Britain's hopes to strike post Brexit trade deals around the world could collapse in a row over the Irish border.
Brussels 'annihilated' Theresa May's plans to take Britain out of the EU customs union while keeping a soft border with the Republic, it was today claimed.
While the EU's chief negotiator Michel Barnier warned that negotiations could 'fail' and the UK may crash out of the bloc without a transition deal.
The UK's proposals to use technology to avoid hard customs checks and border guards were rejected after a 'detailed and forensic rebuttal' of the plans, it emerged today.
The move is a major blow to the PM and casts serious doubt over whether Britain will be able to leave the customs union.
It comes after Australia's foreign minister Julie Bishop warned Britain must leave the customs union to strike trade deals with her country.
Michel Barnier (pictured at the European Parliament leaning over EU Commisison chief Jean Claude-Juncker on Tuesday) said there is a chance the UK will crash out of the bloc with no transition deal
Miss Bishop told the BBC World Tonight: 'My understanding is that if Britain remains in a customs union then the opportunity for us to enter into a free trade agreement with Britain would not be achievable.'
Meanwhile, appearing on French TV today, Mr Barnier also warned that a Brexit deal was far from done and dusted.
He told France2 TV: 'I say as the Union's negotiator that there are still difficulties, still a risk of failure.
'On 25 per cent of the text, we don't have agreement.
Restating his position that the integrity of the single market and the freedom of movement are 'non-negotiable', Mr Barnier switched from French to English when asked if the UK could obtain a 'single market a la carte' deal, replying: 'No way.'
The breakdown in talks over the Irish border was revealed today by the Daily Telegraph and throws into doubt hopes of a trade deal by October.
Mrs May has vowed to take Britain out of the EU customs union as the country will not be able to strike its own trade deals if it stays in.
However, what happens with the Irish border - which will be the UK's only land border with the EU after Brexit - has proven to be one of the thorniest issues in the Brexit talks.
There are fears that a return to a hard border and the border guards of the past could reignited sectarian violence and a fresh round of The Troubles.
Downing Street today insisted it 'does not recognise' the reports in The Telegraph.
No 10 said it is confident a deal that protect's Northern Ireland's place in the UK and allows new trade deals after Brexit can be struck in the 'coming months'.
Peter Bone, Tory MP for Wellingborough, told Mail Online the EU is trying to 'bully' Britain.
He said: 'The EU negotiators are always trying to bully us and we are going to have to stand up and be counted.
'We have to say we are not going to have a hard border.'
The row will fuel demands by Remainers for Mrs May to abandon her commitment to scrapping the customs union - an idea hated by Brexiteers because it would limit Britain's ability to strike new trade deals but which could break the deadlock.
Peers heavily defeated the Government on a customs union amendment on Wednesday night and MPs will hold a symbolic vote on the crucial issue next week.
Theresa May's (pictured today in Windsor) hopes for a Brexit deal have suffered a fresh blow after Brussels rejected out of hand all Britain's ideas for the Irish border
Detailed scrutiny of the UK proposals for the Irish border (file image) were 'annihilated' by EU negotiators as they were presented by British diplomat Olly Robbins
A Downing Street spokesman said: 'The two proposals we have put forward remain the basis for our negotiation position and what the PM set out at Mansion House.'
Both Britain and the EU have publicly committed to ensure the Irish border remains open after Brexit.
But the two sides are far apart on how to make it work after Britain leaves the single market, leaving different rules on trade across the border for the first time in decades.
The UK has insisted local exemptions and technology-based solutions can be used instead of border checks.
The EU says the only practical solution is for Northern Ireland to continue to follow EU rules after Brexit - effectively keeping it inside the single market and customs union.
Britain's lead negotiator Olly Robbins met senior EU officials this week with the PM's plans said to be subjected to 'a systematic and forensic annihilation'
Dublin has a veto over the entire Brexit deal if it is unhappy with the proposals after EU council president Donald Tusk (right) gave Irish Premier Leo Varadkar (left) the EU's full support
Dublin has a veto over the entire Brexit deal if it is unhappy with the proposals and Britain agreed in December the 'backstop' option is for the UK to mirror EU rules.
Mrs May's DUP allies will never allow any deal that means rules in Northern Ireland are different to the mainland UK, claiming it would mean a border down the Irish Sea.
The latest breakdown in talks emerged after Britain's former ambassador to the EU Sir Ivan Rogers said that UK hopes of finding a technological solution to the border issue were regarded as 'a fantasy island unicorn model' in European capitals.
The agreement included three options for the Irish border, with the British backing a close economic relationship which would make customs checks unnecessary or technological solutions to render them near-frictionless.
But a version published by the EU in February contained only the third 'backstop' option, effectively drawing a customs border down the Irish Sea, which a furious Mrs May said 'no British Prime Minister could ever agree'.
The report puts pressure on Mrs May ahead over a vote in the Commons next week on keeping the UK in the European Customs Union, just days after she was defeated on the issue in the Lords.
If the UK position continues to be rejected by Brussels, the Government could be faced with a choice between remaining in the Customs Union or accepting a hard border in Ireland.
Mrs May has been warned a hard border could inflame tensions so much it could even lead to the collapse of the Good Friday Agreement.
On Wednesday, European Council president Donald Tusk warned that there will be 'no withdrawal agreement and no transition' without a solution on Ireland.
