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​Right and left decry trade pact's secretive tribunals

While critics of the Trans-Pacific Partnership have a lot to complain about -- a secret document, unclear economic benefits and concerns about currency manipulation -- there's one looming issue that's raising the hackles of both the right and left.

That's the system of secretive tribunals that allow foreign corporations to sue governments if they believe a country's laws unfairly diminish their profits. Called the Investor-State Dispute Settlement (ISDS) model, the tribunal system has raised red flags from economists including Nobel laureate Joseph Stiglitz as well as the Cato Institute, a libertarian think tank.

The TPP, which would cover America and 11 Pacific Rim countries, would double the exposure of the U.S. to potential lawsuits from foreign corporations, according to Public Citizen, a consumer advocacy group. Massachusetts Senator Elizabeth Warren, a Democrat, recently called the system "rigged pseudo-courts" that favor business interests. The tribunals tend to be run by a handful of highly paid attorneys, with the awards to corporations -- and the number of cases -- surging dramatically in recent years, a 2012 study from Corporate Europe Observatory found.

Obama: My Democratic critics on free trade are "wrong" 04:02

"It's a parallel legal system for foreign corporations," Public Citizen research director Ben Beachy told CBS MoneyWatch. "It would empower foreign corporations to bypass domestic courts and directly sue the U.S. government before a tribunal of private lawyers that sit outside any legal system."

The House on Friday voted against a worker-aid program that was a key part of the bill. Even though the House voted in favor of the "fast-track" portion of the bill, that was seen as a symbolic gesture since the bill can't move to President Obama without approval of the worker-aid program. The White House called the vote a "procedural snafu" and vowed to move forward, as did Republicans.

In the meantime, some organizations have sought to shed more light on the details of the TPP, despite the fact that the draft is considered classified, which means it will be kept under wraps for four years as national security information. WikiLeaks, however, has been publishing portions of the draft, although the majority remains unseen by the public, even though more than 500 private corporations have access to it through a secured Internet portal.

While the future of the TPP remains unclear, its passage would expand foreign-investor privilege to an additional 9,000 foreign corporations that operate subsidiaries in America, Beachy noted. So far, the U.S. hasn't lost an ISDS case, but doubling America's exposure under the TPP raises the very real possibility of more lawsuits through the tribunal system.

"The U.S. record [of never losing an arbitration case] owes largely to the fact that most of the countries with which the U.S. has such an agreement are developing countries with little investment in the United States or capacity to mount such challenges," economist Stiglitz wrote in a May letter to Congress.

Under the TPP, corporations from wealthy countries such as Japan and Singapore would gain the right to sue through the tribunals.

Investor-state arbitration was designed as a way for corporations to protect their investments against expropriation, such as if a government seized a company's factory. At the heart of the system is a noble ideal: ensuring that countries provide "fair and equitable treatment" to foreign investors. But in recent years, corporations have sued over everything from a country's laws on banning harmful chemicals to regulations on hazardous waste.

In one case, Occidental Petroleum sued the country of Ecuador after it shut down an oil concession after the crude producer illegally sold its production rights to another company without government approval. The tribunal found that while Occidental had broken the law, Ecuador had to pay up as part of its obligation to offer "fair and equitable" treatment.

The judgement? A whopping $2.3 billion, including interest, which Bloomberg News noted exceeded the company's net income for any of the three previous quarters. The award also exceeds what Ecuador spends on health care each year for about half of its population, according to Public Citizen.

The number of investment arbitration cases are on the rise. In 1996, there were 38 cases registered with the ICSID, the World Bank group that oversees such cases. By 2011, there were 450 known investor-state cases, according to Corporate Europe.

So who oversees the tribunals? A mostly small group of lawyers and arbitrators who tend to rotate between arbitration panels and who also are called on as witnesses in other cases. Just 15 arbitrators have decided 55 percent of all known investor-treaty cases, Corporate Europe noted. The attorneys can charge up to $1,000 per hour, with the legal and arbitration costs for each case averaging more than $8 million, its report found.

The panels "do not meet fundamental U.S. judicial principles," Stiglitz wrote. "Private tribunals that effectively require millions of dollars in legal costs to use will privilege big businesses with an advantage over small businesses and other stakeholders."

The White House is pushing the TPP as a way to expand American exports and create more jobs. While that might be the case, the trade agreement's tribunal system should give Americans reasons for concern, Stiglitz said. "They aren't accountable to any legal system. They don't have to follow any system of legal precedent, nor are they bound to any form of legal appeal. It's kind of like the wild west of law."

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