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BERLIN (Reuters) - Germany will not sign a trade pact between Canada and the European Union unless an investment protection clause allowing companies to take cross-border legal action against governments is scrapped, Germany's economy minister said on Thursday.
The deal with Canada could increase bilateral trade by a fifth to 26 billion euros ($34 billion) and is widely seen as a template for a larger trade pact between the EU and the United States, which would encompass about a third of global trade.
Canadian Prime Minister Stephen Harper and EU leaders are expected to announce an end to negotiations at an Ottawa summit on Friday, but final preparations are being hampered by a row over the pact's "Investor-State Dispute Settlement" chapter.
The disputed clause would allow firms to sue EU states or Canada to protect their trading interests, but critics say this would give multinationals too much power and could lead to governments being pressured into ignoring laws on labor, the environment, data protection or food standards.
Germany also argues that the EU and Canadian legal systems already afford sufficient protection for investors.
"It is completely clear that we reject these investment protection agreements," German Economy Minister Sigmar Gabriel told a parliamentary debate.
The Bundestag's session covered both the Comprehensive Economic and Trade Agreement (CETA) with Canada and the Transatlantic Trade and Investment Partnership (TTIP) with the United States.
Gabriel said Germany would try to get the clause in CETA changed. "I am certain that the debate is not over by a long shot," he said.
The European Commission argues that EU member states already have some 1,400 bilaterals investment agreements with other countries, including the United States, and that virtually all of them include investor-state dispute settlement clauses.
European Trade Commissioner Karel de Gucht told a German paper the EU-Canada deal should not be renegotiated at this stage. "If the negotiations are reopened, the deal is dead," he told the Frankfurter Allgemeine Zeitung in an interview.
De Gucht has said he would seek to prevent the inclusion of potential legal loopholes that could be used for "frivolous" claims against a state or potential abuse.
Canada and Brussels signed a deal in principle last year, leaving officials to hammer out the details.
CETA and TTIP need the approval of all EU member states and the European Parliament. Gabriel, a Social Democrat, said last week that the EU-U.S. deal was "not perfect" but that it was Europe's last chance to remain a world economic player.
Reporting by Stephen Brown; Editing by Raissa Kasolowsky