael Mitre................................................ 95
Robert Scavone............................................... 90
Tay Yoshitani................................................ 93
Written questions submitted to Michael P. Jackson by:
Hon. Maria Cantwell.......................................... 97
Hon. Daniel K. Inouye........................................ 95
Hon. Frank R. Lautenberg..................................... 98
Hon. Mark Pryor.............................................. 99

SECURITY OF TERMINAL OPERATIONS
AT U.S. PORTS

----------

TUESDAY, FEBRUARY 28, 2006

U.S. Senate,
Committee on Commerce, Science, and Transportation,
Washington, DC.
The Committee met, pursuant to notice, at 2:45 p.m. in room
SD-106, Dirksen Senate Office Building, Hon. Ted Stevens,
Chairman of the Committee, presiding.

OPENING STATEMENT OF HON. TED STEVENS,
U.S. SENATOR FROM ALASKA

The Chairman. The Co-Chairman has been detained, so we'll
start the hearing at this time. And we do thank you for
responding to our request to appear here today.
Much has been reported over the past few weeks concerning
the proposed port terminal operations transaction between Dubai
Ports World, a Dubai-owned company, and P&O Ports, a British
company. Many of the reports have contained incorrect or
misleading information. Today's hearing is intended to learn
the facts directly from the companies involved and to have a
more global discussion concerning what is being done to secure
United States ports.
While I agree with many of my colleagues that we need to
scrutinize any transaction that involves foreign investment in
the United States, particularly when the transaction has even a
peripheral effect on national security, there are a few points
which need to be made here at today's hearing.
First, this transaction would be one between two foreign-
owned companies subject to Federal Government approval through
the Committee on Foreign Investment in the United States. This
is not an agreement between the Dubai company and our Federal
Government. The current terminal operator, P&O Ports, formerly
the Peninsular and Oriental Steam Navigation Company, is a
company based in the United Kingdom.
Second, neither the British nor the Dubai terminal operator
would own any U.S. ports. State and local port authorities own
our ports. These companies are terminal operators and manage
American longshoremen in the loading or unloading of cargo from
ships, subject to the Coast Guard and Customs inspection and
security procedures.
Third, terminal operators such as these companies are not
responsible for securing U.S. ports. The Coast Guard, TSA,
Customs and Border Protection, the FBI, and local law
enforcement secure our ports. Cargo arriving at U.S. ports is
assessed for risk, and screened accordingly. In many cases, the
cargo is screened at foreign ports before being loaded on a
shipping vessel.
Fourth, the document released yesterday regarding the Coast
Guard's analysis about this acquisition is somewhat misleading,
because it's only a portion of the overall analysis. After
completing its review, the Coast Guard concluded publicly that
DPW's acquisition of P&O does not pose a significant threat to
U.S. assets.
Fifth, the United Arab Emirates, within which Dubai is
located, is a strategic ally of the United States not only in
the war on terror, but also generally in that region of the
world. I've been to Dubai, and I'd remind my colleagues that
the UAE allows our U.S. military to dock 56 warships, 590
military sealift command ships, and 75 allied warships at their
ports.
Finally, a significant number of terminal operators at U.S.
ports are actually foreign-owned or -leased. In fact, in Los
Angeles, one of our largest airports, which a portion of the
Committee reviewed last year, flew over it, examined it very
carefully, Chinese, Taiwanese, and Singapore government-owned
companies operate terminals. It's interesting to note that
another Singaporean Government-owned company lost out to Dubai
ports in its bid for P&O Ports in the transaction at issue.
As Americans, we do need to look at this deal closely to
ensure that our national security remains unaffected, but we
must also recognize the benefits of a global economy and avoid
unwarranted discrimination among our allies.
Is there any Senator that wishes to make an opening
statement?
Senator Rockefeller? We should follow the early bird rule.
I'm sorry,
Senator Kerry?

STATEMENT OF HON. JOHN F. KERRY,
U.S. SENATOR FROM MASSACHUSETTS

Senator Kerry. Thank you, Mr. Chairman, for holding this
hearing.
This Dubai Ports deal, I think, has raised a lot of
questions in the minds of Americans, obviously, and
particularly in the minds of the Members of Congress. I think,
most importantly, it underscores the public's very legitimate
concern, and our legitimate concern, about the overall state of
our port security, which is something a number of us have been
talking about for a number of years. We all understand that the
bottom line is, those containers that come in are not
adequately accountable from wherever they're coming. And so,
there's an enormous issue, beyond Dubai, and there's been a
lack of willingness to invest in either the technology or the
local accountability necessary to achieve that.
But there's also a larger question, or a similarly
significant question, about the judgment and the competence and
the manner in which this was approved. This much is clear. A
secretive government committee hastily approved the transaction
without conducting the 45-day national security investigation
mandated by law. The Department of Homeland Security, a member
of the Committee on Foreign Investment in the United States,
CFIUS, initially raised security concerns, but then signed off
on the deal despite intelligence gaps cited by a newly released
Coast Guard document.
So, apart from what the Chairman says, which is legitimate,
that there are alliances and there are these cooperative
efforts, there was a process that was not followed and that
raises questions. And, amazingly, the Secretary of Homeland
Security didn't even know about the transaction until it was
reported in the press. The Secretary of the Treasury says he
wasn't involved. The President says he didn't know, yet he's
prepared to use his veto pen, for the first time in his
Presidency, over a deal he apparently didn't bother to pay
attention to until there was some backlash.
The Administration's response to criticism has been to say,
``Well, take our word for it that the deal has been vetted and
the security considerations have been addressed.'' And yet,
most recently, a Coast Guard document appears which states that
it lacked the most basic intelligence information about DP, and
that flatly contradicts that assertion and is further evidence
of a hands-off attitude taken with respect to our ports.
And, finally, this morning the Jerusalem Post reports that,
``DP Government-Controlled Parent Company Participates in the
Arab Boycott of Israel,'' which is inconsistent with everything
that we believe in America. So, that casts even more doubt on
the judgment of the Administration Officials who claim to have
thoroughly investigated DP, and it clearly calls for further
congressional review, which is taking place.
The fact is, the Administration did not conduct an
exhaustive review of this transaction. It took a pre-9/11
business-as-usual approach to approve a deal with Dubai without
adequately ensuring it wouldn't compromise national security,
in a number of different ways, which I'm confident my
colleagues will raise in the course of this hearing.
So, it's appropriate for Americans to be concerned, and
it's appropriate for us to be having these hearings.
Thank you, Mr. Chairman.
The Chairman. Senator Vitter?

STATEMENT OF HON. DAVID VITTER,
U.S. SENATOR FROM LOUISIANA

Senator Vitter. Thank you, Mr. Chairman. I want to thank
you for holding these hearings, as well, and thank all the
witnesses. This is important to me, as it is to all the members
of the Committee and, indeed, of Congress. It's particularly
important to me, because one of the ports directly involved
would be the Port of New Orleans.
Certainly since September 11, we've all come to realize we
can't be too careful when it comes to national security. This
has certainly highlighted those concerns. And that's why I
strongly support the more extensive review of the DPW
acquisition of P&O Ports, which now will, thankfully, happen.
U.S. ports and waterways handle more than 2.5 billion tons
of trade annually. U.S. also imports 3.3 billion tons of oil
and services 134 million passengers by ferry annually. It's
only getting bigger. Within the next 15 years, it's predicted
that the amount of cargo that our ports will handle will
double. At that rate, our port facilities would account for as
much as one-third of GDP.
In Louisiana, we have a lot of that activity, which we're
very happy about. Our river system connects to the largest port
system in the Nation, 5 of the 15 busiest single ports. Fifty
percent of Ag exports and imports come through Louisiana's
ports and the Mississippi River there. Thirty-six States depend
on the lower Mississippi and our port system in Louisiana for
maritime commerce. All of that is important for the economy.
All of that also underscores vulnerabilities and possibilities,
in terms of homeland security. So, that's why we need to be
particularly vigilant about this.
I've expressed real and strong concerns about this deal,
and a clear need to get more information about it. The good
news is that we're now on the road to having that deeper 45-day
review. And I want to applaud Dubai Ports World for agreeing to
this so that all of us can be involved and the CFIUS process
can take that deeper 45-day review.
As we do that, I do think we need to get to the real facts,
and understand them, and communicate them clearly. Mr.
Chairman, you underscored one of those facts that is not yet
fully understood, and that is that the sale of terminal
operations to a foreign entity would mean direct foreign
control of, or ownership of, U.S. ports or security operations.
And that's not true. As you said, our domestic ports are owned
and operated by port authorities, which are typically state or
local government units. Now, these port authorities typically
lease terminal operations to private companies, and that's
where this deal comes into play. So, it's different from owning
a port, controlling a port, but it is still a very important
role at a port that merits the more in-depth review we are now
having.
As we take a look at this specific deal, I also hope we
take a look at two broader issues. One is the CFIUS process,
and the second is port security issues, which I've been focused
on with you, Mr. Chairman and many other members, and I hope we
are very focused on the needs to reform those two areas, the
CFIUS process and port security. And I'll be having,
specifically, a budget resolution, same one I had last year,
about port security. I think it's very important, within our
budget, that we maintain a separate port security grant program
to keep a focus on port security, specifically, and to make
sure the unique nature and needs of port security are
addressed. And I'll be following up on that, particularly, in
our budget resolution debate.
Thank you very much, Mr. Chairman.
The Chairman. Senator Nelson, would you mind if we yield to
Senator McCain? He has another appointment.
Senator Ben Nelson. That would be fine.
The Chairman. Senator McCain?

STATEMENT OF HON. JOHN McCAIN,
U.S. SENATOR FROM ARIZONA

Senator McCain. I thank you, Mr. Chairman. I'll be very
brief. I thank you for holding this hearing. And I think we
should address a lot of our concerns today about the overall
issue of port security. And I appreciate our witnesses being
here on that issue.
But since the issue of the day seems to be the issue of
UAE, Mr. Chairman, let me just briefly remind my colleagues
that foreign operators will continue to manage about 80 percent
of port terminals in the United States, companies from the
United Kingdom, Denmark, Hong Kong, Japan, South Korea,
Singapore, China, and Taiwan, just as U.S. companies will
continue to manage terminals in foreign countries.
And, Mr. Chairman, I just want to briefly point out, since
9/11, the UAE had provided U.S. and coalition forces
unprecedented access to its ports and security, and overflight
clearances. The UAE has played host to over 700 U.S. Navy ships
at its ports, including the Port of Jebel Ali, which is managed
by DP World and the United States Air Force at al Dhafra Air
Base. They host the UAE Air Warfare Center, Fighter Training
Center in the Middle East, and has worked with us to stop
terrorist financing and money-laundering.
Mr. Chairman, after 9/11, the President of the United
States asked Middle Eastern countries to be with us or against
us. The UAE has been with us. And I would refer my colleagues
to General Tommy Franks, General Abizaid, General Powell, and
the Chairman of the Joint Chiefs of Staff as to how this
country has cooperated with us on the war on terror. And that
doesn't mean we shouldn't have the review, the 45 days and all
that, but I think it's important to have it be part of the
record that we are dealing with a friend and an ally on this
issue.
And I thank you, Mr. Chairman, for your courtesy.
The Chairman. Thank you.
And thank you for your courtesy, Senator Nelson.

STATEMENT OF HON. E. BENJAMIN NELSON,
U.S. SENATOR FROM NEBRASKA

Senator Ben Nelson. Thank you, Mr. Chairman.
I appreciate your holding this hearing today. I suppose it
might surprise people that when I was back in Nebraska, which
is not known for its port, except for Port Omaha and the
Nebraska Navy, that that was one of the first questions I got
asked almost everywhere I went, is, What's going on with this
port outsourcing?
As we all recognize, it's not simply the acquisition of P&O
by DP World, it's the perception, real or not, that this deal,
in some way, might jeopardize national security. There's
already a series of incidents that have raised questions and
caused jitters about national security. So, anything that
raises questions needs to be addressed. And that's why I think
it's important to be sure that this acquisition is understood
and examined.
There are two questions. Of course, the one that we're
talking about today is about DP World and what we can do to
satisfy ourselves that this is not going to in any way
compromise our security at the ports. The second one, I think,
probably catches most people by surprise, and that was that we
are outsourcing the ports in any event. When I've driven by or
ridden by the building that says New York Port Authority, I
thought that was the New York Port Authority, probably run by
the City of New York. But I find now that that may not be the
case.
So, most Americans have questions about this situation. I
believe taking 45 days to review it, it's appropriate. It's
also an opportunity to hold hearings and determine questions
about the broader issue regarding port and cargo security. Many
people were very, very surprised, although I've not been
surprised, because I've known the number, that only maybe 5
percent of the cargos are actually checked for security
purposes. Maybe there is a point where beyond you can't go, but
I think 5 percent seems to be a pretty small percentage for
something that is so sensitive with materials coming in. I
think the instincts of the Nebraskans I talked to last week
were right, it's an issue we all need to be paying attention to
and we need to know more about.
I think they're also of the opinion that we ought not to
overreact, but, if we fail to take careful review of this, then
we'd be very guilty of underacting in a very obvious way.
And so, I appreciate this opportunity, look forward to the
testimony of the witnesses, and as we work toward assuring the
American people that what has been done here will not be a
national security matter.
Thank you.
The Chairman. Yes, sir.
Senator Pryor? Gone.
Senator Hutchison?

STATEMENT OF HON. KAY BAILEY HUTCHISON,
U.S. SENATOR FROM TEXAS

Senator Hutchison. Thank you, Mr. Chairman.
Mr. Chairman, I also have a major port in my state, and it
is a port that has the second-largest chemical complex in the
world adjacent to it. So, port security has been a priority of
mine. And I was very pleased when we passed the Maritime
Transportation Security Act, in 2002. But this was just a first
step.
Since that time, this committee has passed a bill that has
port security, as well as rail, aviation, and pipeline
security. I think it is essential for us to bring that bill
forward if we possibly can. And I realize that there may be
other parts of the bill that still need work. But I think port
security, in general, has not kept up to the pace that many of
us think is the right pace.
The bill that I introduced, and which is incorporated in
Senate bill 1052, does address some of the gaps. It directs the
Department of Homeland Security to require all foreign
countries shipping goods into the United States to grant access
to additional U.S. inspectors so that containers heading to our
shores are able to be inspected at their port of origin.
Now, we have a few that are doing this today, but not
nearly enough. We need to have better coverage, and we also
need to have the technology that allows us to put seals on and
know that, when something leaves, it hasn't been tampered with
when it arrives.
I want to say that I think the UAE has been among the very,
very best cooperators in port security. I don't think this is a
UAE issue, although I certainly understand the comments that
are being made about the process. And I think we need to
address the process. I think that is the role of the U.S.
Senate.
But I think, regardless of that particular situation, we
need to have a port security plan for our country that
requires, at a minimum, that we have more inspectors and that
every inspector is allowed to inspect at the point of origin
and throughout the process and when it arrives into our
country. As many of us know, there are many foreign companies--
countries that own the foreign terminal, the ship itself, and
the terminal in the United States. So, that means there is a
foreign country or a foreign company that is going to control
this cargo from the beginning to the end.
So, we must be aware of that, not close our shores, but
make sure that we are in charge of the port security, that we
have the facilities to do it, not just that we have the
ability, but that we have the capability with enough people
designated in the foreign country to look at any piece of cargo
that we choose to look at. And we need to have a plan that
tracks from the embarkation all the way through to destination
in the United States. And that's what is in Senate bill 1052.
It is in my Senate bill that is separate.
And, Mr. Chairman, I would just ask you to work through
this, as the Committee of jurisdiction, to assure that we pass
either the full Senate bill with all of the modes of
transportation included, or my bill, that is the separate bill
for port security, that will assure us that, regardless of who
the foreign owner is, or the foreign country, that we will be
protecting ourselves with our own resources.
Thank you, Mr. Chairman.
The Chairman. Thank you, Senator.
Senator Lautenberg, my apologies. I did not see you there.
You, obviously, are invisible, right? Thank you.

STATEMENT OF HON. FRANK R. LAUTENBERG,
U.S. SENATOR FROM NEW JERSEY

Senator Lautenberg. Yes, I didn't mean to be obscure.
That's not good for our business.
[Laughter.]
Senator Lautenberg. Mr. Chairman, I've been concerned about
port security for a long time. And while it has been suggested
that Dubai is a country that has some friendly moments with us,
there is also contact that the United Arab Emirates has with
some countries that are very worrisome. And we're reminded by
the FBI that the Port of Newark (and I say to my colleague from
Nebraska: it's Port of New York and New Jersey) like all of our
ports, is vital to our economy, but still vulnerable to
terrorist attack. The FBI has said that a 2-mile stretch of
land that goes from Newark Airport down to the Newark Harbor is
the most dangerous place in the country for a terrorist attack,
that millions could be killed because of the presence of
chemical companies that transport, manufacture, and store
chemical materials. And an attack would be a disaster in that
highly and densely populated area.
What I'm worried about is that the Dubai Ports deal would
put sensitive information about our port operations in the
hands of a foreign government with a dubious record on
terrorism. Most disturbing is the fact that the Bush
Administration didn't even bother to thoroughly investigate
this deal. Treasury Secretary Snow was in charge of this
process, but he wasn't even aware of the sale. Secretary of
Defense Rumsfeld also claimed ignorance of the event. Given the
Administration's inaction in this matter, I just don't trust
them to look out for the security of New Jerseyans. And that's
why I've supported efforts in Congress to slow down or stop
this deal so we in Congress can review it.
We all know that Dubai Ports World themselves were the ones
to request the 45-day investigation of this sale to try to calm
the waters.
But let's be clear about what's actually happening here.
The deal is still going through, as scheduled. Dubai Ports
World will take over the P&O company in 2 days, this Thursday.
Investigating this deal after it becomes final may be too
little too late.
Since the Administration has dropped the ball, we need to
empower our local ports to protect themselves. And that's why
I've introduced a bill that will allow the U.S. port management
to terminate or condition any lease when it's transferred to a
new, foreign owner or operator. Passing my bill is a step that
Congress can take to shore up port security by adding another
checkpoint so that we don't permit any lapses to take place.
Mr. Chairman, if there is a silver lining to the outrageous
Dubai Ports World deal, it's an increased awareness of the
issue of port security. And I hope that the Senate will
consider my bill, as well as Senate bill 1052, and begin the
process of making our ports and our communities more secure.
Thank you, Mr. Chairman.
The Chairman. Thank you very much.
I've asked the staff to have reproduced and delivered to
every Senator and to the press the list of international
activity in U.S. ports prepared by the staff.
Senator Cantwell?

STATEMENT OF HON. MARIA CANTWELL,
U.S. SENATOR FROM WASHINGTON

Senator Cantwell. Thank you, Mr. Chairman. And thank you
and Senator Inouye for holding this important hearing, because
I know we all care about the security of our Nation and making
sure that U.S. ports are secure.
And these elements that everyone is talking about, I think,
give us a chance today to talk and reflect about where we've
been. Certainly, Senator Hutchison's comments about the
Maritime Security Transportation Act, and how much money
originally was authorized, and the Coast Guard's recommendation
that, to implement the Maritime Security Act, that it would
take about $7 billion over a 10 year period of time that would
be needed. And yet, I don't think that we have come anywhere
close to appropriating those kinds of funds. And certainly we
should take a look at that.
For the West Coast, and particularly for us in Washington
State, every day 50,000 containers enter the Port of Seattle
and Tacoma, and nearly 6 million containers enter our Nation's
ports each year. These Washington ports generate over 700
million annually for the Washington economy, and more than
100,00 workers in the Puget Sound, including longshoremen,
freight forwarders, are dependent upon these trade jobs. Now,
that's nothing to say the other ports in our state, Vancouver,
Everett, Grays Harbor, Bellingham, and Anacortes, and some of
the others that I'll forget and will be reminded later. So,
Washington's economy definitely depends on the movement of
cargo, container, and traffic.
And this weekend I had a chance to meet with both officials
from the Port of Seattle and Port of Tacoma to discuss exactly
how our operations are working there, and to review a pilot
program that had been part of the Secure Container Program on
electronic seals, and was very impressed with the progress that
the Port of Seattle and Tacoma have made with the Thailand port
on security measures that, as Senator Hutchison said, do
definitely start at the point of origin.
Like my colleagues, I am very concerned about how we take
this issue and have a larger debate about security issues.
Besides looking at where we need to go on infrastructure
funding, to look at the TWIC program, which is about employee
background checks, and where we are in having that implemented
on a worldwide basis. Besides electronic seals, the deployment
of radiation and scanner technology and the security background
checks of facility security officers, who are those individuals
that own the manifest responsibilities for any port activity--
my understanding is, we don't have as deep of background checks
on them--and, obviously, a review of these larger ownership
issues.
Mr. Chairman, on February 22, Senator Snowe and I, as the
Chair and Ranking Member of the Subcommittee for Fisheries and
Coast Guard, sent a letter to the Coast Guard asking them for a
briefing on their analysis of this Dubai deal, in the sense we
knew that it was part of their responsibility.
The Chairman. What did that have to do with fisheries?
Senator Cantwell. The Coast Guard, sir. The Fisheries and
Coast Guard Subcommittee, which Senator Snowe and I are--
Senator Snowe is the Chair, and I'm the Ranking Member on,
asked for a briefing. And, I know, since then there has been
quite a bit of discussion in the last 24 hours about that
information. And we have access to some of it. So, I hope that
today at the hearing we will get more, and if, perhaps, Mr.
Chairman, that isn't sufficient, that the Committee will
consider a classified briefing to get access to that
information.
I thank the Chairman.
The Chairman. Senator Rockefeller?

STATEMENT OF HON. JOHN D. ROCKEFELLER IV,
U.S. SENATOR FROM WEST VIRGINIA

Senator Rockefeller. Thank you, Mr. Chairman.
To me, this is an issue about government accountability,
government process, congressional oversight of what might be
deemed by some in the Administration not to be that important.
It's also an issue of security and all the aspects that lead to
it, as well as ownership, or maybe more than ownership. There's
a list here of the top 25 ports in the country, and only two of
them are involved, as far as I can see, with U.S. ownership; in
one case, a minority.
I am profoundly worried about the fact, as Senator
Hutchison implied, not only in port security, where you're
dealing with containers with 5 percent checking, but also in
air cargo security, where you are, lo and behold, also involved
with about 5 percent checking. In other words, no matter who
we're dealing with, if we're all doing it ourselves or if we're
doing it with somebody else, we're only doing a very small part
of the job. And our responsibility is to get the intelligence
that leads up to how this decision was made and why it wasn't
taken to a higher level earlier, but, most importantly, that we
do something about the problem, that the 5 percent is a--is the
biggest security risk of all. If they were just being done by
the most perfect company you could think about, 5 percent is
not secure. Ninety-five percent unchecked, 5 percent checked,
that is ridiculous. That is embarrassing. Homeland security,
from the vantage point of West Virginia, which is without any
ports or large lakes that I can think of, is the home of many,
many, many chemical companies. And they back up to the Ohio
River and the Kanawha River. And I think there are only three
or four Coast Guard boats that patrol all the way up from
Pittsburgh all the way down to Louisville. I may be wrong on
that, but that's an embarrassment. We are not taking our own
homeland security seriously. An issue like this comes along,
people jump on it. They may be right to do so. It would be best
to jump on it when one best knows what the facts are. But, we
have a custom that we like to jump on things, sometimes because
we're not doing the job ourselves. I would suggest this is one
of those cases. The Dubai ownership has to be looked at
closely. But, to me, the most scary issue of all is the 95
percent, which is available to anybody to misuse and to damage
us.
Thank you, Mr. Chairman.
The Chairman. Senator Boxer?

STATEMENT OF HON. BARBARA BOXER,
U.S. SENATOR FROM CALIFORNIA

Senator Boxer. Mr. Chairman, thank you.
Our ports are a soft target. Al Qaeda told us that when we
found that out through the documents. And now, Dubai Ports
World has been approved by this Administration to take over
operations, not at just 6 ports, but 20 U.S. ports. And those
ports are in Maine, Massachusetts, Rhode Island, New York, New
Jersey, Pennsylvania, Delaware, Maryland, Norfolk, Virginia,
Florida, Mississippi, 3 in Louisiana, and 6 in Texas.
Mr. Chairman, we need to correct the record about the role
of terminal operators in port security. Those who say these
companies have nothing to do with security are wrong. The
Department of Homeland Security hands out security grants to
terminal operators because they are involved in security.
Here's how the Washington Post describes the terminal
operator's responsibilities, ``In the process, they must
maintain security at their facility. These port operators are
intricately involved with security and''--here's an important
point--``even have access to the port's entire security plan.''
Experts tell me that the Committee on Foreign Investment in
the United States should have conducted an automatic 45-day
review of the acquisition by DP World, because it's owned by a
foreign government. But we all know that didn't happen until
there was a public outcry.
There are many troubling aspects, to me, of this swift
approval by the Administration. I speak for myself here.
First, the Committee that approved this is headed by
Treasury Secretary John Snow. Secretary Snow's former employer,
CSX, sold CSX World Terminals, which is its international port
operations, to Dubai Ports World. This, in and of itself,
raises serious ethical questions regarding Secretary Snow's
participation in this decision, since he still has a financial
connection to CSX.
Second, the President's nominee to head the Maritime
Administration, whose job it is to, ``meet the economic and
security needs of the Nation,'' comes straight from Dubai
Ports. That was his former employer.
Third, the President's family has very strong financial
ties to the UAE.
Next we have the question of UAE's ties to 9/11. Two of the
hijackers were from there. Money that supported the operation
was funneled through there. Terrorism experts today say,
``There is still an al Qaeda presence at the UAE.''
And perhaps most troubling to me is that nuclear weapon
components were shipped through the Dubai Port to Iran, North
Korea, and Libya. That port was run by Dubai.
Now, I have to say, that, in itself, is a disqualifier. But
what makes this deal even more fraught with danger is our
dismal record in securing our ports. And I know my time is
running out, so I would ask unanimous consent that the rest of
my statement be placed in the record.
[The prepared statement of Senator Boxer follows:]

Prepared Statement of Hon. Barbara Boxer, U.S. Senator from California
Mr. Chairman, thank you for holding this hearing today.
This issue involving Dubai Ports World is the latest example in a
string of policy decisions by the Bush Administration that have failed
to protect our ports in this post-9/11 world.
Our ports are a soft target. We've known this since September 12,
2001, when we examined our vulnerabilities. Al Qaeda told us as much in
the documents we have seized from them.
Now, Dubai Ports World has been approved by this Administration to
take over some operations not just at 6 ports but at 20 U.S. ports.
These ports are:

Portland, ME
Boston, MA
Davisville, RI
New York/New Jersey
Philadelphia, PA
Camden, NJ
Wilmington, DE
Baltimore, MD
Norfolk, VA
Miami, FL
Gulfport, MS
New Orleans, LA
Baton Rouge, LA
Lake Charles, LA
Beaumont, TX
Port Arthur, TX
Galveston, TX
Houston, TX
Freeport, TX
Corpus Christi, TX

Mr. Chairman, we need to correct the record about the role of
terminal operators in port security. Those who say these companies have
nothing to do with security are wrong.
The Department of Homeland Security hands out security grants to
terminal operators.
And here is how the Washington Post describes their
responsibilities: ``Terminal operators typically lease facilities from
a local port authority . . . where their main task is to move the
thousands of containers . . . In the process, they must maintain
security at the facility . . . ''
Let's not deceive the American people. These port operators are
intricately involved with security.
Experts on the Exon-Florio law tell me that the Committee on
Foreign Investment in the United States should have conducted an
automatic 45-day review of the acquisition by Dubai Ports World because
it is owned by a foreign government. But, we all know this 45-day
review did not happen until public opinion forced it.
There are many troubling aspects of this swift approval by the
Administration.
First, the Committee on Foreign Investment in the United States is
headed by Treasury Secretary John Snow. Secretary Snow's former
employer, CSX, sold CSX World Terminals--which is its international
port operations--to Dubai Ports World.
This in and of itself raises serious ethical questions regarding
Secretary Snow's participation in this decision.
Second, the President's nominee to head the Maritime
Administration, whose job it is to ``strengthen the U.S. maritime
transportation system--including infrastructure, industry and labor--to
meet the economic and security needs of the Nation,'' comes straight
from Dubai Ports World as the Director of Operations for Europe and
Latin America.
Third, the President's family has very strong financial connections
to the UAE, which include investments in The Carlyle Group and the
financing of the President's brother's business.
Next we have the question of UAE's ties to 9/11. Two of the
hijackers were from the UAE. Money that supported the operation was
funneled through Dubai and even now terrorism experts tell me there is
still an al Qaeda presence in UAE.
Perhaps most troubling to me is that nuclear weapon components were
shipped through the Dubai port to Iran, North Korea, and Libya. That
port was run by Dubai.
But what makes this deal even more fraught with danger is America's
dismal record since 9/11 in securing our ports.
If our ports were secure . . .

If we were screening all of our containers;
If we had made the necessary physical improvements;
If we had blast resistant containers;
If we had taken advantage of all the technologies available to
us;
If we had a system to adequately credential all the workers;
If we had stringent standards for cargo seals and locks;
If we had followed the advice of the 9/11 Commission to protect
our infrastructure in this country . . .

. . . then this Dubai deal--although still unacceptable--would not
carry the heavy risks that it does.
Mr. Chairman, let's take a quick look at this record of inaction.
I have a chart that shows four pieces of legislation that the
Commerce Committee passed but never became law. This committee is
trying to do its job, but we have moved nowhere with this Congress and
this President.
And I have another chart with examples of amendments to increase
port security funding that failed in the 107th and 108th Congresses.
Mr. Chairman, thank you for holding this hearing. We have a long
way to go in securing our Nation's port system. In my opinion, we
should not allow our ports to be operated by a foreign government.
In my own state, Senator Feinstein and I raised security concerns
when China applied to run one terminal at the port of Long Beach in
1997.
We received letters from then-Secretary of Defense Cohen and
National Security Advisor Sandy Berger assuring us that there was no
national security threat.
That was pre-9/11. I now believe past deals involving foreign
government-owned companies should be reviewed again. And, in the
future, they should not be allowed to go through--starting with this
Dubai Ports World deal.
Thank you, Mr. Chairman.

Senator Boxer. And if I just could have 10 additional
seconds to sum it up.
We're not screening all our containers. We haven't made the
necessary physical improvements. We don't have blast-resistant
containers. We don't have a system to adequately credential all
the workers. We don't have stringent standards for cargo seals
and locks. We haven't followed the advice of the 9/11
Commission.
So, you take the Dubai situation, plus our lack of action
on security, and I think this whole deal is fraught with
danger. And I'm going to oppose this deal.
The Chairman. I'm sorry that the podium is not open to
debate. I would like to debate with you on that one.
Senator Boxer. I would love to.
The Chairman. Senator Dorgan?

STATEMENT OF HON. BYRON L. DORGAN,
U.S. SENATOR FROM NORTH DAKOTA

Senator Dorgan. Mr. Chairman, thank you very much.
The right answer to this issue, I don't think requires 45
days. In fact, I don't think it requires 45 minutes. We have
terrorist threats in this country, at our airports, in our
seaports, we are told constantly. Go to board an airplane, and
you're asked to take off your belt and take off your shoes to
get on the airplane at the airport. At the same time, you get
on the airplane and read the USA Today article about our
seaports are going to be different because we're going to turn
the management of our seaports over to a foreign-controlled
United Arab Emirates company.
Mr. Chairman, we will have disagreements about that, but it
seems to me that everybody says, ``Well, we don't want to
offend anybody.'' What about offending common sense here? I
think this proposal is nuts. The question is--yes, national
security--I think there are real serious national security
issues. The July 2005 GAO report, it says, ``Industrial
security: The Department of Defense cannot ensure its oversight
of contractors under foreign influence is sufficient.'' The
Department of Defense can't assure that its influence or
oversight is sufficient, but the Department of Homeland
Security can? I don't think so. The evidence is right in front
of us.
A larger question for me, in addition to the security
issues, is, why is America, particularly in an era of terrorist
threats, not able to manage its own port facilities? Have we
become so numb on this notion of outsourcing and offshoring and
the orgy of globalism that we can't understand our
responsibility for our own national security interests, our own
national economic interests?
Well, it is a global economy, but that doesn't mean you
have to stop thinking or you're allowed to stop thinking
clearly. I just don't understand this at all.
One of the Administration officials said, ``Well, this is
about--it's about commerce and trade.'' That's all this is
about? Money? Just commerce and trade, dollars and cents? I
don't think so.
What about the national interest here? Are we, in a global
economy, selfish when we think about the interests of the
United States of America for a change? I think that our own
economic interests, our own security interests ought to
persuade us, in this circumstance, to just say no. The sooner
we say it, the better. It doesn't take 45 days. It shouldn't
take 45 minutes, Mr. Chairman.
The Chairman. I'd like to remind the members that we do
have a series of witnesses, two different panels, and we're
into an hour, already, of opening statements.
Senator Ensign?

STATEMENT OF HON. JOHN ENSIGN,
U.S. SENATOR FROM NEVADA

Senator Ensign. Thank you, Mr. Chairman. I'll be very
brief.
I think that Senator McCain raised some very legitimate
points, and I think that those kinds of points have to be taken
into account. We are in a global war on terrorism, and the UAE
appears to be a good friend in the global war on terrorism. We
must look at all the implications of this deal. National
security certainly has to be put right up at the top of the
priority list, but that same national security also includes
our relationship with the UAE. And so, we have to look at the
pros and cons of a deal like this. There's no question that we
have to look at our ports and every aspect of homeland
security. We also have to look at the competitive nature of
ports. The more that we screen, or the more processes that we
put into place--are we putting lines so long at our ports that
then they want to offload in Canada, in Mexico?
I heard the Governor from California, this Sunday on one of
the talk shows, talking about that, that when he was meeting
with the prime minister of Japan, one of the complaints with
the California ports is that they are too slow in offloading.
Well, the more security we put on that, the more it slows
things down. Delays could make us less competitive.
And so, we have to look at a lot of these issues. They are
not as simple as some are making them out to be. It's very easy
to get out there and call a press conference and make this look
like a black-and-white simple issue about national security,
when it is, in reality, a very complex issue. We need to act
like adults and make sure that we are doing what is the right
thing in the interests of the United States and its security,
as well as its economic interests.
So, I thank you, Mr. Chairman. These are important hearings
to have.
The Chairman. Senator Burns?

