FOREIGN companies could sue the Federal Government if domestic policy changes hurt their profits, under a new trade deal.

The US is pushing for the Trans Pacific Partnership - currently being thrashed out between nine countries including Australia, Chile, New Zealand, and Vietnam - to include an Investor State Dispute Settlement clause.

The clause would allow foreign investors adversely affected by policy changes to sue the governments of the countries making the change.

Critics say it could see Australia forced to defend policy changes - such as emissions trading or drought support - in court.

Other countries in the TPP already have ISDS in their agreements with the US, so Australia will likely be the lone voice arguing for ISDS to be excluded from the agreement.

Trade Minister Craig Emerson said the Government was opposed to ISDS, but shadow trade minister Julie Bishop said ISDS had a role to play in protecting Australians who invest overseas.

Dr Emerson said Australia offered foreign-owned companies "the same rights and protections under the laws of Australia as Australian-owned companies".

"What is sought under investor-state dispute settlement provisions is superior legal rights for foreign companies to those available to Australian companies," Dr Emerson said.

"The suggestion that Australian investors have no legal remedies in foreign countries is incorrect. Whether those remedies are considered adequate depends on the particular country."

Ms Bishop said Australia had not needed an ISDS in its agreement with the US because both countries had legal systems capable of resolving disputes between government and foreign investors.

"Such a clause should be included if it assists Australian businesses in protecting their interests," Ms Bishop said.

"It works two ways. (And) the government potentially sends a negative message to foreign investors (by arguing against ISDS).

Ms Bishop said the government could be concerned about legal action taken against some of its policies - "carbon tax legislation, for example".

The Weekly Times understands the US has pushed hard for an ISDS in the US-Australia free trade agreement.