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First Canadian Place at right and TD Bank Towers centre and left. File photos of downtown Toronto's financial district and area taken at night on Oct 27 2011.

Fred Lum/The Globe and Mail

Financial services has become the latest stumbling block as Canada and Europe try to put the finishing touches on a sweeping free-trade agreement.

Canada is resisting pressure from Europe to allow its financial institutions and investors to directly sue Ottawa for measures it might take to protect the stability of the financial system or market players, according to a leaked draft of the services and investment chapter of the deal obtained by the Council of Canadians.

Under a so-called "carve-out," Canadian negotiators want to keep financial services free of potential private claims – an exemption it already has in both the North American free-trade agreement and the World Trade Organization.

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"The strength of Canada's financial institutions throughout the most recent global economic crisis reflects the strength and soundness of Canada's regulatory framework," said Adam Taylor, a spokesman for International Trade Minister Ed Fast.

Without commenting directly on the leaked document, Mr. Taylor said "important work" remains to be done on the deal. "As in all negotiations, nothing is agreed to until everything is," he said.

He added that it's "ridiculous" to suggest ownership of Canada's banks is on the table in the negotiations.

Trade experts said financial services is unlikely to be a deal-breaker in the negotiations.

"There's nothing in here that's insoluble," said John Weekes, a former top Canadian trade negotiator and now an adviser with law firm Bennett Jones in Ottawa.

Trade lawyer Lawrence Herman of Cassels Brock said it would "very difficult" to give special rights to Europe that U.S. investors don't have under NAFTA.

Both sides are determined to get more access to each others' financial-services markets in the negotiations. Canada's large insurers, for example, are already active in Europe, but covet much larger market shares.

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Financial services is one of a clutch of politically sensitive issues that remain unresolved three months after the two sides had planned to get a final deal.

Mr. Fast met his European counterpart, EU Trade Commissioner Karel De Gucht, in Ottawa earlier this month. Both acknowledged continuing differences, but expressed optimism they will eventually reach a deal.

Europe has since announced that it's poised to begin negotiating a free-trade deal with the United States. That puts pressure on both sides to get a final deal within the next couple of months.

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