STATEMENT OF HON. CONRAD BURNS,
U.S. SENATOR FROM MONTANA

Senator Burns. Mr. Chairman, I have a--just a short
statement, but I would ask unanimous consent that it be made
part of the record. I came to listen to these fellows down
here.
[The prepared statement of Senator Burns follows:]

Prepared Statement of Hon. Conrad Burns, U.S. Senator from Montana
Chairman Stevens, Senator Inouye, thank you for calling this timely
and significant hearing today on the security of operations at our
Nation's ports.
While my state is far from any seaports, I have heard from hundreds
of Montana constituents expressing their concern with the transaction
that we have come here today to discuss. I, too, am very concerned. In
this post-9/11 era, we must be absolutely vigilant in ensuring national
security when it comes to foreign management of any sector or industry
within the United States.
When there is any question regarding national security, we as a
Congress and as members of Committee have a responsibility to examine
it as thoroughly as possible. As the attacks of September 11 have
taught us, we cannot afford to be wrong even once. When the Chinese
Government's pursuit of energy assets in the United States last year
threatened to negatively impact our national security, I worked with my
colleagues, some of whom are members of this committee, to make sure
that a thorough national security review was conducted on any future
transactions of that nature. I plan to do the same in this case, and I
think we need to have a level-headed and clear discussion about these
issues, to make absolutely sure that we are doing what is best for the
safety and security of this country.
It has come to my attention that the Administration and Dubai Ports
World have agreed to conduct a 45-day national security review of this
transaction. While I have been informed that the proper procedures were
initially followed by those involved with the Dubai Ports World/P&O
acquisition, I think we all can agree that a second look will be in the
best interest of national security, and the citizens of this country.
There also appears to be some disparity over what exactly the law
says when it comes to reviewing foreign acquisitions with potential
impacts on U.S. national security. It is my hope that we can find some
answers to those questions today. The process may very well need to be
clarified, and all parties involved--the Administration, Congress, and
industry alike--need to work together.
We must also look beyond this transaction to the future of port
security. Port security is just as important to landlocked states as it
is to those with coastal waters. What comes into our ports reaches
every part of the country, making this a national issue with national
implications. On the issue of port security, after the attacks of
September 11, we in this committee and later in the full Senate worked
to pass the Maritime Transportation Security Act of 2002, which set out
to improve security at our Nation's ports, enhance cargo security
requirements, and strengthen overall port and maritime security.
As a long-time member of this committee, I am proud of the work we
have done to enhance security, whether it is by land, sea or air. Since
September 11, 2001, we have made great progress in recognizing the
threats we face and being prepared for the future. Our job, however, is
far from over. We, as members of this committee and this Congress, have
a responsibility to ensure security at our Nation's ports, on our
borders, and in every other aspect of our daily lives. I take this
responsibility seriously, and I will continue these efforts throughout
my time on this committee.
Again, thank you for calling this important hearing. I welcome and
look forward to the testimony of our witnesses. I believe it is time
that we have an open discussion on this issue.

The Chairman. Thank you very much.
Senator Allen?

STATEMENT OF HON. GEORGE ALLEN,
U.S. SENATOR FROM VIRGINIA

Senator Allen. Thank you, Mr. Chairman. And I appreciate
your holding this hearing. Unlike some of my colleagues, who
have made a determination on this, I actually want to listen
and learn, gather evidence, determine what sort of added
security, scrutiny, and transparency would be occasioned here.
There are several issues, and I think they are all legitimate
concerns. National security is number one, at our border, at
our seaports and our airports.
You have a difference here because it's a government-owned
terminal operation versus a private one. I'd like to find out
what sort of differences in security or transparency one would
have when it's a government, especially if it's emirs, a
monarchy of sorts, versus a private company that has to file
reports. There's a certain disclosure there that you don't
necessarily get out of governments.
We also need to understand why there are so few American
companies doing this work. In our ports of Virginia, which are
big ports, if West Virginia wanted to rejoin us, they'd have a
port, a major port. And we'd have a Jefferson County back in
Virginia. But, at any rate, we have Denmark, for example, in
Maersk Marine, just an absolutely wonderful privately owned
company. They're the only foreign-flag steamship line that's
involved in our sealift for our military. In fact, they sunk
their ships rather than allow Hitler's Germany to get their
ships in Denmark. So, just because it's a foreign-owned company
doesn't mean it's bad. In fact, it may make it just fine.
I just hope that as we go forward here, we'll ask
questions, try to discern the evidence. The American people
deserve it. It's not just the Congress. And I'm glad there's an
extra 45 days, because I think there needs to be a lot of
comfort, whether people are in Montana or Virginia or
California. They ought to have a comfort that this has been
scrutinized, that there are proper precautions in place,
because, number one, as far as I'm concerned, is national
security. And I am hopeful that all of these various Federal
agencies--Customs, Coast Guard, Department of Homeland
Security--are going to put in some added precautions, because
this is a facility or an operation owned by a foreign
government. I'm one who just generally doesn't like the
government competing with the private sector, but if they are,
in these sort of situations, there should be adequate security,
transparency, scrutiny, and conditions to assure the American
people that these operations will be safe.
And I thank you, Mr. Chairman.
The Chairman. Thank you.
Senator DeMint?

STATEMENT OF HON. JIM DeMINT,
U.S. SENATOR FROM SOUTH CAROLINA

Senator DeMint. Thank you, Mr. Chairman.
Just a few comments. Like most Members of Congress, the
first I heard of this was from a reporter that told me some
Arab countries were taking over American ports. That was the
extent of the information I got. And I think, like most Members
of Congress, I expressed reservations. But, as we learn more
about the facts, I think we can see some more of the
justification here.
As someone said before, there is silver lining to all of
this. I think we've learned, as a Senate and as a Congress, how
sensitive Americans are to the security of their ports. And
it's something we need to respect and take care of. I think we
also learned that Americans and most Members of Congress are
not fully informed about how our ports work. It's difficult to
look at just one component, Mr. Chairman, as you've talked
about, but we're usually dealing with foreign products coming
to this country, loaded in foreign ports, riding on foreign
ships. And for us to take one piece of this giant puzzle and
pretend that we're going to solve the problem by beginning what
is, in effect, racial profiling of different countries, we know
that's not going to fix the problem.
We've also known as a Congress, for years, that what was
mentioned before, that the Transportation Worker Identification
Credentials, that has been very poorly implemented, is probably
our biggest Achilles' heel, as far as security of our ports.
And we've done nothing about it.
I do hope, as a committee, we can work in good faith and be
honest about our representations. I am somewhat discouraged,
what I heard Senator Boxer say. She was--tried to block the
President's commonsense requirements that our airport security
workers be citizens of this country. She was one of four
Democrats to actually sponsor a bill that noncitizens can do
that. And I think to come back today and say foreign
governments can't be involved in the management of our ports
suggests to me that we might not have as good a faith of debate
as I had hoped.
But I hope we can take a comprehensive look at our port
security. Americans deserve it. But they deserve better than a
racial profiling debate, which we appear to be starting.
I yield back.
The Chairman. Senator Lott?
Senator Lott. I'll pass, Mr. Chairman.
The Chairman. Senator Snowe?

STATEMENT OF HON. OLYMPIA J. SNOWE,
U.S. SENATOR FROM MAINE

Senator Snowe. Thank you, Mr. Chairman. I want to thank you
for holding this hearing on this vital question of national
security.
And this decision has, rightly, produced a public
firestorm. Like most Americans and many of my colleagues, I'm
deeply disturbed by the potential of adding an additional risk
at a time when security at our 361 ports around America are
extremely vulnerable.
And what has become unquestionably clear is that we're
still unclear exactly how this decision was reached, how it was
justified, who essentially justified it, in the final analysis,
given the threat environment in which we find ourselves, and
given that this issue does represent and underscore our
greatest terrorist vulnerability, and that is our ports.
If there's one thing that we've heard time and time again,
and most certainly in my position as Chair of the Subcommittee
on Fisheries and Coast Guard, it's that our ports remain
extremely porous. To quote the National Plan to Achieve
Maritime Domain Awareness, released in response to the National
Security Presidential Directive, ``The vastness of the maritime
domain provides great opportunities for exploitation by
terrorists. Terrorists can use large merchant ships to move
powerful conventional explosives or WMD for detonation in a
port.''
Moreover, even with the implementation of the Maritime
Transportation Security Act, back in 2002, that established a
legal framework for providing for our port security, according
to the 9/11 Commission's December report, a litany of
vulnerabilities at our port remains unaddressed. For critical
infrastructure, we get a D. For national strategy for
transportation security, we're given a C-minus. For cargo
screening, they assigned a D. This is not the kind of grades we
should be satisfied with as a Nation.
So, this is exactly the wrong time to be introducing an
additional risk; and all the more so, given the fact that the
Coast Guard had at once been presented with the tremendous
responsibilities of providing security at our ports while
receiving paltry funds and resources with which to execute
these responsibilities.
While the service requires $7 billion to fully implement
these port security plans and initiatives, to date they have
received a mere $825 million. And just as astonishing, the
Administration is not requesting any port security grants for
Fiscal Year 2007. That was a subject of a committee hearing
here last July.
Concerned about the fact that the Coast Guard, which is
responsible for port security, assembled an intelligence report
for the DHS that expressed objections about the sale due to the
breadth of the intelligence gap, DHS also initially expressed
concerns about the sale, and yet, at the end, a purchase was
still approved without the 45-day review mandated by law for
any sale that has national security implications.
What is troubling, Mr. Chairman, is the way in which this
decision was arrived at, that both the Department of Homeland
Security, as well as the Director of National Intelligence
undertook threat assessments simultaneously, including a Coast
Guard report that was part of the DHS report, but it never rose
to the highest levels of decisionmaking and leadership, whether
it was the Secretary of Homeland Security, whether it was the
Secretary of Defense, whether it was the Secretary of the
Treasury, whether it was the Director of National Intelligence.
That, I think, illustrates the problem with reaching these
types of decisions that have profound implications and
obviously are grave decisions for the future about national
security.
Toward that end, Senator Cantwell, as she mentioned, we
have sent a letter to the Coast Guard. We want to know exactly
what types of decisions were included in that memo, what kinds
of issues were considered, and to what level did they--were
they raised within the Department of Homeland Security.
Similarly, Senator Schumer and I have sent a letter to
Secretary Chertoff expressing our strong concerns about the
system that's obviously broken. We want to know if the
Secretary became aware of the concerns raised by the Coast
Guard and the concerns raised by any of the other component
branches within the Department of Homeland Security. Did
Members of the Committee on Foreign Investment see the Coast
Guard memo or any of the final reports that were issued within
the Department of Homeland Security on this final transaction?
The bottom line is, Mr. Chairman, there are unanswered
questions that demand answers to this very grave situation. I
think we all should be concerned about the fact that national
security decisions should reach the highest levels of decision-
making leadership within the departments, as well as the
President of the United States.
The Chairman. Senator Smith?

STATEMENT OF HON. GORDON H. SMITH,
U.S. SENATOR FROM OREGON

Senator Smith. Thank you, Mr. Chairman. I don't believe we
would be having this hearing if this company in question were
still owned by the British. And I think that that exposes an
unfortunate aspect to all of this.
We need friends in the Middle East. We certainly need them
in the war on terror. And the UAE has been a friend. But
setting all that aside, I think the American people would be
shocked to find just how internationalized shipping is, that
roughly only 3 percent of ships bear American flags now, that
carry American goods in and out of all of our ports.
Only a South Korean company, and soon a Taiwanese company,
will be delivering things into Portland. If you travel to
Oakland, Los Angeles, Seattle, you'll find their port terminals
are operated by many different nationalities, including
Singapore, one of the largest.
I think my question, Mr. Chairman and colleagues, is simply
that we must focus on, was the law followed? Was security
adequately provided for? And do we need to change the law? And
I think the focus on the Arab peoples in this is unfortunate
and unworthy of us.
So, I am anxious to find out the facts and make sure that
the security of the American people is provided for without
regard to the ethnicity of the owners of these companies.
Thank you.
The Chairman. Senator Sununu?

STATEMENT OF HON. JOHN E. SUNUNU,
U.S. SENATOR FROM NEW HAMPSHIRE

Senator Sununu. Thank you, Mr. Chairman.
I couldn't agree more with the sentiments of Senator Smith
with regard to looking at this process, and whether the law was
followed, and whether security interests are being dealt with,
regardless of the ethnic background of the particular firm.
We're talking about a process for reviewing the leases that are
signed for operating certain terminals at certain ports in the
United States. And before and after September 11th, we had,
across America, port authorities signing agreements with many
foreign-owned firms, for just the reason Senator Smith
described. This is an international business. These are
international ports.
And the questions, in all cases, should be whether those
firms can be counted on to work cooperatively with the port
authorities with whom they sign the leasing arrangements, who
are the port owners, and with the Coast Guard or Department of
Homeland Security or others that are providing for the
fundamental security considerations at the port, whether they
have good personnel and auditing systems in place that will
enable them to be a good corporate tenant at the particular
firm. Those are the operating questions. Those are the
essential questions.
I think we ought to be able to look at them in a direct
way, in an honest way, and make sure that, as Senator Smith
said, the law was followed. I don't think anyone in this room--
certainly none of the Members of the Senate--I don't think
anyone in Congress feels that we were given as much time as
would have been ideal to look at the process, to look at
information that was put together during the review. And I
think that's why we have been provided with a delay, if you
will, to make sure that the committees of jurisdiction have
time to take a look at this process.
But it should be done without focusing on ethnic background
certainly, and respecting the fact that firms from North
America and Europe and Asia have all had good working
relationships with all of the major ports around the country.
And I expect that if we do our job here, and the panelists do
their job, that will continue to be the case.
Thank you, Mr. Chairman.
The Chairman. Senator Bill Nelson?

STATEMENT OF HON. BILL NELSON,
U.S. SENATOR FROM FLORIDA

Senator Bill Nelson. Thank you, Mr. Chairman.
I think it has already been mentioned here that this
morning's Jerusalem Post had a story that, ``Dubai Ports World
Examines Their Certificates of Origin to Make Sure that
Products Entering Dubai Do Not Originate in Israel.'' And that
is something that clearly ought to be examined.
The other thing, Mr. Chairman, that I would hope, in the
course--maybe not this hearing, but that this committee would
examine--on February 7, a nominee came through this committee,
named David Sanborn, to be the head of the U.S. Maritime
Administration. At the time of that hearing, nothing was said
about him being a high official in this particular company. And
so, in light of what has happened over the course of the last
week and a half, clearly I would hope that we will bring him
back to this committee to re-examine this fact that was
omitted, to see if there is any potential conflict of interest,
since he's named as the head of the U.S. Maritime
Administration.
Thank you, Mr. Chairman.
The Chairman. I'm going to exercise the prerogative of the
Chair and ask Mr. Jackson, Admiral Gilmour, and Mr. Ahern to
leave the witness table and call the second panel first. I feel
that there's--if we go through one complete round of
questioning of the Administration witnesses, we'll never get to
those we've asked to come explain this deal. So, let's take the
explanation first.
Mr. Jackson, I apologize.
Senator Kerry. Mr. Chairman, we also have some key
questions of the Administration themselves.
The Chairman. They will testify, but first we'll hear from
the facts of the Dubai people, the people we've asked come to
testify.
Senator Kerry. Mr. Chairman, schedule-wise, that may
present some problems. Could we keep the record open for
submission of questions in writing?
The Chairman. You certainly may. It's my intention that the
Senators who are here will hear the facts from the proponents
of this process. I think if we hear the Administration
witnesses, too many will leave by the time we get to 5 o'clock,
5:30.
Senator Kerry. No, I respect what the Chairman is trying to
do. I just want to make certain that we can--because we have
some other----
The Chairman. Oh, they will--they're not leaving us.
They're going to testify----
Senator Kerry. But----
The Chairman.--this afternoon.
Senator Kerry. Right, but some of us have conflicts. We
expected this panel to be first and we have other things. So,
I'm just asking the record be left open so we can submit
questions in writing.
The Chairman. That would be----
Senator Kerry. Thank you.
The Chairman.--agreeable.
Mr. Bilkey is Chief Operating Officer of Dubai Ports World.
Could we call on you first? We'll expect to go right through
the witness table and then go through a series of questions,
or, if the Committee would agree, listen to the Administration
witnesses before we ask any questions. We'll determine that at
the end of your testimony.
Mr. Bilkey, thank you for coming.

STATEMENT OF H. EDWARD BILKEY,
CHIEF OPERATING OFFICER, DP WORLD

Mr. Bilkey. Thank you, Mr. Chairman.
The Chairman. Pull that toward you and push the button,
please.
Mr. Bilkey. This is my first time.
I have some handouts, Mr. Chairman, that I'd like to be----
The Chairman. The staff will come get them, yes, sir.
Mr. Bilkey.--in the appropriate time.
The Chairman. Someone go get those. OK.
Mr. Bilkey. Mr. Chairman and members of the Committee, my
name is Ted Bilkey, and I'm the Chief Operating Officer of DP
World. And I've worked in the Middle East for many years.
I commend you for holding this hearing, and DP World
welcomes the opportunity to get the truth out so that Congress
and the public can better understand the facts surrounding our
acquisition of P&O Ports North America, Inc.
By way of personal background, I grew up in New Jersey and
New York. I served as an officer in the U.S. Navy, and I have
worked in the ports and shipping business for over 45 years,
and started on the docks of Brooklyn and Newark.
Also, as a personal note, it's an honor for me to appear
before this committee of the U.S. Senate. My grandfather,
Joseph S. Frelinghuysen, served as a Senator from New Jersey
early in the 20th century and as a Chairman of the Senate
Committee on Coast Defense.
Indeed, every generation from the founding of the United
States to today----
Senator Kerry. Mr. Chairman?
Mr. Bilkey.--members of my family----
Senator Kerry. Can the witness pull the mike closer?
Mr. Bilkey.--have served in the Senate, House of
Representatives----
The Chairman. Mr. Bilkey, could you pull the mike up closer
to you, please?
Mr. Bilkey. Yes, sir.
The Chairman. All of you, they are very, very sensitive,
distance sensitive. Thank you.
Mr. Bilkey. Let me start by giving a little background on
DP World.
DP World is the seventh-largest port terminal operator in
the world, before this acquisition. We manage 19 terminals, 4
free-trade zones, 3 logistics centers, one of which is the
largest in the world--the building is even bigger than the
Pentagon--and operations in some 14 countries, where we're all
welcome.
Our Jebel Ali facility in Dubai handles more container
freight than all the ports on the East Coast of the United
States combined. We support the U.S. military in Germany,
Djibouti, and Dubai.
Our facilities in Dubai have hosted the U.S. Navy on a
continual basis for nearly 2 decades. I was involved in
initiating the first carrier coming into Jebel Ali in the first
Gulf War. Our harbor master control center in Dubai is manned
24/7 by U.S. Navy personnel.
And, if I may, Mr. Chairman, I'd like to show the Committee
some pictures, which I've handed around.
We operate as a strictly commercial entity, but are owned
by the Government of Dubai. And our management is truly
international, and we have 3 Americans on our 11-man top
management team.
Last week, Lloyd's List voted DP World as the Best Port
Operator of the Year in 2005, and we're very proud of our
record.
Now, as a general trend, the shipping and port business is
becoming increasingly globalized and consolidated. DP World
determined to acquire P&O for commercial reasons, based on its
strong management team and a complimentary geographic fit. It
is important to understand that this is a $6.8 billion
transaction involving assets all over the globe. The U.S.
operations of P&O, P&O Ports North America, constitute
approximately 10 percent of the overall value of the
transaction.
It is also important to understand that it has always been
our intent to operate P&O Ports North America as a separately
incorporated U.S. legal entity using its longstanding
reputation in management structure and personnel to the maximum
extent possible.
As a smaller entity acquiring a larger entity, DP World
needs the existing talent and expertise of the P&O Ports North
American team to run these operations. And I am joined here by
Rob Scavone, the General Counsel of P&O Ports North America.
I would now like to dispel a couple of myths and try to
establish fact from fiction.
First, we are not acquiring or taking over U.S. ports, as
some people have claimed. It's been said here earlier, U.S.
ports are owned by local governments or port authorities, which
is a fundamental fact that has been totally distorted. Rather,
we act as an operator, who has a lease to operate a particular
terminal within a port. The terminal operator is responsible
for the area within the port that serves as a loading,
unloading, or transfer point of origin.
Second, this transaction does not involve an outsourcing of
U.S. security, as some have alleged. And I would defer to the
Department of Homeland Security or my colleague from P&O Ports
in charge of security to describe in detail how port security
operates in the U.S. Suffice it to say that security is a
layered approach, with the U.S. Customs and Border Protection
and Coast Guard taking leading roles, followed by local police
and harbor police. A terminal operator is one piece of a
complex picture.
DP World and P&O Ports North America actively participate
in various U.S. Government-sponsored initiatives. These
programs include the Customs Trade Partnership Against
Terrorism, so-called C-TPAT, the Container Security
Initiative--in fact, the United Arab Emirates was the first
country in the Middle East to join that initiative--the
Business Alliance in Smuggling and Counterfeiting, and the
International Maritime Organization, International Ships and
Port Security, ISPS, as it is known, and, finally, the
Megaports Initiative with the Department of Energy. DP World
has expressly committed to continuing, and, as appropriate,
expanding, its commitment to all these programs.
Third, DP World did not obtain U.S. Government approval of
its acquisition of P&O Ports North America, as some people have
stated, secretly, in the dead of the night, or without adequate
review. This is a total misrepresentation. There is an explicit
process administered by the Committee on Foreign Investment in
the United States, CFIUS, mandated by Congress in the Defense
Protection Act and by the Department of the Treasury
regulations. In point of fact, CFIUS actively reviewed the
transaction for almost 3 months, and we complied with the
process, and we complied with the law.
DP World actually first met with the CFIUS staff on October
17, 2005. Two weeks later, we held a face-to-face meeting with
certain key CFIUS member agencies, including the Department of
Homeland Security, Customs and Border Protection, Coast Guard,
Department of Justice, and the Department of Commerce. We
provided detailed information on the proposed transaction to
CFIUS, which had already commenced its review and analysis of
the transaction.
We subsequently met, on a voluntary basis, on December 6,
2005, with all member agencies of CFIUS. I, myself, flew in
from Dubai to participate in that meeting with our senior vice
president for operations for Europe and the Americas and our
senior officer responsible for overseeing global security.
Further, during this period, the transaction received
considerable coverage in the press in the United States and
Europe.
We filed our CFIUS notification on December 15. CFIUS
commenced a 30-day review, as required by statute. During the
course of that review, CFIUS asked us to memorialize certain
undertakings we had voluntarily made in our notification, as
well as others, at their request. These took the form of a
letter of assurances, dated January 6, 2006. And among these
undertakings were seven additional express and legally binding
commitments unique to the transaction.
Based on this review and the letter of assurances, on
January 17, 2006, CFIUS issued a formal letter of no objection,
completing the CFIUS review and allowing the transaction to
proceed. In reliance on the U.S. Government's clearance, DP
World took the legal steps necessary to complete its purchase
of P&O on a global basis.
In conclusion, I respectfully submit that DP World is a
company that, in good faith, sought to comply with applicable
U.S. legal requirements. And having been told by the U.S.
Government that we met those requirements, now finds itself in
the position of being told that that was not good enough.
Nonetheless, we recognize that there are concerns in
Congress and among the public about DP World's acquisition of
P&O's terminal operations. DP World has, therefore, voluntarily
acted to assure people that the security of the United States
will remain strong. Specifically, on February 26, we
voluntarily issued a legally binding Hold Separate Commitment
under which the management and control of P&O North America's
operation will be held in suspension without direction or
control from DP World until May 1, 2006, in order to allow
additional review of DP World's acquisition of P&O Ports North
America.
In addition, at the same time, we requested CFIUS to
conduct a review, including a full 45-day investigation of the
acquisition. We stated that we would abide by the outcome of
that review. The Hold Separate Commitment contains a number of
specific obligations, including maintaining P&O Ports North
America's current management, having a U.S. citizen serve as
the chief security officer for P&O Ports North America, as it
actually exists today.
We are confident that further review by CFIUS will confirm
that DP World's acquisition of P&O's U.S. operation does not
pose any threat to America's safety and security.
If there is good to come out of this experience, perhaps it
is that both Congress and the Executive Branch will take a
closer look at ways to upgrade port security, and increase
funding for those efforts. DP World strongly encourages such
efforts and look forward to working with you to achieve them.
Finally, I'd like to conclude by making a couple of
observations as an American with a long family history in
America. The U.S. Government, through successive
administrations, had pursued a policy of encouraging investment
in the United States. The assumptions underlying this policy
are that the United States is a land governed by the rule of
law, but it also is a country that treats fairly and on an even
playing field. It is a nation whose economic well-being and
national security are enhanced by engaging with the world.
I firmly believe that the security of our country, the
United States, is well served, and, in fact, enhanced on
numerous levels, by allowing this transaction to go forward and
by working with DP World's global 51-terminal network, which no
other company has, as a responsible partner in securing
additional security. At home and abroad, security is
everybody's business, and it's particularly our business.
And I'd end by saying, on Sunday--I'm kind of an American
historian, and I went to the Lincoln Memorial to relax and
consider all that's happened. And I saw the words of our 16th
President on his second Inaugural Address, ``And with malice
toward none, with charity for all, with firmness in the
right.'' And it's my personal prayer that all our actions will
be guided by these principles.
Thank you all very much.
[The prepared statement of Mr. Bilkey follows:]

Prepared Statement of H. Edward Bilkey,
Chief Operating Officer, DP World
Mr. Chairman, Mr. Co-Chairman and members of the Committee,
My name is Ted Bilkey. I am the Chief Operating Officer of DP
World. I commend you for holding this hearing. DP World welcomes the
opportunity to get the truth out so that Congress and the public can
better understand the facts surrounding our acquisition of P&O Ports
North America, Inc.
By way of personal background, I grew up in New Jersey and New
York. I graduated from Yale and the Fletcher School of Law and
Diplomacy and served as an officer in the U.S. Navy. I have worked in
the ports and shipping business for over 45 years, starting on the
docks of Brooklyn and Newark. Also, on a personal note, it is a
pleasure and an honor for me to appear before this Committee of the
U.S. Senate. My grandfather, Joseph S. Frelinghuysen, served as Senator
from New Jersey earlier in the 20th century and as Chairman of the
Senate Committee on Coast Defenses. Indeed, in every generation from
the founding of the United States to today members of my family have
served in the Senate, House of Representatives or as Secretary of
State.
Let me start my presentation by giving you a little background on
DP World and its acquisition of The Peninsular & Oriental Steam
Navigation Company, which is headquartered in the United Kingdom. Prior
to the acquisition, DP World was the seventh largest port terminal
operator in the world. We manage 19 container terminals, 4 free trade
zones, 3 logistics centers and operations in some 14 countries, which
incorporated the operations of the U.S. company CSX World Terminals
about one year ago. These include operations in support of the U.S.
military in Germany, Djibouti and Dubai. Our Jebel Ali facility in
Dubai handles more container freight than all the ports on the East
Coast of the United States combined. We operate as a strictly
commercial entity but are owned by the Government of Dubai. Our
management is truly international. Of the 11 members of DP World senior
management, three are Americans, one is British, two are Indian, one is
Dutch and four are citizens of Dubai. Our Board Chairman, a citizen of
Dubai, went to Temple University. Our Chief Executive Officer, also a
citizen of Dubai, is a graduate of the University of Arizona. Last week
Lloyds List voted DP World as the Port Operator of the Year 2005. Our
facilities in Dubai have hosted the U.S. Navy on a continual basis for
nearly two decades. Our Harbor Master control center in Dubai is manned
247 by U.S. Navy personnel. Additionally, U.S. Customs has a
constant presence. If I may, Mr. Chairman, I'd like to show the
Committee some pictures which may be helpful in understanding what we
do.
Now, as a general trend, the shipping and ports business is
becoming increasingly globalized, and, as a result, consolidated. DP
World determined to acquire P&O for commercial reasons, based on its
strong management team and global and complementary geographic fit as
the shipping world becomes more consolidated. It is important to
understand that this is a $6.8 billion transaction involving assets all
over the globe. The U.S. operations of P&O--P&O Ports North America--
constitute approximately 6 to 10 percent of the overall value of the
transaction, depending on calculation methods. As a smaller entity
acquiring a larger entity, DP World wants and needs the existing talent
and expertise of the P&O Ports North America team to run those
operations. It is important to understand that it has always been DP
World's express intent, from the start, to operate P&O Ports North
America as a separately incorporated U.S. legal entity, using its
longstanding reputation and maintaining the current management
structure and personnel to the maximum extent possible but reporting to
the senior management in Dubai. As part of our voluntary cooperation
and offer, we have agreed to disengage any reporting to Dubai
management for the present.
I would now like to try to dispel a couple of myths which have been
played up.
First, we are not ``acquiring,'' ``controlling'' or ``taking over''
U.S. ports, as some people have claimed. U.S. ports are owned by local
governments or port authorities, which is a fundamental fact that has
been totally distorted. Rather, we act as an ``operator'' who has a
lease or license to operate a particular terminal within a port. The
terminal operator is responsible for the area within the port that
serves as a loading, unloading or transfer point of the cargo. To be
exact, DP World would acquire the following terminal leases or
concessions that handle containers operated by P&O Ports North America:

Baltimore

Philadelphia--in a 50-50 joint venture with Stevedoring
Services of America

Miami--50 percent of Port of Miami Terminal Operating
Company

New Orleans

Newark--through a 50-50 joint venture in the Port of Newark
Container Terminal (PNCT) with Maersk terminals

P&O is involved in general stevedoring and other cargo handling
operations in a number of other locations in the United States and a
passenger terminal in New York in close cooperation with the U.S. Coast
Guard. Stevedoring is lifting containers on or off vessels and
depositing them in an area operated by the port authority.
Second, this transaction does not involve an ``outsourcing of U.S.
security,'' as some have alleged. I will defer to the Department of
Homeland Security and others to describe in detail how port security
operates or to my colleague from P&O Ports North America in charge of
security, Rob Scavone. Suffice it to say that security is a layered
approach, with the U.S. Customs and Border Protection and Coast Guard
taking leading roles to ``push out the borders'' of the United States.
A terminal operator is one piece of a complex picture.
Within the context of the terminal operator's responsibilities,
both DP World and P&O Ports North America are active participants in
various U.S. Government-sponsored and international initiatives. These
programs include:

The Customs-Trade Partnership Against Terrorism;

The Container Security Initiative--in fact the United Arab
Emirates was the first country in the Middle East to join that
initiative;

The Business Alliance on Smuggling and Counterfeiting;

The International Maritime Organization International Ships
and Port Security; and

The Megaports Initiative with the Department of Energy.

DP World has expressly committed to continuing and, as appropriate,
expanding its commitment to these programs.
Third, DP World did not seek to obtain U.S. Government approval of
its acquisition of P&O Ports North America, as some people have stated,
``secretly,'' ``in the dead of the night'' or ``without adequate
review.'' This is a total misrepresentation. There is an explicit
process administered by the Committee on Foreign Investment in the
United States (CFIUS) mandated by Congress in the Defense Production
Act and by Department of the Treasury regulations. In point of fact,
CFIUS actively reviewed the transaction for almost 3 months. We
believed we were doing the right thing as we were following the law and
the process, as we have in other countries.
DP World first met with CFIUS staff on October 17, 2005 to discuss
the acquisition. We then held a face-to-face meeting with certain key
CFIUS member agencies--including the Department of Homeland Security,
Customs and Border Protection, Coast Guard, Department of Justice and
Department of Commerce--on October 31, 2005. As a result of those
meetings, DP World provided additional detailed information on the
proposed transaction to CFIUS, which had already commenced its review
and analysis of the transaction. DP World and P&O Ports North America
held a subsequent meeting on December 6, 2005 with all member agencies
of CFIUS. I myself flew in from Dubai to participate in that meeting
with our Senior Vice President for Operations for Europe and the
Americas and our senior officer responsible for overseeing security.
Further, during this period, the transaction received considerable
coverage in the press in the United States and Europe. For example, on
October 31, 2005 The Wall Street Journal carried an article reporting
on the transaction and on November 14, 2005 the Journal of Commerce ran
a lengthy article reporting on the U.S. aspects of it. Also, the
Financial Times reported extensively on the transaction from the start.
Copies of some of these articles are attached as exhibits to my written
testimony.
We filed our CFIUS notification on December 15, 2005. It should be
noted that CFIUS has previous filings from P&O from its acquisition of
International Terminal Operating Company, DP World from its acquisition
of CSXWT and, most importantly, from P&O's security filings with the
Coast Guard for its U.S. facilities.
CFIUS commenced a 30-day review as required by statute. During the
course of that review, CFIUS asked us to memorialize certain
undertakings we had voluntarily made in our notification, as well as
others at their request. These took the form of a ``Letter of
Assurances'' dated January 6, 2006. Among these undertakings were 7
additional express and legally binding commitments:

To maintain ``no less than'' the current levels of
membership and cooperation in various security arrangements;

To provide DHS with at least 30 days advance notice of any
proposed material change to our levels of membership or
cooperation in these security arrangements;

To operate all U.S. facilities to the extent possible with
current U.S. management;

To designate a responsible corporate officer to serve as
point of contact with the Department of Homeland Security on
security matters;

To provide relevant information promptly to DHS upon
request;

To assist and support law enforcement agencies (including
disclosing information on the design, manufacture and operation
of the U.S. facilities); and

To provide records relating to foreign operational
direction, if any, of the U.S. facilities.

