The EU could use tax blacklists and penalties against Britain to ensure a "level playing field" if the U.K. reduces taxes or eases regulation after Brexit, according to a leaked strategy document seen by the Financial Times.
The presentation, already made to the EU's 27 member states, said the U.K. cannot be treated like a normal trading partner due to its size and and the "depth and breadth" of its relations with the bloc's economy.
Britain can use tax for competitive purposes, the EU said, noting its "large number of offshore entities." It also expressed concerns that Britain could ease regulations on emissions by power stations and on the rights of workers in chemical plants.
The EU said unprecedented measures, such as conditions in a trade agreement or separate retaliatory measures, would be required to enforce restrictions on taxation, state aid, environmental standards and employment rights, the Financial Times reported. Retaliation could entail inclusion in a tax blacklist, financial sanctions or the suspension of U.K.'s trading rights.
Brexit supporters in the U.K. are likely to be angered by any restrictions on tax and employment rules, and British officials have said such "special" measures would be justified only if the bloc provides "special" levels of trade access to the country.
Meanwhile, British Prime Minister Theresa May has said EU citizens moving to the U.K. during a transition period after Brexit in March 2019 would have different rights than those who moved to the country before Brexit. The statement came during May's three-day official visit to China during which she is looking to strike a free trade agreement with the world's second-biggest economy.
EU foreign ministers want full citizens' rights for EU citizens who arrive in Britain during a post-Brexit transition period, including the right to remain indefinitely and social security protections.
May warned last year that Britain would fight a "punitive" Brexit deal through "competitive tax rates and the policies that would attract the world's best companies and biggest investors."
