Trade expert says subsidies like those for The Hobbit would be prohibited.

The subsidy paid by the Government to The Hobbit could be prohibited under the Trans Pacific Partnership Agreement, says a leading trade specialist and author.

And New Zealand's restrictions on overseas investment under the Overseas Investment Act could well have to go under a TPP agreement.

Amokura Kawharu said her conclusions were based on the leaked text of the investment chapter.

"If that is the final form for the TPP then there will be an extensive provision in there prohibiting what are called 'performance requirements'."


It prohibited incentives for supporting local industry.

At the moment the subsidy was available to production companies who located to New Zealand - in a bid to help develop the New Zealand film industry.

The amount of the subsidy was conditional on the amount of money the company spent in New Zealand.

"That is a performance requirement and that would be prohibited under the TPP if the TPP goes ahead as it is currently drafted," said Ms Kawharu, a senior law lecturer at Auckland University and co-author of the book Williams and Kawharu on Arbitration.

That provision was in almost all United States trade agreements, she said.

The United States has taken a leading role in the deal, which is undergoing its 15th round of negotiations in Auckland.

In its first two years, The Hobbit production received $67 million in Government subsidy but is expected to receive more.

She said screening of foreign investments from other TPP countries - US, Australia, Singapore, Malaysia, Chile, Brunei, Peru, Vietnam, Mexico and Canada - would have to go under the national treatment rule in the leaked text.


It would also have to go in relation to investors from countries with whom New Zealand had already signed investment treaties, including China and the 10 Asean countries.

"The whole regime would have to go for investors who were covered by the treaty."

Some lawyers suggested the issue could be avoided by New Zealand seeking an exception for the provisions of the Overseas Investment Act (OIA).

"The question is will the US accept an exception as wide as the OIA because the exception would become the rule and our OIA is one of the most expansive screening regimes in the world."

She also said exceptions did not always work well. Canada had a ruling made against it last week by an arbitration tribunal regarding the implementation by regulation of an exception it thought it had in the North American Free Trade Agreement.

"Assuming that the US would accept [an exception] it's also very difficult to draft them to cover what you actually want because tribunals have a tendency to read down exceptions, to read them very narrowly."