A copy of that Letter of Assurances is attached as an exhibit to my
written testimony submitted to the Committee.
Based on this review and the Letter of Assurances, on January 17,
2006 CFIUS issued a formal letter of ``no objection'' completing the
CFIUS review and allowing the transaction to proceed. In express
reliance on the U.S. Government's clearance, DP World took the legal
steps necessary to complete its purchase of P&O on a global basis,
which included advising P&O that our offer was unconditional because
all necessary permissions had been received.
In conclusion, I respectfully submit that DP World is a company
that in good faith sought to comply with applicable U.S. legal
requirements, and, having been told by the U.S. Government that we met
those requirements, now finds itself in the position of being told that
that was not good enough.
Nonetheless, we recognize that there are concerns in Congress and
among the public about DP World's acquisition of P&O's terminal
operations. Despite having obtained approval by the Federal Government
and relied on that approval, DP World has moved voluntarily to take
steps to assure people that the security of the United States will
remain strong. Specifically, on February 26, 2006, DP World and P&O
Ports North America voluntarily entered into a legally binding ``Hold
Separate Commitment'' under which the management and control of P&O's
North American operations will be held in suspension--without direction
or control from DP World--until May 1, 2006 or completion of the CFIUS
process in order to allow additional review of DP World's acquisition
of P&O Ports North America. In addition, at the same time the two
companies requested CFIUS to conduct a review, including a full 45-day
investigation of the acquisition. Both companies expressly stated that
they will abide by the outcome of that review. The ``Hold Separate
Commitment'' contains a number of specific obligations, including
maintaining P&O Ports North America's current management and having a
U.S. citizen serve as Chief Security Officer for P&O Ports North
America. We are confident that further review by CFIUS will confirm
that DP World's acquisition of P&O's U.S. operations does not pose any
threat to America's safety and security. We hope that voluntarily
agreeing to further scrutiny demonstrates our commitment to security
and to operating as a responsible corporate citizen of the United
States.
If there is good to come out of this experience, perhaps it is that
both Congress and the Executive Branch will take a closer look at port
security and find ways to upgrade it further and increase funding for
these efforts. DP World strongly encourages such efforts and looks
forward to working with you to achieve them.
Finally, I would like to conclude by making a couple of
observations as an American. The U.S. Government, through successive
administrations, has pursued a policy of encouraging investment in the
United States. The assumptions underlying this policy are that the
United States is a land governed by the rule of law, is a country that
treats people fairly and on an even playing field and is a nation whose
economic well being and national security are enhanced by engaging with
the world. It is my firm belief that the security of our country--the
United States--is well served and in fact enhanced on numerous levels
by allowing this transaction to go forward and working with DP World's
global 51-terminal network as a responsible partner in ensuring
security. At home and abroad, security is everybody's business.
On Sunday I went to the Lincoln Memorial to relax and consider all
that has happened. I saw the words in our sixteenth President's Second
Inaugural Address: ``With malice toward none, with charity for all,
with firmness in the right.'' It is my personal prayer that all our
actions will be guided by these principles.
Thank you.
______

The Wall Street Journal--October 31, 2005

P&O Attracts Buyout Overture Amid Shipping-Industry Boom

by Jason Singer

LONDON--Peninsular & Oriental Steam Navigation Co. has received a
buyout overture from a port operator in Dubai, according to a person
familiar with the matter, in a potential deal that could be valued at
nearly GBP 3 billion, or about $5 billion.
The United Arab Emirates company, Dubai Ports World, owned by the
emirate of Dubai, sought a meeting for early this week with the British
ports and ferries company, although the two sides haven't yet talked.
There can be no assurances a deal will emerge, this person said. The
offer was previously reported by London's Sunday Times.
P&O said in a statement yesterday it has been contacted by a third
party but there have been no negotiations. A P&O spokesman declined to
elaborate. A person at Dubai Ports World said nobody was available to
comment.
If a deal emerges, it would be the latest in the rapidly
consolidating industry of ports and container shipping, which remains
the most popular mode of transportation for moving goods world-wide.
In May, A.P. Moeller-Maersk of Denmark, a large container-shipping
firm, bought Royal P&O Nedlloyd NV of the Netherlands--a smaller
shipping company in which P&O held a 25 percent stake--for 2.3 billion
euros ($2.78 billion). Shipping firms are finding they need greater
economies of scale as business amid a boom in the business fueled in
large part by the transport of Chinese exports world-wide.
Earlier this month German tourism and transportation conglomerate
TUI AG received the necessary backing from shareholders in CP Ships
Ltd. to buy the U.K. shipping company for about 1.74 billion euros,
making TUI the fifth-largest marine shipper by volume.
Port operators around the world have been consolidating. PD Ports
PLC of the U.K. said earlier this month it had received a takeover
approach from an unidentified suitor, and British ports operator Mersey
Docks & Harbour Co. was purchased by rival Peel Ports in September for
GBP 771 million.
P&O has been considered a potential takeover target since Maersk
purchased Royal P&O Nedlloyd. That sale slimmed the U.K. company into a
focused port operator with terminals world-wide. P&O has a market value
of about GBP 2.3 billion.
Last week, the company reduced its 2005 profit expectations because
lower consumer-spending in the U.K. had damped business at its two
British terminals. Should Dubai Ports pursue a deal for P&O, it is
expected several other global port operators in Hong Kong, Singapore
and elsewhere may also consider a bid for P&O.
Founded in 1837, P&O is considered one of the world's top port
operators after hiving off its container-shipping unit. The company has
27 container terminals around the world and also runs logistics
services in more than 100 ports in 18 countries. In the U.K., P&O is
also one of the top ferry operators.
Dubai Ports World has grown through acquisitions. It bought the
international-terminals business of CSX Corp. for $1.15 billion in
2004, which launched it to the top leagues of global port operators.
______

Journal of Commerce--November 14, 2005

P&O Ports in Play; Unsolicited Offer for Port Operator Could Be
Followed by Other Bids

by Peter T. Leach

Whoever wins the nascent bidding war for the assets of Britain's
venerable Peninsula and Oriental Steam Navigation Co., the outcome will
clearly spell a victory for P&O management's efforts to unlock the
value in those assets. The outcome also will underscore the high
premium that investors place on the consistent earning power of
container ports and terminals, in contrast to the much more cyclical
earnings of ocean carriers.
``In the same way that CP Ships and P&O Nedlloyd attracted quite a
premium because of their scarcity value as listed companies, I would
assume that P&O Ports would attract quite a premium as well,'' said
Mark Page, director of Drewry Shipping Consultants in London. ``When
you buy P&O, primarily it's the ports you're getting, because it
doesn't come with too much additional baggage.''
P&O Ports, the world's fourth-largest port operator, represents the
value in P&O's assets, because it generates 80 percent of the group's
profit. P&O operates 27 terminals and logistics centers in 100 ports in
18 countries, with 2004 throughput of 22 million TEUs.
P&O's ferries division is losing money and has been a drag on
company earnings, and hence its share price. P&O's management has been
considering ways of spinning off the ferries division, but Dubai Ports
International, which made a surprise offer for the entire company at
the beginning of November, apparently was unwilling to wait for that
eventuality.
``What I always thought would happen was that everyone was waiting
for the ferries to be sold, so that you would have a pure port
company,'' Page said. ``But what is happening is that because of the
scarcity value of these listed companies, Dubai Ports said, `We can't
wait for the ferries to be sold, so we'd better get it now and we'll
get rid of the ferries.' ''
Dubai Ports, which became the world's fifth-largest port operator
last year through its acquisition of CSX World Terminals, approached
P&O's management in late October with an unsolicited offer. The bid
could value the company at nearly $7 billion, compared with its market
value of $4.1 billion before the offer. The bid, which was not clearly
defined, was quickly leaked to the press, put P&O in play, and drove
P&O's stock price up 40 percent.
In the wake of the news, an array of global port operators and
carriers are said to have contacted their investment bankers and to be
preparing counteroffers. Potential bidders whose names have been
mentioned include Temasek Holdings, the investment arm of the Singapore
government, which already owns PSA Ports, the world's second-largest
container terminal operator; APM Terminals, the port-operating division
of A.P. Moller-Maersk; and Hutchison Port Holdings, the port division
of Hong Kong's Hutchison Whampoa and the world's largest port operator.
Mediterranean Shipping and CMA CGM are reported to be watching the
fray closely in the hopes of picking up some of the ports and terminals
that the winning bidder will inevitably have to sell off. ``In any
portfolio of ports, there are bound to be certain ports that don't
necessarily make sense for the acquiring company either because the
regulators frown on them or because it may already have a terminal in
that harbor,'' Page said.
European regulators would certainly frown on the potential
antitrust issues that would be raised by a successful counteroffer by
Hutchison Port Holdings. Concerns over competitive issues could force
Hutchison to sell some of the British and North European ports that it
might acquire.
In the U.K., P&O Ports has stakes in terminals in the ports of
Tilbury and Southampton and has received approval to build a new port
and logistics center at London Gateway in Thurrock, Essex. Hutchison's
interests in the U.K. include terminals it owns and operates in the
ports of Thamesport, Harwich and Felixstowe.
P&O's port interests in Europe include facilities in Antwerp and Le
Havre on the Atlantic and Marseilles-Fos on the Mediterranean.
Hutchison operates and/or owns terminals in Rotterdam, Willebroeck
(near Antwerp), Gdynia in Poland, and at Germany's inland port of
Duisburg.
There apparently would be no antitrust problems in the United
States, but U.S. politicians might make noise over Hutchison's
acquisition of P&O Ports, which operates in the Port of New York and
New Jersey, Philadelphia, Baltimore, Miami, New Orleans and Houston. A
few conservative Members of Congress have complained that the Hong
Kong-based company's operation of ports at Balboa and Cristobal at
either end of the Panama Canal gives China control of the strategic
waterway.
Whatever the outcome, P&O's shareholders stand to benefit from its
management's efforts of the last few years to clean up the company's
portfolio of holdings. The effort began in 1994, when it sold P&O
Cruises to Carnival Cruise Lines. In 1996 it spun off its container
division into a joint venture with Royal Nedlloyd, which became P&O
Nedlloyd, in which it retained a 25 percent stake until it was sold to
A.P. Moller-Maersk this year. P&O subsequently divested or sold off
real estate holdings in ports around the world. Most recently, it sold
off P&O Cold Logistics, the third-largest cold storage and distribution
operator in the world, to Versacold Holding of Canada for 183 million
pounds ($320 million).
Whether P&O's management had ever intended to prepare the company
for sale as a result of these beautification efforts, that is the
almost inevitable outcome now. ``It has resulted in realization of
shareholder value,'' Page said. ``Before this, no one would have been
interested in taking it over."
______

Financial Times (London, England)--November 29, 2005 Tuesday--London
Edition 2

Dubai's DP World Seals Pounds 3.2bn Purchase of P&O

by Robert Wright

Dubai's DP World is to buy P&O, the UK container ports and ferries
group, for Pounds 3.19bn.
After the deal--to be announced today--DP World, the container
terminal operator owned by Dubai's ports and freezones authority, will
be nearly as big as the world's third biggest container terminal
operator, Denmark's APM Terminals.
The price offered for P&O--which announced pre-tax profits before
exceptional items of Pounds 170m on Pounds 3.06bn sales for 2004--could
make a counterbid from a rival large container port operator unlikely,
analysts said.
The bid is thought likely to come at about 440p a share--just above
last night's closing share price of 435p.
P&O announced it had received an approach--without revealing from
whom--on October 31, after a newspaper story linked the company to DP
World.
DP World's concerns about P&O's pension liabilities and projections
on the cost and likely revenues of P&O's planned London Gateway port
development have been resolved.
The deal will bring to an end the independent existence of a
company that was founded in 1837--the year Queen Victoria came to the
throne--and was once one of the key institutions of the British empire,
taking civil servants, soldiers and mail between the UK and India.
Robert Woods, chief executive, is set to make more than Pounds 2.7m
from selling his shares and exercising his share options after the
deal. Lord Sterling, former chairman, will make about Pounds 10m.
The pair were instrumental in restructuring P&O, turning it from an
unfocused conglomerate with a range of shipping businesses into the
present operation, which has only container ports, ferries and a few
residual property interests.
Neil Davidson, container ports analyst for London-based Drewry
Shipping Consultants, said it was hard to see anyone else coming up
with a bid to defeat DP World's. Mr Davidson said there would now be
four heavyweight worldwide container terminal operators--Hong Kong's
Hutchison Ports, Singapore's PSA, APM, part of the Maersk Group and DP
World.
DP World became the world's sixth largest container terminal
operator this year when it bought CSX World Terminals, the terminals
business formerly owned by the U.S. Railroad.
P&O had long been seen as a bid target because of its excellent
assets across the globe, but particularly in China and India.
______

Financial Times (London, England)--November 17, 2005 Thursday--London
Edition 1

DP World Moves Closer to P&O Bid

by Robert Wright

DP World has started due diligence work on P&O, the ports and
ferries operator, in a move that suggests the two are moving closer to
a takeover deal.
P&O has allowed DP World access to data on the company's operations
as part of the process, the Financial Times has learnt.
The development suggested DP World is the only active bidder for
P&O, despite widespread expectations that other large container port
operators would try to trump its bid--thought likely to be for about
Pounds 3bn.
DP World's main concerns are thought to surround the likely cost
and potential profitability of P&O's planned London Gateway container
port on the Thames, expected to cost Pounds 800m.
The port--which will be the UK's largest container port when
completed--is due to start operations in 2008.
Neil Davidson, container ports analyst at London-based Drewry
Shipping Consultants, said DP World would want to be sure that London
Gateway could be built for the amounts P&O had suggested before
deciding what to pay for the com-pany.
The London Gateway project is regarded as a key asset for P&O,
which is the only port operator to have planning per-mission for a
sizable container port development in south-east England, the area
where large container carriers prefer to call.
The main container ports--at Felixstowe and Southampton--are
reaching the limits of their capacity.
After it was announced in July, analysts estimated that the project
added between 13p and 23p per share--at least Pounds 100m in total--to
the company's present value.
DP World is likely to bring up widespread industry queries about
the extent of the dredging work needed to allow large container ships
to reach the port. It is also likely to raise questions about the
transport connections to the site, details of which still have to be
agreed to win planning approval.
The start of due diligence is the most definite step toward a deal
since a short meeting between the parties on October 31, the day after
news of DP World's intentions became public.
Singapore's state-owned Temasek Holdings--owner of PSA, the world's
second-largest container terminal operator--has retained UBS, the
merchant bank, to examine the possibility of bidding for P&O, the
world's fourth-largest container terminal operator, which has a
portfolio of assets in key areas around the world.
However, it appeared to have made no further move.
Mr Davidson said other potential bidders--including Hong Kong-based
Hutchison Ports, the world's largest container port operator and
Denmark's AP Moller-Maersk, third-largest operator--had been
demoralised by DP World's apparent ability to outbid any rival to buy
P&O.
______

Financial Times (London, England)--October 31, 2005 Monday--Asia
Edition 1

Dubai State Ports Operator Approaches P&O

by James Mackintosh

LONDON--DP World, Dubai's state-owned ports operator, has
approached P&O about buying all or part of the British ports and
ferries group, according to people close to the companies.
The approach, made last week, remains tentative but meetings are
understood to be likely to take place between the two sides soon. One
person familiar with the approach said it was unclear whether DP World
wanted to take over the whole of P&O, or just buy its freight business,
on which it has been refocusing. At Friday's closing price P&O was
worth Pounds 2.3bn (Dollars 4bn).
However, the approach could spark a multi-billion pound bidding war
for P&O, once the flagship of Britain's merchant navy. P&O is the only
listed global ports operator and both Denmark's AP Moller-Maersk and
Hong Kong's Hutchison conglomerate, which have biggercontainer port
businesses, are considered likely counterbidders.
Singapore's state holding company, Temasek, is understood to have
built a small stake in P&O as an investment but could also take part in
any auction to bolster its NOL container business.
DP World has been expanding rapidly as part of the strategy of
Dubai to become a transport hub. The purchase of P&O would seal its
position in the top league of operators.
It would also confirm the strategy of spending the emirate's petro-
dollars from the record oil price on foreign assets, which this year
have included a Dollars 1bn stake in DaimlerChrysler, the German
carmaker, and the Pounds 800m purchase of the Tussauds waxworks
museums.
P&O yesterday refused to say to whom it was talking. ``P&O confirms
that it has received a very preliminary contact from a third party,
which may or may not lead to an offer for the company,'' it said in a
statement. DP World declined to comment.
The sale of P&O, officially the Peninsular and Oriental Steam
Navigation Company, would end 165 years of flying the flag for Britain.
P&O has already slimmed down significantly in the past 6 years,
demerging the Princess cruise line, selling Bovis, the construction
company, its stake in Royal P&O Nedlloyd container shipping, bulk
shipping and property including golf courses, shopping centres and
London's Chelsea Harbour development. It now concentrates on its
container ports busi-ness, while also being Britain's biggest ferry
operator.
DP World spent Dollars 1.15bn this year to buy the container
terminal business of CSX, the Florida-based railway company, widely
regarded as a hefty premium. The company plans to more than triple its
volumes within the next 10 years, and has been growing more than 20 per
cent annually for the past 3 years.
DP World has hired Deutsche Bank to advise it on the bid. P&O has
retained Citigroup.
______

Confidential Pursuant to Sections 552(b)(3) and (4) of the Freedom of
Information Act, 5 U.S.C. Sections 552(b)(3) and (4), and
Section 721(b) of the Defense Production Act, 50 U.S.C. App.
Section 721(b)
January 6, 2006
Stewart A. Baker,
Assistant Secretary for Policy, Planning, and International Affairs,
United States Department of Homeland Security,
Washington, DC.

Dear Mr. Baker:

This letter outlines the joint representations and commitments of
Ports, Customs and Free Zone Corporation, a Dubai public corporation
established by Dubai Royal Decree under Law No. (1) of 2001 (``PCFC''),
Peninsular & Oriental Steam Navigation Company, a company incorporated
by Royal Charter in the United Kingdom and listed on the London Stock
Exchange (``P&O''), and P&O's wholly owned U.S. subsidiary, P&O Ports
North America, Inc. (``P&O North America''), with respect to the
proposed acquisition by PCFC of P&O through its wholly owned subsidiary
Thunder FZE, a Dubai corporation, which will also result in the
acquisition by PCFC of P&O North America. The commitments of PCFC, P&O
and P&O North America contained herein shall only be effective if and
when the proposed acquisition by PCFC of P&O closes.
This letter reflects the joint representations and commitments by
these Companies (``the Companies'') to the U.S. Department of Homeland
Security (DHS) in connection with a joint voluntary Notice filed on
December 15, 2005, with the Committee on Foreign Investment in the
United States (``CFIUS'') by the special purpose vehicle subsidiary of
PCFC, Thunder FZE, and P&O North America, with respect to the foregoing
described proposed acquisition. These joint representations and
commitments are being provided for the purpose of providing assurances
requested by DHS with regard to law enforcement, public safety and
national security issues within the jurisdiction of DHS. These joint
representations and commitments have been discussed with DHS and other
CFIUS agencies in a series of briefings and follow up communications
both before and after the aforementioned CFIUS Notice was filed for the
purpose of providing supplemental information for those agencies to
consider in exercising their role on CFIUS.
These Companies hereby confirm their joint representations and
commitments to the following:
Maintenance of Membership, Cooperation, and Support in Security
Arrangements
As was noted by the Companies in a briefing for CFIUS at the U.S.
Treasury Department on December 6, 2005, the Companies represent and
commit to maintain no less than their current level of membership in,
cooperation with, and support for those Security Arrangements they
currently participate in, as outlined in section 7(D) of the December
15 CFIUS Notice. Specifically, those Security Arrangements include the
Customs-Trade Partnership Against Terrorism (``C-TPAT''), the Business
Anti-Smuggling Coalition (``BASC''), and the Container Security
Initiative (``CSI'').\1\ In addition, PCFC will continue to maintain
their level of membership in, cooperation with, and support for the
March 2005 Memorandum of Understanding with the U.S. Department of
Energy to support CSI by cooperating and restricting the trafficking in
nuclear and radioactive materials, in particular using the specialized
equipment at Dubai's seaports terminals and training of personnel to
inspect material and share information with respect to such material,
as outlined in paragraph 5.6 of the November 17, 2005, ``Project
Thunder Background Briefing Paper for the [CFIUS],'' (``Project Thunder
Background Briefing'') as amended December 15, 2005.\2\
---------------------------------------------------------------------------
\1\ The Companies will also continue to comply with all
international and domestic Security Arrangements which are required by
law and with which they have represented in the above-referenced CFIUS
Notice they currently comply, such as the International Ship and Port
Facility Security Code (``ISPS'') and 33 CFR Subchapter H.
\2\ PCFC will also maintain no less than the current level of
membership, cooperation, and support for Security Arrangements pursuant
to the terms of those Security Arrangements with the U.S. Armed Forces,
including, in particular, the provision of services to U.S. Navy
vessels and personnel at Jebel Ali Port, as noted in paragraph 5.7 of
the Project Thunder Background Briefing, although these arrangements
are outside the purview of DHS.
---------------------------------------------------------------------------
The Companies further assure that, should they propose material
changes with respect to maintenance of their level of membership in,
cooperation with, or support for these Security Arrangements, the
Companies will provide at least thirty (30) days advance written notice
of such proposal to the Assistant Secretary of DHS for Policy,
Planning, and International Affairs, detailing the reasons, timing, and
plans for such proposed change. The companies further agree to meet and
confer with any DHS designated U.S. Government officials prior to
implementing such proposed change, to provide any relevant information
requested with respect to such proposed change, and to reasonably
address any security concerns raised with respect to such proposed
change.
Management of U.S. Facilities
The Companies hereby represent and commit that their current intent
and plan is to operate any U.S. facilities they own or control to the
extent possible with the current U.S. management structure. These
facilities include the U.S. persons being acquired as outlined in
section 3 of the above-referenced CFIUS Notice.
Security Policies and Procedures, Officers, and Points of Contact for
U.S. Facilities
The Companies represent and commit that they will maintain security
policies and procedures at the U.S. facilities, under the direction of
a responsible corporate officer, who will serve as a point of contact
for DHS in any U.S. facilities owned or controlled by the Companies,
including the U.S. persons being acquired as outlined in section 3 of
the above-referenced CFIUS Notice. The companies further represent and
commit that they will make any relevant information concerning those
policies and procedures promptly available to DHS upon written request
and will meet and confer with any U.S. Government official designated
by DHS to address any concern.
Assistance to Law Enforcement
The Companies represent and commit that they will take all
reasonable steps to assist and support Federal, state and local law
enforcement agencies, including but not limited to DHS agencies such as
U.S. Customs and Border Protection, U.S. Coast Guard, and U.S.
Immigration and Customs Enforcement (``CBP, Coast Guard, and ICE''), in
conducting any lawful law enforcement activity related to any service
provided in the U.S. by the Companies or their subsidiaries. Such
assistance shall include, but not be limited to, disclosure, if
necessary, of information relating to the design, maintenance or
operation of the Companies' U.S. facilities, equipment or services. In
particular, the Companies also agree to promptly provide, upon written
request, any relevant records that may exist in the U.S., involving
matters relating to foreign operational direction, if any, of U.S.
facilities owned or controlled by the Companies. The companies will
maintain such records according to record retention policies adopted in
the normal course of business of those facilities.
Non-Objection in CFIUS
The Companies understand that, promptly following execution of this
letter by an authorized representative or attorney for the Companies
and delivery thereof to DHS that DHS shall notify CFIUS that DHS has no
objection to the proposed transaction described in the aforementioned
CFIUS Notice.
The Companies further understand that, in the event that their
joint representations and commitments as set forth in this letter are
materially false or misleading, or the parties have omitted material
information, DHS may (in addition to any other remedy available at law
or equity) request that the CFIUS initiate a review of the Companies'
activities to determine whether such misstatement or omission threatens
to impair U.S. national security and, if it does, to determine an
appropriate response to protect U.S. national security. In addition, in
the event that these representations are otherwise materially nullified
or breached, DOS may seek any other remedy available at law or equity.
Sincerely,
Robert Scavone,
Executive VP.
Ports, Customs and Free Zone Corporation,
P&O Ports North America.
______

Addendum from H. Edward Bilkey to Hon. Ted Stevens, March 8, 2006
Dear Mr. Chairman:

I am writing regarding my written testimony of February 28, 2006
before the Senate Commerce, Science and Transportation Committee. I
have been advised that I was incorrect in one statement in my written
testimony. I am writing to correct the record with regard to that
statement.
Specifically, I stated on page 6 of my prepared remarks that the
Committee on Foreign Investment in the United States (CFIUS) had a
previous filing from DP World's acquisition of CSXWT. Although I
previously understood this to be the case, upon further research and
consultation with our attorneys, I have been advised that CFIUS did not
review that acquisition.
I respectfully request that this letter be added to my testimony so
that the record is corrected.

The Chairman. Well, thank you very much. I did not put a
time limit on you, Mr. Bilkey, I had seen your statement, and I
think, under the circumstances, with all the charges that are
made, you deserved the right to have a full statement.
Mr. Bilkey. Thank you.
The Chairman. We'll go back, gentlemen, though, to our
normal limit, for the rest of you. I hope you'll understand.
Mr. Scavone, do you have a statement?

STATEMENT OF ROBERT SCAVONE, EXECUTIVE VICE

PRESIDENT, STRATEGIC PLANNING AND DEVELOPMENT,

P&O PORTS NORTH AMERICA, INC.

Mr. Scavone. I don't have any prepared statement, Mr.
Chairman.
Just by way of introduction, I am Rob Scavone. I am the
Executive Vice President for P&O Ports North America. Included
in my responsibilities is our security measures in all of our
terminals. I also happen to be a Member of the Board of
Directors of the National Association of Waterfront Employers.
Mr. Yoshitani is speaking on behalf of our group today.
I also serve as a Co-Chairman of an advisory group to the
International Standards Organization on matters of container
security, which group includes all major international terminal
operators in the world.
I look forward to contributing to the discussion with any
questions anybody may have about how our security works on the
ground in our terminals in the United States.
The Chairman. Thank you, Mr. Scavone.
Our next witness is Mr. Tay Yoshitani, Senior Policy
Advisor for the National Association of Waterfront Employers of
Washington.

STATEMENT OF TAY YOSHITANI, SENIOR POLICY ADVISOR, NATIONAL
ASSOCIATION OF WATERFRONT EMPLOYERS (NAWE)

Mr. Yoshitani. Yes, sir.
The Chairman. Yes, sir. All the statements will appear in
the record in full. We hope you will summarize them within 5
minutes.
Thank you, Mr. Yoshitani.
Mr. Yoshitani. Yes, sir.
Good afternoon. I'm Tay Yoshitani, the Senior Policy
Advisor for the National Association of Waterfront Employers.
We call ourselves NAWE. We're a national trade association
which includes most of the large private sector marine
terminals--terminal operators in the U.S.
And, just briefly, by background, prior to this role with
NAWE, I served as the Executive Director at both the Port of
Oakland and Baltimore, and was the Deputy at the Port of Los
Angeles.
And on behalf of NAWE, I want to thank the members of this
committee for giving us the opportunity to comment on maritime
cargo security and S. 1052.
It's estimated that the maritime industry handles about 15
percent of the U.S. GDP. Our membership reflects the
international scope of the maritime industry and terminal
operations. Many of the members of--many of the members are
U.S. company-owned, but many are foreign-company-owned, as
well. And, Senator Cantwell and Lautenberg, I'd like to point
out that SSA Marine and Maher Terminals, who are respectively
headquartered in your states, are active members of NAWE. And,
as Mr. Scavone has already stated, P&O is an active member of
NAWE, as well.
Recent events have brought attention on the typical
structure of U.S. ports and what role terminal operators play.
Terminal operators typically lease property from ports and
load and unload cargo between ships and marine terminals. Now,
this sounds a bit simplistic, but it's really not. On any given
day, there may be several ships at berth, with thousands of
containers being loaded and unloaded, while a comparable number
of trucks are entering and exiting our terminal to pick up and
drop off a load. To do this on a day-in and day-out basis in a
safe manner while keeping track of where the container is and
where it's supposed to go is a daunting task. Furthermore, we
conduct our business in compliance with numerous Federal
statutes, regulations, policies, many of which are obviously
security-related.
I want to clarify how we view our role with respect to
security. There are basically two security issues. Somewhat of
an oversimplification, I grant. The first is the facility
security, which includes the port and the individual marine
terminals. The MTSA clearly designates the Coast Guard as the
lead authority on facility security. And, of course, under
these regulations, our terminal operators are required to
submit a comprehensive facility security plan, as you know.
The second area of security is what we will refer to as the
``cargo chain.'' This refers to understanding what's inside the
box, and ensuring that that box is not breached during the
transit. This is the area that most experts have concerns
about. The terminal operator actually has very little to do
with this aspect of security, other than a supporting role of
moving containers around the terminal, under the direction of
CBP.
When CBP wishes to inspect a container, they notify the
terminal operator of the box number, and the box number only.
When CBP wishes to--they do not reveal the name of the shipper,
the content, the origin, or the destination of that box. And
for our purposes, we don't have a business interest in knowing
the content of the container. We are not given this
information, and we do not track this information. The one
exception is hazardous cargo, and there is special handling for
that, which I can go into in detail, if you'd like.
We recognize that security is everyone's business and
requires a public/private partnership. NAWE and all of its
members have been working closely with our partners at the
Coast Guard, TSA, and CBP. We are active members of the MTSA
Subcommittee on COAC. We're currently involved in the ISO RFID
electronic seals discussion. And it's worthy to note that each
of our members are currently C-TPAT-compliant.
NAWE is in full support and agreement with the approach
that the private and public partnership has taken with respect
to port security. And I'll go over this very, very briefly.
Layered approach, we've talked about that already. Risk
mitigation, by narrowing the focus into--narrowing the focus is
also a critical element of the approach. Pushing the borders
out. Controlling access to our terminals using the TWIC
program. International standards that must be agreed upon
before various security programs can be implemented. And, last,
leveraging technology.
Terminal operators are already employing various
technologies, such as OCR and RFID, not only to improve
operations, but to enhance security, as well.
And, in conclusion, members of this committee, we fully
support Senate bill 1052. We believe that it's on the right
track.
[The prepared statement of Mr. Yoshitani follows:]

Prepared Statement of Tay Yoshitani, Senior Policy Advisor,
National Association of Waterfront Employers (NAWE)
Introduction . . . Who is NAWE?
Good afternoon, I'm Tay Yoshitani, the Senior Policy Advisor to the
National Association of Waterfront Employers (NAWE), a national trade
association which includes most of the large private sector marine
terminal operators in the U.S. Briefly by way of background, prior to
this role with NAWE, I served as Executive Director at both the Port of
Oakland and Baltimore, and was the Deputy at the Port of Los Angeles
(bio attached). On behalf of NAWE, I want to thank the members of the
Senate Committee on Commerce, Science, and Transportation for giving us
the opportunity to comment on maritime cargo security and S. 1052.
NAWE members work closely with port authorities, ocean carriers,
railroad and trucking companies, organized labor and shippers to ensure
the smooth flow of international commerce that keeps our country's
economy strong. It is estimated that the maritime industry handles
about 15 percent of the U.S. GDP. Our membership reflects the
international scope of the maritime industry and terminal operations.
Many of the members are U.S. company-owned, but many are foreign-
company owned as well. In fact, P&O Ports has long been an active
member of NAWE and holds a seat on the Board of Directors.
NAWE has been involved with port security since concerns were first
raised almost 10 years ago. This Association testified before this
committee on the initial Maritime Transportation Security Act (MTSA)
several months before 9/11, and, since its passage, we have been
involved with the Coast Guard, TSA, CBP, and other elements of DHS as
MTSA-based security regulations, C-TPAT, and cargo inspection programs
have been developed and implemented.
What Do Terminal Operators Do?
Recent events have brought much attention on the typical structure
of most U.S. ports and what role terminal operators play. As you know,
the vast majority of ports in the U.S. are publicly owned by a state or
municipal authority. Typically, the port authority, as land and fixed
asset owner, leases out marine terminals to terminal operators but
retains a multitude of important responsibilities. As terminal
operators, our members typically lease property from ports and
essentially conduct the business of loading and unloading cargo between
ships and marine terminals. This sounds a bit simplistic, but it's not.
On any given day, there may be several ships at berth with thousands of
containers being loaded and unloaded, while a comparable number of
trucks are entering and exiting our terminal to pick up or drop off a
load. To do this day-in and day-out in a safe manner, while keeping
track of where each container is and where it is supposed to go, is a
daunting task.
It is worth noting that some terminal operators provide a service
that is more limited in scope than what I have just described. For
example, in some cases, private operators are pure stevedores,
servicing terminals run by operating port authorities. Regardless of
scope, we conduct our business in compliance with numerous Federal
statutes, regulations and policies. In this post 9/11 world, many of
these are, of course, security related. In fact, we are perhaps one of
the most federally regulated industries in the country.
What is a Terminal Operator's Role in Port and Cargo Chain Security?
Given recent interest in the role of marine terminal operators, I
want to take a moment to clarify how we view our role, specifically
with respect to port and cargo security. To do this, it's helpful to
separate security issues into basically two categories. The first is
``facility security'' which includes the port in general and individual
marine terminals. The MTSA clearly designates the Coast Guard as the
lead authority on port facility security. Under Coast Guard
regulations, terminal operators are required to submit a comprehensive
Facility Security Plan (FSP) for approval. Subsequent to initial
submission, the Coast Guard conducts regular audits as well as annual
exercises. Terminal operators are well aware that failure to comply
with this approved plan may be cause for closure of the facility.
Needless to say, terminal operators take these plans, audits, and
exercises very seriously.
In conjunction with the Coast Guard, the Port Authorities are also
actively engaged in facility security matters. Many Port Authorities
have their own Port Police Force while others have a contractual
relationship with their respective municipal police authority. A
typical lease between the port and terminal operator may include
security requirements that are borne by the lessee. But ultimately, the
terminal operator is responsible directly to the Coast Guard on
terminal security matters.
One key aspect of facilities security is access control of people
and equipment. NAWE is in strong support of the upcoming TWIC program.
We have reached out on a number of occasions to both the Coast Guard
and TSA regarding this program including a recent submission of a
``white paper'' (see Attachment A) that includes recommendations with
respect to truck gates at marine terminals.
The second area of security is what we refer to as the ``cargo
chain.'' Essentially, this refers to understanding ``what is inside the
container.'' Much has been written about this aspect of security, and
it is the area of risk that most concerns those who understand maritime
industry. The terminal operator actually has very little to do with
this aspect of security other than a supporting role of moving
containers around under the direction of CBP/DHS. When CBP wishes to
inspect a container, they notify the terminal operator of the box
number only. They do not reveal the name of the shipper, content,
origin, or destination.
The ``business service'' that terminal operators provide is
measured in terms of the ``container unit.'' We need to know from the
customer what the disposition of the container should be. Is it for
pick-up by a local business by a trucking company? Is it to go to a
nearby rail yard for transport to some inland destination? For our
purposes, we don't have a business interest in knowing the content of
the container. We are not given this information and we do not track
this information. The one exception is if there is hazardous cargo in a
container. We would know this because it is included in the ocean
carrier's stowage plan, and these containers require special handling
by the terminal operator. Of course, we are well aware that regulations
are being drafted for ``cargo chain security'' as we speak. Although
terminal operators will have no responsibility for cargo within
containers, these impending regulations may call for the terminal
operator to play some role in making sure that container seals have not
been breached. But here again, we anticipate that our role would be
limited to reporting the breach to the proper authority and taking
action only under that authority's direction.
We recognize that security is everyone's business and requires a
public-private partnership. NAWE and all of its members have been
working closely with our partners at the Coast Guard, Transportation
Security Administration, and Customs and Border Protection. We were
active members of the MTSA Subcommittee of the Commercial Operations
Advisory Committee. We are currently involved in the ISO RFID
electronic seals discussion that may ultimately establish the much
needed standard for the industry. And, it is worthy to note that all of
our members are C-TPAT compliant.
NAWE Perspective on Maritime Security Concept/Approach
NAWE is in full support and agreement with the approach that the
public-private partnership is taking to address maritime facilities and
cargo chain security.

1. The ``layered approach'' is rational and makes good sense.
No system by itself will ever be perfect. It makes sense that
the initial layers begin well before the container reaches our
terminals. After screening and targeting, the 24-hour rule
permits CBP to get manifest data before loading at the foreign
port. CSI allows comprehensive vetting before vessel loading.
And, finally, before reaching our terminals, the Coast Guard
has the option to board a vessel before it enters our harbors.
The layered approach minimizes the chance of a breach of the
system.

