Britain could be forced to toe the Brussels line on crucial legislation on privacy and national security for years after Brexit in order to maintain the free exchange of data with EU countries.
A new Government paper makes clear that, under current arrangements, the European Commission will have the unilateral power to decide whether the UK's legislative framework is "adequate" for the flow of the commercially valuable data to continue unchecked following EU withdrawal.
Officials have no doubt Britain will meet the "adequacy" test on the date of Brexit, expected in 2019, but that may change if UK legislation on issues like data collection and protection diverges from the EU rulebook in the years to come.
The paper reveals the UK is hoping to persuade Brussels to reach early agreement on an unprecedented new mutual recognition model which would respect Britain's sovereignty and remove uncertainty over whether it can maintain adequacy status.
The CBI has warned Britain's multibillion-pound digital economy is "at risk of isolation" as a result of Brexit unless the Government secures a transition agreement avoiding interruptions to the flow of data.
And trade body TechUK has said securing a watertight legal framework for the industry post-Brexit will "take time". Previous adequacy agreements with non-EU countries have taken 18 months or more to conclude.
The new Government document, published ahead of the third round of formal Brexit talks in Brussels next week, acknowledges uncertainty over the future data relationship between the UK and EU "may force businesses on both sides to incur unnecessary expense and time in contingency planning or put them under pressure to renegotiate what may be less favourable contractual arrangements".
It warns any disruption in cross-border data flows would be "economically costly" to both the EU and UK, and new restrictions on the exchange of information would "harm both economies".
The EU data economy is forecast to be worth 643 billion euro (£592 billion) by 2020, and the CBI says the sector could soon reach a value of £240 billion.
Sharing personal data is also essential to the fight against terrorism and serious crime, the Government paper states.
The paper calls for early UK-EU agreement on mutual recognition of data protection frameworks, with an agreed timeline for longer term arrangements.
And it seeks assurances that flows of data between the UK and non-EU countries with adequacy agreements - such as the US, Canada and New Zealand - can continue on the same basis following Brexit.
It makes clear that current EU directives on data protection will be written into UK law and calls for Britain's Information Commissioner Office (ICO) to continue to take full part in discussions with EU counterparts following Brexit.
"Data flows between the UK and EU are crucial for our shared economic prosperity and for wider co-operation, including on law enforcement," said the document, released by David Davis's Department for Exiting the EU.
"It is therefore essential that as part of the UK's future relationship with the EU, we agree arrangements that allow for free flows of data to continue based on mutual trust in each other's high data protection standards."
The CBI's director of innovation Tom Thackray said: "In the short term, a seamless transition deal is necessary to protect the free flow of information and provide legal certainty to businesses and consumers.
"If no transition deal is agreed, the UK's potential £240 billion data economy is at risk of isolation."
TechUK deputy chief executive Antony Walker welcomed the Government's proposals for a mutual adequacy agreement as " the only reliable mechanism for tackling this problem".
"While the Government's approach appears to be the right one, securing an adequacy agreement will not be easy," he said.
"It will require difficult and sensitive issues around the UK's surveillance powers to be discussed between the UK and the EU.
"The experience of the USA in creating the Privacy Shield shows that these issues can be overcome, but doing so will take time and a commitment on both sides to do the hard work necessary to reach an agreement."
Labour MP Chris Leslie, a leading supporter of the Open Britain campaign against hard Brexit, said: "The Government's position seems to be that everything should change and yet stay the same. It is just having our cake and eating it again.
"This is likely to be impossible, especially in light of the Government's decision to leave the single market.
"And ministers need to explain how their decision to keep all the EU's existing rules on data, and the importance of the European Court of Justice in governing the EU's relationship on this issue with other countries, can be squared with their rhetoric about taking back control of our laws."