The EU has ruled out the UK government’s preferred approach to a future trade deal, describing it as a risk to the European project, just as Theresa May is seeking to strike an agreement on the way forward within her cabinet.



The inner cabinet is meeting at Chequers on Thursday to try to find an agreement among warring cabinet members on an approach sketched out to ministers by the prime minister’s Brexit adviser, Olly Robbins.

Under what is understood to be Mays preferred model, the UK would be in regulatory alignment with the EU in some areas while finding different ways to achieve the same outcomes in other sectors. In the so-called third basket of sectors, the UK would in time diverge from the EU and go its own way under the model.

Yet, with something close to incendiary timing, the European commission, hours abefore the cabinet get-together, has published a document ruling out the model.

Quick guide What are Brexit options now? Four scenarios Show Hide Staying in the single market and customs union The UK could sign up to all the EU’s rules and regulations, staying in the single market – which provides free movement of goods, services and people – and the customs union, in which EU members agree tariffs on external states. Freedom of movement would continue and the UK would keep paying into the Brussels pot. We would continue to have unfettered access to EU trade, but the pledge to “take back control” of laws, borders and money would not have been fulfilled. This is an unlikely outcome and one that may be possible only by reversing the Brexit decision, after a second referendum or election. The Norway model Britain could follow Norway, which is in the single market, is subject to freedom of movement rules and pays a fee to Brussels – but is outside the customs union. That combination would tie Britain to EU regulations but allow it to sign trade deals of its own. A “Norway-minus” deal is more likely. That would see the UK leave the single market and customs union and end free movement of people. But Britain would align its rules and regulations with Brussels, hoping this would allow a greater degree of market access. The UK would still be subject to EU rules. The Canada deal A comprehensive trade deal like the one handed to Canada would help British traders, as it would lower or eliminate tariffs. But there would be little on offer for the UK services industry. It is a bad outcome for financial services. Such a deal would leave Britain free to diverge from EU rules and regulations but that in turn would lead to border checks and the rise of other “non-tariff barriers” to trade. It would leave Britain free to forge new trade deals with other nations. Many in Brussels see this as a likely outcome, based on Theresa May’s direction so far. No deal Britain leaves with no trade deal, meaning that all trade is governed by World Trade Organization rules. Tariffs would be high, queues at the border long and the Irish border issue severe. In the short term, British aircraft might be unable to fly to some European destinations. The UK would quickly need to establish bilateral agreements to deal with the consequences, but the country would be free to take whatever future direction it wishes. It may need to deregulate to attract international business – a very different future and a lot of disruption.

It is claimed by Brussels that such an approach would breach an agreement among EU27 leaders to prevent cherry-picking by the UK that it is said would pose a risk to the integrity of the single market.

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The document says: “UK views on regulatory issues in the future relationship including ‘three basket approach’ are not compatible with the principles in the [European council] guidelines.”

The paper, discussed and agreed among member state diplomats, claims the model proposed by the UK would also appear to give the UK a say in EU decision-making. The paper responds that “no EU-UK co-decision” is possible and that the UK is either “in or out”.

The document adds that the approach proposed by the UK would also have to involve a central role for the European court of justice. Even if the UK weakened its stance to allow this, the paper claims, there would be a problem in enforcing the court’s decisions without the rest of EU law being applicable.

“If UK aspires to cherry-pick: risk for integrity and distortions to proper functioning of internal market, aggravated by absence of full EU ‘ecosystem’,” the document says.

The paper, produced by the commission’s Brexit taskforce, led by the EU’s chief negotiator, Michel Barnier, further emphasises the limits of what the UK can expect in a future trade deal.

There will be customs controls at the borders, although waiting times may be mitigated. There will be no mutual recognition of rules in financial services, for example, to give businesses on both sides of the channel confidence they will be able to continue to operate.

The paper warns there is “no escaping from significant impact on trading conditions”.

The intervention by the EU will only add to the pressure on May to rethink her insistence that the UK will leave both the single market and the customs union when the country leaves the EU.

Next week, Brussels will publish its draft withdrawal agreement, including legal text on the Irish border, under which the UK would in effect commit to keeping Northern Ireland in the single market and customs union, unless a future free trade deal or technological solution emerges to avoid a hard border.

Under such a scenario, a border between Northern Ireland and the rest of the UK would seem unavoidable, a scenario wholeheartedly opposed by the Democratic Unionist party, whose MPs give the Conservative government a working majority in the House of Commons.

Jeremy Corbyn, the Labour leader, has already said his party backs the UK staying in a customs union to ensure such a dangerous situation did not emerge.

He is to make a speech next week fleshing out his approach. Those comments will be watched keenly because of an amendment to the forthcoming trade bill put down by Tory rebels, committing Britain to seeking a customs union.

Labour has not yet committed to supporting the amendment, but if the party threw its weight behind it, Conservative MPs could inflict a highly damaging defeat on May that would amount to a direct challenge to the prime minister on her red lines.