2. ``Risk mitigation'' is also a critical element of the
approach. This starts with risk assessment one container at a
time. CBP must be able to narrow their focus and direct their
attention to a manageable percentage of containers in order to
physically inspect them.

3. ``Pushing the borders out'' is also an excellent approach
for inbound cargo and goes hand-in-hand with the ``layered
approach.'' The CSI program and RPMs at foreign ports are
examples of pushing the borders out. There are other
developments such as the Integrated Container Inspection System
(ICIS), though not yet fully tested, that holds promise of
further strengthening this approach. The detection of problem
containers needs to be well before they reach our terminals.
The focus must be at the point of stuffing the container and
loading it onto a ship.

4. Controlling access to marine terminals using the impending
TWIC program is also a good approach. However, at this point,
it is our understanding that technology problems still exist
with scanning of cards and biometric indicators. The accuracy
rate of the TWIC system must be very high for the system to be
effective. Subject to resolution of these problems, we are in
strong support of this program and continue to urge early
implementation.

5. We all recognize that this is an international business and
security issues transcend international borders. Therefore, our
solutions must be implemented with international cooperation.
International standards must be agreed upon before various
security programs can be implemented on a global basis.

6. And last, leveraging appropriate technology makes a lot of
sense. Terminal operators are already employing various
technologies such as OCR and RFID to not only improve
operations but enhance security as well. We support the use of
technologies as long as they are appropriate and fully tested.

We support all of these concepts/approaches. If all of these
approaches could be fully implemented, overall security at the
facilities and the cargo chain would be greatly enhanced.
Comments on S. 1052
We have reviewed the ``Transportation Security Act'' (S. 1052)
using the six approaches and concepts that I just mentioned and find
them to be consistent. Therefore, NAWE fully supports this Senate bill
as currently written. In the interest of time, I wish to limit my
comments to three key points. However, we would be happy to submit, in
writing, responses to any questions you might have on any of the
specific provisions of this bill.

1. Provisions indicate clear recognition that DHS must obtain
more and better information about what is being loaded inside
the container at the point of ``stuffing.'' This is followed by
the upgrading of our Automated Targeting System. We believe
this represents the most significant opportunity to improve
cargo chain security. We are encouraged that this bill would do
much to improve upon this critical area.

2. The CSI program is perhaps the most important effort to
``push the borders out.'' This bill includes provisions to
continue and enhance this program. This program needs to be
adequately funded and expanded as quickly as possible.

3. And, last, I'll just mention that we are encouraged that
leveraging technology is an important element of this bill. The
number of containers entering and leaving the U.S. is expected
to grow rapidly over the next couple of decades. There is no
way that facility and cargo chain security can be significantly
enhanced without advances in technology.

What Else Should DHS and Their Agencies Be Doing?
In conclusion, NAWE is in support of the overall approach that is
being taken to improve maritime facilities and cargo chain security. We
also support S. 1052. We understand and recognize that terminal
operators do have an important role in this public-private partnership.
We stand ready to do our part.
We are concerned about the pace at which progress is being made on
the various fronts. Cargo chain security regulations and the TWIC
program are two that come to mind. Both of these are complex, but they
are vital to upgrading facility and cargo chain security. Proposed
regulations should be issued as soon as possible. And we urge this
committee to continue to provide the resources and oversight to bring
these programs to completion. Along with all our colleagues in this
industry, members of NAWE have a direct and vested interest in overall
maritime security. In this regard, NAWE has, in the past, offered to
provide a ``loaned executive'' to both the Coast Guard and the TSA to
provide industry expertise. We are respectful of the established
rulemaking procedures but continue to stand by this offer.
My last note is to invite all members of this Senate Committee and
members of your staff to visit one or more of our members' terminals. I
can promise you that it will be interesting and well worth the
investment of your time. Please feel free to contact me or any of my
colleagues at NAWE to coordinate a tour at a terminal that is
convenient to you. I can assure you that our members would be delighted
and honored to host a tour.
Again, thank you for the opportunity to address this committee. I'd
be happy to answer any questions you might have at the appropriate
time.
______

Attachment A--Implementing the Transportation Worker Identification
Credential (TWIC) At Domestic Marine Cargo Handling Facilities: Issues
Raised Concerning Facility Truck Gate Operations
Executive Summary
The members of the National Association of Waterfront Employers
(NAWE), Pacific Maritime Association (PMA), and United States Maritime
Association, Limited (USMX) have long supported the expeditious
implementation of the TWIC program. On February 4, 2005, these entities
sent a letter to the Transportation Security Administration summarizing
their position on several key policy issues regarding the TWIC which
were as follows:

1. The expeditious implementation of the TWIC program is an
essential component of port security:

2. Employers of maritime labor must not be involved in the
application, vetting, or issuing process of employees seeking
to obtain a TWIC. TWICs must be issued by a government
authority or its trusted agent;

3. Acts that disqualify an individual from obtaining a TWIC
should be related to terrorist acts or crimes against national
security; and

4. The TWIC program must have a meaningful appeals process to
permit workers at risk of being denied a TWIC card the ability
to correct errors, explain mitigating circumstances, or
otherwise present evidence of rehabilitation.

Those issues previously raised were broad policy matters: the issue
we are currently addressing relates to the potential direct impact of
the TWIC program on marine cargo handling facility truck gate
operations. \1\ These gate operations process outside port truck
drivers who are entering a facility to deliver or receive cargo.
Efficient truck gate operations are as important to a facility as
efficient vessel operations and have broader impact on the entire port
area. Policy makers implementing the TWIC program must consider the
impact on the port drayage community and ensure that obtaining a TWIC
is easy and accessible. The TWIC itself must be reliable and durable
with a reasonable procedure for loss or damage. TWIC reader hardware
must also be durable and weather resistant and able to accommodate
different terminal configurations. It is imperative that the data
systems supporting the TWIC be able to accommodate limited integration
into the systems being deployed to process cargo and truck drivers at
marine facilities. Key to the success of the program will be in
implementing a system that provides a timely and clear indication of
the validity of the TWIC. This paper will provide recommendations to
ensure that the eagerly-anticipated TWIC program does not negatively
impact facility truck gate operations.
---------------------------------------------------------------------------
\1\ Many of the issues identified in this paper as relevant to
truck gate operations are also relevant to the gates where longshore
and other workers gain access to the facility. While this paper solely
focuses on truck gate operations, it is imperative that longshore
workers and other individuals needing access to a marine terminal
facility are also able to utilize a TWIC system that is secure and
efficient and does not unduly delay these individuals at the gates they
use for facility access.
---------------------------------------------------------------------------
Background
There are a few ``guiding principles'' that frame our perspective
on the TWIC program and they are as follows:

We acknowledge that strong cooperation between the Federal
Government and the private sector is critical for security
programs such as TWIC to be effective.

Fast and smooth flow of cargo through marine terminals is
not only important to terminal operators, it is critical to our
national economy.

Improving velocity of goods flowing through ports and marine
terminals reduces environmental impacts to surrounding regions.

The port drayage industry is a vital but challenged link in
the marine transportation system and must not be negatively
impacted.

Inherent differences among terminal configurations and
operations suggest that some degree of flexibility in
implementing the TWIC program at truck gates will be important.

The TWIC check at the truck gate must be simple and provide
timely and clear indication of the validity of the TWIC.

TWIC regulations must not conflict with existing Coast Guard
regulations that provide terminal operators with discretion
regarding access to the terminal by any one including drayage
drivers.

A. The Port Drayage Industry--Needs Special Consideration
The typical port drayman operating at a major U.S. port is an
independent owner/operator. As owner of one truck, he or she generally
has no administrative support for his or her operation. The port
drayman is typically affiliated with one or more ``trucking companies''
that broker business between the cargo interest and the ocean carrier.
Port draymen are generally compensated by the trip. As an independent
operator, financial success is predicated on how many trips can be made
during a given day. Delays at truck gates and inside marine terminals
can devastate their operations. This can be arduous work with lots of
pressure and low profit margins. Accordingly. the availability of port
draymen is at risk at many port areas. Every effort must be made to
ensure that the application process for obtaining a TWIC is convenient
and efficient for these drivers.
In past discussions about TWIC, the concept of ``sponsors'' has
been mentioned. Sponsors may help identify persons who need to obtain
TWIC cards for a legitimate business purpose. The term ``sponsor''
implies some responsibility and possibility even liability resulting
from a process the potential sponsor has little or no control over and
is an inappropriate designation for this function. While we support the
concept of ``sponsors,'' we suggest using the term ``nominating party''
which more accurately reflects the business relationship. In the case
of port draymen, due to their independent status, there are no
companies or associations that can readily identify those who need
TWICs. However, more than any other group of transportation workers,
these drivers need an administrative entity to help them obtain TWICs
and remain compliant with the program. The following suggestions may be
of assistance in addressing the challenge of port draymen.
1. Utilize Third Party Contractors
Many port areas are served by third party contractors in the
business of facilitating information flow between trucking companies
and terminal operators. This information flow allows terminal operators
to notify trucking companies of the status of certain containers to
improve efficiency for the trucking company and the terminal operator.
This third party model could serve as a possible ``infrastructure'' for
truck drivers servicing many ports. This model could also easily be
expanded to other ports that do not currently have this service. These
contractors could be the nominating party and provide an expeditious
way of identifying port truck drivers who need a TWIC and provide
certain administrative support. TWIC regulations must allow for the
Federal Government to delegate this function to a responsible third
party contractor.
2. Keep Enrollment Convenient But Not Located at Terminal Facilities
The enrollment centers for the TWIC program should be accessible to
port draymen as well as other port workers. In addition, it is likely
that TWICs will be lost and damaged necessitating replacement. The
location of facilities to handle such activities should be convenient
and accessible but also a sufficient distance away from terminal
facilities in order to avoid congestion at critical areas.
Administrative TWIC issues should not be handled at the terminal and
particularly at the terminal gate.
3. Timely Notification of Upcoming Renewals
The TWIC should be valid only for a defined period of time after
which it expires unless duly renewed according to regulations. It will
be important to have an efficient easily understood procedure to notify
drivers of impending expiration as well as procedure to renew the TWIC.
B. The TWIC Card--Must be Durable
Port drivers spend most of the day in an industrial environment.
They will make multiple calls at facilities which will require a TWIC
card for entry. With typical usage, the card will be subjected to rough
handling. It is also anticipated that TWICs will get damaged or lost.

1. TWIC cards must be designed to withstand the environment and
the handling that will be typical with truck drivers.

2. Regulations must address procedures for obtaining
replacement cards if lost or damaged. Because of the importance
of having a valid TWIC card, we suggest that regulations
require re-issuance of TWIC within 24 hours of report of loss
or damage.

C. TWIC Reader/Hardware
Each marine terminal is designed differently to accommodate unique
features of the property and nearby infrastructure. While the function
of a truck gate at the various terminals is similar, the truck queuing
lanes are often differently configured and the location of certain
functions will vary from terminal to terminal. Design and configuration
differences often dictate differences in operations. Therefore, while
regulations should define performance specifications for the TWIC
reader/hardware equipment, how they are incorporated into existing
terminal gates should be a matter for the facility to determine.
Truckers with a rig and cargo at a terminal truck gate present
unique challenges to the system. Truckers denied access must have an
easy way of getting out of the truck lanes and getting out of the way
of other trucks. Equipment failure will quickly lead to hundreds of
trucks backed up in grid lock in front of a marine terminal.
TWIC reader equipment will also be exposed to harsh environment and
rough handling. It must be robust, durable and reliable. Repairs and
regular maintenance will be a critical issue.

1. Regulations must make allowance for differences in terminal
configuration and operations. An optimal configuration of TWIC
equipment at one terminal may not be possible at another
terminal. Terminal operators must be given sufficient
flexibility, while working closely with TSA and Coast Guard, to
install equipment and operate in compliance with these
regulations.

2. The reader equipment must be durable and reliable. Because
the terminal operator is the party closest to the equipment as
well as the party most impacted by equipment failure, the
terminal operator should be responsible for procurement,
installation, operation and maintenance of this equipment
consistent with specifications defined by TSA and Coast Guard.
To the extent TWIC regulations address program cost and
funding, we recommend that a portion of the application fee be
dedicated to reimbursing the private sector for the purchase
and operations of TWIC equipment.

3. While allowances for differences in terminal configuration
must be considered, the prototype TWIC system pointed out the
need for similarity in the operation of the readers. Truckers
will need to be trained as to where to insert the TWIC and how
to respond to system prompts. The reader operability should be
similar from reader to reader and terminal to terminal so the
truckers will not have to learn different systems. Moreover, if
there are visual indicators, they should be clear enough to be
seen in all lighting conditions found at the gates. If there is
an audio element, it should be loud enough to be heard and yet
isolated enough so that it does not carry over to an adjacent
reader.

D. The TWIC System
Beyond keeping our terminals secure of unauthorized truckers, the
issue of greatest concern to terminal operators is how the TWIC might
impact the speed at which truckers can get through the gates. This is
also important in ensuring that shifts of longshore workers are not
unduly delayed at their gates. As mentioned above, the overall
efficiency of a given marine terminal is significantly determined by
this function. Over the years, terminal operators have worked hard and
invested millions of dollars to improve and refine this activity. In
addition, within the past few years, there has been mounting pressure
to speed trucker's gate transactions ever faster with the goal of
reducing long lines of idling trucks and reducing diesel emissions. The
result is that today, terminal operators have very efficient gates to
process trucks quickly. It is possible that new technologies may enable
terminal operators to further increase velocity through the gates.
It is feared that the TWIC program may cause operators to give up
the gains in efficiency that the terminal operators have worked so hard
to secure. The TWIC validation at the facility gate must be
incorporated in a way that does not impact speed and efficiency of the
gates.

1. If each entry by a TWIC holder is checked through a central
data base, there could be millions of checks being conducted at
any single moment. It is doubtful that this approach can
provide the service level necessary to support our needs. The
trucker check must be almost instantaneous to avoid congestion
and delays at the gates. Therefore, instead of checking a TWIC
card against a large data base for each entry, it may be more
efficient to use an ``exception approach'' where each card is
checked against a problem list only. Furthermore, if this
problem list is frequently updated and made available to the
terminal operator. the trucker check can be expedited and the
TWIC system can be greatly simplified.

2. Decisions concerning who is eligible for and who is denied a
TWIC are matters for the Federal Government. To ensure
security, it is imperative that the Federal Government or its
trusted agent have the ability to routinely and periodically
update data bases as necessary. Fifteen minute intervals would
be appropriate.

3. The system may experience failure from time to time. There
might be a power outage that brings down the entire system.
There must be a protocol established for such an incident.
While the system may have built in redundancy and terminals
have alternative power, there needs to be a fail safe backup
system of conducting the transaction by hand.

E. Flexibility in Use of Terminal Operating Systems (TOS) to Meet
requirements
It is our understanding that the terminal operators may be asked to
maintain and furnish records of who is on the terminal at any given
time. Because terminal operators use terminal operating systems that
encompass a wide range of alternative methodologies, regulations in
regard to this provision must accord the terminal operator flexibility
and discretion in order to comply with the intent of this requirement.
F. Appropriate Phase-In
In certain areas of the country, depending on the final set of
criteria established for qualification, it is possible that a
significant number of port draymen may not be able to obtain a TWIC. As
mentioned above, port drivers are a critical link in the Nation's
marine transportation system and there is already a shortage in certain
regions. Additional shortages of drivers will be devastating. We must
make sure that this does not happen.
There are numerous ways to phase in the program so that a sudden
shortage does not occur. Our recommendation would be to mandate that
all individuals apply for TWICs well in advance of the implementation
date. The burden would be on the government to ensure that they are
received. A significant penalty fee for late applications might be
considered to create incentive for drivers to submit applications as
soon as possible. This approach would give industry indication of a
possible shortage of drivers as well as some time to mitigate. In
addition, this would provide a window of opportunity to review appeals
by drivers whose application for TWIC have been denied.
This is a sensitive issue. Because their livelihood is at stake,
those denied a TWIC are likely to seek an appeal. Such appeals must be
handled judiciously and expeditiously or to ensure fairness and avoid
driver shortages.
Conclusion
The TWIC program must be implemented as soon as possible. It will
be a significant enhancement to maritime security. There are numerous
issues that need to be addressed as TWIC regulations are finalized, the
marine terminal truck gate issue as addressed in this paper presents a
significant issue that should be addressed prior to the issuance of
regulations that might negatively affect the efficiency of port
facility operations.

The Chairman. Thank you very much. We've reviewed your
statement, and we thank you for the comments about that pending
legislation, and pleased that you agree with it. We're trying
to move it as quickly as possible, as you heard.
Our next witness is Christopher Koch, President and Chief
Executive Officer of the World Shipping Council, in Washington.
Mr. Koch?

STATEMENT OF CHRISTOPHER KOCH, PRESIDENT/CEO, WORLD SHIPPING
COUNCIL

Mr. Koch. Thank you, Mr. Chairman.
World Shipping Council's members are the international
liner shipping companies that call at U.S. ports. Many of our
members also have terminal operator subsidiaries or affiliates
that operate at U.S. ports as terminal operators.
Prior to my present position, I served at Sea-Land Service
for 7 years, and prior to that, I was Federal Maritime
Commission Chairman for a number of years. Presently, I serve
as Chairman of the National Maritime Security Advisory
Committee.
The perspective I'd like to bring today is to try to put in
broadbrush the fact that the United States has, this past year,
imported 11 million containers. We will import 12 million this
coming year. It's an immense amount of cargo that we're
handling, and it requires an immense amount of investment to
handle that well. We are keeping up with it, but it's a big
job.
We recognize, in the post-9/11 world, that we have to deal
with the vulnerability that terrorism presents to this
industry. So, the government has created a multilayered
strategy to try to deal with that. We think the fundamental
strategy is a good one.
There's a ship security strategy, which is overseen by the
Coast Guard, very professionally. There is a personnel security
strategy put in place. There is a port security strategy
overseen by Coast Guard, as well. That is the general issue of
concern, certainly today. Obviously, the majority of U.S.
terminal operators today are operated by private firms, and the
majority of those private firms are foreign companies,
affiliates or subsidiaries.
The stevedoring marine terminal operations are a service
industry that is open to foreign investment. Billions of
dollars of foreign investment have been made in the U.S., in
many of the ports represented by Senators on this panel, and
that investment has contributed substantially to a
transportation infrastructure that's critical to moving
America's commerce efficiently and reliably. That investment
has come from Japan, South Korea, Denmark, Britain, Chinese,
French, Taiwanese, and Singaporean businesses, just as American
companies have been allowed to invest in marine terminal and
stevedoring businesses in foreign countries.
I would note that I'm sure P&O Ports, in selling its
present assets, would have been very happy to receive a higher
bid from a U.S. interest. I don't think it received one.
The substantial majority of American containerized commerce
is handled by marine terminal operators that, as I said before,
are subsidiaries or affiliates of foreign enterprises. This is
an international, highly competitive industry providing
hundreds of thousands of American jobs. The United States
depends on it, and it, in turn, has served the needs of
American commerce well, adding capacity and service as the
needs of American exporters and importers have grown.
Port facilities, such as those discussed today, must, and
do, comply with all the Government's applicable security
requirements. There is no evidence that terminal facilities
operations conducted by foreign-controlled companies are any
less secure, or in any way less compliant with security
regulations, or in any way less cooperative with U.S.
Government security authorities than U.S.-controlled companies.
In fact, these companies work closely and cooperatively with
the Coast Guard, Customs and Border Protection, the military,
and other U.S. law enforcement agencies.
The other part of the cargo security--or the Maritime
security strategy--that the Administration has established is
to deal with cargo. It's been discussed by some of the Senators
already. The strategy here is not to just inspect 5 percent of
the box. A hundred percent of all containers are screened by
Customs and Border Protection before they are loaded on the
ship in the foreign port. The ocean carriers give Customs all
the information they have about those shipments. Customs
screens it at the National Targeting Center in Northern
Virginia, and they can issue any carrier a ``Do Not Load''
message before it's even put on a ship in a foreign port. The
fact is that the strategy is to call for 100 percent inspection
of any container CBP considers to be high risk. Whether that
number is 5 percent or 6 percent is really not the issue, it's
that they're trying to inspect 100 percent of everything that
is a high-risk box.
They also have other layers of the strategy, because
they're not just waiting for these things to get to the U.S.
There's a Container Security Initiative, where they have
agreements with 42 different nations at their ports to
cooperate with their customs authorities. There's a C-TPAT
program, where they're working with major U.S. importers to
improve supply-chain security. And they're also looking at
other ways to improve inspection.
I would like to commend Deputy Secretary Jackson and
Assistant Commissioner Ahern, because they're in the process of
looking at new technology being piloted in Hong Kong that could
allow for expedited and fast inspection of containers at
foreign ports before they ever get here, without disrupting
trade. There's many difficult issues involved with that, but
they're looking at it, they're focusing on it, and our industry
is fully supportive.
If there is good that can come out of this inquiry, we
agree with a number of the statements of Senators to look at
port security generally and figure out where our priority
attentions ought to be from this point on, building on a
successful strategy that has been established.
Our recommendation would be, first, to improve the data
that is presently being used to do risk assessment on
containers. Presently, they're only using the ocean carriers'
bill of lading in these foreign port assessments. That was a
very good start, a very good rule. We don't think it's
adequate. And it should be improved.
Second, continue to expand CSI. We need a network of
government-to-government agreements around the world, so that
when we have questions about containers, they can be inspected
in a cooperative manner.
Third, continue to do what Customs is doing in
strengthening the C-TPAT program.
Fourth, DHS ought to establish the TWIC program which is a
Transportation Worker Identification Card for U.S. ports.
Congress mandated it in 2002. It hasn't been implemented. We
know they're working on it, and that it's difficult, but it
ought to proceed.
And, finally, again, they ought to proceed with what
they're doing on looking at the expanded ability to inspect
containers at foreign ports with the ICIS type of expedited
radiation gamma-ray inspection technology.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Koch follows:]

Prepared Statement of Christopher Koch, President/CEO,
World Shipping Council
Introduction
Mr. Chairman and members of the Committee, thank you for the
opportunity to testify before you today. My name is Christopher Koch. I
am President and CEO of the World Shipping Council, a non-profit trade
association representing international ocean carriers, established to
address public policy issues of interest and importance to the
international liner shipping industry. The Council's members include
the full spectrum of ocean common carriers, from large global operators
to trade-specific niche carriers, offering container, roll-on roll-off,
car carrier and other international transportation services. They carry
roughly 93 percent of the United States' imports and exports
transported by the international liner shipping industry, or more than
$500 billion worth of American foreign commerce per year. \1\
---------------------------------------------------------------------------
\1\ A list of the Council's members can be found on the Council's
website at www.world
shipping.org.
---------------------------------------------------------------------------
I also serve as Chairman of the Department of Homeland Security's
National Maritime Security Advisory Committee, as a member of the
Departments of Homeland Security's and Treasury's Advisory Committee on
Commercial Operations of Customs and Border Protection (COAC), and on
the Department of Transportation's Marine Transportation System
National Advisory Council. It is a pleasure to be here today.
In 2005, American businesses imported roughly 11 million loaded
cargo containers into the United States. The liner shipping industry
transports on average about $1.5 billion worth of containerized goods
through U.S. ports each day. In 2006, at projected trade growth rates,
the industry will handle roughly 12 million U.S. import container
loads. And these trade growth trends are expected to continue after
2006.
The demands on all parties in the transportation sector to handle
these large cargo volumes efficiently is both a major challenge and
very important to the American economy.
At the same time that the industry is addressing the issues
involved in efficiently moving over 11 million U.S. import containers
this year, we also must continue to enhance maritime security, and do
so in a way that doesn't unreasonably hamper commerce.
The Department of Homeland Security (DHS) has stated that there are
no known credible threats that indicate terrorists are planning to
infiltrate or attack the United States via maritime shipping
containers. At the same time, America's supply chains extend to tens of
thousands of different points around the world, and the potential
vulnerability of containerized transportation requires the development
and implementation of prudent security measures. Like many parts of our
society, we thus confront an unknown threat, but a known vulnerability.
What is the appropriate collection of measures to address this
challenge?
The Department of Homeland Security's maritime security strategy
involves many different, but complementary, pieces.
It includes the establishment of vessel security plans for all
arriving vessels pursuant to the International Ship & Port Facility
Security Code (ISPS Code) and the Maritime Transportation Security Act
(MTSA).
It includes the establishment of U.S. port facility security plans
and area maritime security plans pursuant to the ISPS Code and MTSA,
and the establishment by the Coast Guard of the International Port
Security Program (IPSP) pursuant to which the Coast Guard visits
foreign ports and terminals to share and align security practices and
assess compliance with the ISPS Code.
It includes the Maritime Domain Awareness program, under which DHS
acquires enhanced information about vessel movements and deploys
various technologies for better maritime surveillance. The challenge of
effectively patrolling all the coasts and waters of the United States
is obviously a large one.
The MTSA directives and DHS efforts also include enhanced security
for personnel working in the maritime area.
And last, but certainly not least, these directives and efforts
include an array of initiatives to enhance cargo security, including:

Cargo Security Risk Assessment Screening
The Container Security Initiative
The C-TPAT Program
Container Inspection Technology Deployment

The liner shipping industry and the members of the World Shipping
Council have fully supported these various initiatives. Ocean carriers'
business depends upon the government having a security regime that
provides adequate levels of security confidence, while continuing to
allow for the efficient and reliable transportation of America's
exports and imports.
The government's multi-layer security strategy is a fundamentally
sound one, and seeks to address cargo and maritime security on an
international basis as early as is practicable. It does not wait to
address security questions for the first time when a ship and its cargo
arrives at a U.S. port. The strategy can be further developed and
strengthened, however, and we appreciate the Committee's continued
interest in these issues. The following is a brief description of the
strategy's various layers.
1. Vessel Security
Every vessel entering a U.S. port, whether of U.S. or foreign
registry, has a ship security plan that is in accordance with the ISPS
Code--a binding international convention developed under the leadership
of the U.S. Coast Guard. The Coast Guard also ensures through its port
state enforcement programs that vessels entering U.S. ports are in
compliance with the Code. Vessels that are not in compliance are denied
entry into a U.S. port by the Coast Guard.
Under MTSA, the Coast Guard requires vessels to file advance Notice
of Arrivals 96 hours before arrival in a U.S. port, providing relevant
advance information about the vessel, its itinerary, its crew and its
cargo. The Coast Guard and Customs and Border Protection (CBP) use this
information for risk profiling.
2. Port Security
Port facilities must also comply with the ISPS Code, and, in the
U.S., the Coast Guard's MTSA regulations--the regulatory regime used to
implement the ISPS Code domestically. All major U.S. ports are in
compliance with the ISPS Code. \2\
---------------------------------------------------------------------------
\2\ The Coast Guard's MTSA regulations estimated that the
industry's compliance with the Code would cost more than $8 billion
over 10 years, and that figure did not include foreign port or foreign
vessel compliance costs.
---------------------------------------------------------------------------
These port facilities or marine terminals may be operated by the
state or local government public port authority, or they may be leased
from the port authority by terminal operating service providers, with
the port authority maintaining ownership and oversight of the port. The
majority of U.S. marine terminals are operated by private marine
terminal firms, who have leased the property from the port authority.
Major ports generally have multiple terminals and terminal operators.
Stevedoring and marine terminal operations are a service industry
that is open to foreign investment. Billions of dollars of foreign
investment has been made in the U.S. over recent years in this sector,
and that investment has contributed substantially to a transportation
infrastructure that is critical to moving America's commerce
efficiently and reliably. The investment has come from Japanese,
Korean, Danish, British, Chinese, French, Taiwanese, and Singaporean
businesses, just as American companies have been allowed to invest in
marine terminal and stevedoring businesses in foreign countries.
The substantial majority of American containerized commerce is
handled in U.S. ports by marine terminal operators that are
subsidiaries or affiliates of foreign enterprises. This is an
international, highly competitive industry, providing hundreds of
thousands of American jobs. The United States depends on it, and it in
turn has served the needs of American commerce well, adding capacity
and service as the needs of American exporters and importers have
grown.
An important element of the U.S. Government's position in
international trade negotiations for many years, under both Democrat
and Republican administrations, has been the importance of securing the
ability of international investment to flow into various international
service industries. It is a principle of substantial importance to many
sectors of the American economy.
Port facilities, such as the ones operated by P&O Ports and to be
purchased by DP World ports, must and do comply with all the
government's applicable security requirements. There is no evidence
that terminal facilities' operations conducted by foreign controlled
companies are any less secure, or in any way less compliant with
security regulations, or in any way less cooperative with U.S.
Government security authorities than U.S. controlled companies. In
fact, these companies work closely and cooperatively with the Coast
Guard, Customs and Border Protection, the U.S. military, and other U.S.
law enforcement agencies.
The World Shipping Council and its member carriers are committed to
the effective implementation of port security requirements around the
world. In this regard, the Council and its member lines are in the
final stages of establishing a cooperative program with the U.S. Coast
Guard pursuant to which the industry's member lines may report port
facility security status issues to the Coast Guard in order to assist
with that agency's global maritime security efforts.
3. Personnel Security
Maritime personnel security is addressed in various ways. Vessels
must provide CBP and the Coast Guard with advance notice of all crew on
the vessel 96 hours before the vessel arrives in a U.S. port for
screening. U.S. seafarers are issued credentials by the U.S. Coast
Guard and must go through a security vetting process. All foreign
seafarers must have valid, individual U.S. visas if they are to go
ashore while in the U.S.
Regarding personnel working in U.S. ports, the Department of
Homeland Security has indicated that it intends to promulgate proposed
rules on the Transportation Worker Identification Credential (TWIC) in
the near future, as required by MTSA. At the request of DHS, the
National Maritime Security Advisory Committee, after intensive, open
and constructive dialogue amongst diverse industry and government
officials, approved a detailed set of recommendations to the Department
for their consideration in the development of this initiative. The
establishment of the TWIC should help meet one of the unaddressed U.S.
port security imperatives identified by Congress and DHS as an
essential element of the Nation's maritime security. The Council and
its member lines strongly support DHS promulgating a regulation on this
issue.
4. Cargo Security
Particularly with respect to containerized cargo, the issues
surrounding cargo security are challenges that require a multi-faceted
strategy, which begins long before the cargo arrives at a U.S. port. It
involves advance Customs security screening of all containers before
vessel loading in the foreign port, cooperation with foreign customs
authorities through the Container Security Initiative, use of container
inspection technology, and the Customs Trade Partnership Against
Terrorism initiative.
a. Risk Assessment and the National Targeting Center
The stated and statutorily mandated strategy of the U.S. Government
is to conduct a security screening of containerized cargo shipments
before they are loaded on a U.S. bound vessel in a foreign port. The
World Shipping Council fully supports this strategy. The correct time
and place for the cargo security screening is before the containers are
loaded on a ship. Most cargo interests also appreciate the importance
of this strategy, because they don't want their shipments aboard a
vessel put at risk or delayed because of a security concern that could
arise regarding another cargo shipment aboard the ship.
In order to be able to perform this advance security screening, CBP
implemented the ``24 Hour Rule'' in early 2003, under which ocean
carriers are required to provide CBP with their cargo manifest
information regarding all containerized cargo shipments at least 24
hours before those containers are loaded onto the vessel in a foreign
port. The Council supports this rule. CBP, at its National Targeting
Center in Northern Virginia, then screens every shipment using its
Automated Targeting System (ATS), which also uses various sources of
intelligence information, to determine which containers should not be
loaded aboard the vessel at the foreign port, which containers need to
be inspected at either the foreign port or the U.S. discharge port, and
which containers are considered low-risk and able to be transported
expeditiously and without further review. Every container shipment
loaded on a vessel bound for the U.S. is screened through this system
before vessel loading at the foreign port. Customs may issue the
carrier a ``Do Not Load'' message on any container that is so screened
if it has security concerns that need to be addressed.
The Department of Homeland Security's strategy is thus based on its
performance of a security screening of relevant cargo shipment data for
100 percent of all containerized cargo shipments before vessel loading,
and subsequent inspections of 100 percent of those containers that
raise security issues after initial screening. Today, we understand
that CBP inspects roughly 5.5-6 percent of all inbound containers (over
500,000 containers/year), using either X-ray or gamma ray technology
(or both) or by physical devanning of the container.
We all have a strong interest in the government performing as
effective a security screening as possible before vessel loading.
Experience also shows that substantial disruptions to commerce can be
avoided if security questions relating to a cargo shipment have been
addressed prior to a vessel being loaded and sailing. Not only is
credible advance cargo security screening necessary to the effort to
try to prevent a cargo security incident, but it is necessary for any
reasonable contingency planning or incident recovery strategy.
Today, while the ATS uses various sources of data, the only data
that the commercial sector is required to provide to CBP for each
shipment for the before-vessel-loading security screening is the ocean
carrier's bill of lading/manifest data filed under the 24 Hour Rule.
This was a good start, but carriers' manifest data has limitations.
Cargo manifest data should be supplemented in order to provide
better security risk assessment capabilities. \3\ Currently, there is
no data that is required to be filed into ATS by the U.S. importer or
the foreign exporter that can be used in the pre-vessel loading
security screening process. This occurs, even though these parties
possess shipment data that government officials believe would have
security risk assessment relevance that is not available in the
carriers' manifest filings, and notwithstanding the fact that the law
requires the cargo security screening and evaluation system to be
conducted ``prior to loading in a foreign port.'' \4\ Today, cargo
entry data is required to be filed with CBP by the importer, but is not
required to be filed until after the cargo shipment is in the United
States, often at its inland destination--too late to be used for
security screening purposes.
---------------------------------------------------------------------------
\3\ See also, ``Homeland Security: Summary of Challenges Faced in
Targeting Oceangoing Cargo Containers for Inspection,'' General
Accounting Office Report and Testimony. March 31, 2004 (GAO-04-557T).
\4\ 46 U.S.C. section 70116(b)(1). Section 343(a) of the Trade Act
also requires that cargo information be provided by the party with the
most direct knowledge of the information.
---------------------------------------------------------------------------
In September 2004, the COAC Maritime Transportation Security Act
Advisory Subcommittee submitted to DHS a recommendation that importers
should provide CBP with the following data before vessel loading:

1. Better cargo description (carriers' manifest data is not
always specific or precise)

2. Party that is selling the goods to the importer

3. Party that is purchasing the goods

4. Point of origin of the goods

5. Country from which the goods are exported

6. Ultimate consignee

7. Exporter representative

8. Name of broker (would seem relevant for security check), and

9. Origin of container shipment--the name and address of the
business where the container was stuffed, which is often not
available from an ocean carrier's bill of lading

