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Johnson Ready to Walk Away From EU Talks Without Formal Deal

James Ludden and Brian Swint

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Boris Johnson plans to say he’s prepared to quit talks over the U.K.’s future trade relationship with the European Union if he doesn’t get what he wants.

In his first speech since Britain formally left the EU, the prime minister will spell out to business leaders and diplomats on Monday his aims for negotiating the future trade terms with the bloc. Brussels negotiators are set to publish their own mandate the same day.

Johnson will say he wants a comprehensive trade deal at least as good as Canada’s agreement, but will be ready to take a looser arrangement like Australia’s if talks fail, according to a U.K. official.

It suggests Johnson’s team is effectively threatening to walk away without a formal trade deal. That would force the U.K. and EU to do business on World Trade Organization terms in most areas, with tariffs on goods, while processes would be agreed to reduce some regulatory barriers.

Downing Street’s hardball tactics gave traders in Asia a reason to mark down sterling after last week’s 1% gain.. The pound weakened as much as 0.2% against the dollar in early trading Monday.

The prime minister will again emphasize that in brokering a Canada-style free-trade accord, there’ll be no alignment with EU standards, European law courts will have no jurisdiction over the U.K. and he’ll make no concessions, the official said. He’ll also make clear that the National Health Service is not up for grabs in any trade talks.

Tough Talk

Johnson’s speech is set to fire the starting gun on what will be 11 months of hard bargaining. After three years of bad-tempered talks on the U.K.’s political withdrawal, the early signs indicate that the parties could struggle to avoid a cliff-edge change in their trading arrangement come 2021. European Commission President Ursula von der Leyen has previously said it will be “impossible” to sign off on a full deal before Johnson’s hard year-end deadline.

“The idea of being able to negotiate and agree a proper new trade agreement, and getting it ratified, in 11 months is nothing less than absurd,” Erik Nielsen, chief economist at UniCredit Group, said in a note Sunday. “We think they’ll go for a bare-bones trade deal by the end of the year simply to avoid the imposition of tariff barriers.”

Foreign Secretary Dominic Raab reinforced the point that there won’t be close alignment on regulations in the free-trade deal. Speaking on Sky News, he said he expects both sides to live up to commitments to get a Canada-style deal.

Separately, Irish Prime Minister Leo Varadkar agreed that type of deal is possible. At the same time, “if we’re going to have tariff-free, quota-free trade, there needs to be a level playing field,” he told the BBC’s Andrew Marr in an interview on Sunday.

The prospect of a Canada-style deal with the U.K. received a guarded welcome from Varadkar on Friday. The U.K. is geographically much closer than Canada and can’t be allowed to undermine the EU, he said in Dublin.

The EU and Canada negotiated for seven years before signing their trade deal, known as CETA, in October 2016. It took almost another year before its provisional application began.

Also Friday, BMW AG served a reminder that Britain’s formal exit from the EU didn’t necessarily mean that “Brexit was done.” Citing uncertainties over Britain’s future trade relations, the German car company said it was putting work on the next version of a Mini model on hold. The Mini is currently built in England and the Netherlands.

(Adds early pound reaction in fifth paragraph)

--With assistance from Tim Ross.

To contact the reporters on this story: James Ludden in New York at jludden@bloomberg.net;Brian Swint in London at bswint@bloomberg.net

To contact the editors responsible for this story: Matthew G. Miller at mmiller144@bloomberg.net, Tony Czuczka

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