British Prime Minister Boris Johnson and the head of the European Commission plan to meet in person to see whether a last-minute trade deal can be reached, officials said Monday.
Johnson and European Commission President Ursula von der Leyen said after a lengthy phone call that "significant differences" remained on three key issues.
They said they were planning to discuss the differences "in a physical meeting in Brussels in the coming days."
The two leaders spoke for the second time in 48 hours as their trade teams remained locked in stalled negotiations in Brussels.
Gaps remain on fishing rights, fair-competition rules and the governance of future disputes, with three weeks until the two sides' current economic relationship unravels at the end of the year.
Any breakthrough would now have to come from the leaders themselves.
Despite intensified efforts, the joint statement said, "We agreed that the conditions for finalizing an agreement are not there due to the remaining significant differences on three critical issues: level playing field, governance and fisheries."
While the U.K. left the EU politically January 31, it remains within the bloc's tariff-free single market and customs union through December 31. Reaching a trade deal by then would ensure there are no tariffs and trade quotas on goods exported or imported by the two sides, although there would still be new costs and red tape.
Early Monday, EU chief negotiator Michel Barnier had no news of a breakthrough when be briefed ambassadors of the 27 member states on the chances of a deal with London before the Dec. 31 deadline.
One official from an EU nation said "the difficulties persist" over the legal oversight of any trade deal and standards of fair play that the U.K. needs to meet to be able to export in the EU. A lot of work also remains on fisheries, said the official, who spoke on condition of anonymity because the talks were ongoing.
Penny Mordaunt, a junior minister for Brexit planning, told lawmakers in the House of Commons that the "level playing field" — competition rules that Britain must agree on to gain access to the EU market — was the most difficult unresolved issue.
Britain's pound currency fell more than 1% against the dollar to less than $1.33 amid the uncertainty.
Johnson's spokesman, Jamie Davies, declined to offer odds on a deal being struck.
"I'm not going to put a percentage on it," he said. "We are prepared to negotiate for as long as we have time available if we think an agreement is still possible."
At his early morning meeting with EU ambassadors, Barnier faced some anxious member states that feared too much might have been yielded already to London. If talks continue after Monday, they will be closing in on a two-day EU summit starting Thursday, where German Chancellor Angela Merkel and French President Emmanuel Macron will be major players.
Germany wants a deal partly because its massive car industry has always found a welcome export market in Britain. France — seen by Britain as the "bad cop" in trade negotiations — has taken the lead in demanding that U.K. companies closely align themselves with EU rules and environmental and social standards if they still want to export to the lucrative market of 450 million people.
The politically charged issue of fisheries also continues to play an outsized role. The EU has demanded widespread access to U.K. fishing grounds that historically have been open to foreign trawlers. Britain insists it must control its own waters, doling out quotas annually.
In a further complication, Johnson's government plans Monday to revive legislation that breaches the legally binding Brexit withdrawal agreement it struck with the EU last year.
The U.K. government acknowledges that the Internal Market Bill breaks international law, and the legislation has been condemned by the EU, U.S. President-elect Joe Biden and scores of British lawmakers, including many from Johnson's Conservative Party.
Britain says the bill, which gives the government power to override parts of the withdrawal agreement relating to trade with Northern Ireland, is needed as an "insurance policy" to protect the flow of goods within the U.K. in the event of a no-deal Brexit. The EU sees it as an act of bad faith that could imperil Northern Ireland's peace settlement.
On Wednesday the U.K. plans to introduce a Taxation Bill that contains more measures along the same lines and would further irritate the EU.
But the British government offered the bloc an olive branch on the issue, saying it would remove the lawbreaking clauses if a joint U.K.-EU committee on Northern Ireland found solutions in the coming days. It said talks in the committee, which continued Monday, had been constructive.