The Council agrees with this recommendation. The government's
strategy today is to inspect containerized cargo on a risk-assessment
basis. Accordingly, the government should improve the cargo shipment
data it currently uses for its risk assessment. An ocean carrier's bill
of lading by itself is not sufficient for cargo security screening.
Earlier filing of these shipment data elements would improve CBP's
cargo security screening capabilities. If a risk assessment strategy is
to remain the core of the government's cargo security system, the
government needs to decide what additional advance cargo shipment
information it needs to do the job well, and it must require cargo
interests, and not just carriers, to provide the relevant data in time
to do the advance security screening. While this is not a simple task,
a next step forward requiring shipper interests to provide more data on
their cargo shipments before vessel loading is appropriate.
I would like to note and commend the Committee Chairman, Senator
Stevens, and the eleven other Senators cosponsoring S. 1052, for their
inclusion in that bill of a requirement that importers provide CBP with
such advance customs entry information for security screening purposes
before vessel loading, just as carriers provide the information they
have before vessel loading.
CBP and DHS officials are currently reviewing this issue.
b. Container Security Initiative
No nation by itself can protect international trade. International
cooperation is essential. For ships and port facilities, the
International Maritime Organization (IMO), a U.N. regulatory agency
with international requirement setting authority, has responded to U.S.
leadership and created the International Ship and Port Security Code
(ISPS). These IMO rules are internationally applicable and are strictly
enforced by the U.S. Coast Guard. There is no comparable international
regulatory institution with rule writing authority for international
supply chain security. For a variety of reasons, the World Customs
Organization (WCO) has not acquired such an authority.
At the WCO, CBP continues to work diligently with other governments
on a supply chain security framework that can be used by all trading
nations. This framework will be useful, but will remain at a fairly
high level and will be implemented on a voluntary basis by interested
governments. Consequently, U.S. and foreign customs authorities must
also create a network of bilateral cooperative relationships to share
information and to enhance trade security. This is the Container
Security Initiative. The Council fully supports this program and the
strategy behind it.
Today, 72 percent of U.S. containerized imports passes through 42
operational CSI ports (including Dubai, which became a CSI participant
in March 2005), with further program growth expected. CBP hopes to
expand the CSI program to 50 ports by the end of this year, which could
cover roughly 85 percent of U.S. containerized imports.
The liner shipping industry is fully supportive of these efforts by
CBP authorities and hopes the program will continue to expand as
expeditiously as possible. A listing of operational CSI ports follows:

----------------------------------------------------------------------------------------------------------------
Port Name 2004 U.S. Imports TEUs (000)
----------------------------------------------------------------------------------------------------------------
Yantian (Shenzhen) 1,982.79
Hong Kong 1,866.32
Shanghai 1,278.50
Kaohsiung 1,127.27
Busan 971.49
Singapore 494.30
Rotterdam 427.75
Bremerhaven 392.18
Antwerp 304.60
Tokyo 267.53
Laem Chabang 201.06
Nagoya 174.94
Le Spezia 159.67
Hamburg 150.01
Santos 146.26
Genoa 144.57
Le Havre 139.67
Kobe 119.97
Colombo 117.08
Yokohama 109.02
Gioia Tauro 104.48
Livorno (Leghorn) 92.33
Algeciras 81.75
Felixstowe 69.51
Buenos Aires 52.40
Tanjung Pelepas 45.96
Durban 43.94
Liverpool 39.37
Port Kelang 39.26
Southampton 38.62
Thamesport 32.34
Naples 29.88
Lisbon 26.91
Halifax 24.38
Gothenberg 18.81
Vancouver 13.59
Piraeus 11.58
Tilbury 2.56
Dubai 1.11
Marseille 1.07
Montreal 0.72
Zeebrugge 0.02
----------------------------------------------------------------------------------------------------------------
Total CSI Ports 11,344.55
----------------------------------------------------------------------------------------------------------------
Non-CSI Ports 4,460.93
----------------------------------------------------------------------------------------------------------------
Total All Ports 15,805.48
----------------------------------------------------------------------------------------------------------------

c. C-TPAT
Customs' Trade Partnership Against Terrorism (C-TPAT) is an
initiative intended to increase supply chain security through
voluntary, non-regulatory agreements with various industry sectors. Its
primary focus is on the participation of U.S. importers, who are in
turn urged to have their suppliers implement security measures all the
way down their supply chains to the origin of the goods. This approach
has an obvious attraction in the fact that the importer's suppliers in
foreign countries are beyond the reach of U.S. regulatory jurisdiction.
In return for participating in the program, importers are given a
benefit of reduced cargo inspection. The C-TPAT program invites
participation from other parties involved in the supply chain as well,
including carriers, customs brokers, freight forwarders, U.S. port
facilities, and a limited application to foreign manufacturers.
CBP has been working to strengthen the C-TPAT program and to
increase validations of participants' performance. C-TPAT is not a
regulatory program, and it is not a guarantee of security. It does,
however, provide for a creative partnership approach between government
and industry as one element of a multi-layered strategy to improve
security. It clearly has value, even though it can't be easily measured
or quantified; and, because its principal purpose is to try to affect
the conduct of parties outside U.S. regulatory jurisdiction, it has a
reach that regulations alone could not have.
Many maritime and supply chains security issues can be, should be,
and are addressed through regulatory requirements, not C-TPAT. For
example, vessel security plans and port security plans are regulated by
Coast Guard regulations implementing the ISPS Code and MTSA. The data
that must be filed with CBP to facilitate cargo security screening must
be addressed through uniformly applied regulations. Seafarer
credentials and the Transportation Worker Identification Card must be
addressed through uniformly applied requirements.
C-TPAT, however, is a program that can try to address matters that
are not or cannot be addressed by regulations, such as supply chain
enhancements beyond U.S. regulatory jurisdiction, or matters that
aren't covered by regulations.
d. Container Inspection Technologies
Technology clearly has a role in increasing both the efficiency of
inspecting containerized cargo shipments and the number of containers
that could be inspected. Container inspection technology is of
substantial interest because--unlike so many other technologies--it
helps address the container security question of paramount importance,
namely: ``What's in the box?''
X-ray and gamma ray non-intrusive container inspection (NII)
equipment is being deployed at U.S. and foreign ports. At U.S. ports,
CBP has deployed 170 large scale non-intrusive inspection devices. NII
inspection equipment allows Customs authorities to have a visual image
of a container's contents, is a relatively easy way to review a
container's contents in contrast to physically devanning the container,
and is usually adequate for inspecting a container considered to be of
security interest.
A particular security concern is the potential use of a container
to transport a nuclear or radiological device. While there is no
evidence that terrorists have nuclear weapons or devices, or that a
shipping container would be a likely means to deliver such a device,
the consequences of the potential threat--including those from a low-
tech ``dirty bomb''--are sufficiently great that, in addition to the
targeted inspection of containers discussed above, CBP is deploying
radiation scanning equipment at all major U.S. container ports. CBP has
deployed between 180-190 radiation portal monitors at U.S. ports and we
understand that these presently cover approximately 37 percent of the
imported containers. CBP has also deployed thousands of hand-held
radiation detection devices. CBP and the Department of Energy are also
working with foreign ports to install radiation scanning technology
abroad as well. Availability of such technology is one of the criteria
that a foreign port must meet to become a CSI port, for example.
Container inspection technology may be evolving to the point that
it may be deployed in the foreseeable future to allow radiation and NII
inspection of all containers entering a port facility without
significant delay to commerce. If this were to prove true, and if the
radiation and image readings are of sufficient quality for security
screening purposes, this capability would allow a new and significantly
more effective supply chain security strategy to be deployed. Such
capability could enable governments to ``flex'' their security
screening capabilities, to inspect more containers, even from a remote
location, without having to inconvenience terminal operators or other
customs authorities, and to more effectively handle a response to a
transportation security initiative, including the NII inspection of
every container being loaded at a particular port, if needed. Such a
capability would also have the advantage of being able to inspect more
containers before vessel loading, rather than waiting until they arrive
in the United States discharge port.
CBP and DHS officials are presently reviewing this technology and
the pilot application of radiation-NII inspection technology to all
containers entering two different Hong Kong port facilities. The
technology is conceptually attractive, but a real world evaluation of
the technology, its effect on operations, and its integration into and
use by the government is clearly needed. For example, numerous nuisance
alarms are likely to occur on a daily basis, and there will need to be
clear protocols for how such situations will be addressed and resolved
in the foreign ports. Other operational issues need to be clearly
understood and addressed, including how such technology might be
applied at transshipment ports, where cargo does not arrive through a
terminal gate. While it is true that under this pilot program
containers entering the truck gates of two Hong Kong container
terminals have passed through these scanning and radiation detection
devices, no one is actually using the Hong Kong pilot container
inspection readings or images, or transmitting them to Customs, or
applying the results of the technology in the operating environment. We
are at the beginning stages of working through the issues involved,
including determining whether and how CBP would like to embrace this
technology.
If the government determines that the technology works
satisfactorily, it will be necessary to determine how the information
produced by this technology would be transferred to the government and
used and analyzed, and by whom and when. In addition, the technology
obviously must be physically sited on marine terminals around the
world. This would be a challenge, but may be possible if the proper
foundation is negotiated and laid with foreign governments and terminal
operators and provided the correct incentives are established. This
will require addressing roles and responsibilities, substantial data
transfer protocols, and issues of liability.
It is also relevant to note that this kind of system would be
impossible to deploy without the full cooperation and agreement of
foreign terminal operating companies and their governments. It is also
relevant to note that global application of this technology would
almost certainly involve its installation and application at U.S. ports
to U.S. export cargo, and sharing the resultant data with other
interested foreign governments.
There are significant and legitimate issues that need to be
addressed in considering this technology and its possible deployment;
however, the capability for governments to call up and review radiation
and NII images of any container before vessel loading without delaying
commerce could potentially provide a significant improvement in
security capabilities. Furthermore, it could allow governments the
flexibility to change their container security strategies in a way that
would provide increased security assurance for all legitimate commerce,
including the capacity to provide sufficient assurance of security to
keep commerce flowing in the event of a container security incident.
Summary
When addressing the issue of international maritime security, we
find ourselves dealing with the consequences of two of the more
profound dynamics affecting the world today. One is the
internationalization of the world economy, the remarkable growth of
world trade, and the U.S. economy's appetite for imports--a demand that
fills our ships, our ports, and our inland transportation
infrastructure, a demand that produced more than 11 million U.S. import
containers in 2005, and will produce roughly 12 million this year, and
a demand that will increasingly test our ability to move America's
commerce as efficiently as we have in the past.
The other dynamic is the threat to our way of life from terrorists
and the challenge of addressing the vulnerabilities that exist in the
free flow of international trade, even when the specific risk is
elusive or impossible to identify.
Finding the correct, reasonable balance between prudent security
measures and overreacting in a way that impairs commerce is a tough
challenge.
Foreign equity in the international maritime transportation
business is not the security challenge. It has been and continues to be
a major, long-standing and positive contributor to an infrastructure
that is essential to the American economy and to U.S. national
security, and its interest in ensuring the safety and security of
maritime commerce is very strong. After all, without a reliable, secure
and efficient maritime transportation system, these companies'
businesses are in jeopardy.
The maritime security challenge is to build on the fundamentally
sound strategic framework that DHS has developed and to continue to
make improvements on what has been started. Specifically, we believe
that priority DHS consideration should be given to:

1. Improving the cargo shipment data collected and analyzed by
CBP's National Targeting Center before vessel loading. If cargo
risk assessment is to be a cornerstone of DHS policy--which we
believe is a correct approach, and cargo security screening is
to be performed before the cargo is loaded onto a ship destined
for the U.S.--which we also believe is a correct approach, it
should be using more complete cargo shipment data to perform
the risk assessment than only the ocean carriers' bills of
lading;

2. Expanding international cooperation through the Container
Security Initiative network;

3. Continuing to improve and strengthen the C-TPAT program;

4. Promulgating regulations to implement the MTSA mandate of
maritime Transportation Worker Identification Cards; and

5. Undertake a close examination of the merits and feasibility
of widespread application of ICIS-type X-ray inspection and
radiation screening equipment and the interface and use of such
equipment by Customs authorities. While not a simple issue,
this might hold the potential to significantly improve
governments' confidence in the security of importers' and
exporters' cargo shipments.

Mr. Chairman, the World Shipping Council and its member companies
believe that there is no task more important than helping the
government develop effective maritime and cargo security initiatives
that do not unduly impair the flow of commerce. We are pleased to offer
the Committee our views and assistance in this effort.

The Chairman. Thank you, Mr. Koch.
Our next witness is Mr. Michael Mitre. Is that right?
Mr. Mitre. Mitre.
The Chairman. Port Security Director of the International
Longshore and Warehouse Union, ILWU, in Los Angeles. The
Committee enjoyed a visit to Los Angeles. However, as I said,
it's a monstrous place. We're pleased to have your testimony.

STATEMENT OF MICHAEL MITRE, DIRECTOR, PORT SECURITY,
INTERNATIONAL LONGSHORE AND WAREHOUSE UNION (ILWU)

Mr. Mitre. Thank you very much.
Mr. Chairman, I'd like to thank you for holding this
hearing and inviting me to testify here.
I'm Director for Port Security for the International
Longshore and Warehouse Union. I am also a full-time worker. I
drive one of the cranes that takes the containers off the ships
and puts it on the dock. I was a dock and vessel foreman, and I
have worked for 30 years in the port.
I work inside the terminals, and have firsthand knowledge
regarding the security situation on these terminals. We
represent almost 20,000 longshoremen in Los Angeles, alone,
full-time and casual workers.
In 2004, terrorists hiding in a cargo container entered the
Israeli Port in Ashdod, Israel, and 26 people were killed and
wounded. All of them were port workers, like myself and my co-
workers. As that incident made very clear, port security
equates to worker safety in the most fundamental sense. Our
lives, and those in the port communities, are on the line.
We're the closest to the action. We'll be the first ones
impacted.
The controversy over Federal approval to permit Dubai Ports
World, owned by a foreign government, to operate within the
United States is of the utmost importance. The ILWU fully
supports the 45 days to fully consider this. But we also urge
that the Federal Government, including Congress, focus its
attention beyond this controversy and recognize and correct
immediate major deficiencies in port security. They exist today
in our ports and within our port terminals. It is the lack of
effective port security, especially since 9/11, that is the
real concern of dockworkers and, I'm sure, millions of
Americans who live in close proximity to our ports, as well as
all over the United States.
The MTSA was initiated by this committee, and passed in
2002. The Coast Guard was designated as the lead enforcement
agency under the MTSA. They issued comprehensive, detailed,
and, we believe, effective port security regulations.
Unfortunately, as the MTSA security regulations have been
implemented, many terminal operators, both foreign and
domestic, continue to ignore many of the required measures
designed to improve port security.
As the current case over the Dubai contract has shown, the
problem of systemwide noncompliance with existing port security
regulations arises from allowing commercial interests many
times, to override security interests.
The ongoing port security crisis in this country stems from
the lack of adequate Coast Guard funding and training necessary
to meet the obligations that were imposed by the MTSA. The
overarching problem is creating an effective enforcement
mechanism capable of ensuring that essential port security
measures that were mandated by Congress are fully implemented.
The real question is, What's going to be the U.S. Coast
Guard's defined enforcement role, and how is it going to differ
from what's happened in the past, especially since 2002? How is
the U.S. Coast Guard going to force terminal operators to
conform, when budgetary constraints limit USCG landside
manpower training initiatives? What is going to be the
compliance trigger? And, most important, who is going to create
the procedures and the protocols to instruct the Coast Guard in
the basics of terminal operations? To me, and to my co-workers,
this is critical.
The Coast Guard today does not have an effective landside
enforcement capability. It's almost like telling them, ``Hey,
we want you to do this job, but we're going to tie your hands
behind your back, and not going to give you the money, funding,
and training to do it.''
I work within the ports, and I work every day. I see how
much Coast Guard presence there isn't. And it's not because of
the lack of them wanting to do it, it's because of a lack of
them having the manpower and the budget to do it.
In the Port of L.A./Long Beach, in the last 4 years, almost
every case where there's been a security incident, it's been
longshoremen that have found it, whether it be people that are
smuggled inside containers, or a container that has explosive
mixtures in it. We had one case where a longshoreman was
driving a container that exploded. It was allowed through a
gate without placards, and even after we asked to be able to
open it, and the terminal operator refused (to allow us to open
it). In the past, our marine clerks at the gate would see
something wrong, they'd say, ``Wait a minute, let's sidetrack
that, or it doesn't have a seal, let's open it up.'' We don't
do that anymore. We've been told, ``That's not our job anymore.
We're not going to do that.'' Because of this, the container
was allowed to come in, was loaded onto a truck, and was on its
way to the ship when it blew up. It was loaded in Arizona, had
no placards, and contained HAZMAT. It had butane and a car with
a leaky gas tank inside.
These are just some of the problems that we're facing when
working within the ports, and I really hope that this case will
create the environment necessary to either give the Coast Guard
the ability to enforce MTSA or, to create a joint Customs/Coast
Guard mechanism for compliance.
Like I said, I really thank you for inviting me here today,
and I'd be really glad to answer any questions you might have.
Thank you very much.
[The prepared statement of Mr. Mitre follows:]

Prepared Statement of Michael Mitre, Director, Port Security,
International Longshore and Warehouse Union (ILWU)
Chairman Stevens, Ranking Member Inouye and members of the
Committee, my name is Mike Mitre. I am the Director of Port Security
for the International Longshore and Warehouse Union (ILWU). In this
capacity, I have had the privilege to provide testimony to committees
of the U.S. Senate and the House of Representatives, and advice to the
U.S. Coast Guard and other Federal agencies concerning port security
matters for the West Coast. I also live and work in the Ports of Los
Angeles and Long Beach, and so know first hand the security situation
in the busiest seaport in America. Together the Ports of Los Angeles
and Long Beach constitute the 3rd largest port in the world. My Union,
the ILWU, represents about 60,000 working Americans, not just in the
longshore and maritime industry, but also in warehouse, hotel-
restaurant, health care, mining, office clerical and a variety of other
industries in California, Oregon, Washington, Alaska, Hawaii and
Canada.
Mr. Chairman, thank you for holding this important hearing. We are
at a critical time in the history of our country. The threat of a
terrorist attack against the marine transportation system is the new
reality. On March 14, 2004, suicide bombers, hiding in a metal cargo
container, entered the Israeli port of Ashdod to commit terrorism. They
killed 10 people and wounded another 16. All the victims were port
workers like myself and other ILWU members.
As the tragedy in the Port of Ashdod has made chillingly clear,
port security equates to worker safety in its most fundamental sense.
Our lives and those in our port communities are literally on the line.
In the event of a terrorist incident in an American port, the
dockworker is the first one who is going to be killed or injured. Most
dockworkers live within close proximity of the port and certainly
within the impact-radius of any incident or explosion, be it chemical,
biological or radioactive. We are talking about our families here, our
children and our homes. It is in our own best interest to make sure
American ports are secure; our family's lives and our livelihoods are
at stake. Our commitment to port security is real, and it is not
watered down or diluted by cost or commercial concern. This, Mr.
Chairman, brings me to the immediate issue at hand.
I. Summary of Comments
The controversy over Federal approval to permit Dubai Ports World,
which is owned by a foreign government, to operate marine terminals at
six East Coast ports is of the utmost importance for our country. The
ILWU fully supports bipartisan calls in Congress for the Bush
Administration to direct the Committee on Foreign Investment in the
United States (CFIUS) to conduct a full 45-day investigation of the
Dubai contract. Although our seaports are part of the global economy,
the ILWU believes that we should not rush to open the doors of such
national assets to companies owned and operated by foreign governments
where serious concerns exist regarding terrorist activities and
funding. We, therefore, urge that the decision for approval be based on
the national security interests of the United States rather than the
commercial interests of any one company or country.
But we also urge the Federal Government, including Congress, to
focus its attention beyond the controversy over one future, commercial
contract and to recognize and correct the immediate, major deficiencies
of security that exist today in America's ports. It is the current lack
of effective port security since the terrorist attacks of 9/11 that is
the real concern of dockworkers and millions of Americans who live in
close proximity to our Nation's ports.
The Maritime Transportation Security Act (MTSA), initiated by this
committee and passed in 2002, provides the foundation for the Nation's
port and cargo security. In 2004, the Coast Guard--designated as the
lead enforcement agency under MTSA--issued comprehensive, detailed
and--we believe--effective port security regulations for marine
terminal and vessel operators to follow. Unfortunately, the MTSA
security regulations have been implemented and honored in the breach,
with both foreign and domestic companies ignoring most of the required
measures designed to improve port security. Just like the current case
over the Dubai contract, the problem of system-wide noncompliance with
existing port security regulations arises from allowing commercial
interests to override security interests.
MTSA regulations allow terminal operators to write their own
facility security plans. This is a mistake and yet another example of
commercial interests overriding security concerns. We allow terminal
operators to create their own security rather than having one model and
enforcement mechanism for all terminals at all ports.
The ongoing security crisis in our ports also stems from the lack
of funding, training, and infrastructure. The overarching problem we
now face is making the enforcement mechanism effective and capable of
ensuring that essential port security measures mandated by Congress are
fully implemented. However, the Coast Guard is a waterside and vessel
enforcement specialist. They are not a ``landside'' or ``terminal''
enforcer of container terminal regulations and operations. What is
going to be the USCG's defined enforcement role and how is it going to
differ from the past? How is the USCG going to ``force'' terminal
operators to conform? What is going to be the compliance trigger if and
when terminal operators are found to be non-compliant? Most
importantly, who is going to create the procedures and protocols to
instruct the Coast Guard in the basics of terminal operations?
Effective port security regulation compliance will require a
comprehensive, fully funded, land-side compliance program employing
large numbers of Coast Guard personnel who must be trained in terminal
container operations and complex information systems format. This is a
complex industry, and the volumes are astronomical.
In conclusion, the ILWU believes that the debate over Dubai will do
little to protect America's seaports unless the Federal Government
takes this opportunity to recognize and correct the glaring, major
defects in port security that exist today.
In our written testimony, we have laid out specific security
protocols at marine terminals that must be followed to ensure real port
security. I look forward to answering questions about these
recommendations.
Thank you.
Attachment
ILWU Recommendations for Marine Terminal Security
Security mandates may impose significant and additional operating
costs on the maritime industry. However, port facility operators have
repeatedly refused requests to implement some of the following, all of
which are mandated by the Coast Guard regulations, because of cost and/
or commercial concern:

(1) Access control procedures for the positive identification
of people, vehicles and cargo before entering a port facility
must be immediately implemented as required by regulation 33
CFR 105.255(a), (e)-(g), and 105.265 (a)-(d).--Presently, truck
drivers are the largest single occupational group working
within the terminals. Access is granted with little
authentication of identity and virtually no inspection of their
``sleeper cabs,'' which frequently house friends and family.
Ironically, these drivers, once inside the terminals, have
unlimited access to all areas of the terminals without
oversight or supervision. Any of the fourteen terminals in the
Ports of LA/Long Beach may have hundreds of drivers on each of
the terminals at any one time.

(2) Proper documentation, placarding and separation of all
dangerous cargo and hazardous material must be performed as
required by regulation 33 CFR 105.265(a)(9).--Presently,
hazardous cargo is frequently unmarked and integrated with
other cargo.

(3) The integrity and correctness of all seals on containers
must be checked as they enter a port facility and as they are
placed in inventory on the docks to detect and deter any
tampering, as required by regulation 33 CFR 105.265(b)(4) and
105.265(c)(4).--Presently, this is not being done at most port
facilities. In fact, since September 11, many facility
operators have discontinued the past practice of checking these
seals.

(4) All port workers must be trained as to the basic
requirements of the port facility security plan, the detection
of security problems and, most importantly, the proper response
and evacuation procedures during a security incident as
required by regulation 33 CFR 105.215.--As of today, port
facility operators refuse to share with dockworkers any parts
of their security plans on grounds of ``confidentiality'';
dockworkers cannot protect themselves or our ports if they are
excluded from security initiatives.

Most of the deficiencies in port security can be corrected through
continuous and rigorous enforcement of and adequate funding for the
Coast Guard regulations. In this regard, we applaud the introduction of
Senate Bill 1052, the Transportation Security Improvement Act (TSIA),
which would improve the examination of cargo shipments overseas before
they reach U.S. shores, provide procedures for the speedy resumption of
commerce in the event of a seaport attack, and expanded the use of
interagency operations centers (IOCs).
However, there are at least two additional security measures, not
specifically covered in the existing or proposed regulations that
should be immediately implemented in order to protect our ports.

Empty Containers--The inspection of all containers marked as
``empty'' upon entering a port facility is a no-brainer. On any
given day, as much as forty percent of the containers delivered
into West Coast ports consist of ``empty'' containers. Many
facility operators presently receive and process ``empty''
containers without confirming that they are truly empty.
Containers marked as empty provide a golden opportunity. The
good news is that unlike containers filled with cargo, the
inspection of empty containers is quick and easy. It is a
relatively cheap and painless way of confirming the absence of
a dangerous substance or device, and the absence of persons
illegally attempting to gain access. This, of course, makes the
inspection of ``empty'' containers all the more compelling and
an absolute necessity in any port security program. There have
been assertions made by industry officials that all West Coast
terminal operators are inspecting empty containers. This is
simply not true. The ILWU has furnished the Coast Guard with
formal letters from both stevedores and terminal operators
informing the union that, at certain facilities, empty
containers will no longer be inspected.

24 Hours Advance Notice ``Export Cargo''--Requiring the
proper documentation of export cargo 24 hours in advance of its
receipt at the port facility is logical and follows the rule
for import cargo. While U.S. Customs requires twenty-four-hour
advance notice of the contents of all containers arriving
aboard vessels, see 19 CFR 4.7(b), current Federal regulations
require no comparable notice for export containers arriving by
truck or rail. Imposing a 24-hour detailed notice rule on
inbound cargo, but not trucks or trains delivering ``outbound
export cargo'' into the terminals makes little sense. Requiring
such notice would provide facility personnel additional time to
spot errors relating to the misidentification of cargo, fix the
honest mistakes, and determine what containers require further
inspection. It would also lead carriers to spot more
unidentified HazMat materials before they are transported.

It is important to understand that while ``empty'' containers and
export cargo are ultimately destined for other countries, they also
pose immediate security risks for our seaports and the country. This is
a national security issue for two reasons:

1. Once the cargo within the container has been unloaded at its
eventual destination, there is no system, protocol, or
requirement in place making the last shipper responsible for
closing and sealing the doors. As a result, this empty
container will travel over-the-roads of the U.S. unlocked and
open. It may serve as a platform or vehicle for anything or
anyone who may desire to do harm to our country. It may lie
unattended on city streets or even within the port for days or
even weeks until it is returned to the terminal for shipment
(usually back to Asia.) Who knows what has been stored or
smuggled inside? Who knows what kind of plan someone may come
up with utilizing this empty container?

2. Once loaded onto a vessel, empty containers travel with that
vessel between and among U.S. ports until they are eventually
off-loaded, whether in a foreign port, or still here in the
U.S. At any point along the vessel route, a weapon of mass
destruction, planted inside an ``empty'' container or among
export cargo, could be later detonated at the next American
port-of-call. The al Quaeda terrorists executed their September
11 attacks from within the United States. The same strategy may
well be used again and should be anticipated. Prevention with
respect to cargo and containers in our marine transportation
system depends on a thorough knowledge of containers and cargo
handling methods and operations. The 9/11 terrorists exhibited
an amazing ability to gather intelligence, and then plan, fund
and execute a successful operation. The defense of our country
demands no less.

The Chairman. Thank you very much.
We're dwindling in numbers. I'm inclined to think it would
be a better part of valor to hear from Mr. Jackson and the
Admiral before we ask any questions. What's the feeling of the
Committee? Any of you wish to ask questions now?
Gentlemen, could we ask you just to slide over to the left,
and we'll bring Mr. Jackson and Admiral and Mr. Ahern back, if
they will join us.
Senator Burns. Could I ask just one question?
The Chairman. Yes, sir.
Senator Burns. Mr.--is it Mitre?
Mr. Mitre. Mitre.
Senator Burns. Mitre? Since that incidence of this one
automobile and you had that explosion, do you see us making any
progress yet on port security, both from the workers on the
docks and other folks around, watching for such, I guess,
inappropriate actions or inappropriate shipping? Do you--have
we made any progress in that respect?
Mr. Mitre. I don't want to be----
Senator Burns. I know you do it for--I know why you do it.
You do it for self-preservation. And I don't blame you.
Mr. Mitre. And we have a vested interest here.
Senator Burns. Yes, you have a vested interest. But do you
see us making any progress in that respect?
Mr. Mitre. To be honest, not a lot. Because this is what
happens at the Port of L.A./Long Beach, which is--the two, by
far, biggest in the country. The Coast Guard simply doesn't
have the assets. So, what happens is, many times we'll call the
Coast Guard. The captain of the port--we have a direct hotline.
And, by God, he responds. The Coast Guard's really good about
that. They're our primary waterside enforcer. But they were
not, and never have been, a landside enforcement team. If we're
not going to provide the budget that they need to do this, it's
like fighting the battle with your hands behind your back. You
don't see teams of Coast Guardsmen on the terminal looking for
compliance. And I think that's what the problem is.
Senator Burns. OK, thank you very much. I appreciate that.
The Chairman. Now, if you all would move down a little bit
to the left, we'll put Mr. Jackson--I meant your--pardon.
Senator Boxer. Mr. Chairman, could I just ask you what your
plan----
The Chairman. It's your right, my left.
Senator Boxer. Mr. Chairman, could I just ask you what your
plan is? Will we each have a chance to do two rounds, then,
when we get to the questions, since you're doing two panels?
Will we each have a chance to do two rounds of questioning?
The Chairman. We will have as many rounds as you want. Each
member will----
Senator Boxer. Oh, excellent.
The Chairman.--have 5 minutes as we go around.
Senator Boxer. Thank you.
The Chairman. Sorry about this, gentlemen. I appreciate
your courtesy. There's meaning in my madness. There's several
people here who wouldn't have been here if we had gone the
other way.
Mr. Jackson, you're the one to testify for this group. As I
understand it, Admiral Ahern was here--there's Admiral--pardon
me, Admiral Gilmour and Mr. Ahern is your support, right? Is
that correct?
Mr. Jackson. Yes, sir.
The Chairman. We'd like to have your statement, please.

