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EU rules out partial single market participation in draft trade deal

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EU rules out partial single market participation in draft trade deal

The European Union offered a narrower view of the future trading relationship with the U.K. than London had hoped, saying Britain would be treated like any other non-member country with respect to financial services.

Under the draft guidelines released, the European Commission will not allow any "cherry picking" or "partial participation" in the single market, and warned of "negative economic consequences" of leaving the customs union and the single market.

"No member state is free to pick only those sectors of the Single Market it likes, nor to accept the role of the [European Court of Justice] only when it suits their interest," EU President Donald Tusk said. "By the same token, a pick-and-mix approach for a non-member state is out of the question. We are not going to sacrifice these principles."

"Being outside the Customs Union and the Single Market will inevitably lead to frictions," the EU said in its draft seen by multiple media outlets. "This unfortunately will have negative economic consequences."

British Prime Minister Theresa May recently said any trade deal with the EU will be tailored to suit the needs of both economies and that on the services front, including financial services, the two sides could agree regulatory objectives, with Britain having the liberty to set its own rules to meet those targets.

The EU proposed zero tariffs on goods as part of a free trade agreement covering all sectors, including services. There would also be no quota limits for goods. Meanwhile, reciprocal access to fishing waters and resources should be maintained, the EU demanded.

The U.K. wanted financial services to be included in a free-trade agreement.

U.K. Finance Minister Philip Hammond is expected to call for the inclusion of financial services in a post-Brexit deal, Reuters reported. Late in 2017, the Bank of England proposed allowing EU banks in Britain to continue to operate as branches in London after the U.K. leaves the EU, if Brussels extended a similar offer.

"This will be the first FTA in history that loosens economic ties, instead of strengthening them. Our agreement will not make trade between the UK and the EU frictionless or smoother. It will make it more complicated and costly than today, for all of us. This is the essence of Brexit," Tusk added.

Britain earlier rejected the EU's proposal to keep Northern Ireland within the bloc's customs union.