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U.K., EU Fire Opening Salvos Ahead of Trade Talks

Days after the U.K. left the European Union, both sides set the stage for what are likely to be difficult negotiations over their future relations.

Prime Minister

Boris Johnson

said the U.K. would accept a total break with the bloc—which would involve tariffs on EU-U.K. trade for the first time in almost half a century—if a trade deal can’t be agreed by the end of the year.

An hour earlier, the bloc’s chief negotiator,

Michel Barnier,

said the EU would seek a “highly ambitious” trade deal with the U.K., but that would depend on British guarantees to ensure fair competition.

The negotiations are being watched closely for how Britain handles its historic decision to walk away from the world’s largest trading bloc. The talks will go a long way to defining whether Brexit is a radical move or a more graduated affair that will leave the two closely entwined.

The speeches suggest that the two sides will clash over what the EU calls the level playing field: standards that underlie the economy relating to issues like social, labor, environmental and government aid for companies.

Investors sold the pound, highlighting nerves about the economic hit the U.K. could take if it decouples with the EU decisively. Sterling fell 1.1% against the dollar, buying $1.31.

Though Britain legally quit the EU on Friday, the terms of its future ties with its biggest trading partner are still to be defined. Britain and the EU have agreed to maintain the status quo in relations while those negotiations take place.

Mr. Johnson on Monday reiterated that those talks wouldn’t be extended past the end of 2020, reviving fears that a comprehensive deal can’t be nailed down in such a short time frame. Negotiations are expected to begin next month.

The bottom line for the EU is to ensure that the U.K. doesn’t become a lightly regulated business hub that maintains preferential access to the trade bloc while undercutting its rules.

Mr. Johnson indicated that the U.K. would try to keep tariff-free access to the EU—but that it would prioritize having the right to set its own rules and regulations.

He said the EU needn’t fear the U.K. would undercut its rules. “We will not engage in some cutthroat race to the bottom,” Mr. Johnson said Monday, adding the U.K. had a better record in state aid than most EU countries. “The U.K. will maintain the highest standards in these areas…without the compulsion of a treaty.”

Mr. Barnier said the bloc would seek a trade agreement with no tariffs or quotas on EU goods trade with the U.K. He said a trade and security deal would depend on the U.K. agreeing to guarantee “open and fair” competition, including commitments on climate, tax, state aid and labor standards “over the long term.”

After years of uncertainty and missed deadlines, the U.K. is finally leaving the EU. But the Brexit drama may not be over as the U.K. enters a new phase of negotiations with its trading partners. WSJ’s Jason Douglas reports. Photo: Daniel Leal-Olivas/Getty Images

He also said the bloc was looking for an agreement on services with “wide sectoral coverage” including digital trade, public procurement, telecoms and business services.

However, Mr. Barnier said there would have to be customs and regulatory checks on U.K. goods coming to the EU in future and that the bloc would make its own unilateral decisions on whether Britain’s financial-services regulation was equivalent to the standards the EU demand and whether the U.K.’s data-privacy standards were considered strong enough to allow data exchanges.

In what is expected to be another sensitive area for the talks, Mr. Barnier said an agreement must include a deal on fisheries including “reciprocal access” to fishing markets and waters on both sides of the channel.

Mr. Johnson said the U.K. was ready to consider an agreement on fisheries. “But it must reflect the fact that the U.K. will be an independent coastal state at the end of this year 2020, controlling our own waters.”

He proposed annual negotiations with the EU, using the latest scientific data, “ensuring that British fishing grounds are first and foremost for British boats.”

During a half-hour speech in a room adorned with paintings produced as Britain embarked on its age of empire, Mr. Johnson made an impassioned defense of free trade. At a moment when global trade is slowing, “humanity needs some government somewhere who is willing to make the case for freedom of exchange,” he said.

British officials say the U.K. isn’t planning a huge deregulatory drive. Rather, the country doesn’t want to layer on rules emanating from Brussels in coming years. Instead of diverging with EU rules immediately, it wants the right to diverge in the future. Even without a deal “the U.K. will prosper mightily,” Mr. Johnson said.

Mr. Johnson made a pointed effort to turn the page on Brexit, refusing to mention the word in his speech.

Write to Max Colchester at max.colchester@wsj.com and Laurence Norman at laurence.norman@wsj.com

Corrections & Amplifications
The British pound traded at $1.31 on Monday. An earlier version of this article incorrectly stated the currency traded at $1.13. (2/3/20)

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