STATEMENT OF HON. MICHAEL P. JACKSON, DEPUTY
SECRETARY, U.S. DEPARTMENT OF HOMELAND SECURITY; ACCOMPANIED BY
REAR ADMIRAL THOMAS H. GILMOUR, U.S. COAST GUARD, AND JAYSON
AHERN, ASSISTANT
COMMISSIONER FOR FIELD OPERATIONS, CUSTOMS AND BORDER
PROTECTION, DEPARTMENT OF HOMELAND
SECURITY

Mr. Jackson. Thank you, Mr. Chairman.
I'm grateful to be back before this committee. And thank
you for your consideration in bringing us here.
In the interest of time and because some of my colleagues
have already covered material that I had planned to discuss in
my opening statement, I'll try to be brief and then be happy to
answer any questions.
I'll talk about, just briefly, two things. First, I'm going
to try to summarize a little bit of the transaction regarding
Dubai Ports World from the point of view of the process that
CFIUS went through. And, second, I would like to just say a few
words about the context for maritime security and global
supply-chain security, which is part of this hearing, but also
something that's very importantly raised in the context of this
acquisition.
First, I would say that my colleague from DP World was
absolutely right in talking about the discipline, the rigor,
the completeness, and the systematic nature in which this
transaction was reviewed. We spent more time on this, if you
start from the initial prefiling discussions, than we would
have under many other CFIUS transactions, even if we had gone
through the full 45-day period that's allowed under the law.
So, we had ample opportunity to discuss these issues, and to
work with the firm, and to work within the 12 agencies of the
government that did the CFIUS review. We added Transportation
and Energy to that review to get their views on this process,
as well.
I'm going to just say that DHS is the newest formal member
of CFIUS. We are not at all bashful about raising issues
related to these transactions. We're not at all bashful about
asking for a 45-day review period, if we think that we need the
additional time. But I would say just a word about this
process.
There, I think, is a misunderstanding about what happens
during these transactions and the review of them. This period
of time is not unlike what would happen in a corporate merger
and acquisition. You don't start from stating objections, you
start by learning and listening about the nature of the
transaction. The nature of the firm, the nature of the business
they're engaged in, an assessment of the security of all of the
transaction is the goal and the objective here. So, we try to
learn as much as we can, and, as you begin to learn and unfold
the contours of the particular deal, we either get more
comfortable or less comfortable.
In this case, the entire CFIUS participation roster got
quite comfortable, but after we had gone through, listened,
talked, learned, and then had an opportunity to ask for some
specific assurances, which have been described, in general, by
the gentlemen who have spoken earlier. And we received the
company's voluntary assent to those assurances. We have more
visibility into the operations of DP World, if this transaction
is consummated, than we do in any other terminal operating
company. We have the capacity to bring their records to the
table quickly and comprehensively to assess the operations.
And, in fact, the Coast Guard, subsequent to the approval in
January, has begun to do reviews of the assets that are in
P&O's inventory, prior to the transaction being completed.
So, I would say that--did we have enough time? Absolutely.
Do we have enough resources? Yes. What happened? I've described
it. It was a systematic review. Did we consult adequately and
fully with this Congress? No. I think we needed to have done a
better job of that. We will do a better job of that. We're
eager to talk to the Congress about these types of transactions
and about how we can better inform you of the details of this
work.
Let me switch, then, to say just a word about where we've
been since 9/11. Again, much has already been noticed about the
nature of a terminal operator. This is not a transaction that
is purchasing a port. It's not a transaction that is gaining
control over a port. A terminal operator is an important and
valued partner in the process of managing the flow of
international supply chains. But we believe that this deal is
appropriately bounded and constrained by a tremendous amount of
work that's been done since 9/11. There has been a
transformation in what we've done in port security since 9/11.
This committee played a vital role in instituting just that. I
had the pleasure of working with you, in my previous
appointment at the Department of Transportation, as you set out
on that course.
I would tell you that this job of transformation is not
over. I'm not here to tell you we've done everything we can.
I'm not here to tell you we've done everything that needs to
happen. I'm not here to tell you anything other than port
security has to be a commitment to continuous innovation. But
not to acknowledge what has been instituted since 9/11 is to
lose control of some important facts about what we've done to
improve security.
So, I don't want to leave anyone with the impression that
we are simply, willy nilly, ignoring security. There is a
layered system of controls that we have instituted since 9/11
that is growing in depth and complexity. You heard, from the
World Shipping Council, a discussion of many of those
components, and they begin in the foreign ports, they begin
with the C-TPAT program, with the shippers, some 8,000 strong
now, partners who help move the supply chain goods globally.
So, we have new rules. The advance manifest 24-hour rule,
the Container Security Initiative, the advance notice of
arrival in which we receive 96 hours notice, the importer bill
of lading 24 hours before, the automated targeting system, the
shipside inspection routine that Coast Guard has put in place,
the radiation portal monitors that have been put in place so
that we, today, have 37 percent of containers screened in this
fashion, the CSI ports are screening 80 percent of inbound
containers. There is nonintrusive X-ray inspection, security
measures that are comprehensive as a result of C-TPAT.
So, there are these broad measures in place. I'm happy to
answer questions about it, also happy to talk a little bit
about the future of how we've proposed to grow, deepen, and
strengthen our security measures in place in the maritime
domain.
The Chairman. Well, thank you very much.
For the information of members that are still here, any
member who comes back, other than Senator Ben Nelson, who told
me he's right outside the door, will take their turn after
those of us who have stayed. All right? The limit is 5 minutes
per Senator.
Let me start off with you, Mr. Jackson. There are at least
20 foreign-owned companies from 11 different nations, including
those owned by governments such as China, Singapore, Taiwan,
and perhaps others, who are operating in 25 states, 11 of them
in States represented by Senators on this committee. Can you
tell us, is there some special security threat that DP World
poses that these other companies, foreign-owned companies, do
not pose?
Mr. Jackson. No, sir. Our judgment is that DP World does
not pose a unique security threat.
The Chairman. We're told that the Coast Guard had a
classified document that was going through the Department of
Homeland Security concerning DP World. Were you aware of that?
Mr. Jackson. The Coast Guard did an internal assessment of
this transaction. The document that they created was for their
internal review, so that they could render a judgment about----
The Chairman. That's not the question I asked you. Were you
aware of it?
Mr. Jackson. At the time it was written, I was not. No,
sir.
The Chairman. Were you aware of it at the time you passed
on the approval of DP World?
Mr. Jackson. No, sir, I was not.
The Chairman. Do you think you should have been?
Mr. Jackson. In this transaction, in retrospect, I wish I
had learned more.
The Chairman. Were you cleared for that access?
Mr. Jackson. Yes, sir.
The Chairman. Do you think Congress needs to legislate
further in any way regarding these terminal operators who are
foreign-owned, in terms of the operations within our ports?
Mr. Jackson. No, sir. I believe the general security regime
that Congress has established will adequately allow us to work
with foreign-owned operators, as well as domestically-owned
operators.
The Chairman. Mr. Mitre, you know, I go back a long way,
and I have a union card, myself, as a matter of fact, from a
long time ago. But can you tell me, What effect does this
really have on your people who own this company?
Mr. Mitre. It's very interesting. And, as Mr. Yoshitani
said, it looks simple, but it's a little more complex than
that. There's a couple of things going on. One, you have
contract stevedores that run terminals. Then you have foreign
vessel owners that run terminals. Contract stevedores are
American stevedores--MTC and SSA on the West Coast, basically,
with Pasha, a small company. The rest are the Singaporean-owned
APL, Maersk, many. But they own ships. It's in their vested
interest to make sure that their terminals are ideal terminals,
because they need to make sure those ships turn as fast as
possible.
If you don't own ships and you're a contract stevedore, you
don't have the same interest as a terminal operator that does
own ships. And I think, in this case--and this is just in my
own opinion, you asking me--you've got a foreign company coming
in that's a contract stevedore, and it's a little bit different
than ones that own ships and have a vested interest.
The Chairman. Well, it was foreign-owned at the time. It's
foreign-owned today, by a British company. What difference does
it make if it's owned by Dubai?
Mr. Mitre. To me, Dubai doesn't matter. And I'm just
talking about a foreign-owned, it doesn't matter.
The Chairman. OK. Thank you.
Mr. Koch, if we're to bar all foreign ownership in U.S.
port terminals, as some have suggested, would we possess the
maritime-related assets to continue to accommodate the needs of
our waterborne trade?
Mr. Koch. Absolutely not. Roughly--our guess is somewhere
around 75 percent or more of U.S. trade is handled by terminal
operators that are foreign-owned.
The Chairman. Mr. Yoshitani, what would be the effect of
Congress precluding foreign investment in terminal operations
in U.S. ports?
Mr. Yoshitani. Well, there's quite a bit of foreign
investment in terminal operators already. I'm not sure that
additional----
The Chairman. I think the suggestion is, is government-
owned foreign operations. I take it that would include China,
Singapore, Taiwan, as well as the Emirates, if it passed. That
has been suggested, as I understand it.
Mr. Yoshitani. Yes, sir. I'd like to answer that in two
parts, if I may. Number one, from a commercial aspect, I don't
think there would be any problems with it. Now, we, as terminal
operators or the association, feel that it's totally
inappropriate for us to be making any judgments as to the
security profile of Dubai, or any other company, for that
matter. So, we'd like to take a pass on that.
The Chairman. Thank you.
Senator Vitter, you're the first up, the people that are
here. He's not here, all right. I'm sorry. I'm looking down
there, can't quite see down there. Sorry about that.
Senator Boxer. They look alike, though.
The Chairman. No.
The first person that's here, then, is Senator Pryor.

STATEMENT OF HON. MARK PRYOR,
U.S. SENATOR FROM ARKANSAS

Senator Pryor. Thank you, Mr. Chairman.
If I may----
The Chairman. I just see the back of his head. I didn't
know which one----
Senator Pryor. If I may, Mr. Jackson, I'd like to start
with you--that is, my understanding, is that DP World has
volunteered to undergo, I guess, a voluntary additional review
of the port terminal acquisition. But, as I understand, the way
that would work is, the review would take place after the
transaction is completed. Is that right?
Mr. Jackson. That's my understanding.
Senator Pryor. And what purpose does that additional review
serve if the port has already changed hands?
Mr. Jackson. Well, I would defer to the owners and the
potential owners to talk about the structure of that
transaction, but they have made representations that they are
insulating any change during this period of 45 days.
Senator Pryor. Does anybody want to take a stab at
answering that? Because when you do a review after the
transaction is done, I'm not sure if you can undo the
transaction.
Mr. Bilkey. Senator, I'd be glad to explain. There have
been some questions about why we said we had to continue the
acquisition. This acquisition was governed by the takeover laws
of the United Kingdom. And in that process we are not in a
position now to stop this. As actual fact, by September of--
March 15th, we have to mail checks worth $6.8-plus-million to
the present shareholders--billion dollars--that's a slight
change, thank you, Rob--to the shareholders. And in view of
that, we voluntarily tried to make a scheme that would put us
in a ``hold separate'' situation. We will have no influence,
take no action, give no directions whatever to the present P&O
North American assets. And, frankly, it's a rather interesting
thing, because in our acquisition we had a merger plan, and we
were actually planning to merge with the U.S. assets--as we
said before, we're going to keep it as a separate company--we
were going to merge our Caribbean assets, where we have two
terminals. But in view of what is happening in this 45-day
period and our proposal, we are obviously going to keep those
out of the system. But it would be our intent, actually, to put
our Caribbean assets within the North American company in the
future.
Senator Pryor. OK. Well, I may want to follow up on that in
a moment.
Mr. Jackson, let me ask you, if I may--again, I have a list
here of at least four deadlines that the Administration has
missed in regards to complying with port security laws. And--I
can read them if you'd like. But I'm wondering if you have an
explanation on why these deadlines were not met. And it seems
to me there might be a pattern with this Administration, on not
meeting port security deadlines.
Mr. Jackson. Well, without knowledge of the four that you
have in mind----
Senator Pryor. Well, let me tell you what they are, just
very quickly, so you can answer: National Maritime
Transportation Security Act, that was April 1, 2005;
Comprehensive Strategic Management Plan, March 17, 2005;
Establishment of the Performance Standards for Cargo Seals and
Locks, March 17, 2005; and Section 70116 in the Secure System
of Transportation Program.
Mr. Jackson. Well, I'd be happy to look into each of those
specific ones and provide for the record an explanation, as
best as possible. But let me just tell you that there is
absolutely no lack of focus, or lack of interest in these
marine security activities. There is a lot on the plate of a
very new department. We have had literally thousands of
deadlines that were allocated to us for work as a result of the
creation of the Department. We are working very hard through
this, and I can just tell you that Secretary Chertoff makes
this an extraordinarily high priority.
This is an area very close to my heart. I told you I
believe that marine security is a very, very vital thing for us
to focus on at the Department. And we're committed to doing
that. If we're behind on things, we'll try to get ahead.
Senator Pryor. Thank you, Mr. Chairman. That's all I have.
The Chairman. Thank you.
The next person that's here would be Senator Cantwell.
Senator Cantwell. The Senator from New Jersey, because of
his age--and only because of his age--can----
The Chairman. I thought that might appeal to you, Senator.
[Laughter.]
The Chairman. Senator Lautenberg?
Senator Lautenberg. Thanks very much, Mr. Chairman. I am
still just a freshman--or sophomore, at most--Senator, after
having been here 21 years.
Thank all of you. And thanks, Mr. Chairman and my
colleagues, for their tolerance here.
Mr. Chairman, we have quite a corps of witnesses here:
people who have knowledge and experience. That doesn't mean
that we should avoid doing what comes naturally. And Mr. Bilkey
and our colleague Mr. Scavone--forgive me for the lack of
pronunciation, but I don't have it quite in front of me----
Mr. Scavone. Mr. Scavone. Rob Scavone, Senator.
Senator Lautenberg. Mr. Scavone, I recognize you, and also
Mr. Yoshitani. I worked with the longshoremen and the port
folks for many years before I came to the U.S. Senate. I was a
member, as I mentioned, a Commissioner of the Port Authority of
New York and New Jersey. I lived in the port area all my life.
And I just want to say this. If there's an error in semantics,
it's not, Mr. Bilkey, that people don't understand that it's
not the port. Even if this transaction goes through exactly as
it will after Thursday's closing, I know very well, and I think
my colleagues do, in all due respect, understand that you're
not buying the port, you're buying access to important
facilities. In this case, it's a giant container terminal, as
you very well know. And there is no accusation here that the
United Arab Emirates, particularly Dubai, is an avowed enemy of
the United States.
And I've got to tell you, it touches a little bit of a
nerve in me when we get a lesson in morality or character
coming from people who may have a disagreement with them. And I
happen to be very concerned. I don't know whether you live in
New Jersey anymore. I know your family has very proud roots,
very long roots, in this country. Mine have not been here quite
that long, but there's 100 years behind that. And the memory of
9/11--I worked in the World Trade Center as Commissioner of the
Port Authority--is seared so deeply in my mind, because they
were friends and neighbors, young and middle-aged people, and
fathers and mothers, and sisters and brothers. We're just not
going to give up our vigilance as easily as the Administration.
And I don't care what our colleagues say on any side of
this discussion about racial profiling. I know this, that if
you're Jewish, you can't get in the countries. My own passport
was denied access by Saudi Arabia when I went there. I was the
first legislator to go there during Gulf War I, because there
were people from our airbase in New Jersey who were ferrying
cargo and people to that country. Saudi Arabia wanted to deny
my passport entry--me, a United States Senator and former
soldier. So, I want to clear the record of these things when
our colleagues bring up the term ``racial profiling.''
Now, I want to ask a couple more serious questions.
The Chairman. I just wanted it quiet----
Senator Lautenberg. OK.
The Chairman.--so you can be heard.
Senator Lautenberg. All right. Anyway, the fact is that
much of the complaints that I have are against the lack of
recognition by our own government, in that more had to be done.
As of Thursday, the transaction between World Port and the
United States--and the British company--P&O--will have been
executed. The contract is done. Is that the way any of you
recommend doing business? You first sign a contract, and then
you get all of the understandings that follow? Absolutely not.
I wouldn't do it, and I ran a big company. And I don't think
any of you would do it. So, why, here, are we taking that kind
of risk?
You may feel very comfortable, Mr. Bilkey, about the fact
that there is no risk, but I don't care what you say about
that, I'm going to act to protect my family, my constituents,
my country, and my state as much as I can. And your assurances
are nice to hear, but that's not enough for me, or for them.
President Reagan said, ``Trust, verify.'' And that's what
my bill does. I support Senate bill 1052. I think it's a good
start. But I also want to have another layer of scrutiny, and I
want the ports themselves, the port management, to have to do a
little bit of vetting on their own.
Mr. Chairman, thanks for permitting me this recasting of
time.
The Chairman. Senator Cantwell?
Senator Cantwell. Thank you, Mr. Chairman.
Mr. Bilkey, in my understanding, you have about 30 percent
of the marketplace, and if this deal goes through, you'll end
up being the world leader in this area. So, I have a question
about--at what point in the process, if any, were you made
aware of the Coast Guard's concerns to the Department of
Homeland Security in regards to intelligence and security gaps?
Mr. Bilkey. Senator, first--I'm learning about this--first
of all, we're not going to be the largest, by far. Hutchison
Whampoa, with their large Chinese operations, are the first,
and a very fine operator. We will have, actually, the most
terminals, individual terminals in the world in this portfolio,
when this goes through.
The answer to your question is, I found out about it last
night.
Senator Cantwell. Do you think there are any documents that
were given by the company to the Committee for review that you
don't know about? Do you think that, in asking these questions,
in this process of review, and the Coast Guard raising these
questions--do you think that the company responded in any way,
or was asked to respond in any way?
Mr. Bilkey. I know they were. But I don't know every single
document that they were given, that's for sure.
Senator Cantwell. Is it possible for us to get a copy of
the documents that were provided, to prove to the Committee
that this should be approved?
Mr. Bilkey. If Homeland Security and the Treasury agrees,
it's fine by us.
Senator Cantwell. OK, thank you.
Mr. Jackson, who actually made this decision at Homeland
Security? I saw in the press that Secretary Chertoff said that
he did not know his agency had signed off on this proposal. Who
within Homeland Security is responsible for making the
decision?
Mr. Jackson. Assistant Secretary Stewart Baker was the
senior official involved in this transaction.
Senator Cantwell. And do you know the specific response
that was asked by Dubai Ports World in response to the concerns
that the Coast Guard brought up?
Mr. Jackson. Let me try to frame this a little bit. And
partially we're talking about a classified document, so I'll
talk about it as much as I can. And I'd be happy to talk about
it in another fora, if that's helpful to you, ma'am.
The portion of the text that has become public was an
unclassified portion of a classified document. And this is a
standard section in reviews of this sort that assesses any gaps
in available information. When you start a transaction of this
sort, there are a multiplicity of gaps that you then go seek to
fill. And, at the end of the day, what I can say about the
conclusion of this intelligence assessment is that the Coast
Guard found no reason not to approve the transaction, based
upon the totality of its work. And they, therefore, recommended
the same to DHS.
Senator Cantwell. Can you--you or Admiral Gilmour, tell me
exactly when, on that timeline of this process, those issues
were resolved? Was that the final days of this decision, very
early on, in the middle?
Admiral Gilmour. Yes, Senator, the classified document was
done very early on in the CFIUS process.
Senator Cantwell. And the questions were raised and
answered in the same very early timeframe?
Admiral Gilmour. In our interagency--or, I should say,
interdepartmental working group that we had, we raised certain
questions that would certainly address those concerns, yes.
Senator Cantwell. Well, I know that we have a standing
request from Senator Snowe and myself to go further on that
question, so I'm sure we'll have an opportunity to do that.
Mr. Jackson, are you aware that the President's FY 2007
budget recently submitted to Congress proposes a 45 percent cut
in funding for the Megaports Initiative?
Mr. Jackson. I'm familiar with the general contours of the
Energy Department program, but I don't know the details of it.
Senator Cantwell. Do you agree with that? I mean, I know
it's probably hard for you, at your level, to answer that, but,
given what everybody has said about how important the Megaport
Initiative is, and how we want to move forward on more port
security, do you think it's time to have a cut in funding for
that Megaport Initiative?
Mr. Jackson. I would have to review the specific details of
the proposal and understand what the laydown in the procurement
cycle looks like for that particular initiative. That's a
Department of Energy program, and I have not had a chance to
review the details of it.
Senator Cantwell. Do you think we're----
Mr. Jackson. I'd be happy to do so.
Senator Cantwell. Do you think we're spending enough on
port security, just yes or no?
Mr. Jackson. I think we are spending a tremendous amount
and----
Senator Cantwell. Are we spending enough?
Mr. Jackson.--an appropriate amount for the many things
that we are balancing. We're spending about $2.5 billion at DHS
alone on port-security/maritime-security-related things. This
is the whole--the whole mix of Coast Guard operations that are
specific to port security. It's CBP operations specific to port
security. It's a grant program, which this year will be----
Senator Cantwell. So, you think it's appropriate----
Mr. Jackson.--160 million.
Senator Cantwell.--you think it's appropriate level.
Mr. Jackson. I think it's a fair balance, given the many
competing priorities that we have to manage in the homeland
security world.
Senator Cantwell. Well, I know my time is expired, so we'll
go to the next round and come back on this question. But I'd
just--I'll tell you where my constituents are. They want to
know why we spent billions of dollars on Star Wars defense and
yet we don't have the security to guarantee that there's not
going to be a nuclear device in a cargo container that comes to
the Port of Seattle.
So, when you talk about balance, I think that's where the
American public is concerned, when they think it's going to
come right through to their city waterfront, which is where it
is in Seattle, and could impact millions of people.
Now--so, maybe in the second round, we can----
Mr. Jackson. There are many----
Senator Cantwell.--go into that in more detail.
Mr. Jackson.--many risks that we're trying to manage within
the Department of Homeland Security, but if you take the
budgets from 2004 to the proposed budgets of 2007, we, at DHS,
will have spent $10 billion on maritime security investments.
This is not a paltry sum. It's a very considerable investment
in securing our Nation's maritime system.
Senator Cantwell. I'll look forward to the details on that.
Mr. Jackson. I'm happy to give them to you.
The Chairman. The next person is, I believe, Senator Boxer.
Senator Boxer. Thank you.
Let me first say I'm sorry that Senator DeMint isn't here,
because he said there was a vote, and I was one of four people
to vote on something. There was no such vote. He was talking
about a Feinstein-Hollings bill, and, at the end of the day,
there was no vote on it, and it would have said that, for San
Francisco Airport, if you're in the process of becoming
naturalized, and the Attorney General says you're OK, you could
continue in that work. So, I wanted to--but it was a very
bizarre attack.
But, anyhow, let me get to the case at point here.
I want to go, Mr. Bilkey, to you, because you were very
eloquent, and you said, ``with malice toward none and charity
for all,'' and we all carry that in our hearts. Except I
wonder, do--your company doesn't seem to have any charity
toward Israel. What do you do at the Port of Dubai if there's
some package going there, a container going there? You don't
take it, do you?
Mr. Bilkey. Well, we don't know what--excuse me--we
actually don't know what's in a container.
Senator Boxer. No, if it's headed toward Israel, what do
you do about it?
Mr. Bilkey. We wouldn't know about it.
Senator Boxer. Isn't your policy to respect the boycott of
Israel? That's what we've been told, via a Jerusalem Post
article. You talk about ``malice toward none and charity toward
all.'' We have it--in today's Jerusalem Post, an admission that
the company respects the Israeli boycott. Is that true?
Mr. Bilkey. DP World is not involved in state-to-state
matters.
Senator Boxer. Who owns you? Who owns DP World?
Mr. Bilkey. The Government of Dubai.
Senator Boxer. And what about them? Is it their policy to
respect the boycott, the Israeli boycott?
Mr. Bilkey. I do not have influence on----
Senator Boxer. I didn't ask----
Mr. Bilkey.--the Government----
Senator Boxer.--you if you----
Mr. Bilkey.--of Dubai.
Senator Boxer.--have influence. I wish you did. But I asked
you if they respect the boycott, yes or no.
Mr. Bilkey. I would imagine----
Senator Boxer. Do they support----
Mr. Bilkey.--they would.
Senator Boxer.--and respect the boycott? Say it again?
Mr. Bilkey. I would imagine they would.
Senator Boxer. OK. Well, the point is, I think getting
speeches about ``malice toward none and charity for all'' ought
to be tempered with a little bit of reality here.
Now, I looked through all of your company's chief, top
positions. I don't see any women in there. Who is the--do you
have any women in top positions here in your company?
Mr. Bilkey. Yes. Selma Harab is the CEO of the Jebel Ali
Free Zone, which is a--one of--the largest free zone in the
world.
Senator Boxer. Well, she's----
Mr. Bilkey. And also----
Senator Boxer.--not listed on your top list, which I have
here, and I ask unanimous consent to place into the record.
[The information referred to follows:]

