The EU’s chief negotiator Michel Barnier has warned that it is impossible for the UK to have “frictionless trade” with Europe from outside of the single market.
Mr Barnier said that the full implications of leaving the EU appeared not to have been “fully understood” by British politicians.
Theresa May, Brexit Secretary David Davis and Chancellor Philip Hammond have all said they want to leave the single market while still having a customs arrangement that achieves “frictionless” borders.
The intervention from Mr Barnier will prove particularly difficult for Mr Davis, who is tomorrow hosting business leaders at an event to allay their fears that EU withdrawal will damage their ability to trade into Europe.
At a speech at the European Economic and Social Committee in Brussels, Mr Barnier said that after Brexit the UK will become “a third country” and that businesses should prepare for the uncertainty.
He said: “I have heard some people in the UK argue that one can leave the single market and keep all of its benefits – that is not possible.
“I have heard some people in the UK argue that one can leave the single market and build a customs union to achieve ‘frictionless trade’ – that is not possible.”
He said that Ms May’s negotiating position, including abolishing free movement, striking free trade deals and scrapping any role for the European Court of Justice (ECJ), implied the UK is leaving both the single market and the customs union.
He then set out the EU’s three “red lines” – that free movement of persons, goods, services and capital are indivisible, that there can be no “sector by sector” participation in the single market, as desired by the UK, and that the EU must have autonomy to set its own rules, a reference to the ECJ.
He added: “These three points were already made clear by the European Council.
“But I am not sure whether they have been fully understood across the Channel.”
Mr Barnier said that the decision to leave the EU would have consequences that had to be explained to citizens, businesses and civil society on both sides of the Channel.
He went on: “Let me be clear, these consequences are the direct result of the choices made by the UK, not by the EU. There is no punishment for Brexit. And of course no spirit of revenge. Brexit has a cost, also for business in the EU27.
“Business should assess, with lucidity, the negative consequences of the UK’s choice on trade and investment. And prepare to manage them.”
A Downing Street spokesman said the UK’s position was that it would secure “the most frictionless possible trade” between the UK and the EU, adding that London’s position is clear when asked if Ms May understood the EU’s stance.
Earlier this month the Chancellor gave a speech in which he tried to realign the Government’s approach to Brexit, to one more focussed on jobs and the economy.
Mr Hammond explained that a comprehensive free trade agreement with the EU was the key to achieving a “Brexit for Britain” and that it would require frictionless borders, where goods can flow freely.
He said: “We’ll almost certainly need an implementation period, outside the customs union itself, but with current customs border arrangements remaining in place, until new long-term arrangements are up and running.”
Brexit Secretary Mr Davis has suggested Britain will walk away from negotiations if the EU refuses to offer “free and frictionless trade”.
On Friday he will meet business leaders at Chevening, amid concern that future trading arrangements will not protect current cross-border business interests.
In her Lancaster House speech in January Theresa May said: “I want Britain to be able to negotiate its own trade agreements.
“But I also want tariff-free trade with Europe and cross-border trade there to be as frictionless as possible.”
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