Responding to the Telegraph report, former Treasury permanent secretary Lord Macpherson tweeted: 'EU's position on Irish border so predictable. UK sold pass by conceding 'backstop' in December, inviting EU to hold us to it. #badbusiness'
According to the Telegraph, Mr Robbins was also warned that Brussels needs 'full compliance' with EU rules on goods and agricultural products in the whole of the UK – not just Northern Ireland – if customs barriers are to be avoided.
A Government spokesman said: 'We have been clear that we will protect Northern Ireland's place in the UK internal market.
'That commitment was set out in December's Joint Report which also includes our guarantee of avoiding a hard border between Northern Ireland and Ireland.
'As the PM's letter to Donald Tusk said, we have made our position on aspects of the draft Commission Protocol clear.
'We have agreed that the areas covered in the draft must reflect those that meet our shared commitments.
'And we are continuing an intensive work programme to engage on all the scenarios set out in the Joint Report.'
Sir Ivan Rogers said that UK hopes of finding a technological solution to the border issue were regarded as 'a fantasy island unicorn model' in European capitals
Responding to the Telegraph report, former Treasury permanent secretary Lord Macpherson tweeted: 'EU's position on Irish border so predictable.
'UK sold pass by conceding 'backstop' in December, inviting EU to hold us to it. #badbusiness'.
Speaking at the Policy Exchange think tank in London, Sir Ivan said that the economic solution was not regarded as 'a runner' on the other side of the Channel, because of Mrs May's insistence on leaving the single market and customs union.
And he added: 'The Brits are therefore focused above all on Option B – the technological solution.
'That, candidly, from everything I've heard from various places is still viewed as a bit of a fantasy island unicorn model.
'The Irish and Brussels in particular – but I think backed, as far as I can see, by Berlin and Paris – have said the only solution to this is the so-called backstop Option C, which is what the Commission put in print and got the toxic reaction both from the DUP and the Prime Minister.'
Meanwhile, The Times reported frustration within the Cabinet over delays in drawing up the Government's plans for immigration after Brexit.
Home Secretary Amber Rudd told MPs last month that the immigration bill would not be introduced until early next year.
But the paper quoted one unnamed source as saying Ms Rudd seemed to think she could 'take as long as she likes', and said an unnamed 'ally' of Work and Pensions Secretary Esther McVey had said: 'We're eager to get on
What are the options for the border between Northern Ireland and the Republic after Brexit?
Theresa May and Jean-Claude Juncker agreed the outline of a divorce deal in December
Theresa May and the EU effectively fudged the Irish border issue in the Brexit divorce deal before Christmas.
But the commitments to leave the EU customs union, keep a soft border, and avoid divisions within the UK were always going to need reconciling at some stage. Currently 110million journeys take place across the border every year.
All sides in the negotiations insist they want to avoid a hard border between Northern Ireland and the Republic, but their ideas for how the issues should be solved are very different.
If they fail to strike a deal it could mean a hard border on the island - which could potentially put the Good Friday Agreement at risk.
The agreement - struck in 1998 after years of tense negotiations and a series of failed ceasefires - brought to an end decades of the Troubles.
More than 3,500 people died in the 'low level war' that saw British Army checkpoints manning the border between Northern Ireland and Ireland.
Both London and Dublin fear reinstalling a hard border - whether by checkpoints or other means - would raise tensions and provoke a renewal of extremism or even violence if people and goods were not able to freely cross.
The DUP - which opposed the Good Friday Agreement - is determined to maintain Northern Ireland inside the UK at all costs, while also insisting it wants an open border.
The UK blueprint:
The PM has made clear her favoured outcome for Brexit is a deep free trade deal with the EU.
This would mean being aligned closely enough with the bloc that there is no need for customs checks.
Any remaining gaps in customs regulations would be covered with technological solutions.
That is likely to mean cameras and electronic records, which would arguably not constitute major physical infrastructure.
Boris Johnson has suggested that a slightly 'harder' border might be acceptable, as long as it was invisible and did not inhibit flow of people and goods.
However, Brussels has dismissed these ideas as 'Narnia' - insisting no-one has shown how they can work with the UK outside an EU customs union.
The EU blueprint:
The divorce deal set out a 'fallback' option under which the UK would maintain 'full alignment' with enough rules of the customs union and single market to prevent a hard border and protect the Good Friday Agreement.
The inclusion of this clause, at the demand of Ireland, almost wrecked the deal until Mrs May added a commitment that there would also be full alignment between Northern Ireland and the rest of the UK.
But the EU has now translated this option into a legal text - and hardened it further to make clear Northern Ireland would be fully within the EU customs union.
Mrs May says no Prime Minister could ever agree to such terms, as they would undermine the constitutional integrity of the UK.
A hard border:
Neither side wants a hard border between Northern Ireland and the Republic.
But they appear to be locked in a cyclical dispute, with each adamant the other's solutions are impossible to accept.
If there is no deal and the UK and EU reverts to basic World Trade Organisation (WTO) relationship, theoretically there would need to be physical border posts with customs checks on vehicles and goods.
That could prove catastrophic for the Good Friday Agreement, with fears terrorists would resurface and the cycle of violence escalate.
Many Brexiteers have suggested Britain could simply refuse to erect a hard border - and dare the EU to put up their own fences.
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