Opposition parties are calling on the Government to pull out of international trade talks despite assurances New Zealand isn't going to sign away sovereign rights.
The latest in a series of leaked document from Trans-Pacific Partnership (TPP) negotiations appears to confirm that states that sign up to the deal could be sued by foreign investors over unfavourable laws.
NZ First leader Winston Peters says the TPP negotiations must be put on hold.
"The Government must withdraw from the next meeting on July 2 and launch a select committee inquiry so all New Zealanders can see the full proposal and comment on it," he says.
"If it just blunders ahead and signs up to the agreement it will throw our whole law making process into turmoil."
The Greens say the Australian Government isn't signing the state dispute clauses that are being negotiated, and neither should New Zealand.
"The Government should categorically rule such clauses out," says co-leader Russel Norman.
"If they don't, and a future Government tightened environmental standards around offshore oil drilling, the foreign companies could sue for compensation for the cost to them of implementing the new standards."
TPP critic Jane Kelsey, an Auckland University law professor, says the kind of clauses seen in the leaked draft could see the New Zealand Government sued by tobacco giant Philip Morris for anti-smoking regulations, or by Exxon Mobil for laws tightening the rules around oil exploration.
Prof Kelsey says almost half the investor-state disputes currently before the World Bank’s tribunal at present relate to oil, mining or gas projects.
“Last week the Government opened tenders for oil and gas exploration in 23 onshore and offshore sites, when we have weak regulation. You can guarantee those oil firms would threaten to sue if new regulations hit their share value or profitability”, she says.
“Whether they have a good legal case is beside the point. They can tie governments up for years in massively expensive legal battles. Just that threat can ‘chill’ the regulatory decisions.”
A spokesman for Philip Morris told TVNZ's Q+A programme on Sunday that the Government's law for plain packaging of tobacco "will breach intellectual property treaties and trade treaties", but he would not speculate about legal action.
Prof Kelsey wants the Government to be more transparent about its TPP negotiations, so the public can have confidence the deal won't lead to litigation by offshore companies.
"This TPP text would throw open the front door to them and all the other US firms that want to block new laws they don't like," she says.
But the Government has hit back at the renewed concerns, with Trade Minister Tim Groser saying there is no basis for them.
"[It's the] latest in a line of beat-ups of people trying to use this issue to try and stop New Zealand pursuing what I think will be an outstanding growth opportunity for us," he told Radio New Zealand.
"The New Zealand Government will not sign any agreement which stops us now, or any Government in the future, from regulating public health and other legitimate policy purposes."
The TPP is an extension of a free trade agreement between New Zealand, Brunei, Chile and Singapore which has existed since 2006.
Countries negotiating to join it are Australia, Malaysia, Peru, Japan, the United States and Vietnam.
The next round of talks takes place in San Diego next month.