The Obama administration has signalled it is willing to compromise on a controversial clause in a proposed mega-trade pact in a move designed to ease opposition from anti-tobacco and public health groups.

In talks on the Trans-Pacific Partnership (TPP) agreement, the United States has formally proposed amendments that will make it impossible for tobacco companies to weaken or overturn laws designed to curb tobacco use.

US officials made the surprising offer on the first evening of trade negotiations in Atlanta, Georgia, where trade ministers from 12 Pacific-region countries, including Australia, have gathered to try to conclude talks on what will be the biggest regional trade agreement in history.

The proposal is likely to anger tobacco companies and US senators from tobacco-producing states, but will be welcomed by anti-tobacco campaigners and Democrats, who say they will be more likely to support the TPP's passage through Congress if the tobacco "carve-out" is included.

The US proposal will give governments the option to prevent foreign tobacco companies from challenging anti-smoking policies in their countries by exploiting a controversial clause in the agreement called investor-state dispute settlement (ISDS), according to World Trade Online.

Clause has history

Such a clause has been used against Australia in the past. When former prime minister Julia Gillard introduced plain-packaging laws in 2012,  tobacco company Philip Morris used the ISDS clause in the Hong Kong-Australia bilateral investment treaty to sue Australia's government, and the case is still in arbitration.

The Obama administration's proposal overnight means an ISDS clause will still be included in the TPP, but tobacco companies will not be allowed to use it to stop governments pursuing anti-smoking policies.

In response to the news, Australian Trade Minister Andrew Robb told Fairfax Media that he did not want to speculate about the issue while talks continued.

"In regard to ISDS, our position is we would only consider it if the balance of the package is in our best interests. We are not at that point. Nothing is agreed until everything is agreed," he said.

But Mr Robb also said he had been pushing for the TPP to include ISDS "safeguards" – such as a carve-out for tobacco companies – similar to those in the Australia-South Korea free-trade agreement.

"Our officials have been at the forefront of developing a more acceptable ISDS [that includes] a 'carve-out' of public policy in the health and environmental space," he said, adding that Philip Morris would not be able to sue Australia's government under the recent trade agreements with South Korea and China.

"Philip Morris is using an old ISDS [against Australia] which is 20 years or more older.

"All our ISDS deals are being progressively updated, we've got 28 deals, some have been up to 30 years in operation."

Agreement would span region

The TPP is a huge multilateral agreement covering Australia, New Zealand, Canada, the United States, Mexico, Peru, Chile, Malaysia, Singapore, Vietnam, Brunei and Japan.

Its members comprise 40 per cent of the global economy and span the entire Pacific region.

After years of negotiations over the pact, the contents of which are held secret, it was hoped that a final deal may be reached this week, but event organisers have officially extended the two-day talks to three days after trade ministers failed to overcome key sticking points overnight.

The Labor opposition has also signalled it does not support deals with an ISDS clause.

Opposition trade spokeswoman Penny Wong said much more detail was needed from the government.

"Mr Robb should outline the parameters of his negotiating mandate from Mr Turnbull," she said in a statement.

"It's not good enough for him to speak in riddles about an agreement being negotiated on behalf of the Australian people.

"Labor does not support the inclusion of ISDS provisions in trade agreements."