* Pact could increase two-way trade to $35 bln a year
* Would be EU's first with major world economy
* Decision to announce a done deal seen as premature
(Adds comments by Canadian prime minister, opposition leader)
By Robin Emmott and David Ljunggren
BRUSSELS/OTTAWA, June 2 Canada and the European
Union are struggling to finalise a multibillion-dollar trade
pact six months after political leaders said it was sealed, an
embarrassment for Brussels as it seeks a far bigger deal with
the United States.
Over a celebratory lunch last October, Canadian Prime
Minister Stephen Harper and European Commission President Jose
Manuel Barroso termed the accord "a landmark achievement for the
transatlantic market" that could come into force next year.
But the free trade deal, which could increase bilateral
trade by a fifth to 26 billion euros ($35 billion) a year, has
run into trouble over issues ranging from financial services to
how beef and cheese quotas are shared out.
The drawn-out final stage of talks, with each side accusing
the other of going back on promises, illustrates the complexity
of sealing sophisticated trade deals and bodes ill for the EU's
more ambitious talks with the United States.
"Negotiations cannot drag on forever," said Marie-Anne
Coninsx, the EU's ambassador to Ottawa. "It is in the interests
of both parties that we get things done."
The deal would make Canada the world's only major economy
with preferential access to the world's two largest markets, the
EU and the United States, home to a total of 800 million people.
For Europe, the accord is meant to be a template for its
trade negotiations with the United States, which would encompass
a third of world trade and almost half the global economy.
Both the EU-Canada deal and the accord with the United
States seek to go far beyond tariff cuts and to reduce
transatlantic barriers to business. Such trade deals are seen as
a way for developed countries to generate economic growth and
overcome the worst financial crisis in a generation.
Publicly, EU officials say it is a question of days for the
final wording of the Canada trade deal to be agreed. Canadian
Trade Minister Ed Fast told lawmakers last week that "all of the
substantive issues have been resolved".
Canadian opposition leader Thomas Mulcair, citing this
Reuters report, asked Harper on Monday in the House of Commons
why he announced the trade deal before it was ready. Mulcair
accused the prime minister of trying to distract the public from
a Senate spending scandal with the announcement.
Harper brushed off the criticism, saying "technical
negotiations will be completed very soon."
Harper and Barroso will hold a bilateral meeting on the
margins of the Group of Seven summit in Brussels this Wednesday
and Thursday, confirming their intention to seal the pact.
Behind closed doors in Brussels and Ottawa, trade
delegations, diplomats and business groups complain of long
delays and difficult issues that have yet to be resolved.
"With hindsight, it was premature for Harper and Barroso to
announce a deal," said one person close to the talks. "There is
a sense of embarrassment in many quarters."
Talks were launched in May 2009 but stalled last year over
issues such as the size of quotas for Canadian beef and EU
cheese. At their lunch in October, where chefs cheekily served
Italian gorgonzola and Greek feta, Harper and Barroso said the
big issues were resolved.
But both sides are still negotiating the divisive issue of
how foreign companies bring claims against either Canada or a
European Union country if a government breaches a trade treaty.
The Europeans want more protection for their pharmaceutical
patents in Canada, a market known for generic medicines. Ottawa
does not want to allow European pharmaceutical companies to
easily challenge Canadian rules once a trade deal is in place.
"The EU will never accept this," said one diplomat.
Canada's position is a response to Eli Lilly's $500
million lawsuit against the Canadian government last year on the
grounds it unfairly ended patents on two best-selling drugs. Eli
Lilly brought its lawsuit under the terms of another trade deal:
the North American Free Trade Agreement (NAFTA).
Other difficult areas include how to regulate financial
instruments and how beef and cheese quotas are managed, showing
the sheer scope of this new type of free-trade agreement.
"The deals with Canada and the U.S. go well beyond what
trade negotiators alone can deliver. There are so many
government agencies and sectors at the table," said Andre Sapir,
a trade specialist at the Brussels-based think tank Bruegel.
(Writing by Robin Emmott; Additional reporting by Louise Egan
in Ottawa; Editing by Ralph Boulton and Andrew Hay)