UPDATE 2-U.S. chides Japan over auto scrappage program

* Michigan lawmaker urges push to open Japan's auto market

* Japan says car choices based on local mileage standards

(Adds Japan embassy comment, other details)

By Doug Palmer

WASHINGTON, Feb 3 (Reuters) - The United States criticized Japan on Wednesday for excluding too many American cars from its auto scrappage program in a sign of mounting frustration over problems U.S. automakers have long faced in that country.

"We are disappointed with Japan's announcement today to limit the number of U.S. auto models that qualify for its "cash-for-clunkers" program," U.S. Trade Representative Ron Kirk said in a statement.

"This is particularly unfortunate in light of its recent announcement to open opportunities for U.S. autos to qualify for its program, which was a welcome step," Kirk said.

Meanwhile, the chairman of the House of Representatives Trade Subcommittee said he looked forward to working with President Barack Obama's administration "to open what has been an essentially closed market for the U.S. auto industry."

"We need to vigorously engage with Japan in order to secure greater access for U.S. auto exports in that country's market," said Representative Sander Levin, a Democrat from the hard-hit auto manufacturing state of Michigan.

The dispute over Tokyo's Eco-friendly Vehicle Purchase Program comes as U.S. automakers take advantage of a drop in sales by Toyota Motor Corp (7203.T) on the heels of its recall of eight models because of faulty accelerators.

LONG-HELD COMPLAINT

Toyota's U.S. sales fell 16 percent in January to its lowest level in four years, allowing rivals Ford Motor Co (F.N) and General Motors Corp [GM.UL] to regain at least temporarily some U.S. market share lost to the Japanese auto giant.

U.S. automakers have long blamed their failure to make more sales in Japan on unfair trade barriers.

Those complaints came to a head again recently over Japan's fleet renewal program, which they said effectively excluded American cars while last year's $3 billion U.S. cash for clunker program was open to all foreign vehicles.

Japan announced changes last month that it said would allow more U.S. cars to participate in the program.

But Kirk said the list of qualifying U.S. models released on Wednesday by Tokyo fell short of expectations since it was based on U.S. Environmental Protection Agency "city" mileage ratings, instead of "combined city/highway" ratings.

"We will continue to urge Japan to implement its program in a manner that is transparent and as inclusive of U.S. autos as possible. We will also continue to monitor developments closely to ensure U.S. autos indeed benefit from Japan's 'cash-for-clunkers' program," Kirk said.

A lobby group for the "Big Three" U.S. automakers also weighed in, complaining that Tokyo excluded a number of U.S. vehicles that get better mileage than their Japanese counterparts. The Big Three includes Chrysler, now under management control of Italy's Fiat FIAL.MI.

"The fact remains that the new Japanese policy does not provide meaningful market opening, especially in light of Japan earning the OECD (Organization for Economic Cooperation and Development) title this year as the most closed auto market in the industrialized world," said Stephen Collins, president of the American Automotive Policy Council.

But an official at the Japanese Embassy in Washington said the changes announced on Wednesday would allow about half of American cars imported under a "preferential handling procedure" established in 1986 for U.S. automakers to qualify for the scrappage program, compared to zero previously.

Also, he said, Tokyo used EPA's city mileage rating because that best reflected Japan's own system for estimating mileage and actual driving conditions in Japan. "It was really technical, scientific decision-making," the embassy aide said. (Reporting by Doug Palmer; Editing by Doina Chiacu and Eric Walsh)