Although Dubai World is more like a state-backed conglomerate than a conventional SWF, it knows the perils in this terrain. As the owner of Dubai Ports World, it suffered the attacks in the United States Congress over its purchase of Britain's P&0, which would have left it owning some American ports. The objections were emotional rather than logical. Ports can hardly be packed up and removed, and the U.S. authorities retain the right to impose any requisite security measures. Dubai World was blocked anyway.
Dubai World is an investment flagship of the United Arab Emirates, whose Abu Dhabi SWF is thought to be the world's richest, with close to $900 billion in assets. The Kuwait fund is estimated to be around $220 billion. Throw in the other SWFs of Gulf Cooperation Council members and they own the lion's share of the estimated $2.5 billion in all SWFs.
So far the EU and the West have some cause to be grateful for the investment strategies they have followed, not least in helping to bail out Western banks from the sub-prime crisis. There is no sign of their seeking to manipulate their investments for strategic advantage. The GCC countries are broadly pro-Western, and as capitalist as Islam permits, which ought to make them highly desirable as investors.
The EU Commission thought it was being moderate when it drafted proposals for a code of conduct, rejecting the American model of a strategic screening committee or of a 'golden share' that would keep control of a company always in national hands. Instead, the EU offered the following principles for such a code: transparency and limits to ownership share; a commitment to an open investment environment; the support of multilateral organizations like the IMF; respect for law, including EU Treaty obligations and the WTO; and the use of existing financial instruments.
Those principles do not sound too offensive, and the GCC funds has long abided by them. But for Arab investors, the code represents the thin end of a long and ungrateful wedge. Some EU states, led by Denmark, want the code to be mandatory rather than voluntary. Others want all SWFs to follow the pattern set by Norway's fund, which limits itself to no more than 5 percent of any company whose shares it buys. Why set such limits in a free market? The real problem is that the Gulf investors, with their good record, do not see why they should be treated as Russian and Chinese SWFs, where suspicions of manipulation for strategic purposes are rather higher. Gulf investors think they and their cash deserve better, and they are right.