“Single market-light and customs union-light do not exist and cannot exist,” a senior EU official warned on Wednesday after the European Council published its draft negotiating guidelines for relations with Britain after Brexit.
The guidelines, which are subject to negotiation, will form the basis for the instructions for Michel Barnier, the bloc’s chief Brexit negotiator, in trade talks with the UK once they are approved by EU-27 leaders at a March summit.
The senior EU official hailed the guidelines, which are six pages long, as representing a call for an "ambitious" free trade agreement at the bedrock of the new relationship - but one that would have "negative economic consequences" and fall far short of Theresa May's demands.
“This document is six pages,” one official noted, before pointing out the final EU-Canada trade deal ran to 1,598 pages.
So: what do the guidelines say about the future negotiations with Britain?
The Backsliding clause
“The European Council recalls that negotiations can only progress as long as all commitments undertaken so far are respected in full”, the guidelines state.
This “backsliding clause” threatens to stall negotiations on the free trade agreement, if Britain looks to be reneging on the commitments it made in December over the Brexit bill, citizens’ right and the Irish border. Once again, the EU warns that “nothing is agreed until everything is agreed”.
The evolution or 'Corbyn' clause
The document calls for a partnership based on a free trade agreement but also taking in cooperation in areas including counter-terrorism, international crime, security, defence and foreign policy.
The guidelines stress that the EU wants to have as close a relationship “as possible” but the depth of the partnership is limited by Mrs May’s Brexit red lines. These limits cut across all the areas of cooperation, including trade.
“Being outside the customs union and single market will inevitable lead to frictions,” the guidelines state.
Inside the EU, Britain had common rules, enforcement and tariffs with the rest of the bloc, removing the need for customs checks, but Brexit will change that.
“This unfortunately will have negative economic consequences,” the guidelines read.
But the council has left the door open for Britain to change its mind about leaving the single market and customs union.
The current approach “reflects the rights and obligations compatible with the positions stated by the UK. If these positions were to evolve, the Union will be prepared to reconsider its offer.”
A senior EU official called this the “evolution clause” inserted in case Britain realised what it was sacrificing for Brexit, but it has also been dubbed the “Corbyn clause” because the Labour leader has called for the UK to remain in a customs union.
In a direct rebuke to Mrs May’s Mansion House speech, the guidelines insist that a country is either in or out of the single market and cannot participate in it on a sector-by-sector basis.
“There can be no cherry-picking,” the document reads before saying that an approach like Mrs May’s would under the single market.
The document then repeats many of the EU’s red lines, including insisting on the role of the European Court of Justice and that Britain will lose membership of EU institutions and agencies.
The Free Trade Agreement: Goods and fishing
The EU is at pains to stress that no free trade agreement (FTA) can be as beneficial as membership of the bloc and “cannot amount to participation in the single market”.
The difference boils down to the ability to set your own rules. In FTAs, both sides retain “regulatory autonomy” but in the single market, all member adhere to a common set of rules written and enforced by common institutions.
It is only by having those common rules that trade can be frictionless, according to EU officials, who conceded that Mrs May’s Mansion Speech had recognised that to a degree.
A FTA can reduce tariffs and restrictions on the amount of goods imported and exported but still requires customs checks to ensure that a product qualifies as coming from the partner country, rather than another third nation.
By calling for appropriate rules of origin, the EU-27 is looking to find a way of defining a product as British and so be exempt from any tariff.
“We want to be practical but are under no illusion there can be frictionless trade. There will be checks. This is inevitable,” a senior EU official said.
However, the official said that the FTA on offer for Britain was ambitious because it proposed zero tariffs on goods and no restrictions on the quantities that could be traded.
“It may be less than what we get the impression Theresa May may be aiming for, but this is not just nothing. This is quite an ambitious FTA. It cannot be single market light or customs union light as we don’t think it exists or can exist. But it is ambitious,” one senior official insisted.
But the guidelines for trade in goods also call for the “existing reciprocal access” to fishing waters and resources to be maintained, which has already enraged the Scottish Fishermen’s Association.
“We aim for this agreement to cover all goods and also fisheries products” the official said, “and mutual access on fishing waters is a political reality.”
The FTA: Financial Services
Purposefully, the guidelines make no mention of financial services specifically, but they do call for a deal on a trade in services.
However, this agreement will fall far short of participation in the single market and will be circumscribed by the EU’s rules for non-member countries.
Market access rules will be governed in a way “consistent with the fact” the UK will no longer share a common regulatory, supervisory, enforcement and judiciary framework, which rules out the continuation of the City of London’s passporting rights.
The senior EU official admitted that at a later stage access could be governed on the basis of “equivalence”, where the two sides recognise the goals of each other’s regulation as of similar standard to facilitate market access.
However, the European Commission can withdraw equivalence at just 30 days notice, which would hand it leverage over how Britain writes its financial regulation in the future.
The Level Playing Field
Britain must not be allowed to undercut EU standards to gain an “unfair competitive advantage”, the guidelines state.
Slashing regulation on tax, state aid, environmental and competition rules could see Britain poaching investment from the bloc.
Brussels is taking this particularly seriously because of how close Britain is to Europe and how closely interlinked the Uk and EU economies are.
Calls for Britain to become Europe’s Singapore after Brexit also ruffled Brussels’ feathers, leading Mrs May and David Davis to try and reassure the EU in their recent speeches.
The European Court of Justice
The guidelines insist on the continued supremacy of the European Court of Justice when it comes to questions of EU law.
This means past rulings by EU judges must be considered in any dispute settlement once the news relationship is up and running.
Effectively this will mean the ECJ and its decisions will continue to have some indirect influence in Britain by being a reference point on any arguments that break out in the new partnership.
The guidelines demand that British rules on data protection after Brexit should bestow “a level of protection essentially equivalent” to that of the EU.
EU27 wants UK as close friend & partner and will enter talks on future with open, positive mind. But given UK red lines only an FTA is possible. It will be the first FTA in history to loosen, not strengthen economic ties. Drifting apart is essence of #Brexit.
— Donald Tusk (@eucopresident) March 7, 2018
Without that, data flows between the UK and the EU will be jeopardised. Data flows are not only important economically but also play into information exchange in areas such as cooperation on crime and terrorism.
The guidelines call for a new agreement to replace EU rules granting Britain, as a member state, landing rights on continental airports.
EU airlines can land in any EU airport because their safety standards are judged to be high enough but there is no equivalent, older set of rules for Britain to fall back on after Brexit.
This will not replace the single market for aviation but be a brand new deal, officials warned.
Research and innovation
The guidelines allow for Britain to participate in some programmes for research, innovation, education and culture but the UK membership will be based on rules existing for other non-EU countries and financial contributions will be expected.
Crime and foreign policy
The document insists there “should be no gap” in UK-EU cooperation in defence, security and foreign policy because of Brexit.
It calls for “cooperation mechanisms”, dialogue and exchange of information, which would need a “Security of Information Agreement”.
Police and judicial cooperation on international crime and terrorism should also be important given the “shared threats” faced by Britain and the bloc.
While for example there will be the loss of unfettered, automatic access to the Europol database, the document calls for cooperation to continue post-Brexit on information exchange, operational and judicial cooperation.
It calls for “strong safeguards” to ensure EU rules on “fundamental rights” are observed.