The European Union has warned Britain that the prospect of any future trade deal would be damaged if the UK attempted to lure foreign investment through softer regulation and favourable tax policies, according to draft negotiation guidelines.
The document states that any deal "must ensure a level playing field in terms of competition and state aid, and must encompass safeguards against unfair competitive advantages through, inter alia, fiscal, social and environmental dumping."
The guidelines also state that the deal could be negotiated before the UK formally leaves the union but warns that it will only happen after "sufficient progress" is made on potentially problematic issues such as borders and budgets.
"In these negotiations the Union will act as one. It will be constructive throughout and will strive to find an agreement. This is in the best interest of both sides. The Union will work hard to achieve that outcome, but it will prepare itself to be able to handle the situation also if the negotiations were to fail," the document says.
The UK and Prime Minister Theresa May have been told that they must accept EU laws during any transitional period and the UK will also be required to pay money to leave the EU.
Some estimates have put the Brexit bill, which includes "all legal and budgetary commitments as well as liabilities, including contingent liabilities" to the EU as high as $64 billion.
The EU's 27 member states will discuss the guidelines and a final version will be approved at an extraordinary summit in Brussels on April 29.