Senator Boxer. I'm glad you have a woman at a high level,
but she's not one of the top executives listed in--off your
website. So, when we talk about ``malice toward none and
charity to all,'' let's just try to be honest here about the
way we live our lives. None of us are perfect. I'm not. You're
not. And I just think being lectured when you have a country
where women don't have very many rights and there's--they
boycott a country, for whatever reason I can't fathom, I think
it's a little bit dangerous for you to do that, because I think
that you open yourself up to criticism there.
Is it your understanding that, as part of this deal of
running these ports, that you get to see the security plan for
the various ports in which you are operating?
Mr. Bilkey. We don't get involved in the security plans in
ports, other than America, and we would not get there--and I'd
turn to my colleague Rob Scavone.
Senator Boxer. Well, let me just----
Mr. Bilkey. They are involved in working with the Coast
Guard and Homeland Security----
Senator Boxer. Yes, they are. And----
Mr. Bilkey.--to develop a facility security plan. But I am
not an expert on U.S.----
Senator Boxer. OK, let's----
Mr. Bilkey.--security----
Senator Boxer.--let's move on. Did your company buy out
CSX's port business?
Mr. Bilkey. Yes, that's correct.
Senator Boxer. And for how much was that?
Mr. Bilkey. $1.1 billion.
Senator Boxer. And when did you start negotiating that
buyout?
Mr. Bilkey. Uh----
Senator Boxer. To the best of your memory. I can't----
Mr. Bilkey. It was a very quick operation. I believe we
started the investigation in early November.
Senator Boxer. OK.
Mr. Bilkey. Early November of 2004.
Senator Boxer. Of 2004. Were you aware that Dave Sanborn
had been named by George Bush to be the Maritime
Administrator--he worked for your company? Were you aware of
that?
Mr. Bilkey. Well, that--the CSX World Terminal was 2004.
Dave didn't join our----
Senator Boxer. No, no, I'm not asking that--that's--because
my time is a-wasting, I'm shifting to another subject, which
is, were you aware of Mr. Sanborn's being nominated by George
Bush?
Mr. Bilkey. I was made aware that he was approached, I
believe, in October, and he declined the job, at that time. And
I would like to go on record about Mr. Sanborn.
Senator Boxer. Please. Please.
Mr. Bilkey. He is one of the finest knowledgeable
operations, terminal, and shipping people that I've known. I've
known him for years. He worked for Sea-Land for many, many,
many years.
Senator Boxer. I know, but he--he worked for you. Did you
encourage him to take this job?
Mr. Bilkey. No, I knew nothing about it. And he called me
one day and said he had been called again--I believe it was in
January 15th--and said, ``I have been asked, and I am going to
accept.''
Senator Boxer. OK.
Mr. Bilkey. As a matter of fact, it was very disappointing
for us, because we were about to move him into the highest
position in Hong Kong.
Senator Boxer. But I'm sure that having one of your own
people as the Maritime Administrator here in America has to be
considered a plus by you. Is that correct?
Mr. Bilkey. No, it doesn't make----
Senator Boxer. Well, you----
Mr. Bilkey.--any difference.
Senator Boxer.--certainly----
Mr. Bilkey. I've known the--I've known the man----
Senator Boxer. Well, you certainly----
Mr. Bilkey.--for 25 years.
Senator Boxer.--said it in your website. You bragged about
how wonderful it was.
Thank you, Mr. Chairman.
The Chairman. Senator Burns?
Senator Burns. Mr. Bilkey, I just have, along those same
lines--and not--not this. I get very nervous about state-owned
corporations. I've served on this committee for the last 17
years, and we've looked at a lot of state-owned corporations
that I've had--I really have a problem with that. If they were
investor-owned and away from the government, I don't--no red
flags go up, as far as I'm concerned. And I'll be real quick.
What matters is does DP World consult with the Dubai
Government?
Mr. Bilkey. Absolutely not, sir.
Senator Burns. And--in other words, it has no impact on the
day-to-day operations on these ports that they operate?
Mr. Bilkey. Not at all. And all our investments are all
done on our own balance sheet. We don't even turn to the
government.
Senator Burns. And it has no role in the overall terms of
the overall operations of these terminals. Is that correct?
Mr. Bilkey. Absolutely none. I wouldn't be----
Senator Burns. OK.
Mr. Bilkey.--there if they did.
Senator Burns. Thank you very much, and I appreciate the
time.
Mr. Chairman, I yield back what I have left.
The Chairman. Yes, sir.
Senator Allen?
Senator Allen. Thank you for answering a question that I
had. Mr. Bilkey, DP World is owned by the UAE Government, is
that correct?
Mr. Bilkey. No, by the Dubai Government, sir.
Senator Allen. All right. What percentage by the Dubai
Government?
Mr. Bilkey. Excuse me?
Senator Allen. What percentage?
Mr. Bilkey. A hundred percent.
Senator Allen. And they have absolutely no impact on the
operations or any of the decision-making of the company?
Mr. Bilkey. Absolutely none. Never--I've never discussed a
single word with them on any of--issue to do with anything
about our company.
Senator Allen. Mr. Sanborn, by the way, lives in
southeastern Virginia, and I introduced him to the Committee,
oh, gosh, a few weeks ago, and he is a man of outstanding
reputation, character, and competence.
Let me ask this. Can you, Mr. Bilkey--or maybe it'll come
from the Department of Homeland Security. Are there any
conditions that DP World has agreed to, in terms of enhanced
security or information-sharing?
Mr. Jackson. I can answer that, Senator Allen. There are
several.
First, they have agreed to participate, and continue to
participate, in ongoing cargo inspection and security programs
principally here, the Customs Trade Partnership Against
Terrorism, and our Container Security Initiative, two key
programs of the Department. Second--and they've also, by the
way, agreed to participate in the Megaports Initiative at the
Energy Department. We have extensive experience with this firm
in their--in the UAE--and we are absolutely persuaded that they
are excellent security partners.
Senator Allen. Could you share with the Committee and the
American people, any added conditions, security transparencies,
and so forth----
Mr. Jackson. There are a couple of extra details that
enhance the security.
Senator Allen. All right.
Mr. Jackson. They have made a specific assurance to assist
the U.S. with any law enforcement agency--Federal, State, and
local--to disclose information concerning the operation of the
company's facilities, equipment, or services, and to provide
any relevant records that may exist of foreign efforts to
control U.S. facilities. So, they have opened their books.
In addition, they agreed to maintain the--P&O's existing
security policies and procedures at the facilities, as they
would be obliged to do by Coast Guard and CBP regulations. And
they have agreed to have a great deal of transparency into the
recordkeeping of who's employed and what their operations are
inside these terminals in the United States.
Senator Allen. In the event that this transaction's
consummated, they're keeping certain management and U.S.
citizens and so forth. How do you see the governance of it
after it's turned over to DP World?
Mr. Jackson. We see it looking very similar to what we're
working with today under the P&O ownership.
Senator Allen. Do you find a difference in dealing with an
entity in such operations that is owned by a government, as
compared to one that is owned by a private concern?
Mr. Jackson. I think, as a general matter, you'd have to
ask the specifics about the nature of the organization and the
transaction. In this case, we did not at all have difficulty
with this particular transaction, and we are very grateful for
the partnership that the UAE has shared with the United States
in counterterrorism efforts. So, there's a very substantial
layer of familiarity with operations in Dubai, and also with
the counterterrorism work of the UAE.
Senator Allen. In the event that the UAE or Dubai was not
as friendly and supportive as they have been in the last 3
years, do you have assurances that insofar as these operations,
security would be maintained?
Mr. Jackson. Yes. The agreement requires them, and multiple
U.S. statutes require them, to maintain security plans,
security protocols, the continued access to the information
that was provided in the assurances letter and this
transaction.
Senator Allen. All right.
Mr. Koch, since you were once with Sea-Land and they sold
it off for some reason, why are there not so many--these
companies are from Denmark, from Taiwan, Korea--South Korea,
China, which is government-owned, Japan, privately owned--but,
regardless, why are there so few American companies interested
in this? Somebody's making a profit. They're paying Americans
to do this work. Give us a business perspective why there are
so few American companies interested.
Mr. Koch. I think experience has shown it's a very capital-
intensive business, as you know. Maersk, investing the hundreds
of millions in this new facility in Portsmouth, it's a very
expensive----
Senator Allen. Portsmouth, Virginia.
Mr. Koch. Portsmouth, I'm sorry. Very expensive business.
It's a very cyclical business.
CSX was punished on Wall Street for holding Sea-Land. It
was a discount on the stock, and they had to constantly explain
the liner shipping industry to the market. APL found some of
the same situations. And our tax laws are higher. And so, it is
an industry that American enterprise has simply found very
difficult to compete in, and has chosen to--those companies
that were pioneers have chosen to sell to others who have a
longer-term view of the business.
Those companies, I would add, have made billions of dollars
of investment in the U.S. in our transportation infrastructure,
without which we would have a very difficult time moving the
goods of American importers and exporters as efficiently as
move today.
Senator Allen. Are they not subject to the same U.S. tax
laws as U.S. companies?
Mr. Koch. It depends on what part of the operation is
concerned. If it's a terminal operating company based in the
U.S., it would be subject to the same tax laws. If it's a
carrier operating international commerce, it'll be subject to
the tax laws of that nation.
Senator Allen. Which are lower.
Mr. Koch. Which are lower.
Senator Allen. Thank you, Mr. Chairman.
Thank you for your testimony.
The Chairman. Yes, sir.
Senator Sununu would be next.
Senator Sununu. Thank you.
Mr. Bilkey, you're COO, Chief of Operations, for DP World.
You have operating responsibility for all of their
international terminals? Is that--30--how many was it, 35, 40?
Mr. Bilkey. Well, we're 19 today, and when we make this
acquisition, we'll be 50 or 51, depending on if you start to
decide on greenfield sites.
Senator Sununu. So, your operating responsibility, it's
owned by the Emirates, but you are the chief operating officer.
Mr. Bilkey. Yes, sir. And it's a big daytime job.
Senator Sununu. I imagine. It's a--you're a U.S. citizen,
is that correct?
Mr. Bilkey. Yes, sir.
Senator Sununu. You're not a citizen of--of any other
country.
Mr. Bilkey. No, sir.
Senator Sununu. If I get your family tree right, am I
correct in assuming you are a cousin to Congressman Rodney
Frelinghuysen?
Mr. Bilkey. Yes, sir.
Senator Sununu. Excellent. How many employees--if--once the
acquisition is completed, how many employees will the company
have in the United States?
Mr. Bilkey. Now, I'm not an expert on that, but I've been
reading up on it, so it's 402, I believe, but----
Senator Sununu. Roughly 400. That's fine. You don't--I'm--
--
Mr. Bilkey. And, of that, I can tell you I believe they're
all U.S. citizens, but about seven or eight. Three British, and
there's some Australians and one or two others.
Senator Sununu. So, all but seven or eight are U.S.
citizens.
Mr. Bilkey. Correct.
Senator Sununu. And seven or eight hold citizenship from
Britain, Australia----
Mr. Bilkey. Yes. It's----
Senator Sununu. OK.
Mr. Bilkey.--a handful, about seven. But they--you know, we
employ hundreds and hundreds of people, but they're
longshoremen.
Senator Sununu. I understand. Will that change? Will that
makeup of the workforce, 400 employees, 98 percent U.S.
citizens----
Mr. Bilkey. We have----
Senator Sununu.--2 percent----
Mr. Bilkey.--no plans to--we're very glad to have a very
able management and systems in place. And that's one of the
reasons why we're acquiring the company.
Senator Sununu. You mentioned Ms. Harab. And I know some
members of the Committee asked about her. This is a picture of
her here, the head of the Free Zone, is that correct, that you
handed out?
Mr. Bilkey. Oh, yes.
Senator Sununu. And----
Mr. Bilkey. Yes, sir.
Senator Sununu.--is this chairman of your company, sort of
following her----
Mr. Bilkey. He's----
Senator Sununu.--off to the----
Mr. Bilkey.--in the----
Senator Sununu.--gangplank?
Mr. Bilkey.--background, way in back.
Senator Sununu. Thank you. There's also a picture here of a
Navy officer in the tower. And, granted, one Navy officer
looking--holding--or being present in the control tower isn't
the be-all and end-all, but I'm curious to know, are Navy
officers located in the control towers of any U.S. ports, to
the best of your knowledge?
Mr. Bilkey. I don't know. And that's actually a very
privileged place, because that was built especially for Sheikh
Rashid, who actually built the port. And they coordinate with
our harbor master and his crew in the movement of the vessels.
Senator Sununu. Earlier, someone asked about access to
documents. And I know there are some agreements we have here.
Will access to relevant documents be provided to law
enforcement officers? I think this is a very important area,
personnel records, manifests, and the like. Is that material
made readily available to Homeland Security, should the need
arise?
Mr. Bilkey. Yes, sir. And we made formal undertakings in
that regard.
Senator Sununu. Are subpoenas or warrants or advance notice
required to get access to that material?
Mr. Bilkey. No. To the best of my ability, I don't know.
Senator Sununu. OK. And is that the gist of the letters
that were provided to us? In other words, you referenced a
number of agreements and assurances that were made.
Mr. Bilkey. Correct.
Senator Sununu. This documentation references those
agreements. In your experience--well, could you talk generally
about the level of sophistication of the port operation in
Dubai? And I know it's a larger port. Singapore was mentioned,
Hong Kong, these are very large ports--I suppose along the
lines of Long Beach, in California. I'm curious to know their
relative sophistication in terms of technology that's employed
and how that compares to the ports in the U.S. in which you
will have some lease arrangements.
Mr. Bilkey. Well, we have the ten largest container cranes
in the world. Someone will catch up to us, I'm sure. And they
also have the highest productivity in the world and can pick up
four 20-foot containers at a time. We talk in 20-foot
equivalent units in our business. And they can do over 600 20-
foot equivalent units an hour on a large ship with seven cranes
over it.
We work on a number of things, and technology is one, and
security is another. I was very serious, and the company is
serious, when we said, OK, this has come up. But isn't this an
opportunity? We have--going to have 51 ports. We can engage in
all those 51 ports in any way the U.S. would like to. And we
have a very big incentive to do that.
Now, I'm looking at something. And I'm glad the date is on
it, because it's September 19th. And that's before any of--we
even approached the U.S. for permissions or anything like that.
And we are taking the initiative ourselves to go forward with
NII--excuse me, nonintrusive inspection gear, which exists--the
technology exists today, and this is equipment that I believe
that some Congressmen and Senators have looked at. And we're
taking the initiative. CSI actually is supposed to take the
initiative and actually put this type of equipment into place.
We're taking the initiative on our own. I'm looking at the--at
a response to an RFP in September that--and these are not
inexpensive machines, they're $2.6 million apiece, the whole
setup with it, which allows gamma rays and radiation detection
and optical scanning and all the bells and whistles all at
once. So--I mean, the big problem in the ports today is--and I
would like to see something like this in all the CSI ports, and
there were more CSI ports--that's what's really needed, to push
the borders out of the U.S. I would check them again here and
have a second layer.
But this is the type of equipment--and I don't want to tout
anyone's particular equipment, because we haven't made our
decision yet--but this is the type of thing that is
commercially practical. The problem today is speed. And the
present type of equipment that you have, it actually runs like
a car wash, and, takes minutes to run over a container. You can
only do 20 containers an hour. These can do up to 400-and-more
containers an hour. They store the image. And the image can
actually be transported to the Customs center here in the U.S.
So, this is the type of thing--to me, if, out of these
hearings, that something like this is pushed forward and
mandated, it's going to increase the security tremendously. And
security is big business for us. It's a marketing tool for us.
We couldn't afford, spending the money we do, to have anything
go wrong with our operations. It would be catastrophic. And
that's why it's not just words when we say ``security is
everybody's business.'' It's all--and all shipping companies
and everybody is interested it.
Senator Sununu. Thank you very much.
Thank you, Mr. Chairman.
The Chairman. Thank you, Senator.
Senator Ben Nelson?
Senator Ben Nelson. Thank you, Mr. Chairman.
Mr. Jackson, you were asked by my colleague if enough was
being spent. You didn't quite--I heard you answer, but I didn't
find an answer in it. Is enough being spent on port security,
period?
Mr. Jackson. Yes, I think we're spending the balance that
we can afford to spend----
Senator Ben Nelson. Not----
Mr. Jackson.--in a prudent way.
Senator Ben Nelson. Well, no, you're--I understand
balancing, if you have enough--if you have a--if you have a
piece of pie, you cut it into five pieces. And I understand
trying to balance that. But do you need a bigger pie? I guess
that's the question. I'd like to know that answer.
Mr. Jackson. I think that we have got an adequate-sized pie
for the mission that we have right now.
Senator Ben Nelson. And is enough of it going to the ports?
Because you're only----
Mr. Jackson. Two and a half----
Senator Ben Nelson.--getting five----
Mr. Jackson.--billion dollars out of DHS this year.
Senator Ben Nelson. No, my question is, Are we spending
enough money if we're only looking at 5 percent of the
containers? And is that enough? And if it isn't enough, why
isn't it enough?
Mr. Jackson. Senator, it's an excellent question. Let me
answer it for you this way. There's a widespread distinction
that is not being made routinely, and I'd like to make it this
way. We screen 100 percent of all containers inbound into the
United States. We inspect 5 percent of the containers, roughly.
We inspect all the ones that we identify as high-risk or high-
concern containers. This is a smart way to make an investment.
What we're trying to do is aggregate data from up and down the
supply chain and over historical time of who's touched this
container, what's in this container, where it's going, who
shipped it, and all of the history that we can. And, on the
basis of a very sophisticated system of risk analysis, we are
identifying the ones that need physical inspection.
This is the wave of the future. This is the next
generation. This is how we need to do this. And if it means
that we inspect 12 percent or 3 percent or 6 percent, we'll
inspect what we need to, and the investment here on screening
is really the key to the security.
Senator Ben Nelson. Well, I guess I'm still a little bit
confused, but perhaps we'll go on, except to say I believe in
risk assessment and cost-benefit analysis. No question about
it. But if you had more money, would you inspect more--actually
physically inspect more containers?
Mr. Jackson. If I had more money to spend right now, I
would spend it on the algorithms and the work up and down the
supply chain to gather information. That is the place where you
can go to get greater depth. And that's exactly what Secretary
Chertoff has proposed as part of our Secure Freight Initiative,
to go to the next generation of tool which creates an
intermediary institution that can aggregate data from up and
down the supply chain, do more than just scrape the weigh bill,
gather information about the shipper and all of the people who
have touched the thing for----
Senator Ben Nelson. Well, more risk----
Mr. Jackson.--purposes of----
Senator Ben Nelson.--assessment--more risk assessment, in
other words.
Mr. Jackson. Yes, sir.
Senator Ben Nelson. OK. We have Union Pacific and
Burlington Northern Railroads--the rail lines passing through
the state. And, of course, I-80 is a major corridor for
trucking cargo cross-country. Can you talk a little bit about
the security process for cargo coming off ships and onto rail
trucks--rail cars and trucks? For example, do security measures
differ at ports than at border crossings at the Mexican and
Canadian borders? Is it easier to screen a train crossing the
border, which I understand they do, versus cargo being loaded
on a train at a port?
Mr. Jackson. Senator, I've asked Mr. Ahern to answer that
question, if he could. This is his specific area of expertise
at CBP.
Senator Ben Nelson. Uh-huh.
Mr. Ahern. Thank you very much. I am the Assistant
Commissioner for Customs and Border Protection.
The Chairman. Pull that up to you, will you, Mr. Ahern?
Pull it up. Put the mike----
Mr. Ahern. Is that better, sir?
And, as part of our responsibility, not only do we have the
overseas responsibility under the Container Security
Initiative, putting assets there, and the technology
deployment, but also at our land border ports of entry. One of
the key features that we have along the borders--and when we
made our first radiation portal monitor deployment, we made the
conscious decision to go ahead and deploy those along the
Canadian border, because we felt as though, given the lack of
information that we have through the prescreening process under
the maritime model, and given the fact that we did not have
Container Security Initiative assets to place overseas, so we
have to put our radiation portal monitors on the northern
border with Canada. We have many of those that actually are in
our rail facilities. In fact, one of them actually is on the
other side of the border, where we have our officers screening
it for--radiation portal detection before it actually----
Senator Ben Nelson. When it comes----
Mr. Ahern.--enters in----
Senator Ben Nelson. When it comes in.
Mr. Ahern. Yes, sir. Yes, sir, that's correct. And we also
have them deployed along the northern border. I think that the
total right now for radiation portal monitor screening trucks
coming into the United States from the northern border is
actually around the 90 percent rate. And on the southern
border, we're about the 85 percent rate from trucks coming into
the United States from Mexico.
We also have large-scale imaging devices, because certainly
we have the knowledge that we need to make the ability to look
at a container and also to screen for radiation capabilities,
as well.
Senator Ben Nelson. Thank you.
Before I go, Mr. Chairman, I want to compliment Admiral
Gilmour personally for an outstanding job in--with the Coast
Guard in Katrina. I think we all saw the heroic efforts and
great successes of your troops in New Orleans, and I want to
personally thank you.
I want to also ask you if you have enough money to do the
kind of security that needs to be done.
Admiral Gilmour. Well, again, as the Deputy Secretary said,
we need to live within our budget. And certainly we have some--
many of the same risk-based systems that we use, not only to
look at vessels, but also it's based on the crew members of the
vessels and the record of vessels. So, I think we have adequate
funding to do the job that we need.
Senator Ben Nelson. Well, Mr. Mitre doesn't seem to think
so, so maybe you can work that out between you.
Thank you very much, Mr. Chairman.
The Chairman. Thank you.
Senator Bill Nelson?
Senator Bill Nelson. Thank you, Mr. Chairman.
Mr. Bilkey, good afternoon. Dubai Ports World is owned by a
holding corporation owned by the Government of Dubai, named
Ports Customs and Free-Zone Corporation, PCZC, is that correct?
Mr. Bilkey. PCFC, we call it, sir.
Senator Bill Nelson. OK, a Free Zone Corporation.
Mr. Bilkey. Yes.
Senator Bill Nelson. That's correct. Are you aware that
that same holding company also owns a company that is called
the Dubai Customs Department?
Mr. Bilkey. Yes, sir.
Senator Bill Nelson. Are you aware that the Dubai Customs
Department--that there is an office in that department called
the Office for the Boycott of Israel?
Mr. Bilkey. No, sir.
Senator Bill Nelson. Well, there is. The sole job of that
office is to enforce a boycott against Israel. That office, as
a matter of fact, in the year 2003 had 100 incidents where it
engaged American corporations that--on the containers that they
were shipping, that there could be no products with any element
that was made in Israel. And again, in the year 2004 there was
another hundred incidents with American corporations, and
you're not aware of that. Are you aware--well, let me ask you,
first, is the Jebel Ali Free Zone area--is that also owned by
the PCFC?
Mr. Bilkey. Yes, sir.
Senator Bill Nelson. Are you aware that they have advised
all importers that they must comply with the terms of the
boycott that is enforced by the Dubai Customs Department?
Mr. Bilkey. No, sir.
Senator Bill Nelson. Well, therein lies a problem. Both of
you are--all three--are owned by the holding company PCFC, and
that's owned by the Government of Dubai, and it's enforcing
that boycott.
And that is just something that as a matter of policy, we
need to have that out here on the record, Mr. Chairman, in the
consideration of this whole issue that has come to our
attention.
Let me ask you one other question. In the interest of time,
I'll stop. Your company obviously is a very good one, and does
a good job, and you do a lot of business in U.S. ports. Is that
correct?
Mr. Bilkey. No, sir. I mean, P&O does. The business we're
acquiring, yes.
Senator Bill Nelson. Yes.
Mr. Bilkey. But, at the present time, we do not.
Senator Bill Nelson. So, with the acquisition of the P&O
company, you would be operating the ports in those six ports
that have been listed----
Mr. Bilkey. Yes, and the other--and the other general
stevedoring services and general cargo that was brought up
during the meeting.
Senator Bill Nelson. And Mr. David Sanborn is an executive
with your company.
Mr. Bilkey. Yes, and an excellent one, too, sir.
Senator Bill Nelson. Yes, I understand. And I'm sure he
must be. What is your personal opinion? Do you think that an
officer of your company should be the head of the U.S. Maritime
Administration?
Mr. Bilkey. Sir, I think this individual--an individual in
such a position should be based on his experience, knowledge,
and integrity, and I couldn't speak any higher for Dave
Sanborn's integrity. I've known this man a long time, and he's
had positions of responsibility all over the world. He brings a
great deal of cross-section and ability to the job, of an
international nature, which is the type of things that I think
probably is needed in the Maritime Administration.
Senator Bill Nelson. Yes, sir. And you indicated that you
were going to promote him as the head of Hong Kong. And
obviously you do think a lot about him. My question is more in
terms of the perception of a potential conflict of interest. Do
you have an opinion on a perception of that conflict of
interest, were he to be the head of the Maritime
Administration?
Mr. Bilkey. No, sir, I don't. But I can tell you, it would
have been the second Maritime Administrator that came under my
jurisdiction, because one, a number of years ago, worked for
another company, Norton Lilly before he became a Maritime
Administrator, and it wasn't felt that it was a conflict then.
Mr. Jackson. Senator, I might just add to this one that
standard government recusal regulations would require this
individual, if confirmed, to be recused from this particular
firm for at least a year.
Senator Bill Nelson. I understand. I'm trying to get all of
the information out here for this committee to evaluate,
because this was not an issue that came up when his hearing was
held, February 7.
With regard, Mr. Bilkey, of the gentleman that you had
referred to that you knew before, that was the head of the
Maritime Administration, was he an employee of a company that
was owned by a foreign country?
Mr. Bilkey. No, sir.
Senator Bill Nelson. Thank you, Mr. Chairman.
The Chairman. Well, it's up to Senator Cantwell whether
you're recognized.
Senator Lautenberg?
Senator Lautenberg. Thanks very much, Mr. Chairman. I'll
try to be brief.
Mr. Koch, when you talked about the knowledge of what is in
the containers, did I understand you to say that 100 percent of
the cargo in those containers is known?
Mr. Koch. A hundred percent of the information about the
containers that the carriers have in their bill of lading data
is transmitted to Customs before vessel loading.
Senator Lautenberg. OK. So, we know only what they said was
in there.
Mr. Koch. The carrier knows----
Senator Lautenberg. Yes, OK.
Mr. Koch.--what the shipper says was in there, that's
correct.
Senator Lautenberg. OK. So, it might pay to take a peek
along the way, if we can do that. Thanks.
Anyway, the----
Mr. Ahern. Senator, could I add to that answer, please?
Senator Lautenberg. Sure.
Mr. Ahern. Because that is part of my area of
responsibility, as well. And the Trade Act of 2002 did require
the carrier to electronically transmit the information to
United States Customs and Border Protection. We think that's a
good thing for us to have 24 hours in advance of lading, so
that we have the ability to screen 100 percent of that manifest
information prior to lading overseas----
Senator Lautenberg. Would that----
Mr. Ahern.--take that information----
Senator Lautenberg. Would that include parts for nuclear
weapons, do you think----
Mr. Ahern. Well, sir----
Senator Lautenberg.--if they were--if somebody was going to
put it in a container?
Mr. Ahern. I think what is important, sir, is for me to be
able to lay the entire strategy out so that we have the ability
to introduce the technology layers, the screening layers, and
also the personnel that we deploy as part of this protocol, as
well. No single solution is going to be acceptable to the
potential threat we face.
Senator Lautenberg. I thank you for that add-on, because
that's important. I come out of the computer business. I was
there before the computers, and I left there since the
computers, but I just wanted to be sure that there are no
illusions created here, because we don't really know for sure
what is in all of these containers. And we do inspect very few
of these things, just 5 percent. I'm not saying it's an easy
job, it's a very complicated job. We can't do something which
will bring commerce to a standstill. On the other hand, we have
to do whatever we can to protect ourselves and our families.
Secretary Jackson, did any other agencies in your
Department, beside the Coast Guard, raise concerns about the
deal before or during the CFIUS review?
Mr. Jackson. The Coast Guard did not raise, ultimately, an
objection to the transaction. They were part of the review
process that we undertook at the Department of Homeland
Security. There were other parts of the Department that engaged
in the same.
Senator Lautenberg. But there was--you say they were part
of the information-gathering, but there--did anyone raise any
concerns about taking a second look here? Because the contract
is going to go into place on Thursday, and I'm not even sure
what the remainder of 45 days--or the remaining 45 days will do
for us. What can happen, would you think, in those 45 days?
Where does this go? This was at the request, I believe, of
Dubai Ports World, who said that they would submit for another
review.
Mr. Bilkey. Yes, Senator, that's correct.
Senator Lautenberg. Yes. Mr. Jackson, what----
Mr. Jackson. Well, in part it gives us a chance to do what
we're doing here today, which I welcome very much and think is
absolutely appropriate and necessary to help the Congress
understand, the American people understand, this transaction.
It is not easy to get your arms around the entire set of issues
here, and we think it's very important to spend the time with
you and to work through this and help the Congress understand
better, and to be able to execute your absolutely appropriate
oversight functions in this area.
Senator Lautenberg. Yes. Well, do you think that giving the
ports, or the ports authorities--port authorities some
responsibility here to try to determine, as closely as they
can, whether there is anything of suspicion or concern that's
in those containers, in particular?
Mr. Jackson. The port authorities are an important partner
in this security equation. Through our captain of the port at
the Coast Guard, we work very, very closely with them. And, as
I know from your history, you know well in the Port Authority
of New York and New Jersey----
Senator Lautenberg. Yes, I have great----
Mr. Jackson.--and----
Senator Lautenberg.--respect for that Coast Guard group.
Mr. Jackson. Yes, he's good--there's--it's an important
partnership, and we are absolutely in agreement that it's
important for the port authority to be engaged with the
terminal operators in helping us manage security. They do that
in many-layered ways, not only just in the planning, but in the
execution of these plans and using assets on the marine side
and on the land side, and pulling together law enforcement
authorities to help that system of systems work.
Senator Lautenberg. Thanks, Mr. Chairman. And thanks,
Senator Cantwell. I appreciate it.
The Chairman. Yes, thank you.
For the information of the Committee, I'm going to adjourn
this hearing at 5:45.
Senator Cantwell?
Senator Cantwell. Thank you, Mr. Chairman.
Mr. Yoshitani, could you--you represent the port--National
Port Workers Association. Could you just concisely give me a
review point on why U.S. companies are a smaller percentage of
the marketplace today?
Mr. Yoshitani. In terms of terminal operators----
Senator Cantwell. Yes.
Mr. Yoshitani.--Senator? Well, I would concur 100 percent
with what Mr. Koch said, but I would add just one element to
that, and that is that a large percentage of the ocean carrier
business is foreign-owned. And so, for them to get into the
stevedore--or the terminal operations business is actually a
natural integration, if you will, vertical integration of what
they already do. So, I think that plays into it, largely. But,
other than that, I think Mr. Koch did a great job of outlining
why it's happening.
Senator Cantwell. Do you think U.S. companies who want to
be a world player ever get asked by governments or ports--
international port structures to do certain things to get the
deal?
Mr. Yoshitani. I can't comment on that. I don't know what
foreign governments would ask of our companies. So----
Senator Cantwell. Mr. Koch, do you have any comments on
that?
Mr. Koch. I'm not sure, Senator, I understand the----
Senator Cantwell. Well, part of the challenge is,
obviously--sure, vertical integration, which is a question, and
big players, but part of the challenge is, U.S. companies have
to go to foreign ports in foreign countries and get business,
as well, right?
Mr. Koch. Correct.
Senator Cantwell. And I just wondered if you thought, in
that process that there were times in which the government ever
put conditions on, or the government ever asked, or the port
structure, itself, asked for certain accommodations.
Mr. Koch. The foreign government?
Senator Cantwell. Yes, uh-huh, or foreign port.
Mr. Koch. I'm sure it's a case-by-case example. I know
Maher Terminals, based in New York, is investing in an
enterprise in British Columbia, at Prince Rupert. SSA has
invested in Panama and other places. I believe Crowley Maritime
has got a venture going now in Russia.
Senator Cantwell. Don't you think the governments asked
them to do certain things? Or, no? Wouldn't you think that's
part of standard practice, or----
Mr. Koch. I don't know what specifically it is that might
be asked for. I'm sure governments often approve permits for
expansion or facilities, just as the U.S. Government does.
Senator Cantwell. Mr. Bilkey, what about the worker
identification program, the TWIC program, and the International
Maritime Organization, and the shipping and facilities ISPS
organization? Would you make, as part of, you know, being part
of the world leadership, an agreement to implement some of
those recommendations, the worker background check and security
clearance and electronic seals?
Mr. Bilkey. Yes, I'm not aware of the details, though. In
principle, you know, the answer is yes.
Senator Cantwell. What if somebody asked you to do this as
part of this requirement of getting in this secure--getting
this for the United States? I know there's a process here that
the Administration's going through, but what if somebody said,
``Let's make these security improvements for worker background
check, for electronic seals''----
Mr. Bilkey. You know, in the--for the people in the U.S.? I
would----
Senator Cantwell. Or even for your 41 ports. I mean,
obviously, I'm a big believer in point of origin. When you wait
until something gets to the United States, whether it's a cargo
container or a person who wants to do ill will, it's a little
late. So----
Mr. Bilkey. I agree with you.
Senator Cantwell. So, would you put, at your 41 ports
around the globe, the radiation detection, the state-of-the-art
devices that would help us? And would you do the background
checks on the workforce that would give people much more
certainty and security about what was happening to a cargo
container once it leaves those various international ports?
Mr. Bilkey. Yes. Actually, containers today that come to
the U.S. have a special security seal. It gives much greater
protection than the normal security seal. And, therefore,
people actually don't access a container, and they actually
don't know what's in the container. But as far as the business
of putting in nonintrusive inspection equipment, we're actively
involved in that right now. As a matter of fact, we have a port
in the Dominican Republic, it's a brand-new port, it's got
every piece of bell and security whistle you could think of----
Senator Cantwell. And so, if somebody said, ``Why don't you
do this as a part of a requirement to''----
Mr. Bilkey. Well, actually, we initiated--we'd like to have
it CSI regulated, and that's a matter between governments. The
governments sign the agreement. The Dominican Republic and the
U.S. Government sign the agreement, and----
Senator Cantwell. So, if our Government required that, you
would comply with it.
Mr. Bilkey. Absolutely.
Senator Cantwell. Thank you.
And if just--Mr. Jackson, if I could get an outline of
where you think this $10 billion is being spent, we can do
this----
Mr. Jackson. Sure I'd be happy to submit----
Senator Cantwell.--for the record.
Mr. Jackson.--it for the record.
Senator Cantwell. Thank you.
The Chairman. Senator Boxer?
Senator Boxer. Thanks, Mr. Chairman, again.
Mr. Jackson, I'm going to say a string of things here that
aren't going to make you happy. This is not personal to you.
I want to tell you what my people think of the Department
of Homeland Security when I go home. They think you don't know
what you're doing. They don't understand, in this deal, why you
didn't ask for a 45-day review, even though the former
inspector general of Homeland Security wrote a clear op-ed
piece and said it triggered when you have a state-owned
company. They don't understand, if this was such an important
thing, and so important to commerce, which you say it is, and
it was so great, why you didn't tell--not you, personally--why
the bureaucrats didn't tell Mr. Chertoff about it, why Mr. Snow
didn't know about it, why Mr. Rumsfeld didn't know about it.
I mean, how much of a tin ear can you have over there? You
have a country that is written up, in article after article, as
being a place--and I'll read you just this one. This is from
the Gary Milhollin, director of Wisconsin Project on Nuclear
Arms Control, who says, ``Dubai's involvement''--and this was
in a Mr.--``Dr. Khan's atomic bazaar,'' he called it--he said
it's no surprise--Dubai's involvement is no surprise to those
who follow the murky world of nuclear technology sales.''
What kind of tin ear do you have? Forty-five days. That
should have been a no-brainer beyond no-brainers.
They see the face of Katrina, and they'll never forget that
as long as they live. And now we're being told, in California,
there's no plan, at the Federal level, if we have an
earthquake. They actually put that in writing. I give them
credit for admitting it. No plan. You haven't met your port
security deadlines. You sit here and tell us how important it
is, bless your heart, and try to cover up for a budget that
isn't big enough, at least the Coast Guard--bless the Coast
Guard every day--they say, ``Well, we're working within the
budget.'' That's another way of saying, ``We'll live with what
we get.''
And a lot of this is the Congress's fault, that we haven't
done more. I'm the first one to admit it. I have a chart here.
Would you hold up the chart? Do we still have it? It shows the
bills, Mr. Chairman, that passed this committee which never
made it through the Congress. Let's look at that. We had
important bills that never made it through, because they were
either stopped in the House or they were stopped in the Senate,
Mr. Chairman. This Committee has done its work.
We had a series of amendments on port security, another
chart. ``No. No.'' This Congress, ``No, no, no.'' And you sit
here and say how terrific everything is going. Well, I guess
what I'm saying is, it's not going well. And this particular
deal, which some of my friends on the other side think is good
for America--and I bless their heart; I mean, it's their
right--just symbolizes the incompetence, the tin ear, the
putting commerce before security after we use security as a
threat every other day.
So, it's a problem here that your Department has, and I
hope I can help you, in further days, work on these issues,
because it doesn't make me feel any better.
Now, I just want to go back to this whole thing of--that we
talked about, ``with malice toward none and charity to all.''
And I want to ask you, Mr. Bilkey, Isn't it true that DP World
is 100 percent owned by the Emirate of Dubai?
Mr. Bilkey. Yes, Senator.
Senator Boxer. Who does the CEO report to?
Mr. Bilkey. My CEO reports to our Executive Chairman,
Sultan Ahmed bin Sulayem.
Senator Boxer. Sultan and----
Mr. Bilkey. Ahmed bin Sulayem.
Senator Boxer.--who represents the--I assume, the Emirate
of Dubai. It's his person that he's----
Mr. Bilkey. No. No, he's----
Senator Boxer. Are there shareholders, or is this the only
shareholder? The----
Mr. Bilkey. No, the--he's not the shareholder.
Senator Boxer.--Emirates----
Mr. Bilkey. The Government of Dubai is the shareholder. The
ruler of Dubai is the shareholder.
Senator Boxer. The ruler of Dubai. OK. I'm an old
stockbroker, so I--when you sit here and say, ``Oh, we don't
have to ever talk to anyone, and--blah, blah,'' first of all,
of course you--you may not, personally, sir--and I'm sure--I
like you. I think you try to do the right and just thing. But
you can't just sit here and divorce yourself from the fact that
there is someone at the top here, and that they set up a
holding company in which I think--I really thank Senator Nelson
for doing due diligence on this--that has a subsidiary, just as
you're a subsidiary of the holding company, that does nothing
but move forward the boycott of Israel, our greatest ally and
friend in the world--one of our greatest, for sure, among some
wonderful others.
Now, I want to ask you--and I only have 9 seconds. Let me
quickly ask you this. On the issue of Dr. Khan, how many years
was Dr. Khan smuggling nuclear weapons components through the
Port of Dubai?
Mr. Bilkey. I would have no idea, because we don't--as a
port operator, we just don't know what's in a container. The
only people who know----
Senator Boxer. You don't----
Mr. Bilkey.--what's in----
Senator Boxer.--what's in a container, as a port operator?
You've got to be kidding.
Mr. Bilkey. Absolutely not.
Senator Boxer. Well, then you ought to read what our people
expect of you, because they definitely expect that you will
know--you will be involved in security, sir. So, you--you have
no answers on this. Well, I will tell you. All through the
1990s, Dr. Khan was smuggling nuclear components. And, Mr.
Chairman, they wound up in Iran, and they wound up in North
Korea. And you think--and you're--and you think, Mr. Jackson,
you didn't need a 45-day review? I don't know if I'm in
``Barbara in Wonderland,'' but sometimes I feel that way.
Mr. Chairman, thank you.
Mr. Bilkey. Senator--could I respond to that, Mr. Chairman?
The Chairman. Yes. I was supposed to have 5 minutes,
myself. You can use part of it. There's not much left.
Mr. Bilkey. No, sir, I defer to the Chairman, sir.
The Chairman. After you, sir.
Mr. Bilkey. Thank you, Mr. Chairman.
Senator one of the things that's happening today, which I
think is important, as we've known--and, frankly, this
situation that's happened is bringing security to the
forefront, which--we're very glad that it's happening, because
when we get into business about being too secure, some of our
clients complain that we're slowing the process down. But in
Dubai today we have U.S. Customs on the ground. And--under the
CSI program--and we do something that practically no other
country that I know of is doing today. We also have a
transshipment hub, we have transshipment hubs in other places
of the world. But we actually, today, apply and provide the
manifest of the ship--I mean, the shipowner does--to the
Customs and--to U.S. Customs. And if U.S. Customs wants to look
at any box, any box from anyplace, we have the legal right, and
they will tell us, ``Go and get that box,'' and U.S. Customs
will look at what it is.
Now, this is something unique. I would like to see it in
many places of the world. But we actually are there and doing
it in almost a voluntary basis. So, we are very concerned with
the security of the U.S., and actually are a great partner with
them.
Senator Boxer. But you don't check any containers.
The Chairman. Madam----
Senator Boxer. I'm done.
The Chairman. I'm sorry about that----
Senator Boxer. I'm done.
The Chairman.--but there comes a time when----
Senator Boxer. I'm done.
The Chairman.--other people should have a chance to talk.
I would commend to you the Wall Street Journal commentary
from former Senator Cohen and former Admiral--well, Admiral
James Loy, about the situation today, entitled, ``Fact, Not
Fear,'' Mr. Bilkey. I do think that there are some things that
we can do to calm these waters. I hope we can.
I, for one, really deplore the position of the UAE on
Israel. I don't know of any Senator that doesn't. But, on the
other hand, I do greatly admire what this country has done to
assist us following the great difficulty that we had in finding
a secure port in that region. So, I do hope that we can find a
way to let this process go through a further review, and
recognize the fact that, after all, it is a purchase of a
contract from a British company by the Government of Dubai. And
I hope that the processes we're pursuing now will strengthen
our American laws, as both Senator Cohen and Admiral Loy have
suggested. But they make some suggestions to you, as your
company, and I would commend them to you, because they seem to
be very reasonable suggestions that could be made, could be
pursued, particularly with regard to some kind of transparency
with regard to DP World's running of their systems that they
use in the ports, and helping us understand how they affect
hiring practices and security procedures. Both of those
suggestions really merit, I think, your consideration.
Now, let me thank all of you. Admiral Gilmour, we're sorry
to keep you all afternoon, but we know your agency was
involved. I appreciate your courtesies, Secretary Jackson, Mr.
Ahern. And I look forward to seeing you sometime when out in
Los Angeles again Mr. Mitre. The rest of you, thank you very
much for your contribution.
The statements that have been submitted will be in the
record. As Senator Kerry indicated, he might have some
questions. I have no request from any other Senator. But I do
hope that you'll respond.
Yes, sir?
Mr. Bilkey. Mr. Chairman, I just wanted to make one point,
since it's been brought up on a number of occasions. We serve
everyone. The largest Israeli shipping company is one of our
largest customers.
The Chairman. I didn't hear, what did you say?
Mr. Bilkey. The largest Israeli shipping company is one of
our largest clients.
The Chairman. Where?
Mr. Bilkey. We serve everyone.
The Chairman. Where?
Mr. Bilkey. In many of our terminals around the world.
The Chairman. That's interesting. Do you have any Jewish
members of your board?
Mr. Bilkey. No, sir.
The Chairman. I didn't expect any.
Thank you all very much for your patience. Thank you.
[Whereupon, at 5:50 p.m., the hearing was adjourned.]
A P P E N D I X

Prepared Statement of Hon. Daniel K. Inouye, U.S. Senator from Hawaii
Dubai Ports World's pending acquisition of U.S. port assets has, in
1 week, achieved something that Congress has not been able to do over
the past 5 years. It made America's port security a topic of household
conversation. And it is a conversation this country must have.
My concerns about this deal are too numerous to list right here.
But I find it amazing that an agency like the Department of
Homeland Security, which once was so intensely sensitive about having
the smallest of items--such as forks and spoons--go through airport
metal detectors, is now most enthusiastically supporting this deal to
have a state-run United Arab Emirates company, Dubai Ports World,
operate some of our Nation's most valuable ports and become embedded in
our infrastructure.
Given this Administration's poor record on port security and its
poor judgment on this deal, I am left wondering what it will take for
this Administration to take port security seriously.
Our national economy depends on port security, yet amazingly, the
Administration has not made it the priority that it needs to be. It has
consistently submitted inadequate funding requests and has routinely
missed critical security deadlines that were required by law. In fact,
the Department of Homeland Security has yet to submit its National
Maritime Transportation Security Plan, which was due in April 2005.
If there is one silver lining to this sorry episode, it is that the
country is now paying close attention to port and cargo security. The
American public knows that more needs to be done, and this committee
has given Congress an opportunity to improve the situation.
In November, our Committee unanimously approved the Transportation
Security Improvement Act, which addresses a litany of security
shortcomings across all modes of transportation. Title V of our bill
specifically tackles port and cargo security.
It improves the examination of cargo before it reaches our shores,
ensures the resumption of commerce in the event of an attack, and takes
greater advantage of coordinated, interagency port security efforts.
I am hopeful that the Senate will take up Title V of our bill and
pass it as soon as possible. Our approach has broad bipartisan support,
and it will improve security while maintaining the jurisdiction and
transportation expertise of this committee. The time is right to pass
these needed security improvements, and I am hopeful that, with the
help of the members of this committee, we can make it happen.
______

Response to Written Questions Submitted by Hon. Frank R. Lautenberg to
H. Edward Bilkey
Question 1. Even though there was an announcement of a ``45-day
review,'' will the deal still go through this week?
Answer. Yes, in reliance upon CFIUS's final and legally binding
approval granted on January 17, 2006, the condition in the purchase
agreement regarding CFIUS no objection was lifted, which caused the
sale to proceed. The transaction is a global one, with only
approximately 10 percent of the assets located in the United States.
The purchase received court approval on March 8, 2006 with payment of
about $6.8 billion made to selling shareholders on or about March 16,
2006.

Question 2. Does DP World own P&O's U.S. facilities and operations
as of Tuesday March 7, 2006?
Answer. DP World owns P&O's U.S. facilities as of Wednesday March
8, 2006. However, those facilities are subject to a Hold Separate
Commitment by DP World and P&O Ports North America, Inc. under which DP
World will exercise no management or control over the U.S. assets so
acquired until they are sold to a U.S. buyer.

Question 3. Do you consider your deal ``approved'' by CFIUS? If so,
then what significance do you ascribe to this new 45-day CFIUS review?
Answer. DP World complied with all applicable U.S. legal
requirements in obtaining review by CFIUS of the transaction. CFIUS
issued a letter of no objection to the transaction on January 17, 2006.
DP World is confident that any further CFIUS review would have a
similar result.

Question 4. What will your companies do if the President rejects
the takeover because of security concerns after this 45-day
investigation?
Answer. DP World would address that situation if it occurs but is
confident that valid grounds do not exist for such a rejection. DP
World has publicly stated that it is in the process of selling the U.S.
assets of P&O Ports North America, Inc. to a U.S. buyer.

Question 5. Do you feel the President has the authority to somehow
undo the deal after Thursday?
Answer. No. The deal took place under U.K. law and regulations and
DP World must abide by such laws as it would any other laws applicable
to it. That is the reason DP World gave the Hold Separate Commitment so
it could assist the U.S. Government in addressing its concerns yet
remain in compliance with U.K. law.

Question 6. Does your parent company--the Ports, Customs and Free
Zone Corporation (PCFC)--participate in the Arab boycott against
Israel?
Answer. PCFC complies with laws of the jurisdiction to which it is
subject.

Question 7. What law will prevent you from hiring stevedores who
are not longshoremen? How will you ensure that background checks are
performed on any new employees?
Answer. P&O Ports North America, Inc. is party to the ILA Master
Contract, which requires longshore labor for all container and roll-on/
roll-off cargo operations in all U.S. locations in which P&O Ports
operates. For other types of cargo, P&O Ports uses its same longshore
workers. Nothing about this is going to change, because the contractual
obligations of P&O will survive under the labor law doctrine of
``successor employer,'' even if the business should be transferred to a
different owner.

Question 8. What background checks are conducted when new employees
are hired, and who conducts those checks?
Answer. In New York and New Jersey, the Waterfront Commission
conducts background investigations on all harbor workers and
management. This practice varies at other ports, and many ports are
awaiting the issuance of the proposed Transport Worker Identification
Credential, or ``TWIC,'' regulations, expected mid-2006, which will
standardize this practice throughout the country. However, in the
interim, security for P&O Ports terminals is typically outsourced to
private firms who conduct their own background checks.

Question 9. Will DP World make a binding commitment to keep copies
of all its business records on U.S. soil so that they are subject to
U.S. court orders? How enforceable is DP World's commitment to
cooperate with investigations?
Answer. DP World gave a commitment regarding maintenance and
availability of books and records in the January 6, 2006 Letter of
Assurances that it and P&O Ports North America, Inc. entered into with
the Department of Homeland Security as part of CFIUS's approval of the
acquisition. That letter has been publicly released, and the Committee
should have a copy of it. However, the question is now overtaken by
events because DP World is in the process of selling the assets.

