Mr Davis, who is opposed to the customs partnership option, is believed to have told the Prime Minister that the customs arrangement could run into legal trouble.
He also warned Mrs May that it would be too late for the Government to reverse the plan if the Cabinet chose the option and issues did arise, which could pave the way for the UK remaining in the customs union.
A Government source commented on the issue, stating: “In that scenario you’d end up staying in the customs union because you’d have no other choice.”
Lorand Bartles, senior counsel at Linklaters, commented on the legality of the option, stating: “The customs union partnership model raises a question of World Trade Organisation (WTO) legality.
“It requires businesses to track imported products but not competitive domestic products.
David Davis has stated that Theresa May’s preferred customs partnership option could be illegal
The customs partnership would see the UK collecting import tariffs on behalf of the EU
The customs union partnership model raises a question of WTO legality
“That violates one of the WTO’s non-discrimination obligations.
“Discriminatory tracking could still be justified as ‘necessary’ for a free-trade agreement, but it is not.”
Henry Newman, Director of think tank Open Europe, added: “My understanding is that the possibility that the partnership would not be legally watertight is currently being considered in Whitehall.”
There is currently deadlock in the Mrs May’s Cabinet over the preferred customs arrangement with the EU post-Brexit.
Mrs May’s preferred option, the customs partnership, would see the UK collecting import tariffs on behalf of the EU, but this option was rejected by six of the 11 ministers in her inner-Brexit group.
Other ministers, including David Davis and Environment Secretary Michael Gove prefer the “maximum facilitation” option, which would involve using technology and a “trusted trader” plan to reduce post-Brexit customs checks by monitoring the border and goods passing through it.
Critics have nevertheless argued that the implementation of this system would take too long, and could re-introduce a certain degree of border friction.
Commenting on both plans, the Government source said: “There are potential legal problems with both plans as they stand.
“The Attorney General has been asked to provide an assessment that will then be fed into the cabinet discussions.”
Mr Davis called the white paper ‘the most significant publication on the EU since the referendum’
This official assessment will be provided directly to Mrs May’s office and not considered by the Cabinet’s sub-committee, which was set up just last week to analyse the proposal.
The Attorney General will also evaluate the legality of the “maximum facilitation” option, but analysts have already suggested that it could be challenged at the WTO.
The Government plans to issue a white paper outlining its exact position on the UK’s post-Brexit customs arrangement within weeks, after receiving accusations from the EU that the UK had failed to clarify its desired customs relationship.
Mr Davis is believed to have commented on the white paper, stating: “This will be our most significant publication on the EU since the referendum.
“It is an opportunity to set out clearly to both a domestic and an EU audience the reasoning behind our approach, including where we think it is clearly in the EU’s interests as well as our own.”
Mrs May’s customs partnership plan has come under sharp criticism, with Mr Newman stating: “The customs Partnership could entail the UK paying very large sums of money to the EU in the long-term – something the Government has so-far ruled out.”
Foreign Secretary Boris Johnson also slammed the proposal, stating: “If you have the new customs partnership, you have a crazy system whereby you end up collecting the tariffs on behalf of the EU at the UK frontier.
“If the EU decides to impose punitive tariffs on something the UK wants to bring in cheaply there’s nothing you can do.”