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Japan takes half-step towards U.S.-led trade pact

By Sumio Ito

TOKYO (Reuters) - Japan said on Saturday it would start talking with other countries about a U.S.-led free trade deal, but stopped short of pledging to formally join negotiations, reflecting its worries over fallout for farmers.

Business leaders have been urging Prime Minister Naoto Kan to offer to join talks on the Transpacific Partnership (TPP), warning Japanese goods could lose their competitiveness if they are left out of the Asia-Pacific trade pact.

But many lawmakers in the ruling Democratic Party fear an adverse impact on Japan's long-protected and politically powerful farmers, and have pressed for further deliberations before formally entering talks.

Unveiling its basic policy on free trade on Saturday, the government said it would gather information and begin consulting with member countries of the proposed TPP framework, but did not say it would enter official negotiations if invited.

Kan will present this policy to other leaders at an Asia-Pacific Economic Cooperation (APEC) summit on Nov 13-14, which Japan hosts and U.S. President Barack Obama will attend.

"We will seek to realize both the opening of our country and the revitalization of the agricultural sector," Kan said at meeting of cabinet ministers, according to Kyodo news. "This is the start of our big strategy to create Japan's new prosperity."

EXPANDING GROUP

The TPP started as a trade pact between Singapore, New Zealand, Chile and Brunei, who have since been joined in talks by Australia, Peru, Vietnam, Malaysia, and the United States.

Adding Japan's $5 trillion economy would greatly increase the potential market-opening gains of the proposed pact. But it could also complicate the negotiations, since Tokyo would not only have to free up agriculture but address U.S. concerns that planned postal system reforms will hurt private competitors in the insurance, banking and express delivery sectors.

In a statement outlining its strategy, the government acknowledged that it was "falling behind" as other countries raced to form trade deals, and stressed the need to forge new alliances to spur economic growth.

It said Japan would step up efforts to finalize talks on Economic Partnership Agreements (EPA) with Australia and Peru and restart suspended negotiations with South Korea on an EPA.

It would also work toward a three-way free trade pact with China and South Korea as well as other economic alliances in Asia, while looking to enter talks soon with the European Union.

Japan's previous trade deals have left out the heavily protected farm sector, which holds considerable political clout due to an electoral system that places a greater weight on rural votes.

Supporting farmers is a sticking point with the TPP, which would in principle eliminate all tariffs within the zone.

The government said it would set up a task force chaired by the prime minister to reform and support the agricultural sector, with a basic strategy to be hammered out next year.

(Reporting by Sumio Ito; Writing by Nathan Layne; Editing by Mark Trevelyan)

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