Brussels is scrambling to find ways to force Britain to abide by its rules after Brexit amid fears EU firms will be unable to compete.
Eurocrats are looking for ways of preventing the UK slashing red tape and raiding business after we cut ties with the bloc.
Measures being considered include sanctions, threatening to put firms on a 'tax black list' and penalties against state-subsidised companies.
They want to use the details of a post-Brexit trade deal to ensure a 'level playing field' after identifying 'clear risks' that Britain will reduce regulation.
ean-Claude Juncker (pictured with Theresa May in December) warned earlier this week that EU unity could be shattered as member states demand Britain is handed a generous trade deal that protects their own interests
Mrs May has been in China this week seeking to strengthen trade ties, including a meeting with President Xi Jinping
The tactics, revealed in a leaked documents, suggest Theresa May will have significant leverage in the negotiations.
Brexit Secretary David Davis has announced that the EU's chief negotiator, Michel Barnier, will come to London on Monday for discussions.
The manoeuvring comes amid claims that Downing Street advisers are ready to back a customs union deal with the EU covering trade in goods.
Officials are said to be convinced the move would limit a loss of trade with the bloc after Brexit.
However, Trade Secretary Liam Fox dismissed the prospect, warning it would stop the UK striking trade agreements with other countries.
'It is very difficult to see how being in a customs union is compatible with having an independent trade policy because we would therefore be dependent on what the EU negotiated in terms of its trading policies and we'd be following behind that,' Dr Fox told Bloomberg.
Commission president Jean-Claude Juncker warned earlier this week that the bloc's unity could be shattered as member states demand Britain is handed a generous trade deal that protects their own interests.
And an internal Brussels paper seen by the Financial Times makes clear that they will seek to bind the UK into their rules.
'International rules do not adequately address the distortive effects of subsidies on investment, trade and competition,' it said.
'The EU-UK agreement will have to include robust provisions on state aid to ensure a level playing field.'
Ministers including Chancellor Philip Hammond have insisted the UK must be prepared to cut red tape to boost business investment if the EU attempts to impose a punitive deal.
Trade Secretary Liam Fox (pictured with Mrs May in China this week) has dismissed the prospect of the UK being in a customs union with the EU after Brexit, warning it would prevent trade agreements with other countries
