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Canada and the 28-country European Union announced back in September, 2014, that they had wrapped up negotiations on a massive trade agreementGetty Images/iStockphoto

Canada and the European Union have reworked their landmark free-trade agreement to limit how and when companies can directly sue governments.

The changes, aimed at appeasing European critics, clear the way for the trade agreement to be signed this year and put into force early in 2017, federal International Trade Minister Chrystia Freeland told The Globe and Mail.

"I am absolutely confident that Canadian businesses are really happy with this deal, and they should be," Ms. Freeland said Monday. "This is a great, gold-plated trade agreement."

The redrafted Comprehensive Economic and Trade Agreement (CETA) creates a permanent tribunal, with members appointed by the two sides, as well as an appeal process to reverse potential legal errors. There is also tougher language enshrining the right of governments to regulate.

European Commission officials said it's a step toward the creation of a permanent international investment court. "By making the system work like an international court, these changes will ensure that citizens can trust it to deliver fair and objective judgments," EU Trade Commissioner Cecilia Malmstrom said in a statement.

The agreement's so-called investor-state dispute regime was threatening to become a deal breaker, with opponents in the European Parliament vowing to block ratification of the entire deal unless changes were made. Critics worried that companies would use the ad hoc private arbitration process to undermine legitimate health, safety and environmental laws.

CETA will give Canadian exporters privileged access to a market of 28 countries and 500 million people, lowering tariffs on most goods to zero and opening up many European government contracts for the first time. Among the key concessions, Canada will open an extra 4 per cent of its protected market for dairy, including cheese, to European suppliers.

The reservations in Europe weren't so much about Canada, but about the United States. The EU is negotiating a much larger free-trade deal with the United States, stoking fears in Europe that litigious American multinationals would use arbitration to undermine European laws and regulations. The United States has so far resisted European demands for a permanent court with appeal provisions.

Under the initial Canada-EU trade deal, investment claims would have been settled by ad hoc panels, with members chosen by investors and the two sides as disputes arose – as is now the case in the North American free-trade agreement.

The changes could lead to a tribunal that is seldom used, warned Todd Weiler, a London, Ont., lawyer who has worked on numerous investor-state disputes. He said Canadian and European officials would probably be happy if the arbitration tribunal is never used because they don't like a process they can't easily control or predict.

Investor guarantees in the Canada-EU deal could be "rendered ineffectual" if the government-appointed arbitrators apply overly conservative interpretations, he said.

But Toronto trade lawyer Lawrence Herman welcomed the changes, which he said bring "public legitimacy" to the investor arbitration regime and create a possible model for a massive U.S.-EU trade deal in the works.

"It makes eminent sense," Mr. Herman said. "I've thought for some time that it's not acceptable for decisions on matters of national policy to be decided by ad hoc arbitrators, where there was no avenue of appeal."

Bennett Jones lawyer Matthew Kronby, a former Canadian trade official who helped negotiate CETA, said the new "right to regulate" clause is largely redundant because the original deal would never have allowed investors to claim damages for "legitimate regulatory measures" just because they got in the way of profits.

Consumer rights group Council of Canadians called it "smoke and mirrors," while Friends of the Earth Europe described CETA as dangerous and said it should be rejected.

With a report from Robert Fife

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