Foreign Minister Winston Peters and Trade Minister David Parker appear at odds over the legal position of the planned royalty on water exports.
Peters plans to ignore the advice of top officials at the Ministry of Foreign Affairs and Trade and will introduce the royalty which was promised in the Labour-New Zealand First coalition agreement.
He said the view of Mfat deputy secretary and chief TPP negotiator that it breaches New Zealand's trade deals was "an opinion."
Asked if he thought it would be a breach, Peters said "No, I don't."
He planned to introduce it anyway.
"We are a sovereign nation and you are seeing a restoration of our sovereignty."
Peters said it was not a foreign policy matter: "It is to do with our domestic economy and who runs our economy and who has propriety over our resources."
Labour and New Zealand First's coalition agreement specifically includes a provision to "introduce a royalty on exports of bottled water."
Vangelis Vitalis, Foreign Affairs deputy secretary for the trade and economic group, said today that such payments would breach existing trade agreement.
But Parker backed Vitalis. He told reporters export taxes were prohibited by all of New Zealand's trade agreements "so we have got to find a remedy that is consistent with those obligations."
He said he had always known that discriminatory measures that impose tax only on exports would be in breach of virtually every trade agreement we've got."
Labour had campaigned on a non-distortionary price on water including on exports.
"There is more than one way for us to meet our ambition. If we were to have a distortionary tax on the export of water, that would breach our trade agreements."
Parker would not elaborate on the other routes he could take to achieve the same policy other than saying there were regulatory routes involving the Resource Management Act.
The government had not yet focused on the issue.
Vitalis made his comments while briefing the foreign affairs and defence select committee on the Comprehensive and Progressive Agreement for Trans Pacific Partnership (CPTPP), the revised TPP.
"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," he said.
The use of water in New Zealand was still protected. The Government's right to regulate around that was still protected. The issue that concerned the TPP negotiation was export taxes.
Many countries around the world had export taxes including on agricultural products and that affected prices.
"So one of our key objectives in many of our negotiations has been to try to restrict because of the impact it has on global prices, including a range of products that we do care about."
"The policies that you'd use to manage water would be based around the Resource Management Act and thee consents that we might have on the use of water."
National Party leader Bill English told reporters that the issue had highlighted a state of "disorganisation" in the coalition Government.
"It creates uncertainty and uncertainty is something the New Zealand public is not that used to. We've got through a lot of tight spots in the last 10 years with clarity from the Government, even if people didn't agree with it.
"This Government is creating unnecessary uncertainty, partly because it has made commitments it can't keep…and partly because they are disorganised and they have got different people saying different things like today."
Having two senior ministers saying completely different things would have been problematic in the past for a cabinet and a Government.
"This Government is so disorganised that people probably don't take it that seriously."
Vitalis told the select committee there had been no date set for the signing of CPTPP, but it could be in the first quarter of next year.
Many of the questions centred on changes to the Investor State Dispute Settlement provisions under the CPTPP to reduce the circumstances in which the arbitration procedures can be invoked.
National has said it will support the deal but former Foreign Minister Gerry Brownlee argued that the change had been overstated, while Labour MPs argued that much had changed.
Four outstanding issues are yet to be resolved.
The CPTTP is an agreement among 11 countries, New Zealand, Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, Peru, Singapore, and Vietnam.
About 20 provisions of the original TPP agreement have been suspended pending a decision by the United States to re-join.