By Philip Blenkinsop
BRUSSELS (Reuters) - Canada's trade minister walked out of talks in Belgium on Friday, declaring that the European Union was incapable of sealing a planned transatlantic free trade deal designed to boost growth in both economies.
All 28 EU governments support the Comprehensive Economic and Trade Agreement (CETA), but Belgium cannot give assent without backing from its five sub-federal administrations, and French-speaking Wallonia has steadfastly opposed it.
The agreement, the EU's first with a G7 country, would according to supporters increase trade between the partners by 20 percent, boosting the EU economy by 12 billion euros ($13 billion) per year and Canada's by C$12 billion ($9 billion).
A visibly shaken Chrystia Freeland, Canada's trade minister, emerged after a full day of talks with chief Canadian and EU trade negotiators and Walloon Premier Paul Magnette.
"Canada has worked, and I personally have worked, very hard. But it is now evident to me, evident to Canada, that the European Union is incapable of reaching an agreement – even with a country with European values such as Canada," she said.
"Canada is disappointed and I personally am disappointed, but I think it's impossible," she continued, adding she was heading home.
A source in the EU's executive European Commission said it had not yet given up hope of reaching a deal. Separately, EU trade commissioner Cecelia Malmstrom said in a tweet she was sad talks had halted, but still hoped to find a solution.
Wallonia is home to about 3.5 million people, less than 1 percent of the 507 million Europeans CETA would affect, but the EU's flagship trade project rests on the will of its government.
It continued to have concerns about the threat of surging pork and beef imports from Canada and an independent court system to settle disputes between states and foreign investors, which critics say may be used by multinationals to dictate public policy.
Many EU leaders also suspect the local government in Namur of using its devolved powers to play domestic politics.
CETA was in theory due to be signed at an EU-Canada summit next Thursday in the presence of Canadian Prime Minister Justin Trudeau.
"We feel we've done everything we can do. The ball is in their court," Freeland's deputy, David Lametti, told reporters in Ottawa. Asked whether Canada had any more room to be flexible, he replied: "It's fair to say we would continue to negotiate in good faith."
A source familiar with the matter said Trudeau had set a deadline of Monday to decide whether to fly to Brussels. A spokesman did not immediately respond to a request for comment.
IMPACT FOR BREXIT?
Failure to strike a deal with such a like-minded country as Canada would call into question the EU's ability to forge other deals and undermine a bloc already battered by Britain's vote to leave and disputes over Europe's migration crisis.
The walkout came as leaders concluded a two-day EU summit in Brussels with trade policy the main topic set for Friday. European Council President Donald Tusk, chairing the summit, said that Europe's credibility was at stake.
The issue is greater than just a trade deal with Canada, the EU's 12th-largest trading partner.
If CETA fails, the EU's hopes of completing similar deals with the United States or Japan and opening up new talks with partners such as Australia and New Zealand would be in tatters.
Britain, which plans to form a new trading relationship with the EU 27 after it has exited the bloc, may be watching with concern.
"If there are all these disagreements to have a simple trade agreement with Canada, just imagine an agreement with the United Kingdom," said Maltese Prime Minister Joseph Muscat.
Geert Bourgeois, premier of Belgium's Dutch-speaking region of Flanders, called the deadlock over CETA a disgrace.
"It beggars belief... It is a disgrace for Europe. If there is one task Europe has, it is to conclude trade deals. We are way too small to do this on our own," he told Reuters.
Walloon's lawmakers share concerns voiced by many on the European left that CETA, and a stalled plan for a similar deal with the United States, risk watering down consumer, labour and environmental protections and granting power to multinationals.
($1 = 0.9200 euros)
($1 = 1.3330 Canadian dollars)
(Additional reporting by Alissa De Carbonnel and Alastair Macdonald and Robert-Jan Bartunek in Brussels, David Ljunggren in Ottawa; Editing by John Stonestreet and Dan Grebler)