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Free trade rules could block bottled water tax

The Government’s plans to introduce a royalty on bottled water exports has hit a major stumbling block, with New Zealand’s chief trade negotiator for the TPP suggesting such a move would violate existing free trade deals.

The coalition agreement between Labour and New Zealand First includes a commitment to “introduce a royalty on exports of bottled water”.

However, speaking at a briefing on the Comprehensive and Progressive Agreement on Trans Pacific Partnership (CPTPP) trade deal, MFAT's deputy secretary for trade and economic issues Vangelis Vitalis said both the CPTPP and existing FTAs included a prohibition on an export tax for water.

“There are provisions both in this agreement and in previous agreements where we have carved out and protected water, but ... if New Zealand wanted to apply an export tax on water, it could not do so, not simply as a consequence of this agreement but through several other agreements that we have in place at present.”

While the Government could use other domestic policies to manage water, such as changes to the Resource Management Act and consents on its use, an export tax had been historically opposed in previous free trade deals to protect Kiwi exporters’ interests.

“Many countries around the world do have export taxes, including on agricultural products, and that affects prices, so one of the key objectives in many of our negotiations has always been to try and restrict that because of the impact it has on global prices, including in a range of products that we do care about,” Vitalis said.

Vitalis told Parliament’s foreign affairs, defence and trade committee the CPTPP could be signed as early as February next year.

However, there were still four outstanding issues that needed to be addressed before a deal could be finalised, following the Apec summit in Vietnam.

He said New Zealand had succeeded in narrowing the scope of controversial Investor State Dispute Settlement provisions, although it was not alone in seeking to make amendments and had been doing so some before the new Labour-led government took power.

“No matter how badly we wanted it, we had to build consensus and we had to build a coalition.”

Vitalis said Mfat wanted to be “as transparent as possible” regarding the CPTPP, and was holding a number of meetings around New Zealand to explain the new deal.

Trade and Export Growth Minister David Parker said he was unsurprised by Vangelis’ comments.

“We’ve always known that distortionary export taxes are prohibited by all of our trade agreements, so we’ve got to find a remedy that is consistent with those obligations.”

Labour’s pre-election policy for a price on all water “did not survive the coalition agreement”, and the Government now had to find a solution which did not breach trade deals.

Parker said it was too early to outline alternative solutions, although he said there was “more than one way for us to meet our ambition”.

“There are regulatory routes: if you don’t like the export of water, there are perhaps regulatory routes under the RMA.”

However, Parker confirmed comments made on Wednesday that the Government did not intend to “prohibit overseas companies investing in those sorts of [bottled water export] activities” as part of changes to the Overseas Investment Act.