Boris Johnson will threaten to end trade talks with the European Union if Brussels pushes for the UK to follow the bloc’s rules after the transition ends next year.
The prime minister will seek a Canada-style free trade agreement, despite Treasury officials warning it would leave Britain’s economy 4.9% worse off by 2035.
When Ottawa signed the agreement with the EU, it abolished 98% of duties and opened investment opportunities in transport and finance for European firms.
Ahead of trade talks in March, Mr Johnson will say: “We want a free trade agreement, similar to Canada’s but, in the very unlikely event that we do not succeed, then our trade will have to be based on our existing Withdrawal Agreement with the EU.
“The choice is emphatically not ‘deal or no deal’. The question is whether we agree a trading relationship with the EU comparable to Canada’s – or more like Australia’s. In either case, I have no doubt that Britain will prosper.”
An Australia-style situation would see Britain trading on World Trade Organisation terms, but with some extra deals to cover areas such as aviation.
Liberal Democrats leader Sir Ed Davey called it “no deal in all but name”.
EU chief negotiator Michel Barnier laid out Brussels’ own negotiating demands, saying “our aim is to conclude an ambitious partnership with the UK”.
“The most ambitious partnership is the one that we had – because we were in the same union,” he announced in a news conference that also marked his first public appearance since Brexit happened on 31 January.
“When you’re not a member of the EU, then objectively speaking your position is different and less favourable.”
Mr Barnir confirmed the bloc was ready to strike a free trade deal ensuring zero tariffs and zero quotas – conditional on the UK aligning itself on key areas like labour laws, environmental standards and state aid, and granting “reciprocal access” to each other’s waters for fishing.
There is also speculation the EU could also back Spain’s claim on Gibraltar by giving Spain the power to exclude the overseas territory from a trade deal.
But Mr Johnson will insist: “There is no need for a free trade agreement to involve accepting EU rules on competition policy, subsidies, social protection, the environment, or anything similar, any more than the EU should be obliged to accept UK rules.
“The UK will maintain the highest standards in these areas – better, in many respects, than those of the EU – without the compulsion of a treaty and it is vital to stress this now.”
The UK left the bloc last week and entered an 11-month transition.
During this time it has no representation in Brussels but follows EU rules while negotiating a new relationship with the remaining 27 member states.