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Critics of Peru FTA call Democrats hypocritical about social security

The Hill, Washington DC

Critics of Peru FTA call Democrats hypocritical about social security

By Ian Swanson

14 June 2007

Critics of a U.S. trade deal with Peru say House Democrats are violating their party’s principle that social security systems should not be privatized by backing a deal that could lock in a partially privatized system in Peru.

In a letter to House Speaker Nancy Pelosi (D-Calif.), several Peruvian labor groups charged the deal would provide protections for Citigroup to sue Peru under the trade agreement’s dispute settlement system if a future Peruvian government were to nationalize the country’s partially privatized retirement system.

As a result, the groups, backed by the advocacy group Public Citizen, say the Peru deal should be rejected or at least changed to ensure that Citigroup, which partially owns a company licensed to participate in the Peru retirement system, could not sue Peru for compensation on its expected future earnings if Peru nationalizes its system.

The letter to Pelosi and other House members said Citigroup could reap “potentially enormous compensation claims,” but members of the Ways and Means Committee believe such a suit would be a long shot. “I don’t believe the claim is valid,” said a Ways and Means spokesman, who said members would respond in writing to the labor groups and did not plan to change the agreement.

Others, including a spokesman for the Peruvian Embassy, say the issue is being used by opponents of the deal as a last-ditch effort to kill it. That spokesman, Vladimir Kocerha, said two of the unions that signed the letter are Marxist, and argued that some Peru labor groups support the deal.

“I think these people are against the FTA [free trade agreement], so they’re making any argument to stop it,” he said.

While Public Citizen has raised the issue in Washington, the AFL-CIO, often an ally on trade, has not made it a central issue in its work on the FTA. The AFL-CIO does, however, consider the matter something that should continue to be worked on, an AFL-CIO source said.

The AFL-CIO is not expected to oppose the Peru FTA loudly because of a deal endorsed by Pelosi that House Democrats made with the administration. That deal is expected to lead to floor votes on the Peru FTA even though most Democrats may vote against it.

Other U.S. labor groups that are members of the Citizens Trade Campaign led by Public Citizen, including the Teamsters and United Steelworkers, have warned members of Congress about the deal’s possible implications on Peru’s social security system.

General Confederation of Peruvian Workers Secretary Juan Jose Gorriti, who has met with Ways and Means trade subcommittee Chairman Sandy Levin (D-Mich.) to discuss the trade deal, raised the issue in a letter sent one day after the deal on trade between the administration and House Democrats was announced. The letter was signed by three other Peruvian organizations.

The groups, which have been pushing unsuccessfully for a reversal of the partially privatized retirement system in Peru, warned that the FTA’s passage could make it more difficult to nationalize Peru’s system.

“The FTA would allow potentially enormous compensation claims if Peru nationalizes or affects in any way the expected future earnings of a covered foreign investment,” the letter said. As a result, the letter said the FTA would “chill any effort to reverse the privatization of the national social security system.”

The letter continued: “Given that a majority of U.S. citizens rejected opening up their social security system to private, for-profit competition, why lock in and impose this policy on Peru via the FTA [free trade agreement?]”

It notes that Democrats have rallied against any privatization of the U.S. system by stating that the right to social security is “a theme that also forms part of Democratic legislators’ agenda and preoccupations.”

The House aide said these claims ring false for a few reasons. First, the aide noted that language included in the financial services chapter of the deal states that if a party to the deal re-nationalizes its social security system or puts it under the control of one private monopoly, it is absolved of all of its obligations under the financial services chapter.

Some critics, including the Peruvian labor groups, have argued that Citigroup still could sue Peru for expropriation if it nationalizes its system, which would nullify the benefits the company owned by Citigroup wins through its license to offer services in the partially privatized social security system.

But the House aide said this would be virtually impossible because Citigroup would have to show that Peru had created a compensable expropriation through the partially privatized system. Whether Peru did so would turn on the question of whether Citibank had a “reasonable expectation” that its investment would not be interfered with in the future.

Because social security systems worldwide are so controversial, the House aide said, “It would be inconceivable to me” that Citigroup could have a reasonable expectation that its license to take part in the Peruvian system would live on in perpetuity. “I think there’s no way you could make that argument,” the aide said.

The aide did not expect the issue to cost the Peru deal any votes if it comes to a floor vote. “I feel like it’s a gadfly issue,” said the aide, who added it would only give members already planning to vote against the deal a reason to vote no.