Tuesday, February 26, 2019

Container Freight Terminal Case Drags on and Threatens US Chinese Relations

As Import Tariff Hike Frozen Major Dispute with China in Africa Simmers
Shipping News Feature
DJIBOUTI – DUBAI – US – CHINA – Whilst President Trump's policies of extending import tariffs on Chinese goods seems to be in a state of flux, he has apparently postponed the 15% hike to 25% on around $200 billion's worth of trade items annually which was due to come into force on March 1, elsewhere relations between the two countries are possibly not so mellow.

Mr Trump’s latest speech comes after what he described as ‘productive’ talks in Beijing between the two sides during which heads of agreements on a variety of future policy issues were discussed. These apparently included trade subsidies, cyber-crime, intellectual property rights and barriers to trade. The delay has been well received by manufacturers, retail organisations and the agricultural lobby to name just some. Cynics will however ask whether the agreements reached will be adhered to as more accusations of corrupt practices surface with a direct link to Chinese future trade policies.

In Africa things in Djibouti seem to be taking a turn which many in the American administration both feared and objected to. After the government there illegally seized control of the Doraleh Container Terminal, a facility managed by DP World, a year ago, rumours have persisted that the Chinese government was using its influence to take control of the port. The joint venture company, Doraleh Container Terminal SA (DCT), is one-third owned by DP World and two-thirds owned by Port de Djibouti SA (PDSA). PDSA is majority owned by the government of Djibouti but, since 2012, 23.5% of its shares have been owned by China Merchants.

Since all its staff were removed DP World has conducted a series of Court actions, all successful, in which the seizure of the facility was declared illegal. Although Djibouti purported to rescind DCT’s concession, and later to terminate it by decree, two separate arbitration tribunals based in London ruled these actions unlawful and upheld the validity of the concession agreement. Despite this Djibouti, after physically seizing DCT’s assets has since purported to re-transfer ownership to PDSA. DP World point out that China Merchants must have been fully aware of DCT’s exclusive rights to develop and operate container ports in Djibouti, something DP World stood to profit from.

DP World says it considers it inconceivable that Djibouti would have seized the port without China Merchants’ complicity which, if that is indeed the case, adds an element of conspiracy to the mix. China Merchants has also developed and operates a free trade zone pursuant to an agreement with the government of Djibouti, in contravention of DP World’s exclusive right to develop and operate such free zone under its own concession.

In what is turning into a legal merry go round the government of Djibouti has failed to honour the jurisdiction of the Courts, even though it was the first plaintiff to take the legal route via London when it launched an initial corruption allegation against DP World, a case it also lost. In turn DP World took legal action against China Merchants in Hong Kong where the company is registered. Now the UAE based port and logistics group says the Chinese have used delaying tactics for the past year arguing the claim should be brought in the courts of Djibouti, where they will also seek to enforce an indemnity from the government against any claims brought by DP World.

DP World further suggests that the demand for an indemnity from the government of Djibouti against them already suggests awareness of the illegality of their actions, and points out it is highly unusual for a defendant to object to legal action in its home jurisdiction and to prefer legal action against a government in the jurisdiction of that government.

So why is this complex case so important to the future of Sino – US relations? As so often military influence is the key, with the balance of power in flux and this small part of Africa a tinder dry situation in terms of what the future may hold. China Merchants is pressing ahead with its subsidiary, CM Port, building and running the free zone as well as controlling the Doraleh Multipurpose Port terminal. A Chinese naval base is also being constructed nearby and the expanded presence has rattled the cage of US politicians for two reasons.

Firstly those opposed see this move as a cynical ploy which exposes the true drive toward the much vaunted ‘Belt and Road’ initiative. The accusation that CM Port illegally induced the Djibouti authorities into excluding DP World from a mutual contract which had been operating profitably for all parties is considered untenable. The theory goes that this is state policy thinly disguised as commercial shenanigans.

Secondly the Americans have their only permanent base in Africa at Camp Lemonnier which acts as home to the Combined Joint Task Force - Horn of Africa of the US Africa Command (USAFRICOM). The initial seizure of the port facility led to Member of Congress, Bradley Byrne sending a very strongly worded letter to then Secretary of Defense, James Mattis, setting out the military objections to the Chinese tactics.

In December, following much criticism from Byrne and many other US politicians, US National Security Adviser John Bolton made a speech which contained specific references to this situation. After accusing the Chinese of using ‘bribes, opaque agreements, and the strategic use of debt to hold states in Africa captive to Beijing’s wishes and demands’, he said:

”From 2014 to 2016, Djibouti’s external public debt-to-GDP ratio ballooned from 50% to 85%, with most of that debt owed to China. In 2017, China established a military base in Djibouti that is only miles from Camp Lemonnier. In May, US officials accused China of using military-grade lasers from this base to target and distract US pilots on ten different occasions. Two of our American pilots suffered eye injuries from exposure to laser beams.

”Djibouti may hand over control of the Doraleh Container Terminal, a strategically-located shipping port on the Red Sea, to Chinese state-owned enterprises. Should this occur, the balance of power in the Horn of Africa, astride major arteries of maritime trade between Europe, the Middle East, and South Asia, would shift in favour of China. And, our US military personnel at Camp Lemonnier, could face even further challenges in their efforts to protect the American people.”

Those predicted actions now seem to be occurring despite what seemed a clear warning from Bolton who also pointed out that the Chinese authorities had reneged on agreements made with the Obama administration not to further colonise or militarise the South China Sea. As usual the unpredictable politics of the Trump administration leave one to wonder which attitude will establish primacy, convivial trade, or a hardening of relations with its biggest competitor.

Photo: No matter the situation the ubiquitous shipping container is shown as the most versatile of products. Here we see double and triple stacked boxes, fitted with A/C units, as accommodation units within Camp Lemonnier.