By Simon Nixon 

Theresa May declared that no Brexit deal is better than a bad deal. It should hardly come as a surprise that many in the European Union feel the same way.

All sides have been clear that they will go into the two-year negotiating process, which will begin when the U.K. prime minister invokes Article 50 of the Lisbon Treaty next week, hoping to secure an amicable long-term relationship. But senior EU politicians and officials have become increasingly pessimistic since the start of the year that a deal can be reached: one top official puts the chances of a successful outcome at less than 50%.

EU officials are downbeat because they doubt that Mrs. May has sufficient political capital to make the compromises necessary to secure an ambitious trade deal. They are aware that there are powerful voices in the Conservative party who would prefer for the U.K. to leave the EU without a negotiated deal rather than make those compromises.

The prime minister's decision to take the U.K. out of both the EU single market and the customs union means that the U.K. will end up, from a technical standpoint, even further detached from the EU than Turkey. That is a difficult starting place from which to negotiate a deep and comprehensive deal that fulfills Mrs. May's goal of frictionless trade.

Certainly Mrs. May faces difficult political choices. The reason she gave for quitting the EU customs union was to enable the U.K. to strike its own trade deals with third countries.

Yet the deeper and more comprehensive any trade deal with the EU, the more the U.K.'s hands will be tied in terms of what it can offer other partners or how far it can adapt its own economic model.

For example, the EU will demand mechanisms to ensure that British regulations continue to remain fully equivalent to, if not compliant with, EU rules. This has been a condition of all past EU deals granting deep market access, including those with Switzerland and the European Free Trade Area which includes non-EU countries such as Norway and Iceland. From the EU's perspective, full equivalence means fully complying with all changes in EU regulations either as a result of new laws or European Court of Justice rulings. That would require the U.K. to comply with rules over which it had had no say.

Nor are the EU's demands for regulatory equivalence likely to be limited to product standards. One result of the British government's clumsy threat to turn itself into a low-tax, lightly regulated offshore competitor if it doesn't secure a favorable trade deal is that the EU is now sure to demand assurances on future U.K. tax and employment policies to protect the bloc against "social dumping," officials say.

The EU will also insist on "rules of origin" requirements that are sufficiently tight to ensure that the U.K. cannot turn itself into a cheap staging post for third-country goods to avoid EU tariffs to enter the bloc's market.

Meanwhile, the U.K. and the EU will have to agree on a common arbitration mechanism to adjudicate disputes arising from all these rules, given that the U.K. has said it would no longer be subject to the jurisdiction of the European Court of Justice.

Yet the negotiations may never even get this far. Long before the two sides start talking about trade, there is likely to be a fight over process.

The U.K. government, conscious of public opinion, wants a process in which it can declare some quick wins, with political leaders agreeing on the principles of a deal even if that means leaving technocrats to fill in the details.

But that is not how the EU, which has vast experience with negotiating complex international agreements, works. It wants to stick to standard deal-making practice in which negotiations proceed chapter by chapter, with officials doing the preparatory work and leaving the difficult decisions to politicians, and with nothing agreed until everything is agreed.

On the European Commission's timetable, it could be early next year before the negotiations even start to discuss the future trade relationship. That would require Mrs. May to endure months of potentially difficult headlines before the U.K. glimpsed any upside.

Crucially, the EU's scope for compromise is far more limited than is widely appreciated. In this respect, the key institution is the European Parliament, which the British government has so far virtually ignored but which must ratify any deal.

The Parliament sees its role as defending the European perspective, independent of national interests. Its priority will be to maintain the cohesion of the 27 remaining EU states, ensure a future level-playing field and guard against any signs of "cherry-picking" by the U.K.

Ominously for the U.K., the European Parliament will deliver its own response to Mrs. May's Article 50 letter on April 3, more than three weeks before EU leaders meet to decide on their response -- a deliberate attempt both to influence the EU Council's deliberations and to set its own bar for judging any final deal.

European Parliament leaders point out that any deal is likely to come up for ratification just weeks before the 2019 parliamentary elections, further politicizing the process.

Faced with these obstacles, some Brexiters have come to the conclusion that the cleanest and easiest way forward is for the U.K. to leave the EU without a free trade deal and default to World Trade Organization rules. Some in the EU are coming to the same conclusion.

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

(END) Dow Jones Newswires

March 22, 2017 18:46 ET (22:46 GMT)