Question 10. Will DP World commit not to discriminate against any
Israeli company or product?
Answer. DP World will comply with all laws and regulations
applicable to it including those applicable to Israeli companies and
products.
______

Response to Written Questions Submitted by Hon. Daniel K. Inouye to
Robert Scavone
Question 1. We learned that DP World has agreed to a ``Hold
Separate Commitment'' regarding management and operations of U.S.
ports, and, so, the current P&O personnel will remain intact during a
requested 45-day investigation by the Committee on Foreign Investments
in the United States. What happens after the 45-day investigation?
Answer. In the ``Hold Separate Commitment,'' dated February 26,
2006, DP World made a unilateral commitment to ``Hold Separate'' all
U.S. ports operations as an independent business unit, entirely
separate, distinct, and apart from all its other operations, and not to
exercise control over or otherwise to influence the management of the
U.S. operations.
Subsequent to the announcement of the Hold Separate Commitment, on
March 15, DP World and P&O Ports issued a press release (attached)
outlining in detail the process and the parties that will be involved
in the planned sale of the U.S. operations of P&O Ports to a U.S. buyer
that will be unrelated to DP World. In the press release, the following
statement was made:
``Until the sale is completed, P&O Ports North America will be
operated independently from DP World in accordance with the Hold
Separate Commitment announced on February 26, 2006.''
The intent, therefore, is that the ``Hold Separate Commitment''
will remain in place beyond the current 45-day investigation period, up
to and including the date that the ownership of the U.S. operations is
sold. In fact DP World has made no attempt to control or influence the
manner in which I or, to my knowledge, any of the officers or directors
of P&O Ports North America conduct the U.S. business.
The professional bankers and lawyers identified in the press
release announcing the sale expect that it may require 4 to 6 months to
reach agreement with a buyer. This is due in large part to the fact
that the U.S. operations are varied and complex, and a considerable
effort is underway to assemble the information that any buyer logically
would expect to see before making a responsible offer for the business.
Among other things, a buyer would of course expect to see audited
financial statements for Fiscal Year 2005, which P&O Ports has
commissioned to be done on an expedited basis. (The annual audit of the
global P&O group did not explore the level of audit detail that will be
required for the U.S. operations standing alone.) After this
information is made available, time will be required for a shorter list
of qualified buyers to obtain access to more detailed financial
records, leases, contracts, joint venture agreements, and the like.
Thereafter, a purchase agreement will have to be negotiated with the
winning bidder. All of these activities have been scheduled, and
considerable resources have been dedicated to complete this process in
a reasonable time frame, consistent with normal commercial practices
for a deal of this nature.

Question 2. Are there provisions in the contract that address what
happens to P&O personnel if, after the 45-day investigation, the
transaction is declined?
Answer. While there are no provisions that explicitly address the
disposition of P&O's U.S. personnel, the logical and practical result
of the written commitments of DP World will be that, if DP World is
permitted to complete the sales process that it has now begun, then
until such time as a new U.S. buyer is found, the U.S. personnel will
remain employed under the direction of the U.S. management that was
already in place before the sale to DP World occurred. (See Chronology,
attached.)
On the other hand, if DP World were required simply to cease the
U.S. operations until a buyer can be found, thousands of U.S. staff and
labor will experience both short and long-term negative effects. P&O
Ports employs approximately 6,000 union workers, and moves thousand of
containers, automobiles, passengers, and tons of break-bulk cargo,
every day. Not only would those workers and P&O staff become
unemployed, but thousands of vessel operators, cargo owners, vendors,
merchants, wholesalers, distributors, and consumers would suffer undue
disruption.
There would be no easy means to handle the cargo that thereby would
become stranded, because the mere fact that P&O would not be able to
operate the facilities that it leases would not lead to the result that
some other operator immediately takes over. While those kinds of
details were being addressed, a number of ports will not have the
capacity in neighboring terminals to handle the overflow that would
otherwise be destined for the P&O terminals. In the case where those
activities are actually joint ventures with other partners, such as
Philadelphia (Stevedoring Services of America), Miami (Eller & Co. and
Florida Stevedoring, Inc., both American companies), or Newark (Maersk
Line), the termination of the facility lease will negatively impact
those companies equally.
Moreover, the value of the U.S. operations in such a scenario would
diminish so rapidly that it would be questionable whether, in the end,
there would be any business to sell.
It should be borne in mind that DP World unilaterally requested the
additional CFIUS review and stated in writing that it would abide by
the outcome of that review. Since that time, DP World has retained an
investment banking firm in New York to manage a sale as quickly as is
reasonably practical. It has undertaken to maintain the current staff
and labor force with no influence or control over the U.S. operations,
which continue to be managed in the same way that they were before the
acquisition.
Therefore it is respectfully submitted that the interests of the
U.S. staff and labor would best be served by allowing a reasonable time
for the announced sale of the U.S. operations to take place.

Question 3. Are there employment assurances for P&O personnel
currently employed at U.S. ports?
Answer. Under the Hold Separate Commitment of DP World, existing
U.S. Management retains the exclusive right to hire or fire personnel
at the U.S. operations. Therefore, until such time as the U.S.
operations are sold, DP World will exert no control over those
decisions. However, as stated above, should the operations be
discontinued before the operations are sold, obviously there will be no
employment, because there will be no business.

Question 4. Will they retain their jobs if DP World has to divest
the U.S. ports from the acquisition?
Answer. Not necessarily, in the case of non-union workers. After
the sale of the global P&O group to DP World was announced in 2005, DP
World also announced its intention to retain the management of P&O
Ports around the world. When the transaction became an issue in the
U.S. in February, DP World executed the Hold Separate Commitment that
formalized this obligation as it related to the U.S. Ironically, after
DP World sells the U.S. operations, the continued employment of the
current managers and staff of P&O in the U.S. will be entirely up to
the discretion of the new owner. The situation is different for our
longshore union workers. Any buyer of P&O Ports will become subject to
the existing collective bargaining agreements to which P&O Ports is a
party, and will continue to be obligated to use our longshore workers,
just as, indeed, DP World is obligated to do by virtue of its ownership
of P&O.
______

Response to Written Questions Submitted by Hon. Frank R. Lautenberg to
Robert Scavone
Question 1. What is your understanding of the significance of the
new 45-day review called for in March by DP World?
Answer. The original mention of a 45-day investigation occurred
when a number of Members of Congress stated that the supplemental 45-
day investigation period that is contemplated in the CFIUS process
should have been utilized. There was a practical problem, however, in
that, after the original 30-day review period elapsed and DP World was
legally authorized by CFIUS to proceed, it obligated itself under the
laws of the United Kingdom to proceed with the purchase of the global
P&O group for $6.85 billion. (See Chronology, attached.)
Nevertheless, in view of the high level of concern that had been
expressed in Congress, DP World and P&O Ports North America
unilaterally volunteered to undergo an additional 45-day investigation
period, and to abide by its outcome.
It was originally anticipated that, during that 45-day
investigation period, some realistic possibility existed to demonstrate
what both DP World and P&O Ports knew to be true: that no U.S. security
issue is raised by the purchase of P&O Steam Navigation Company, the UK
owner of P&O Ports North America, by DP World. However, it was always
understood that the new CFIUS process might reach a different
conclusion, and that some alternative arrangement relative to the U.S.
operations would have to be worked out with DP World. However, the
details of any such arrangement were never clearly known, since, to my
knowledge, this is a process that has never occurred before, where a
deal goes forward on the basis of a formal, legally binding CFIUS
approval, and only thereafter is the approval rescinded in an ex post
facto manner, for reasons having nothing to do with the representations
or behavior of the acquiring company.
As indicated in the attached Chronology, both of these theoretical
possibilities were superseded by events, and DP World subsequently
unilaterally undertook to divest itself of the U.S. operations,
regardless of the outcome of the 45-day investigation.

Question 2. What will your companies do if the President rejects
the takeover because of security concerns after this 45-day
investigation?
Answer. Since the sale of the U.S. operations is currently
underway, both companies would hope to be able to complete that process
in a reasonable and orderly manner, in order to preserve the value of
the business and to maintain some semblance of stability for our
workers, our vessel operating customers, cargo owners, vendors, port
officials, and the consumers of America. (See also response to QFR #2
of Senator Inouye, submitted jointly with this response.) Since DP
World is exercising no influence or control over the U.S. operations,
which continue to be managed in the same manner and with the same
personnel that managed them before the DP World purchase, and since the
end result will be a complete divestiture by DP World of the U.S.
assets, we believe this is a reasonable expectation.

Question 3. Do you feel the President has the authority to somehow
undo the deal at this point?
Answer. The global sale of the P&O group in the U.K. is, of course,
now completed and I am aware of no practical or legal way to reverse
it. With respect to the U.S. portion, I myself am not an expert on the
legal authority the President may have, but in view of the fact that
the U.S. operations are actively being sold, and in the interim the
previous managers continue to run those operations with no external
influence by DP World, it would seem to me that this would become an
issue only if the process of selling the U.S. company should extend
well beyond the period in which most experts reasonably believe the
orderly sale of a business of this nature can be consummated.
______

Press Release (For Release 10 A.M., Wednesday March 15th)--Sale of P&O
Ports North America
Further to DP World's announcement last week, DP World and P&O
Ports North America have announced further details of the process by
which all of its business will be sold to an unrelated U.S. buyer.
The sale process will be supervised by executives from P&O's group
head office in London. The New York office of Deutsche Bank Securities,
Inc. has been mandated as financial adviser for the sale of the whole
of P&O Ports North America. New York law firm Sullivan & Cromwell LLP
has been appointed as legal advisers for the sale, with the Washington,
D.C. office of Alston & Bird LLP assisting on regulatory matters.
Preparation of financial, corporate and legal information required
for the sale has commenced. Interested parties will be furnished with
information on the business and invited to make offers. Offers will be
assessed by reference to value, deliverability and the continuity of
management, employees and customers. In parallel with this sale
process, discussions will take place with port authorities, joint
venture partners and labor representatives to facilitate a smooth
transition of the business to a new owner.
An expedited sale process is underway and with the cooperation of
the port authorities and joint venture partners, it is expected that a
sale can be agreed within 4 to 6 months. Until the sale is completed,
P&O Ports North America will be operated independently from DP World in
accordance with the Hold Separate Commitment announced on February 26,
2006.
Notes to Editors

(1) DP World completed the acquisition of the UK based P&O
Group last week. This followed an offer process governed by the
UK Takeover Code and approval by the UK's High Court.

(2) P&O owns 100 percent of P&O Ports North America which has
operations in a number of U.S. east coast ports including New
York/New Jersey, Baltimore, Philadelphia, Miami and New
Orleans.

(3) Deutsche Bank Securities Inc. member NYSE, NASD and SIPC is
the investment banking and securities arm of Deutsche Bank AG
in the United States.
______

Acquisition of Peninsular & Oriental Steam Navigation Company By DP
World: Chronology of Key Dates as They Relate to the U.S. Subsidiary of
P&O and the CFIUS Process
October 17, 2005: Representatives of DP World meet with
representatives of CFIUS to advise of the intent of DP World to acquire
the global P&O group, and to inquire as to the requirements of CFIUS to
obtain the requisite approvals for the indirect acquisition of P&O
Ports North America, Inc., a subsidiary of Peninsular & Oriental Steam
Navigation Company in the U.K.
November 29, 2005: DP World and Peninsular & Oriental Steam
Navigation Company announce in London the planned purchase of the
global P&O group by DP World, pending regulatory approvals in various
countries, including CFIUS approval in the U.S. DP World also announced
its intention to retain the management of P&O Ports around the world.
Both companies issue press releases, and the story receives wide
coverage, including the Wall Street Journal and the New York Times.
December 6, 2005: Senior DP World officials and senior officials of
P&O Ports North America, Inc. meet with numerous representatives in
Washington, D.C. to further outline the proposed acquisition, to answer
specific questions, and to clarify the requirements for the anticipated
CFIUS process, which had not yet formally commenced.
December 15, 2005: Formal CFIUS application submitted by DP World.
January 17, 2006: Formal CFIUS approval issued to DP World.
January 26, 2006 (AM): PSA Venture (UK) Limited, a wholly owned
subsidiary of PSA International Pte Ltd, announces a competing offer
for the global P&O group.
January 26, 2006 (PM): DP World announces a new, higher offer for
the global P&O group.
February 13, 2006: Having met the preconditions to the DP World
offer, including the approval of the transaction by CFIUS, the offer is
put to the private shareholders of Peninsular & Oriental Steam
Navigation Company at a shareholders meeting, at which more than 95
percent of the shareholders vote to accept the offer, at which point DP
World is contractually and legally obligated to go forward with the
purchase of the company for $6.85 billion.
February 26, 2006: In view of the concerns of the Congress with
respect to the transaction and the CFIUS process, DP World unilaterally
undertakes a ``Hold Separate Commitment'' to leave the U.S. port
operations of P&O as an independent business unit, entirely separate,
distinct, and apart from all its other operations, and not to exercise
control over or otherwise to influence the management of the U.S.
operations. Simultaneously, DP World and P&O Ports North America
unilaterally request that the CFIUS process be reopened for an
additional 45-day period, and agree to abide by the outcome of that
review.
March 8, 2006: Pursuant to the requirements of English law,
ownership of the publicly traded shares of Peninsular & Oriental Steam
Navigation Company is transferred to DP World. P&O Ports North America
continues in existence, as had always been contemplated. In keeping
with its commitment, DP World exercises no control or influence over
U.S. management of P&O Ports, and this arrangement remains in place
today.
March 8, 2006: Despite the re-commencement of the CFIUS review
process, and the implementation of the Hold Separate Commitment, the
House Appropriations Subcommittee passes 62-2 an amendment to
Supplemental Appropriations Bill, 2006, prohibiting the acquisition of
any leases, contracts, rights, or other obligations of P&O Ports North
America, Inc. by DP World.
March 9, 2006: DP World elects to discontinue its attempts to
obtain Congressional approval of its acquisition of P&O Ports North
America, Inc., and announces that it will divest itself of the U.S.
port operations of the global P&O group.
March 15, 2006: Having retained the requisite team of investment
bankers and lawyers in a period of three business days, DP World issues
a press release (attached) outlining in detail the process and the
parties that will be involved in the planned sale of the U.S.
operations of P&O Ports to a U.S. buyer that will be unrelated to DP
World. In the press release, the following statement was made:

``Until the sale is completed, P&O Ports North America will be
operated independently from DP World in accordance with the
Hold Separate Commitment announced on February 26, 2006.''
______

Response to Written Questions Submitted by Hon. Daniel K. Inouye to
Tay Yoshitani
Question 1. The national economy is dependent upon maritime
commerce, and no state is more dependent on it than Hawaii. Strong
security must be balanced with operational efficiency. What do you feel
are appropriate goals for the Federal Government to set regarding the
screening and inspection of ocean cargo?
Answer. There has been public debate about the current 5-6 percent
inspection versus increasing that to 100 percent inspection. The
direction we go on this critical issue may well define whether we move
forward with an effective cargo security regimen or not. No doubt, 100
percent inspection will have a huge adverse impact on operational
efficiency. But the more compelling impact will be that 100 percent
inspection will ultimately degrade our overall security program. We
cannot dissipate our efforts across 100 percent of containers entering
and exiting our ports without relegating each inspection into a cursory
look. We must be able to screen all containers and do an effective job
of identifying those containers that warrant an intensive inspection.
At the very heart of this approach is the practical recognition of the
difficulty in conducting an effective inspection. It requires extensive
training and constant 110 percent attention to details. This attention
must be directed not at all containers but only those that represent
some risk.
No question that the Federal Government should set the goal of 100
percent of containers to be screened. The percentage to be inspected
should not be arbitrarily set. It should be a floating percentage that
reflects the percentage of containers that are found to warrant an
inspection upon being carefully screened. As a practical matter, the
Federal Government will find that most of the containers follow a very
secure routing from well established shippers and warrant only random
inspections.

Question 2. What can we do to improve cargo screening in the
immediate future?
Answer. Currently, the screening is done using a commercial ocean
carrier's manifest that has much information about the cargo. However,
we believe there is additional information that should be made
available by the importers such as advanced shipment information based
on recommendations made by the Commercial Operations Advisory
Committee. This additional information would improve the screening
process and enable better targeting.
Because of sensitivity to security, our members are not privy to
the ultimate effectiveness of the current automated targeting system.
However, it is our understanding that the system could use substantial
upgrades. We note that S. 1052 includes a provision to not only improve
data as I note above, but also ``address deficiencies in its automated
targeting system strategy identified in a GAO report.'' This is a
important element of our layered security approach and should be
improved and enhanced as soon as possible.

Question 3. What is your organization's opinion of the
Transportation Worker Identification Card (TWIC) program?
Answer. The National Association of Waterfront Employers (NAWE) has
always been in full support of the concept and early implementation of
the TWIC program. However, at this point, draft regulations have not
been published by the CG/TSA. We recognize that this is a complex
program that may incorporate some technologies that have yet to be
commercially proven. We have expressed concerns about how certain
aspects of the program will be implemented. We reserve specific
comments on TWIC until we have an opportunity to review the draft
regulations. But subject to specific concerns we may have, NAWE is a
strong supporter of the TWIC program.

Question 4. What steps need to be taken to ensure that the program
is viable and as effective as possible?
Answer. There are several areas of concern that will impact the
overall effectiveness of the TWIC program:

a. Enrollment must be phased so that we do not inadvertently
but suddenly lose a significant percentage of workers in a
given sector such as truckers.

b. Technologies to be incorporated must be commercially proven.
We are particularly concerned about the biometric scan
technology.

c. Data base for TWIC must be structured in a way that allows
for secure facility owners to access easily and quickly.

d. Protocol for various situations must be clearly defined and
established.

e. This program will need constant monitoring and updating to
retain credibility. Once a number of cards cannot be accounted
for, the entire program will lose credibility.
______

Response to Written Questions Submitted by Hon. Frank R. Lautenberg to
Tay Yoshitani
Question 1. Do your member terminals have local security concerns?
For instance, does a terminal in Port Newark have the same security
concerns as a terminal in Memphis?
Answer. Marine terminals could logically be grouped into several
categories. Terminals within each of these categories would have
similar security concerns. However, terminals from different categories
would have different security concerns. For example, a terminal at the
Port of Newark would deal almost exclusively with foreign cargo in
containers. Other marine terminals with similar profiles would have
similar security concerns. A terminal in Memphis likely handles mostly
domestic cargo that is not containerized. But they would share similar
security concerns with other terminals that have the same operating
profile.
With the above as background, each of our member terminals share
common security concerns that are very broad in nature but also have
specific concerns that may be unique to their location and surrounding
area. For example, broader concerns would include such issues as cargo
chain security and secure facilities access. These two issues are
correctly under the purview of the CBP and TSA/Coast Guard
respectively. On the other hand, port authorities typically have a port
police or contract with a local police force or private security firm
to provide port specific security. These arrangements may reflect
specific security issues for that port area. For example, in the Los
Angeles/Long Beach area, containers with high value cargo were being
hijacked and the contents sold at various flea markets. To address this
specific issue, the two ports formed a joint task force that included
the police, highway patrol, Coast Guard, and CBP.
In conclusion, while there are similarities, not all marine
terminals are alike. One size does not fit all. However, with respect
to terminal operators of these facilities, the constant is that they do
not have a significant role in terminal security. But because it is
absolutely in their best interest, they have in the past and will
continue to in the future to cooperate with all Federal, state, and
local municipalities on matters of security. But to achieve maximum
security at each terminal level, there must be a combination of
implementing broad Federal programs as well as specific programs that
are local in nature.
______

Response to Written Question Submitted by Hon. Daniel K. Inouye to
Christopher Koch
Question. Your testimony implies that the needs of cargo security
are larger than the nationality of a terminal operator. What are the
most urgent cargo security issues that need to be addressed?
Answer. Stevedoring and marine terminal operations are a service
industry that is open to foreign investment. Billions of dollars of
foreign investment has been made in the U.S. over recent years in this
sector, and that investment has contributed substantially to a
transportation infrastructure that is critical to moving America's
commerce efficiently and reliably. The investment has come from
Japanese, Korean, Danish, British, Chinese, French, Taiwanese, and
Singaporean businesses, just as American companies have been allowed to
invest in marine terminal and stevedoring businesses in foreign
countries.
The substantial majority of American containerized commerce is
handled in U.S. ports by marine terminal operators that are
subsidiaries or affiliates of foreign enterprises. This is an
international, highly competitive industry, providing hundreds of
thousands of American jobs. The United States depends on it, and it in
turn has served the needs of American commerce well, adding capacity
and service as the needs of American exporters and importers have
grown.
Port facilities must and do comply with all the government's
applicable security requirements. There is no evidence that terminal
facilities' operations conducted by foreign controlled companies are
any less secure. or in any way less compliant with security
regulations, or in any way less cooperative with U.S. Government
security authorities than U.S. controlled companies. In fact, these
companies work closely and cooperatively with the Coast Guard, Customs
and Border Protection, the U.S. military, and other U.S. law
enforcement agencies.
Rather than focusing on the nationality of the terminal operator,
the challenge is to build on the cargo security framework that the
Department of Homeland Security has put in place and to continue to
make improvements on what has been started.
Specifically, the World Shipping Council believes that priority
consideration should be given to:

1. Improving the cargo shipment data collected and analyzed
before vessel loading by CBP's National Targeting Center. Cargo
security risk assessment is a cornerstone of DHS strategy. In
order to enhance the effectiveness and value of the risk
assessment system, CBP should obtain and use more complete
cargo shipment data than ocean carriers' bills of lading, which
today provide the only required commercial shipment data used
by the government for cargo risk assessment;

2. Expanding international cooperation through the Container
Security Initiative;

3. Continuing to improve and strengthen the C-TPAT program;

4. Promulgating regulations to implement the Maritime
Transportation Security Act mandate of maritime Transportation
Worker Identification Cards; and

5. Giving priority attention to the merits and feasibility of
possible widespread application of ICIS-type X-ray inspection
and radiation screening equipment and the interface and use of
such equipment by Customs authorities. While admittedly not a
simple issue, this concept holds the potential to significantly
improve governments' confidence in the security of American
importers' and exporters' cargo.
______

Response to Written Questions Submitted by Hon. Daniel K. Inouye to
Michael Mitre
Question 1. As you know, the Maritime and Transportation Act of
2002 was developed by this committee. How have the security
requirements for terminal operators changed since the passage of the
Maritime Transportation Security Act?
Answer. Since the MTSA implementation, security on marine terminals
has changed in several areas including access control and cargo
handling methodology, but security loopholes have been inadvertently
created within both.
As terminal operators have increased security at their in-gates for
automobiles and walk-in longshoremen, vigilance of truckers has
remained weak. Large trucker queue lines have caused some terminals to
admit them without Identification or truck inspection. In some cases,
automated in-gates allow ``non-placard'' HAZMAT loads to enter unseen
and unknown. Additionally, personal padlocks on containers that once
automatically sparked a ``set aside'' inspection now are allowed to
enter with no inspection or other action.
HAZMAT
Special requirements calling for HAZMAT containers to be parked
away from standard loads are not being followed. Many operators are not
keeping daily updated records concerning the hazardous loads.
Empty Containers
The largest volumes of all cargo units being shipped to Asia are
empty containers. As they are returned to terminals, these empties are
often never opened; with no way of verifying that they are indeed
empty. Considering that the 9/11 terrorists began their terrible act
from within the United States, why would we ever allow supposedly empty
containers back into our terminals without verifying whether an
explosive, dirty bomb or dangerous chemical or radioactive material has
been concealed inside? Considering it takes less than 1 minute to open
the doors of a container, it is inconceivable and irresponsible that
terminal operators continue to refuse to inspect empty containers.

Question 2. What do you feel is the best option for improved
security at our ports?
Answer. The best option for improving security at our Nation's
ports is to ensure that truckers (the largest occupational group at our
ports) are carefully and completely identified and their trucks and
truck cabs inspected. This option is a common sense approach to
security that is not occurring now. The ILWU is concerned that while
basic approaches to security are not taking place, while Congress and
the Department of Homeland Security are relying on technology to solve
all our security problems.
______

Response to Written Question Submitted by Hon. Frank R. Lautenberg to
Michael Mitre
Question. What background checks are conducted when new employees
are hired, and who conducts those checks?
Answer. I am not aware of any background checks performed on new
workers when hired. However, the Graham Commission that preceded 9/11
(looking at the issue of crime at our Nation's ports), could not find
one instance where ILWU workers in the United States had participated
in internal conspiracies to commit serious crimes at our ports.
In the case of truck drivers, most are owner-operators who will not
show up on any master employer list.
______

Written Questions Submitted by Hon. Daniel K. Inouye to
Michael P. Jackson *
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* Responses to these questions were not available at the time this
hearing went to press.
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Question 1. To make the public feel better about this deal, the
Administration was forced to contend that regardless of who operates
the ports, security will be handled by the Federal Government.
Essentially, the Administration finally had to admit, on no uncertain
terms, that the Federal Government is responsible for port security.
However, based on the Administration's budget requests over the past
several years and the long list of security deadlines it has ignored,
the Administration does not appear to take port security very
seriously. Can you give me specific examples to prove to this committee
why you believe any of the 6 ports in question are secure? Which of the
6 ports have their requisite security plans in place? Do they have
cargo screening infrastructure that works?

Question 2. Fifteen of this committee's 22 members have ports in
their states. We know first hand how important port security is to the
Nation's physical and economic security. This committee unanimously
approved our transportation security bill, S. 1052, last November.
While we would like to see the entire bill considered by the Senate,
many of us believe the time is right to consider, at a minimum, the
port and cargo security title. Our legislation would help to alleviate
concerns about foreign operations at U.S. ports, because it provides
for a better process and enhanced infrastructure. Specifically, S. 1052
improves the process for examining cargo before it reaches our ports.
It expedites the resumption of commerce in the event of an attack, and
it expands the collaborative approach to port security currently used
at the ports of San Diego and Charleston. Do you support these
improvements to your existing authorities?

Question 3. The Maritime Transportation Security Act required the
Coast Guard to develop a National Maritime Transportation Security
Plan. In the Plan, the Coast Guard is to assign duties and
responsibilities among Federal agencies, establish procedures to
prevent an incident from occurring, and plan for the speedy resumption
of commerce in the event of an attack. This plan was due in April last
year. When will the National Plan be completed and submitted to
Congress?

Question 4. In response to concerns about the Department of
Homeland Security (DHS) review of the DP World transaction, the
Department has distributed information indicating that it has taken
steps to ``dramatically strengthen port security since 9/11.'' However,
the Department has missed several deadlines for congressionally
mandated port and cargo security requirements including the issuance of
container seals and locks standards, and submission of the National
Maritime Transportation Security Plan, to name a few.
Given the lack of attention to fundamental programs such as the
Transportation Worker Identification Credentialing Program (TWIC), the
Secure Systems of Transportation Program and Port Security Grant
Program, how can we be assured that this Administration is prioritizing
port and cargo security?

Question 5. We recently learned that the Coast Guard found
``serious intelligence gaps'' in the information it had about the DP
World transaction. Given this information and the security assurances
requested of the parties, how is it that the Department of Homeland
Security gave its approval to this transaction? Specifically when in
the process were the concerns of the Coast Guard resolved?

Question 6. Was the Coast Guard's risk assessment based on current
concerns and risks? The public document mentions concerns over
personnel, operations, and foreign influence. How are potential future
concerns addressed in the report?

Question 7. On one of the Sunday morning shows this past weekend,
participants noted that while we would like to treat all of our allies
equally, we do not necessarily do so. Senator Biden cited weapon sales,
noting that we sell certain products to NATO allies that we would not
sell to other allies. The proposed deal replaces one foreign owner, the
British, for another, the U.A.E. Do you believe the risks associated
with British ownership are the same as the risks associated with U.A.E.
ownership?

Question 8. The Department of Treasury press release on the CFIUS
history of the DP transaction indicates that CFIUS requested an
intelligence assessment of DP World on November 2, 2005 and was
provided a threat assessment 30 days later. What was the result of the
intelligence assessment? Did the U.S. Coast Guard raise any concerns
about security vulnerabilities regarding the transactions or the Coast
Guard's ability to adequately make a threat assessment of DP World and
the merger?
If so, how was this concern resolved?
______

Written Questions Submitted by Hon. Maria Cantwell to
Michael P. Jackson *
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* Responses to these questions were not available at the time this
hearing went to press.
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Question 1. In your testimony before the Commerce Committee on
February 28, you stated ``if you take the budgets from 2004 to the
proposed budgets of 2007, we, at DHS, will have spent $10 billion on
maritime security investments.'' Can you please provide a breakdown and
itemized account for the $10 billion figure you referenced?

Question 2. How many cargo containers entered the U.S. through a
seaport last year? How many containers entered the U.S. through a
seaport each year, over the last 5 years?

Question 3. How many containers of the total that entered the U.S.
through a seaport last year were scanned for nuclear materials using
non-intrusive scanning technology at the port of origin? Was this
scanning done by Customs and Border Protection? What role does CBP play
in screening containers that are destined for the U.S. at foreign ports
for nuclear and radiological materials?

Question 4. What are the different non-intrusive technologies that
DHS uses to screen containers entering and leaving our domestic ports?
Please describe each separate monitoring technology and its screening
capabilities. What threats are these respective technologies positioned
to identify?

Question 5. How many containers entering the U.S. at a seaport were
scanned using radiation portal monitors (RPM's)? How many foreign ports
have 100 percent of its outbound cargo containers screened using RPM's?

Question 6. Who conducts the scanning of containers destined for a
U.S. seaport, at foreign ports? Are background checks conducted on
individuals involved in the scanning of containers at foreign seaports?
If background checks are conducted, does DHS have access to the names
of these individuals and the results of their respective background
checks?

Question 7. Who physically inspects a container and its contents if
an alarm is raised by non-intrusive scanning at foreign ports? At
domestic ports? What role does CBP play?

Question 8. What information is DHS provided on individuals who are
scanning and inspecting cargo and containers destined for U.S. seaports
at foreign ports?

Question 9. Does an international standard exist for conducting
background checks on individuals scanning containers at our foreign and
domestic ports?

Question 10. How many foreign ports are currently participating in
the Container Security Initiative? Please identify these ports and the
countries in which they are located.

Question 11. Is CBP currently working to negotiate participation of
any additional ports in the CSI program?

Question 12. How many ports are slated to receive RPM's through the
Megaports Initiative in 2006?

Question 13. How many U.S. ports currently have RPM's?

Question 14. When will all U.S. ports be equipped with RPM's to
scan cargo flowing through their terminals?

Question 15. What is the current standard for performing background
checks on individuals with access to our ports, port terminals, docks
and holding facilities? Can DHS insure that individuals on a terrorist
watch list are not able to gain access to our ports, port terminals,
docks, or holding areas? Why or why not?

Question 16. What is the current standard for performing background
checks on truck drivers delivering containers to our ports? What is the
process for screening containers arriving at our seaports by truck? Are
non-intrusive technologies to screen the contents of a cargo container
arriving to a seaport by truck used? If so, what technologies are used?

Question 17. Does CBP screen containers arriving at seaports by
rail? If so, what percentage of containers delivered to seaports by
rail are scanned? What technologies are used? Is DHS/CBP actively
working to increase the level of screening of containers delivered by
rail?

Question 18. What is the current standard for checking locks on
containers leaving foreign ports?

Question 19. What percentage of cargo containers leaving a foreign
port destined for a U.S. seaport is secured using a locking mechanism?
What is the current standard for checking locks on containers leaving
foreign ports destined for a U.S. seaport? Who checks the locks? What
role does DHS play? What are the protocols to ensure that tampering
does not occur during transit?

Question 20. What technologies are used to ensure the integrity of
container locks through transit? What is the protocol when there is a
discovery of a lock that has been tampered with during transit? Who
physically inspects the contents of containers if has been discovered
that the container has been tampered with during transit? Do the
terminal operators play any role in this process?

Question 21. What is the current standard for checking locks on
containers at U.S. seaports? Who checks the locks? What role does DHS
play in checking container locks? Do terminal operators play a role in
checking container locks?

Question 22. How does the Department of Homeland Security ensure
that standards for checking container seals and locks are being met?

Question 23. How many foreign companies conduct terminal operations
in the U.S.? Please list the companies and the port and terminal in
which they operate. If the foreign company has an American subsidiary
which conducts the terminal operations, please provide the name of the
subsidiary and the port and terminal in which it operates.

Question 24. How many of the foreign companies that operate
terminals at U.S. ports, have U.S. subsidiaries that operate at foreign
ports or contract with U.S. companies to conduct port operations, are
owned wholly, or partially by a foreign government? Please list the
companies and the foreign governments that own, have investments, or
other substantive interest in a company involved in port operations in
the U.S.

Question 25. Does DHS conduct screening of container ship crews?
Are background checks conducted on foreign container ship crews? What
is the protocol for screening crews and their belongings and luggage?
______

Written Questions Submitted by Hon. Frank R. Lautenberg to
Michael P. Jackson *
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* Responses to these questions were not available at the time this
hearing went to press.
---------------------------------------------------------------------------
Question 1. Why didn't anyone in your Department contact any of the
port authority directors, port terminal operator executives, or port
security personnel at the ports operated by P&O regarding this deal?

Question 2. Do you think local port authorities should have a say
in any situation where the security of their port is at stake?

Question 3. When it comes to CFIUS review, how does your Department
define ``national security''?

Question 4. Does it use the same definition as the rest of the
Committee members?

Question 5. Did you, anyone in your Department, or anyone under
your direction, visit any of the 22 ports in which P&O currently
operates for purposes of the CFIUS review? If so, which ones, and when?

Question 6. Exactly what assurances were you given by the ownership
of DP World that they would continue to use the same employees?

Question 7. Who at the Department of Homeland Security rejected the
Coast Guard's concerns about the DP World deal?

Question 8. DP World promised DHS to take certain security
measures, like participate in voluntary security programs, but what if
they don't follow through? You've already approved their transaction.
Just how enforceable are these commitments they made to your
Department?

Question 9. Why so many missed congressional deadlines for
important port security actions? How can we believe that this
Administration gives port security any kind of priority whatsoever?
______

Written Question Submitted by Hon. Mark Pryor to
Michael P. Jackson *
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* Responses to these questions were not available at the time this
hearing went to press.
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Question. Mr. Secretary, I wanted to follow up with you on your
response to my earlier question on deadlines. You said that the
Department has many important priorities, and I don't disagree. Would
one of those priorities include removing scissors from the prohibited
items list for airline passengers? In your opinion, what is more
important, protecting our ports or prohibiting scissors from getting on
an airplane?