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Will Berlin nix the Canada-EU trade deal?

Later this month, the EU and Canada will ink a trade deal that is seen as a template for a similar pact between the EU and the US. While Germany has criticized parts of deal, the biggest threat doesn’t come from Berlin.

When Canadian and European leaders gather at the end of September in Ottawa to sign the Comprehensive Economic and Trade Agreement (CETA), it will be evident why the deal is important for Canadian businesses. After all, it opens their doors to the world's biggest market, the EU, which until now has been underrepresented in Canada's international business relations, which are heavily focused on its southern neighbor, the US.

For the EU, however, the Canada trade pact is important for a very different reason. Sure, Canada's vast energy and natural resources are attractive for Europe, particularly given Europe's dependence on an increasingly hostile Russia. And European companies will also appreciate easier access to the Canadian market, which has roughly the population of Poland. But for the EU, the Canada deal is just an appetizer.

Washington watches

"It creates a template that could be used, not word-for-word, but broadly speaking, for the negotiations with the United States, amongst others," said Jason Langrish, executive director of the Canada-Europe Roundtable for Business, a lobby group that supports CETA, in an interview with DW. "That's the principal benefit for Europe."

Washington, while simultaneously negotiating its own trade deal with Brussels - which would create the world's biggest free-trade zone - has been paying close attention to the Canadian-European talks and is eager to see whether the EU can not only conclude an agreement, but also get it ratified by its member states and parliament.

One of the most skeptical members involved in CETA is also, economically, the EU's biggest - Germany. In particular, it's the planned inclusion of a mechanism called investor-state dispute settlement (ISDS) that has raised the alarm in Berlin. ISDS schemes allow foreign companies to take governments before arbitration panels instead of going through the established courts.

Early adopter

Bundestag Berlin Debatte

Unlikely that Germany's parliament will block CETA

Traditionally, Western countries have used such courts in trade deals with nations with less developed legal systems. Critics charge that ISDS will undermine or weaken the regulatory powers of national governments, because they'll fear lawsuits by companies affected by tougher rules.

Germany, ironically, was the first country to include ISDS rules in its trade deal with Pakistan in 1959. In 2014 though, Berlin repeatedly stated that it opposes investor-state arbitration in trade deals with advanced economies like Canada - or the US.

In March, Germany's economics ministry said Berlin rejected special rights for companies and would push to exclude ISDS rules from the EU-US trade deal. In late June, that ministry put out a statement that said: "The German government does not view as necessary stipulations on investor protection, including on arbitration cases between investors and the state with states that guarantee a resilient legal system and sufficient legal protection from independent national courts."

One month later, unnamed German diplomats told the daily "Süddeutsche Zeitung" newspaper that Berlin could not accept CETA in its current form, because it could not accept the ISDS provisions it contained.

With the signing ceremony in Ottawa just weeks away, Germany still has not officially taken a position on the Canada-EU trade deal.

Berlin will blink

After five years of negotiations, will Berlin really put its tough rhetoric in practice and block CETA just before the goal line?

"At the end of the day, I think Germany will support the text," Langrish says. "And I think they will support investor-state."

He adds that he believes that Sigmar Gabriel, Germany's economics minister and vice chancellor, is sincerely concerned about ISDS rules. But: "I think he will be overruled, and I also think that his concerns apply to the US negotiations more than the Canadian negotiations."

Markus Henn, a finance regulation analyst at Berlin-based NGO World Economy, Ecology & Development (WEED), which opposes CETA, agrees on the high likelihood of the trade pact being approved. "I am not very optimistic that, without massive public pressure, [ISDS exclusion] will happen at this stage," he said.

If the German government really had wanted to stop it, argues Henn, it had ample time to do so before.

Opposition in Brussels

Both experts also do not think it is likely that the Bundestag, Germany's parliament, will nix the deal.

"There is no case where this has happened in Germany," Henn told DW. "It is just an extremely high hurdle."

Logo Swift

European lawmakers stopped the EU-US Swift agreement

Despite strong words coming out of Berlin, it looks more likely that Brussels will pose the biggest threat to CETA. The pact will have to be ratified by EU lawmakers, and the Greens in the European Parliament have already said they will reject it. They could be joined in their opposition by members of the Socialist and other leftist groups as well as various Euroskeptic parliamentarians.

And, unlike Bundestag members, EU lawmakers have experience vetoing transatlantic agreements.

Four years ago, the EU parliament, in a historic vote, blocked the SWIFT agreement, a financial data sharing deal negotiated by the US and the EU.