(Adds comments from Australia's Robb, lobby group, background, Democrats)
By Krista Hughes
ATLANTA, Sept 30 (Reuters) - Pressure is mounting on Pacific trading partners over potential steps to block foreign investors from suing governments over anti-smoking measures, under a free trade pact that is nearing completion.
Trade ministers from 12 countries are discussing possible exemptions from rules letting foreign companies sue governments over damage to investments as they try to wrap up talks on the Trans-Pacific Partnership (TPP).
No final consensus has been reached on whether any exclusion would target only tobacco companies or shield a wider range of government regulations from legal action, but Australia's Andrew Robb is optimistic about his country's push for a broad carve-out for both health and environmental regulations.
"I think we're on track, but there's not a final decision yet," he told Reuters on the sidelines of the Atlanta meetings.
Similar rules in a separate trade treaty allowed Marlboro maker Philip Morris PM.N to sue Australia over tobacco plain-packaging laws banning branded cigarette packs.
Excluding an industry such as tobacco from protections for foreign investors would cheer anti-smoking groups and many of the U.S. Democratic lawmakers who have bucked union pressure to support President Barack Obama's trade agenda.
A group of 11 pro-trade Democrats, who helped pass key trade legislation earlier this year, wrote to U.S. Trade Representative Michael Froman on Wednesday, urging him to make sure tobacco disputes are excluded from TPP rules.
"It is essential that effective safeguards are put into place to explicitly protect the ability of countries to implement public health measures," said the letter, organized by congressmen Ami Bera of California and Jared Polis of Colorado.
But the prospect of such a move is ringing alarm bells in the U.S. business community, otherwise a strong supporter of the deal to cut tariffs and set common standards for 40 percent of the global economy.
U.S. business groups, including the American Farm Bureau Federation, U.S. Chamber of Commerce and National Association of Manufacturers, also wrote to TPP officials this week, warning against singling out specific sectors or industries. ID:nL1N1200JR
"Such exclusions are unnecessary and would be highly damaging to the international rules based trading system and the prospects for the TPP," said the letter,
Targeting tobacco could erode support in the U.S. Congress from Republicans from tobacco-producing states such as Kentucky and North Carolina. Congress must approve the trade deal before it can come into effect, and every vote will count.
U.S. negotiators must balance local sensitivities against the need to get trading partners to back a deal which will impose higher, and potentially unpopular, standards in areas like copyright and pharmaceutical patents for some.
"There seems to be broad support for inserting language to ensure that tobacco companies cannot continue to abuse the trading system," Campaign for Tobacco-Free Kids President Matthew Myers said.
Malaysia, where domestic support for the TPP is shaky, wants to completely exclude tobacco from the TPP. Excluding tobacco would allow countries to keep tariffs on U.S. tobacco products.