Japan and the U.K. have agreed to advanced digital standards in their upcoming bilateral trade deal, banning them from forcing companies to disclose algorithms and set up local data servers.

Expected to take effect in early 2021, after the end of the Brexit transition period, the trade pact will mark a key step toward creating an international framework that protects intellectual property and the free flow of data. The new Japan-U.K. deal is set to ban government demands to hand over encryption keys -- used to protect proprietary corporate technology and information -- going a step further than the Trans-Pacific Partnership trade deal or the economic partnership agreement between Japan and the European Union, which ban the parties from forcing companies to disclose source code.

Japan had also agreed to bar forced disclosure of algorithms and encryption keys in its digital trade agreement with the U.S., which took effect this January. Under the bilateral deal, the two governments would not force their companies to hand over encryption keys, which are used to protect proprietary corporate technology and information, the Nikkei said.

The two nations are expected to agree not to force companies to set up servers and other related facilities within their borders and to protect the free flow of data, the report said. Japan and the U.K. will also iron out new preferential tariffs under their bilateral deal. New tariff negotiations will focus largely on automobiles and agricultural products. The EU had agreed to scrap its 10% auto tariff over the course of eight years in the EPA. Japan wants the U.K. to do so more quickly, if not immediately, though the British side appears firmly opposed to the idea.

Meanwhile, the U.K. wants a dedicated zero-tariff quota for its wheat, which Japan opposes. The two sides are expected to iron out such details in the final stages of talks. The countries could back down on their more divisive demands in the interest of inking a deal before the Brexit transition ends. They aim to finalize the pact as early as August so that it can be ratified at Japan's parliamentary session in the fall.

Source- Reuters