In a heated exchange, senior Tory MP Jacob Rees-Mogg told the EU Exit Secretary that the UK should cut ties with the bloc on leaving rather than accept up to two more years of Brussels regulations and interference by EU judges.
The backbencher also feared the country was in danger of becoming a “vassal state” by the EU.
The clash between the two leading Tory Euro-sceptics over flared at a hearing of the Commons EU Exit Committee.
It came as Mr Davis is preparing to begin negotiations over details of the transition with chief EU negotiator Michel Barnier next month.
Aren’t we just still acting as if we are in the European Union?
Ministers insist that up to two more years of close links with Brussels, described as an “implementation period” by the Government”, are needed for businesses to adjust following the formal departure from the bloc scheduled for March 29 next year.
But Mr Rees-Mogg claimed the arrangement would effectively prolong Britain’s EU membership by leaving the country within the jurisdiction of the EU Court of Justice and signed up to Brussels rules and regulations.
The Tory MP told Mr Davis: “Be honest about it, that we are de facto staying in for another two years.
“Who is going to punish us if we get on with it now?
Jacob Rees-Mogg has given David Davis a Brexit warning
“Aren’t we just still acting as if we are in the European Union? We’re bound by the European Union; we are lackeys of the European Union.
“Can’t we be a bit bolder and implement the referendum result?”
Mr Rees-Mogg, who is chairman of the European Reform Group of Euro-sceptic Tory backbenchers, also claimed Britain could become a “vassal state” subject to rules from Brussels without any say.
He added: “We’re leaving. We don’t need to behave as if we are a permanent member.”
Mr Davis insisted Britain was “a law-abiding country” that would not walk away from existing international commitments.
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Laughing off the claims, the Tory Cabinet minister said:
“Mr Rees-Mogg, I’m surprised at you. You of all people suggesting we go and break the law.
“We are not going to break those undertakings, laws commitments – call it what you like.”
Mr Davis insisted he was “happy to accept” Court of Justice oversight and continuing regulations for a limited period following Brexit.
After 2021 the country will be “free of all these fetters”, he told the committee.
Mr Davis insisted he was “happy to accept” Court of Justice oversight
Britain would only be a “vassal state” if it remained tied into the implementation period arrangements “in perpetuity” rather than for “a short time”.
During their exchange, Mr Rees-Mogg claimed there had be a “big shift” in Government policy on the transitional arrangements since Theresa May first set out the proposal in a speech in Florence last year.
“Transition is different because transition means we are de facto inside the European Union for that period and we are only actually out at the end of the transition,” he said.
“That is a big shift in Government policy and a big move away from the vote in June 2016.”
Mr Davis rejected the allegation, saying: “We are going to see an implementation period as described pretty much in the Prime Minister’s Florence speech.
“We will do so in a way which will leave us in 2021 free of all these fetters. No vassal state us.”
Mr Davis also predicted that “substantive negotiations” about Britain’s future relationship with the EU will be concluded by the departure date next March.
“It would be unwise to get sucked into a negotiation during the transition period itself which is substantive, major,” he said.
“Why? Because the balance of power in the negotiation alters. The aim then on the part of the commission would be to spin out the negotiation.”
The EU Exit Secretary rejected claims that the implementation period was effectively a “deferral” of the departure.
“Firstly we will not be members of the union, we will be replicating to a very large extent the operations of the single market and customs union in order to make sure there is a single change, from the point of view of businesses in particular,” he said.
Guy Verhofstadt last night waded into the row over transitional arrangements
“We will not be subject to the duty of sincere co-operation, which is what stops us arriving at trade deals now, negotiating and signing trade deals now, so that freedom will exist.”
He added: “There may be an argument over the issue of doing outside negotiations, there may well be an argument over that.”
Mr Davis was “relaxed” about the transition – which he accepted could last up to 27 months – because his primary focus was on a deal covering Britain’s future relationship with Brussels.
“That is what matters, that is what people will think about and judge us on in 10, 20, 30 years’ time,” he told MPs on the Exiting the EU select committee.
Guy Verhofstadt, the European Parliament’s chief Brexit co-ordinater, last night waded into the row over transitional arrangements by claiming the UK would end up with “membership without representation” during the period.
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Speaking at a European Parliament committee hearing, he said: “It’s the membership without representation that is mainly the transition.
“All policy stays intact, all legislation continues to apply, the oversight of the European Court of Justice continues but there will be no representation of the UK in the political bodies steering the European Union during this transition period.”
A Downing Street spokesman last night insisted the proposed implementation period was “a bridge” towards post-Brexit trading arrangements.
The spokesman said: “It is important that we don’t have a cliff edge. It is something that is vital for business and important to the UK.”