The warning came amid continued deadlock in talks in Brussels between the EU chief negotiator and his British counterpart David Frost, with a UK source saying no “significant progress” had been made since Boris Johnson and European Commission president Ursula von der Leyen vowed on Sunday to “go the extra mile” for agreement.
The UK source denied claims from EU diplomats that London had “backtracked” on access to fishing waters, one of the handful of key issues on which the long-running talks have foundered.
“Talks remain difficult, and we have not made significant progress in recent days, despite efforts by the UK to bring energy and ideas to the process,” said the source.
“Like any sovereign country, we must have the right to take our own decisions, and choose regulations that suit the UK – we cannot sign up to dynamic alignment through the back door. The UK cannot be locked into the EU regulatory orbit.”
With just 17 days to go until the UK completes its transition to Brexit, Mr Barnier said he would act with “patience, calm and respect until the very end”.
“The very end will be when we reach an agreement, both on fair and free competition and, secondly, on the reciprocal access to waters and markets,” he told reporters as he emerged from talks on Monday evening.
Earlier, the EU negotiator warned an agreement could come too late to be ratified before Britain leaves the single market and customs union at 11pm on 31 December, potentially meaning a short period of no deal – with tariffs imposed on imports and exports – while any accord is applied.
Under this scenario, contingency measures would have to be applied while the legal text was “scrubbed” to make it ready for provisional applications.
But there would still be acute chaos at channel ports, economic damage and tariffs due on goods from 1 January under World Trade Organisation rules, with a further change in circumstances when the deal was introduced.
Provisional application of a text requires translation into 23 languages, an agreed legal basis, and decisions by the European Council – which all take time.
While the EU and UK have both made preparations to apply a trade deal on a “provisional” basis, it is understood that this process might still not be fast enough to avoid a no deal if talks go up to Christmas and beyond.
Downing Street refused to set out any new deadline for talks to end but confirmed that legislation would be required to put any deal into effect.
Amid growing speculation that MPs may be forced to sit over Christmas to vote through the new arrangements, Boris Johnson’s official spokesman said the PM was confident that he would have time “to do whatever we need to do in parliament”.
Ms von der Leyen said the European side wanted to be sure that any agreement preserved the principle of a “level playing field” over time, preventing either side from unfairly undercutting standards to gain a competitive advantage for its businesses.
“We are on the very last mile to go but it’s an essential one,” she said. “We want a level playing field, not only at the start but also over time: this is the architecture that we are building. We’re fine about the architecture itself but the details in it – do they really fit?
“These are crucial points, because, again, it’s a matter of fairness, it’s a matter of fair competition, and we want to ensure that.”
If a deal is reached close to new year, the full ratification process, involving approval by the European Council and parliament – and potentially national parliaments – might have to take place after provisional ratification early next year.
Asked whether negotiations could go beyond the end of the year, the prime minister’s official spokesman said: “We have been clear on many occasions that we want the outcome to be reached, whether that’s a free trade agreement or leaving on WTO terms, by the end of the year.”
The spokesman said a no-deal Brexit was possible.
“No deal is a potential outcome but we are still committed to trying to reach an FTA,” he added.
Mr Barnier painted a pessimistic picture of negotiations to member state ambassadors in a meeting on Monday morning, following a decision by London and Brussels not to pull the plug on discussions.
A senior EU diplomat said there had been some limited progress on issues such as how the deal could be enforced, but still mutual disagreement on state aid – and even backtracking on fisheries.
Ahead of the resumption of talks, Mr Barnier said: “It is our responsibility to give the talks every chance of success. Never before has such a comprehensive agreement – trade, energy, fisheries, transport, police and judicial cooperation etc – been negotiated so transparently and in such little time.
“The next few days are important if an EU-UK is to be in place on 1 January 2021. Fair competition, and a sustainable solution for our fishermen and women are key to reaching a deal.”
Following a briefing by Mr Barnier to member states, a senior EU diplomat told the Reuters news agency that the chief negotiator was guarded on progress, while another summarised the meeting as: “Patient still alive ... but keep the undertaker on speed dial”.
One key question under discussion is whether trade tariffs should be automatically imposed on Britain or the EU if either side breaches guarantees to maintain high standards in areas such as labour rights and environmental protections.
The EU has been insisting on a “ratchet” clause that would require both sides to progressively upgrade their rules independently or face tariffs, while the UK wants simple “non-regression” clauses that would mean its rules could not be weakened from what they are now.
Diplomats say the bloc’s stance on the issue has softened in the most recent talks, but that it is not yet clear what the “ratchet” plan could be replaced with.
Even if the so-called level playing field can be resolved, both sides also need to agree the politically fraught issue of fishing access.
Official forecasts predict no deal will swipe £40bn from the UK economy next year, putting 300,000 people out of work, with warnings of border chaos and higher food prices.
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