Jacinda Arden says she won't give up on her plans to introduce a tax on bottled water in New Zealand.
Labour's controversial policy has hit a road block when trade officials told MPs yesterday the proposal was illegal as it breached several free trade agreements.
"It's just a matter of exploring how they would work and whether they would give best effect but those options do exist," Ms Arden said.
Vangelis Vitalis, deputy secretary for trade at MFAT, said a royalty would run up against the free trade agreement with China and the recently-negotiated Comprehensive and Progressive Trans-Pacific Partnership (CPTPP).
"We are not in a position to apply an export tax on water as a consequence of some of our existing free trade agreements," Mr Vitalis told a select committee hearing yesterday.
"The new agreement (the CPTPP) contains the same prohibition of export taxes."
The coalition agreement between Labour and NZ First commits the government to introducing a royalty on bottled water exports.
Opposition leader Bill English says it looks like the government will be forced into a u-turn.
"While the idea has merit - the previous government took the responsible step of seeking recommendations on the matter - the new government has committed to it without even seeking advice from its legal and trade experts," he said.
In parliament, Deputy Prime Minister Winston Peters said the government was working on the issue.
"The government's position is that there are many alternatives to arrive at the kind of result that a royalty would impose upon any taker of water," he said.
"One could assume that, like every other sovereign nation and every other country that sets its own royalties, we are working precisely on that as we speak."
The water sector says the public will be disappointed by the setback and Water New Zealand now isn't expecting a tax will come to light.
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