09/25/2014 12:52 EDT

Germany Puts Canada-EU Trade Deal On Hold: Reports

FILE - In this Jan. 23, 2014 file photo Chancellor Angela Merkel, right, and German Minister of Economics and Energy and Vice Chancellor of Germany Sigmar Gabriel from the Social Democrats, SPD, attend a press conference in Meseberg, Germany. Germany's two-month-old government is facing its first serious test, after old enmities between Chancellor Merkel's conservative bloc and their center-left coalition partners flared over the handling of a child pornography investigation. (AP Photo/dpa, Maurizio Gambarini, file)

On the eve of a summit between Prime Minister Stephen Harper and European Union leaders, Germany has signalled it’s putting the Canada-EU trade deal on hold.

The Comprehensive Economic and Trade Agreement (CETA) was supposed to be symbolically concluded on Friday after five years of negotiations.

But German economic affairs minister Sigmar Gabriel said Thursday the country will not sign the deal unless a controversial clause allowing companies to sue governments is removed, Reuters reported.

According to sources cited by German news service Deutsche Welle, Gabriel “pulled the emergency brake in Brussels, and prevented the completion of the CETA deal.”

All EU member states and Canada have to sign the deal for it to become law.

Germany’s move sets up a showdown between Europe’s largest economy and the European Commission, which negotiated the deal.

European Commissioner for Trade Karel De Gucht warned Thursday that "if we re-open negotiations on CETA, the deal will be dead.”

"I'm certain the debate is not over by a long shot," Gabriel shot back in Germany's parliament, the Bundestag, on Thursday.

It’s widely believed that the real issue now holding up the Canada-EU trade deal is, in fact, the U.S.-EU trade deal currently under negotiation. The deal with Canada is seen as a test case for the success or failure of the U.S. trade deal, known as the TTIP.

Germany’s concerns centre around the investor-state dispute mechanism that is part of the deal. It would allow companies to sue governments, outside the regular court system, for losses caused by a government policy.

Many in Europe fear that an investor dispute clause would allow companies to essentially override national laws through lawsuits.

Gabriel told the German parliament his government clearly rejects the inclusion of the clause, and argued current Canadian and European laws are sufficient to protect investors.

Such investor dispute clauses are common in free trade agreements; NAFTA contains one, as does a recent investment-protection treaty Canada signed with China.

According to a new analysis from the Canadian Centre for Policy Alternatives (CCPA), Canada has already paid out $170 million as a result of lawsuits through NAFTA’s investor-dispute tribunals, and the country is facing billions more in lawsuits under way.

These dispute mechanisms typically contain a “prudential carve-out” to protect a country’s financial regulations, but the CCPA says this carve-out is “substantively weaker” in the EU trade deal than it is in NAFTA.

Germany’s government made it clear that while it supports CETA in principle, it will not sign the deal with an investor dispute mechanism in place.

Prime Minister Stephen Harper was scheduled to meet with European Commission President José Manuel Barroso and European Council President Herman Van Rompuy in Ottawa and Toronto on Friday, to mark the conclusion of the negotiations.

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