British exports could still face EU tariffs even if there is a free trade agreement with Brussels after David Frost appeared to admit defeat in securing a key demand of the UK car industry.
The UK's chief negotiator told carmakers the EU had rejected "in any circumstances" a proposal that would allow assembled car parts from non-EU countries to count as "British" and so qualify for zero tariffs.
In a letter to the car industry, seen by the BBC, Mr Frost said the EU had refused to engage with the idea and the UK "obviously cannot insist upon it".
Industry sources countered that Mr Frost has forcefully argued on the UK fishing industry's behalf in the trade talks, which continue this week in Brussels.
About 55 per cent of the UK's 1.06 million car exports went to the EU last year. Under the expected terms of the deal, British manufacturers will need to prove that UK-exported goods meet a threshold of British parts.
EU parts could count as British towards the threshold, expected to be about 50 percent, but moves to extend that to countries such as Japan and Turkey have been rejected by Brussels. British moves to secure an exemption for electric cars and bikes have also been stonewalled by the EU, the BBC reported.
In June, Michel Barnier, the EU's chief negotiator (seen giving an update that month in the video below), said that giving in to British demands on "rules of origin" and "cumulation" would cost European jobs.
"Why make it easy for UK manufacturers to source nearly all their parts from elsewhere?," he said, claiming that 80 percent of UK car part imports came from the EU.
British chemical manufacturers will need to send ammonium nitrate to EU labs for detonation safety testing after the end of the Brexit transition period, the European Commission separately warned on Wednesday.
The EU has so far rejected British demands in the trade talks for mutual recognition of UK testing labs. Mutual recognition means the labs could carry out testing for EU standards from January 1 and spare UK exporters the costs and time of using EU labs.
The current round of trade negotiations is the last scheduled, and ends on Friday morning. It is hoped compromises can be found to kickstart more intense negotiations, finalise the trade deal by the EU summit on October 15 and leave time to ratify the agreement before the transition period ends on December 31.
Ireland's foreign minister, Simon Coveney, said on Monday night that there was a "good chance" of agreeing a trade deal before the EU's end of October deadline, despite the divisions over fishing, governance and the "level playing field" guarantees.
"The obstacles are not insurmountable," he said before claiming a deal would mean the row over the UK's Internal Market Bill, which overrides parts of the Withdrawal Agreement, would "fade away".
EU sources said a British offer this week over state subsidies, one of the major sticking points in the negotiations, did not go far enough on enforcement of the rules. The EU wants the power to suspend parts of the trade deal if state aid rules are ignored by Britain.