Japan and Britain have agreed not to force their companies to disclose algorithms or set up local data servers, as part of talks aimed at a bilateral trade deal, the Nikkei said on Saturday.

A Japan-Britain agreement on advanced digital standards would pave the way for creating an international framework to protect intellectual property and the free flow of data, the business daily reported, without citing sources.

The two nations hope to clinch a deal before Britain's transition out of the European Union concludes at the year-end, to avoid any gaps in bilateral trade arrangements.

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.

A Japanese government official declined to comment, as the talks are ongoing. A call to the British Embassy in Tokyo went unanswered.

Although Britain will be covered by the Japan-EU economic agreement until the end of the year, Tokyo hopes to complete the trade deal before that as it would need to undergo legal checks by the government before being submitted to the Diet, a Japanese negotiator said this month.

In the trade talks, Tokyo wants to secure automobile tariffs that are at least as favorable as the tariffs in its existing EU trade pact, the negotiator said.