The EU’s chief Brexit negotiator, Michel Barnier, ordered Britain to accept “all decisions” of the EU during a two-year transition period if it wanted a trade deal, but would have no say over any new and existing laws that are brought in.
The bloc’s official negotiating stance, published on Monday and reportedly taking two minutes to complete, states that freedom of movement must continue until the end of the transition period, which the EU wants to end on December 31, 2020.
Such a move would mean Britain will still be under the thumb of the European Court of Justice, with no powers to vote against new laws in the European Parliament.
Eurosceptics insist this would turn Britain into a “vassal state” of the EU during transition, and the Government’s negotiators will be told to reject both ideas when they begin talks on February 5.
The revelation comes as the Prime Minister faces a Commons rebellion from up to 60 Eurosceptic Tory MPs over plans to pass a law allowing Britain to join a customs union after Brexit.
Jacob Rees-Mogg, leader of the European Research Group of Brexit-supporting Conservative MPs, will tell Chief Whip Julian Smith that the group will table amendments to the Taxation (Cross-border Trade) Bill if the clause allowing for a customs union is not removed.
Mr Barnier set out an uncompromising EU position which was swiftly followed by a flurry of warnings against any UK attempts to water down the terms of a deal.
He said: “[The UK] will continue to have all the economic benefits, therefore it must apply all the rules.”
The Government plans for a transition period – which will begin when Britain formally leaves the EU in March next year – to last for “around two years” but the EU favours are 21-month period, ending at the end of 2020.
Mr Barnier added: “During this limited period of time the whole EU acquis [body of law] will continue to apply to the UK.”
David Davis, the Brexit secretary, told a Commons select committee there would be an “argument” when negotiations begin next week over whether the UK must be a complete “rule-taker” during the transition period.
He said: “We take the view that it is not particularly good democratic practice to have your country accept, without any say-so, anything – and particularly if the EU takes it upon itself to do something which is actively disadvantageous to a major British industry, or something like that.”
Even though Mr Davis conceded that the UK’s relationship with the EU will be “very, very similar” after Brexit, Mrs May is under rising pressure from leading Brexiteers to win some concessions from Europe.
Whitehall sources said Mrs May would not accept full freedom of movement during transition, and would instead insist that the EU accepts Britain’s proposal for a registration scheme for EU citizens arriving in the UK, who would then have no guarantees of being able to stay.
Mr Rees-Mogg will tell Mr Smith on Tuesday the Government must remove a clause from the proposed Bill on cross-border trade that would allow ministers to sign up to “a customs union” without a parliamentary vote.
Brexiteers fear that membership of any form of customs union post-Brexit would prevent Britain signing trade deals with other countries around the world by tying it to EU trade policy.
Mr Rees-Mogg said: “This is more like a plank than a bridge. We are stepping off without knowing where we are going.”