One by one, many of the U.K.’s red lines for leaving the European Union are being watered down. Over the summer, the government conceded that EU citizens will continue to enjoy the right to live and work in the U.K. more or less as they do now, at least for a transitional period of up to three years; it also softened Prime Minister Theresa May’s pledge to end the jurisdiction of the European Court of Justice to a commitment to end only direct jurisdiction; and despite a stand-off in Brussels last week, the U.K. has acknowledged it has financial obligations to the EU and that it may continue to pay into EU coffers after Brexit to secure access to markets and programs.

But as other red lines soften, one red line has hardened to the point where it now holds the key to the Brexit process: any new relationship with the EU must allow the U.K. the freedom to negotiate its own free-trade deals with third countries. For a Conservative party determined to disassociate itself from the nativist anti-immigration agenda of fellow Brexiters in the U.K. Independence Party, the need to go into the next election due in 2022 having signed independent trade deals has assumed totemic importance. As one senior cabinet minister puts it: “If we can’t do that, what’s the point of leaving?”

But Mrs. May’s problem is that this political imperative is at odds with her goal of securing a “deep and special partnership” that enables the continuation of frictionless trade with the EU. To strike trade deals, a country needs to have something to trade: tariffs or regulation or ideally both. Yet the only way to maintain frictionless trade between the U.K. and the EU is for the U.K. to remain in both a customs union and a regulatory union with the EU, mirroring exactly the EU’s external tariffs and regulations, leaving no scope to sign its own independent trade deals. The U.K. government has spent more than a year trying to devise ways around this conundrum but the reality is that it can’t be done.

To see why, consider the case of Turkey, which actually has its own customs union with the EU yet whose exporters still experience lengthy delays at the border. That is partly because Turkey’s customs union doesn’t cover all goods. The moment you introduce exceptions in the customs regime you need to have border checks to ensure that excluded goods aren’t slipping into the EU tariff free, said Dr. Peter Holmes, reader in economics at Sussex University. A second issue is that Turkey is not part of the EU’s regulatory union—the European Economic Area—which ensures that all goods circulating in the EU comply with the same standards. So further border checks are required to ensure that Turkish exports are safe.

Sure, there are ways to minimize barriers but it is impossible to remove entirely the need for checks. Norway, for example, is part of the EEA, which means its exports are deemed safe to sell in the EU, but it is outside the customs union, which means that its exports still face border checks to ensure that the goods are indeed Norwegian and didn’t originate in a third country.


Border checks can also be streamlined by mutual recognition agreements whereby both sides agree to respect each other’s regulatory standards, monitoring and enforcement systems. But even if the EU agrees to recognize post-Brexit U.K. regulatory standards—unlikely unless they were exactly aligned with those of the EU—the moment the U.K. agreed a free-trade agreement with a third country that included recognition of a different set of standards—say, over food hygiene—new border checks would inevitably be needed to ensure that goods entering the EU were safe, notes Dr. Holmes. That would lead to new frictions to EU trade.

As things stand, British ministers still refuse to acknowledge that the U.K. will face any trade-off between frictionless EU trade and the freedom to pursue independent trade deals. The official position— set out in a series of papers in August—is that the U.K. should be able to set its own regulatory standards and have these recognized by Brussels while using innovative technological solutions to obviate the need for a customs border checks. Even so, the government already appears to be already backing away from its most eye-catching proposal—that every import into the U.K. be fitted with a tracking device to determine whether it was destined for the domestic or EU market—just two weeks after first floating it.

But privately, British officials accept that the trade-off is real and will have to be confronted: ministers will have to decide how much disruption to U.K.-EU trade—and indeed to trade with the 48 countries with which the EU itself has a free-trade agreement—they are willing to countenance to secure their prize of independent free-trade deals. Or whether this red line too will have to yield to reality.

Write to Simon Nixon at simon.nixon@wsj.com