Government warned tax on bottled water exports could breach trade agreements

The Government faces a major hurdle on its promise of a tax on bottled water exports and is now searching for an alternative.

It's been told an export tax would breach major trade agreements, including the new version of the TPP - the CPTPP, as well as the FTA with Korea; and the P4 with Chile, Singapore and Brunei.

But while Labour's Trade Minister David Parker recognises a tax on water exporters is not possible, Deputy Prime Minister Winston Peters is convinced it's going ahead.

"We are a sovereign nation and you'll see the restoration of sovereignty," he told Newshub.

When asked whether it breaches trade agreements, Mr Peters said, "We're saying it doesn't."

That's not what the Minister of Trade nor the Ministry of Foreign Affairs and Trade (MFAT) said today.

MFAT deputy secretary Vangelis Vitalis told a select committee today the tax wouldn't be possible.

"We are not in a position to apply an export tax on water, as a consequence of some of our existing free trade agreements," he said.

"The new agreement contains the same prohibition of export taxes."

It puts the Government in a difficult position.

The coalition agreement with New Zealand First explicitly promises to "introduce a royalty on exports of water".

Minister of Trade Dr David Parker said the Government is "determined to find a way through."

He said there could be other ways of implementing the policy, but alternatives hadn't been fully developed.

"If you don't like the export of water, there are perhaps regulatory routes under the RMA [Resource Management Act]." 

He said a "non-discriminatory" tax on all water-bottlers would also be considered.

"The Labour Party position was that we would have a price on all water, including bottled water for export," said Mr Parker. "That policy position did not survive the coalition agreement."

National says that's a back-down.

"The new Government has committed to it, without even seeking advice from its legal and trade experts on whether or not such a tax is possible," said Opposition leader Bill English in a press release.

MFAT confirms a tax on all water bottlers is still possible and said officials are looking at several other options, including a charge related to consents, a general royalty on the percentage of sales or a volumetric charge on the amount of water used.

"None of our FTAs [free trade agreements], or WTO [world trade organisation] obligations, prevent the Government from applying export taxes if matched by a tax applied on the same goods sold in the domestic market," MFAT told Newshub.