Public Citizen's Trade Watch (PDF) has examined the text, released on June 25, of the Peru Free Trade Agreement as revised to bring it into conformance with the agreement that some Democrats in Congress reached with the administration. Their initial findings are extremely unsettling. The Peruvian government in the 1980s confronted political violence, hyperinflation, and a dramatic decline in the ability of the state to achieve any goals. The President, Alberto Fujimori, sought advice from the Chilean dictatorship of Augusto Pinochet and took to heart the then dominant neo-liberal prescriptions that severe economic problems in "developing" nations could be resolved by structural reform measures, encompassing the privatization of state services, severe reductions in state-provided public services, the opening of economies to foreign investment and the reduction or elimination of state subsidies to allow the poor access to the basic necessities of life.
One aspect of these "reforms" was the privatization of the Social Security system. The local finance and insurance industries enthusiastically supported this action, as would be expected. But trade unions, pensioners and other popular groups opposed the move and still do. As in most nations that have privatized their Social Security systems, the Peruvian government promised that the action would decrease costs and expand coverage, but study by two world bank economists (p.5) (PDF) found that the proportion of worker contributions going to fees had not decreased between 1998 and 2002 while fund expenses have declined, thus creating increased profits for the companies administering the funds.
Peru has no requirement that companies administering the funds be Peruvian or even majority Peruvian controlled. At present four funds administer the funds: a Peruvian fund; a Dutch one; a Spanish one, and a joint Peruvian-US fund, of which CityGroup owns the controlling 42 percent. (p.5) (PDF).
Background
The NAFTA agreement, enacted in 1994, created a novel right for corporations domiciled and doing business in the US, Canada and Mexico. They could bring suit in supra-national trade enforcement tribunals against any signatory government, national or local, that took an action that would reduce or eliminate those corporations' future profits. Thus, any local or federal regulation or other action that reduced or eliminated a foreign corporation's established business could be challenged, and the affected corporation could receive an award of an amount equal to the value of its lost future profits. Between 1998 and 2005, $35 million (p. v) (PDF) was awarded to private corporations and paid by taxpayer funds. This figure does not even include the millions of dollars spent by governments to defend themselves from such claims.
The Peru Free Trade Agreement
The Peru FTA contains the NAFTA provisions allowing investors to sue governments for future lost profits. This provision carries dire implications for efforts to reverse the privatization of Peru's Social Security system. Since the administrators of Peru's Social Security funds enjoy open-ended contracts that can be revoked only for malfeasance, CityGroup, domiciled in the US and administering some of Peru's Social Security funds, could bring an action against Peru for denying it future profit. Win or lose, Peru. not a wealthy nation, would have to finance its defense. Obviously, this would pose a substantial barrier to any move to undo privatization.
Chairman Rangel and Speaker Pelosi were, or should have been, aware of this situation at the time they reached their agreement on trade negotiations with the Bush Administration. In March, Peruvian unions, retiree federations and even the Peruvian Archbishop wrote to Chairman Rangel about the situation. In May, the unions and retirees wrote Speaker Pelosi.
Nevertheless, Social Security was not exempted from the investor protection section of the agreement. CitiGroup is free, under the agreement, to bring an action in an international tribunal to recover its future profits if Peruvian Social Security is de-privatized. Moreover, its claims could be unlimited because its Peruvian contract is unlimited. Thus, any such action by Peru could subject it to substantial litigation costs at minimum. Peru's maximum possible costs would be impossible to determine.
Conclusion
It is hard to understand why our Democratic leaders would not insist on trade provisions that would allow Peru to restore its Social Security system to public administration. After all, that is what they demand for the US system. It is tempting to attribute their position to money, but a quick perusal of The Center for Responsive Politics web site does not show any democratic leader (except Barney Frank, the Chairman of the House Financial Services Committee) among the top recipients of CitiGroup largess. CitiGroup seems to have divided its overall contributions relatively equally between the parties during the past several election cycles. While not discounting the probability that our leaders would not wish to alienate a contributor, I find it hard to conclude that there is a direct connection between this position and specific contributions.
It seems more likely that the neo-liberal perspective, which among other things, sees multinational corporations as essential and beneficial actors in the world economy still reigns supreme in Washington. Campaign contributions contribute to this set of beliefs. But I would suggest that the incessant propaganda emitted by think tanks and financed by big business of all types is more significant. It is difficult to overcome a set of beliefs that has been repeated so often and in so many ways that it has become part of common discourse and belief. We Progressives have a major task of reeducation ahead of us.