A tentative deal has been reached to put the massive Canada-EU free trade deal back on track for approval by European leaders, but negotiations in Belgium have revealed that the most contentious part of the accord – a court where businesses can sue another country’s government – has an uncertain future.

Belgium was the lone holdout to signing the deal because its regions can veto international treaties. But, on Thursday, Belgian politicians reached an accommodation with the local governments that objected that could enable the country of 11.2 million to join the other 27 member states in approving the Comprehensive Economic and Trade Agreement.

Wallonia and other regions in Belgium had raised major concerns about CETA, chief among them the court, known as the investor-state mechanism for resolving disputes.

The text Belgium hammered out to reach internal agreement on CETA makes clear a little-known aspect of the pact: Each of the European Union’s member states can decide whether to accept or reject the provision for the court, which sets out formal arrangements for how businesses could sue governments when state decisions affect their investments.

The text outlines the conditions under which the regions would allow the central Belgium government to sign the deal. It says that, in keeping with rules laid out by the European Council in July, part of CETA will be put into effect before national Parliaments vote on it, and that part does “not extend to … provisions of CETA, particularly in terms of investor protection and disputes.”

A spokesman for International Trade Minister Chrystia Freeland said this means individual member states will have to ratify their participation in the investor-state mechanism.

“On the investment dispute resolution process specifically, this will not be subject to provisional application, and must be approved by member states,” Alex Lawrence said.

Ninety per cent of the Canada-EU deal can take effect without the approval of the parliaments in the 28 member states. If the development in Belgium allows the country to give its consent to CETA, which would bring the European Council to a consensus, then the agreement goes to the European Parliament for passage – a step that EU watchers say is likely assured. The Canadian Parliament must also approve the deal, and the Liberals’ majority ensures this will happen.

After that point, 90 per cent of the deal takes effect on what is called a provisional basis with only a few matters such as the investor-state mechanism left for parliaments in all 28 countries to approve.

The Canada-EU deal would eliminate duties on tens of thousands of products, covering more than 95 per cent of everything Canada now sells to Europe, and dismantle many non-tariff barriers to commerce. It would give Canada’s auto assemblers and beef and pork producers significant access to EU markets.

Belgium’s opposition to the investor court portion of CETA suggests it might never be enacted there. This could mean Canadian companies could not use it to sue the Belgian government for policies that affect their investments, and Belgian companies would not have this option in Canada.

Should other nations take the same position, the provision could end up being enacted on a patchwork basis.

Jason Langrish, executive director of the Canada Europe Roundtable for Business, a coalition of firms that supports a deal, said he did not envision all the parliaments in the EU’s 28 member countries accepting the investor-state dispute settlement mechanism.

The mechanism is what has held up widespread adoption of the deal by European countries as critics worried it would allow big business to dictate policies in their capitals. The Trudeau government watered it down during negotiations earlier this year, and on Wednesday Prime Minister Justin Trudeau described the revised investor court as a “gold standard.”

Ms. Freeland cautioned against assuming the CETA deal is now on safe ground. “There are still many steps to be taken and I want to be sure that Canadians appreciate that, even after signing, the process will not yet be complete.”

Her office also said many features of the investor-state dispute settlement mechanism remain undecided.

“Elements of the investment dispute resolution process in CETA were left deliberately unfinished, including issues such as the code of conduct for tribunal members and details of the appellate tribunal. Further changes have always been contemplated, and we look forward to working with Europe on further developing the approach,” Mr. Lawrence, the trade spokesman, said.

The deal reached to permit Belgium to sign CETA will have to be approved by all of the other 27-member EU nations.

It also says Belgium’s regions are not prepared to allow ratification of the dispute mechanism when the matter comes before Belgium’s legislators – or at least they will not approve its current form.

“It would be suspended during the ratification process, and that could take a couple of years,” said Hamza Fassi-Fihri, a member of parliament in the Brussels city government, one of Belgium’s regional governments. “During this period, the European Commission would commit to improve the system and to go towards a model of a multilateral international court system instead of the [dispute resolution process].”

Mr. Fassi-Fihri said MPs want assurances that changes to the mechanism will be part of the treaty and not a side arrangement. “We need guarantees about that.”

He also said Belgium could still reject CETA despite Thursday’s agreement.

Toronto-based trade lawyer Mark Warner said the fact all 28 Parliaments will get to decide whether they want to accept the investor-state dispute mechanism was set in motion back in July when the European Union chose the system under which member countries would approve CETA. Back then, the EU said this would be treated as a “mixed agreement” where all country’s legislators would have the power to agree or reject matters that entirely within their jurisdiction.

Mr. Fassi-Fihri said it is also unclear if Canada will agree to the changes to the mechanism or if modifications will apply to Canada. “If it’s a document that has a legal value and that is added to the treaty but Canada is not around the table now discussing and negotiating, would Canada be obliged to comply with the treaty with these extra documents or only be compelled by the treaty and not the extra documents?”

OTTAWA and LONDON — The Globe and Mail
Published Thursday, Oct. 27, 2016 6:28AM EDT
Last updated Thursday, Oct. 27, 2016 9:54PM EDT