Why Democrats May End Up on the Wrong Side of the Social Security Privatization War

By Lori Wallach and Todd Tucker, AlterNet. Posted July 31, 2007.

"Congress rejected Social Security privatization in 2005 and should reject it again in 2007 -- whether it's for Americans, Peruvians or Canadians. The promise of a secure retirement shouldn't stop at America's borders."

This was the reaction of William McNary, a leading Social Security activist, after finding out that some Democrats are supporting a Bush NAFTA expansion for Peru that would give Citibank, a major Democratic donor, the right to sue the country if it reverses its failed Social Security privatization.

Fair trade activists already knew that an important part of the push to cover the planet in trade deals is to give foreign investors new "rights," including the right to sue governments for compensation when public interest regulations wind up hurting their bottom line.

But the latest Bush trade proposal goes even further. Buried in the Peru pact's hundreds of pages are provisions that could empower foreign investors involved in Peru's privatized Social Security system to demand compensation from the Peruvian government (in U.N. and World Bank tribunals) if the privatization were reversed.

To top it all off, the only U.S. company involved in the lucrative "private retirement account" industry in Peru is Citibank, which has recently come under fire for its offshoring of U.S. service jobs, as well as its close ties to leading Democratic politicians. The amount that Citibank could demand under the "free trade agreement" (FTA) rules could be considerable. In fact, the corporation could make virtually unlimited claims for "lost" future profits, as the license to provide the private accounts is not time limited under Peru's privatization statute and can only be removed for cause. Not surprisingly, Citibank has stepped up its lobbying on trade in the new Congress. And the financial services industry has been in a mad push to support the Peru FTA, cheering the pact for providing a precedent for similar provisions in future trade deals.

Peruvian groups say the FTA provisions would severely chill their ability to reverse the privatization, because the government would not be able to afford to pay major damages for the right to restore a public service.

"For 25 years, Peru's governments have faithfully implemented neoliberal policies supported by Washington, [while] income per person in Peru has scarcely grown in a generation," said Julio Cesar Bazán, president of the Unitary Confederation of Peruvian Workers, and a leader of a recent two-day general strike in Peru against the FTA. "The Peru-U.S. FTA not only does not get us out of this socioeconomic hole, it gives corporations like Citibank the tools to make sure we're forced to stay there."

Trade pact sneak attack

When Democrats regained control of Congress -- in no small part thanks to numerous House and Senate candidates nationwide who focused their successful campaigns on ending Bush's damaging NAFTA expansion agenda -- the prospect of stopping Bush's NAFTA assault seemed certain.

Then on May 10, in a surprise news conference, some Democratic leaders announced a deal with the White House to support pending FTAs with Peru and Panama. Although not one U.S. union or environmental, faith or development group supports the deal, it would revive these expansions of NAFTA and facilitate their passage by the majority of the congressional GOP and a minority of the Democrats. Tragically, the Peru FTA's social-security-threatening provisions were not removed by this "deal," despite demands in advance from Bazán and other Peruvian labor and retiree leaders, a Peruvian archbishop and U.S. faith and fair trade groups.

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The writers are director and research director, respectively, of Public Citizen's Global Trade Watch division. They also blog at EyesOnTrade.org.