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Oil Sands Muddy New EU Trade Pact With Canada

Dan Bannister | Image Source | Getty Images

The European Union and Canada are near signing an historic $28 billion free trade agreement but a row over the labeling of Canadian oil as "dirty" in Europe could still threaten the trade agreement.

Joe Oliver, Canada's minister of natural resources, told CNBC that deal was "imminent" but that a "discriminatory, non-scientific approach by Europe" to counting greenhouse emissions would harm Europe's economy and refinery industry.

Negotiations between the EU and Canada over extending and improving upon an existing trade agreement began in 2009 but have met with stumbling blocks along the way including, most recently,an argument over the labeling of fuel in Europe.

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The value of bilateral trade in goods between the EU and Canada was 60.2 billion euros ($90 billion) in 2011 with Canada the EU's eleventh most important trading partner, accounting for 1.8 percent of the EU's total external trade. In the same year the EU was Canada's second most important trading partner, after the U.S., with around 12 percent of Canada's total external trade, data from the European Commission showed.

During a week-long lobbying trip to Europe, Oliver accused the EU of breaking international trade rules and discriminating against Canadian exports.

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Oliver did not exclude the possibility of taking the matter to the World Trade Organization (WTO) if the EU went ahead with labeling crude from Canada's oil sands as dirty oil that contributes disproportionately to global warming.

"If this arbitrary proposal is not changes, we will have to look at all our alternatives, of which the WTO is one," he told CNBC Europe's "Squawk Box." "If we need to we will definitely consider it."

Oliver was confident that the issue would not derail the trade agreement.

"The [Fuel Quality Directive and the free trade deal] are entirely separate issues. The Europeans and Canada both want to keep these issues separate that's always been the position.The future trade deal - which I hope is imminent – will be very good for Europe and very good for Canada," he said.

EU leaders are well aware of the need for the region to re-assess its energy needs. At an EU summit later in May, EU heads of state are expected to discuss how to lower Europe's burgeoning energy costs and boost the region's competitiveness, according to a draft document detailing the summit agenda reported by Reuters this week.

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"The issue of competiveness for Europe has become increasingly important," Oliver said. "This[fuel directive] could potentially cut off a source of energy for Europe- it'snot in our interest but it's certainly not in [the Europeans] interest because it has a long-term need for diversified supply… If they don't want our oil we'll find other places."

-By CNBC's Holly Ellyatt, follow her on Twitter @HollyEllyatt

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