(Bloomberg) Britain’s brinkmanship on proposing a dispute-resolution system to fill the void left by the Luxembourg-based European Court of Justice risks becoming a Brexit deal-breaker, a London think tank warned.

"Disagreements over dispute resolution have the potential to derail negotiations" and the UK and the European Commission "are still a long way apart," the Institute for Government said in a report published on Friday.

"If negotiators discover at the eleventh hour they have irreconcilable differences, with each other, with the ECJ or with the parliamentarians responsible for ratification, prospects for a timely deal will evaporate," according to the report. "The government can mitigate that risk by starting an informed debate now."

The future role of the EU’s top court in a post-Brexit UK has been one of the main stumbling blocks for the Brexit talks after UK Prime Minister Theresa May promised to free her nation from the Luxembourg-based court’s power. While the British position has since softened, it’s not come anywhere near to satisfying the EU’s demands.

EFTA model

The UK only really has two ways to break the stalemate over the future role of the bloc’s top court in Kirchberg, post-Brexit: sign up to a European Free Trade Association-type court model, or come up with an "inventive, untested" new structure, the London-based think tank said in Friday’s report.

Whatever model is put forward, the UK must strike a balance between caving in to the EU’s demands and totally isolating the nation from the European Court of Justice, which could wreck the chances of any deal, the research group said.

"The deeper the government wants the future partnership deal with the EU to be, the more it needs an effective dispute prevention and resolution mechanism," Jill Rutter, Brexit programme director at the think tank, said in the report. "But this could be perceived as limiting the extent to which we have taken back control of laws."

The report comes just days after EU officials dashed any hopes May might have had that European leaders gathering at a summit later this month in Brussels would give her approval to start negotiating the two sides’ future relationship. For the EU, the UK still hasn’t clarified sufficiently enough how it plans to protect EU citizens’ rights in the UK and what role the bloc’s top court will play.

Chief negotiator

"We need a consistent interpretation of the agreement on both sides of the Channel, that only the European Court of Justice can guarantee," the EU’s chief Brexit negotiator, Michel Barnier, said October 3. "We need to have a direct application of the withdrawal agreement."

The EU Court of Justice in the Kirchberg district of Luxembourg City, has the final say over disputes concerning the 28 EU nations, and the EFTA court has the last word on any challenges concerning Norway, Iceland and Liechtenstein. This includes referrals from national courts in those member nations, or direct actions against those governments accused of violating European rules.

With the UK’s departure from the EU now 18 months away, officials have yet to come to an agreement even on the priority separation issues, let alone what a post-Brexit future will look like. While Prime Minister May’s speech in Italy last month started to break through the deadlock, EU officials say they are still in the dark about many details on where the UK might be willing to compromise.

Negotiations between UK and EU officials resume in Brussels next week before a summit on Oct. 19-20. If EU government leaders refuse to endorse the start of discussions on a future relationship and a transitional arrangement, the UK may have to wait until the next summit in December. The UK will leave the EU in March 2019 with or without a deal.