The UK will face “unavoidable” trade barriers if it leaves the customs union and single market, the EU’s chief negotiator Michel Barnier has said.
Speaking in Downing Street, Mr Barnier said “the time had come” for the UK to choose what it wanted after Brexit.
Brexit Secretary David Davis said the UK’s position was “perfectly clear”.
He said the UK wanted a free trade deal with the EU but the ability to strike other deals outside the customs union, adding “there’s no doubt about it”.
Mr Barnier, who has held talks with Theresa May and David Davis in London, said he respected the UK’s “red lines”, but EU rules must be respected.
There is “not a moment to lose” if the UK and EU are to reach a Brexit deal by October, he said.
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Downing Street earlier insisted Britain will not be in a customs union with the EU, amid claims of Tory disunity.
Mrs May faces calls to spell out more detail of what she wants in talks ahead of the UK’s departure in March 2019.
The prime minister and Brexit Secretary David Davis met Mr Barnier ahead of the next round of negotiations getting under way.
Talks between officials this week will focus for the first time on the “transitional” period – of about 18 months to two years – which both sides want after Brexit on 29 March 2019.
Potential sticking points include citizens’ rights, with the UK insisting EU nationals arriving during this time should not have the same future rights as those who arrive before Brexit day.
As he set off for London, Mr Barnier said time was of the essence.
“There is so much work, so we have decided for this reason to accelerate all the contacts,” he said.
“We want to reach a deal, respecting the guidelines of the European Council, respecting the rules of the single market of the Union. So once again we have not a minute to lose.”
Asked about the UK’s apparent decision to discount any future customs union, he suggested this was not news to him.
“We have to respect the red lines of the British government but they have to respect the rules of the union.”
The UK’s future relationship with the EU’s single market and customs union has been a topic of debate among leading Brexiteers and some of those closest to the prime minister.
In a customs union the UK would have tariff-free trade within the EU, but would lose the ability to strike its own deals with other countries.
Downing Street said the government had set out two potential alternatives last summer – a new customs partnership without the need for any customs checks and a “highly streamlined” arrangement in which EU arrivals would be subject to customs checks but in a way that minimised disruption through technology.
No 10 would not say which was the preferred option and said work was continuing on both proposals.
Conservative MEP Daniel Hannan said Switzerland was an example of a country which had both its own customs arrangements with the EU and an independent trade policy.
“Britain is a global country, a world trader,” he told the BBC’s Daily Politics.
“We have always been artificially penalised, more than any other country, by the customs union… because we are usually just the only country in the EU than trades more outside the EU than with the EU.”
“When we have the freedom to do that again, we will see the price of goods falls, the whole economy is stimulated, food and fuel prices come down and we are better off because we have more money to spend on other things.”
The government’s 10-strong Brexit cabinet sub-committee will meet on Wednesday and Thursday as UK officials prepare to brief their EU counterparts on their vision for post-Brexit relations on Friday.
Former Attorney General Dominic Grieve said he found Downing Street’s intervention “rather strange” since the UK would have to maintain some form of “customs union or alignment” with the EU if it was to honour the terms of its agreement to prevent any hard border on the island of Ireland.
“The December agreement is going to be turned in the course of the next few months from an outline agreement into a treaty,” the Conservative MP told BBC News.
“We are leaving the EU but we are going to move into a new treaty relationship with the EU from outside it which is just as binding on us as our EU treaty obligations.”
Labour said it was “foolhardy” to rule out any kind of customs union with the UK’s largest trading partner.
“The government must put jobs and the economy first, not their own internal party wrangling,” a party spokesman said.