By William James, John Chalmers and Kate Abnett
LONDON/BRUSSELS (Reuters) - The European Union stepped up planning for a "no-deal" Brexit on Friday after Prime Minister Boris Johnson's government refused to revoke a plan to break the divorce treaty that Brussels says will sink four years of talks.
Britain said explicitly this week that it plans to break international law by breaching parts of the Withdrawal Agreement treaty that it signed in January, when it formally left the bloc.
Britain says the move is aimed at clarifying ambiguities, but it caused a new crisis in talks less than four months before a post-Brexit transition period ends in December.
European Parliament lawmakers said on Friday they will not approve any new EU-UK trade deal unless Britain fully implements its earlier divorce deal. The chamber must approve any such trade deal for it to be enacted.
If the UK authorities breach the divorce deal, or threaten to do so, then "the European Parliament will, under no circumstances, ratify any agreement between the EU and the UK," the parliament's Brexit group and the heads of the parliamentary political groups said in a statement.
Investment banks have increased their estimates of the chances of a messy end to Britain's exit from the EU. Sterling dipped to 5-1/2-month lows on Friday.
A deputy head of the bloc's executive, Maros Sefcovic, said on Friday that "it is now up to the UK government to re-establish trust". Sefcovic spoke after informing EU lawmakers of his unsuccessful talks the previous day in London where he demanded that Britain scrap by the end of this month the plan to breach the divorce treaty.
Britain has refused, saying its parliament is sovereign above international law.
"As the United Kingdom looks to what kind of future trade relationship it wants with the European Union, a prerequisite for that is honouring agreements that are already in place," said Pascal Donohoe, chairman of euro zone finance ministers.
As the atmosphere soured between London and Brussels, Japan and Britain said they had reached agreement in principle on a bilateral trade deal that meant 99% of the Britain's exports to Japan would be tariff-free.
NO DEAL
EU chief negotiator Michel Barnier said on Thursday the bloc was increasing its planning for a no-deal Brexit at the end of this year after trade talks made little progress.
"The UK has not engaged in a reciprocal way on fundamental EU principles and interests," Barnier said. "Nobody should underestimate the practical, economic and social consequences of a 'no-deal' scenario."
Britain rejected Barnier's view.
"We don't recognise the suggestion that we've not engaged, we've been engaged in talks pretty consistently for many months now," a British source said.
"The problem is the EU seems to define engagement as accepting large elements of their position rather than being engaged in discussions."
The government said parliament would debate the contentious Internal Market Bill on Monday.
The bill will face opposition in both houses of parliament as many senior British politicians have expressed shock that London is explicitly planning to breach international law.
"I don't think this will get through the Lords, in its present form," said Norman Lamont, a Brexit supporting member of the House of Lords, the upper chamber.
"It is impossible to defend. They'll have to think again."