By Gabriela Baczynska
BRUSSELS (Reuters) - EU negotiators are ready to offer Theresa May a free-trade area after Brexit but say that, contrary to her "Chequers" plan, there must be a customs border that will make trade less than "frictionless", according to an internal EU document seen by Reuters on Tuesday.
The document -- three pages of "defensive points" for EU officials to make against the UK prime minister's July proposal on future ties with the bloc -- may offer May some comfort in showing a readiness to seal a free trade agreement (FTA) like those giving access to Japan or Canada's goods and services.
But as she prepares for her Conservative Party conference this weekend, it also rams home, in some detail, the rejection of the Chequers proposal for a special customs deal that would avoid border checks on goods and keep supply chains fluid.
Brussels argues it would give Britain an unfair advantage in the single market, applying some EU rules but not others.
Apparently taken aback by the latest EU rejection of that idea when she met fellow leaders at a summit in Salzburg last week, May has insisted she is sticking with the plan, despite fierce opposition from some in her party. She complained that the EU had not given her detailed reasons for its rebuff.
The document, shared with national delegations at the Salzburg summit last Wednesday, does go into detail. EU negotiator Michel Barnier outlined the same points to EU leaders over lunch on Thursday.
British officials had, well before Salzburg, been briefing opposing arguments to Barnier's. But EU officials and diplomats said all leaders had given support to their negotiator. One said they understood that the customs element of May's Chequers plan would damage their own economic interests.
Another EU official said May had not only irritated leaders by insisting vocally and very publicly that there was no alternative to her idea but by saying the EU objections had not been given to British negotiators in detail.
FREE TRADE AREA
Reflecting comments made since July by Barnier, the document lays out EU officials' thinking on Chequers, named after May's residence where the plan was hammered out.
It concludes it would "give the UK an unfair competitive advantage" -- while also saying officials "welcome ... proposals to develop an ambitious new partnership" for which the Chequers proposal of a "free trade area" should be "the starting point".
Britain's goods could only get unfettered access to the EU's market if the UK remains "fully bound by the EU acquis (accumulated legislation) in the same way as other single market members, including supervision and enforcement".
Since Britain has firmly ruled that out, saying it will leave the EU's single market and the customs union, the document says a Canada-style FTA is the only remaining option.
"An FTA cannot ensure entirely 'frictionless' trade," the document says, adding there must be a customs border between the EU and Britain after Brexit.
"As a result, the UK's goods trade will over time be less closely integrated economically with the EU than it is now. For example, cross-border supply chains will not operate seamlessly."
May's "common rulebook" for goods would give Britain unfair advantage, it says. In one example, studies showed that most of the regulatory costs for steel or chemicals producers were not in product standards, which Britain offers to meet, but in standards for production methods -- such as rules on pollution -- from which London wants to be able to diverge.
It said British producers would have to conform to EU rules to be allowed into the single market: "This will make the biggest difference for agriculture and sensitive industrial goods with authorisations by public bodies including chemicals, automotive, pharmaceuticals, biocides."
It also explains EU concerns that "embedded services", such as the financing of car sales, represent much of the cost of many goods and that, under Chequers, Britain offers to match EU standards only on the final product, not rules that apply to, say, how workers produce the services that accompany them.
The document also provides officials with an argument to counter British complaints that Brussels has offered to keep Northern Ireland effectively inside its economic rulebook in order to avoid border infrastructure with EU member Ireland that both sides fear could revive conflict on the island.
The issue, the document spells out, is that with 1.8 million people and "unique circumstances", the EU is willing to make a special case of Northern Ireland, which is "much less of a competitive threat than the 60-million UK".
May again stressed on Tuesday that Britain needs to see EU counter-proposals to move the Brexit negotiations forward.
Adding to May's Brexit woes on Tuesday, Britain's main opposition Labour Party signalled it would vote against any deal she clinches with the EU and would be open to a second referendum with the option of staying in the bloc.
(Additional reporting by Alastair Macdonald; Editing by Gareth Jones)