By Gabriela Baczynska and Marine Strauss
BRUSSELS (Reuters) - The head of the European Union's executive on Wednesday reported "genuine progress" in Brexit talks but said the risk of Britain leaving the EU without a new trade deal on Dec. 31 remained, an outcome she said the bloc was prepared for.
Britain and the EU are in a last-ditch effort to agree terms to keep trade flowing without tariffs or quotas from the start of 2021, after London's current standstill transition out of the 27-nation bloc ends.
"The next days are going to be decisive," said European Commission president Ursula von der Leyen. "The European Union is well prepared for a no-deal-scenario, but of course we prefer to have an agreement."
"With very little time ahead of us, we will do all in our power to reach an agreement. We are ready to be creative. But we are not ready to put into question the integrity of our single market," she said in a speech to the European Parliament.
Negotiators have agreed the outline of a new partnership treaty on goods and services, as well as on transport, she said, adding that "genuine progress" had been made on issues from judicial cooperation to coordinating welfare benefits.
An EU official involved in the negotiations said a deal was possible, but not likely before the weekend at the earliest.
The three main obstacles to a deal are sharing out fishing quotas and agreeing access to waters; finding ways to settle future disputes; and ensuring economic fair play for companies, including on state aid.
"We need to establish robust mechanisms, ensuring that competition is – and remains – free and fair over time. In the discussions about state aid, we still have serious issues, for instance when it comes to enforcement," said von der Leyen.
The German conservative said the EU needed to be able to retaliate on trade if Britain undercuts labour or environmental standards, and wanted long-term predictability for its fishing industry, which faces a reduced catch after Brexit.
"DRAMATICALLY DIFFERENT"
British Prime Minister Boris Johnson told parliament on Wednesday the EU should accept "the reality that we must be able to control access to our waters" to make progress in the talks on fisheries.
Johnson has repeatedly said he wants a deal with the EU, but only if it respects British sovereignty so he can say he has honoured his election pledge to "take back control".
The prime minister again ruled out seeking any extension of Brexit negotiations beyond Dec. 31.
Officials say the two sides are still far apart on the main issues, with both wanting the other to compromise first.
EU states have pushed the Commission - which is negotiating with Britain on behalf of the bloc - to update contingency plans for a no-deal outcome, though the executive has so far held off.
The official involved in the talks said the plans would only be updated next week if a deal has still not been reached, adding that EU and UK ideas for solutions on the three main contentious issues - which include putting transition periods and review clauses in the deal - were "dramatically different".
While the EU wants to lock in joint production standards for the future, as well as ensuring a long-term perspective for its fishing industry, the official said, Britain wants to be able to drop any such commitments after several years.