South Korean corporations will be able to sue the Australian government under a new historic free trade agreement.

Under the deal, announced by the Abbott government on Thursday, tariffs will be eliminated on local exports of agricultural products such as beef, sugar, wheat, wine and dairy, as well as energy, resources and manufactured goods.

Labor Senator Penny Wong said she was concerned about the impact of "any" proposed ISDS mechanism. Credit:Alex Ellinghausen

But the agreement also includes a controversial provision for a mechanism called an investor-state dispute settlement (ISDS).

This allows foreign corporations to take legal action against another country's government if they believe that government has infringed on their rights. That means if the Australian government does something that negatively affects the profit stream of a South Korean company, the company may sue it.