UPDATE 1-Japan-EU agree to free trade talks; autos a flashpoint

Mon Mar 25, 2013 9:07am EDT

* First round of formal talks scheduled in April

* Auto sector seen as one of key issues

* European carmakers sceptical about Japan's opening up (Update with EU Trade chief quote)

By Kaori Kaneko and Robin Emmott

TOKYO/BRUSSELS, March 25 (Reuters) - Japan and the European Union agreed on Monday to launch talks on one of the world's most ambitious trade deals despite opposition from European carmakers, a test of how far both sides are willing to go in their hunt for economic growth.

Japanese Prime Minister Shinzo Abe, European Commission President Jose Manuel Barroso and European Council President Herman Van Rompuy discussed the plan by phone after Brussels postponed an EU-Japan summit scheduled in Tokyo due to the crisis in Cyprus.

"The leaders decided to launch negotiations for an agreement covering political, global and sectoral cooperation," Abe, Van Rompuy and Barroso said in a joint statement, adding talks should start in April.

Brussels and Tokyo want to deepen a relationship that encompasses a third of global economic output but is hampered by regulations closing industries to outsiders.

A breakthrough - and any resulting benefits for growth - will not come quickly.

The talks are expected to take around three years, with Japan seeking to win greater access to the EU market of 500 million consumers for its cars, electronics and investment. The Europeans hope for more business in lucrative Japanese markets such as processed food and railways.

"The (free-trade deal) should be deep and comprehensive, addressing all issues of shared interest in order to stimulate economic growth both in Japan and in the EU and to contribute thereby to the development of the world economy," the leaders said.

The world's third-largest economy, Japan is the EU's seventh largest export market, buying 69 billion euros ($89.68 billion) worth of European goods in 2011.

For Japan, the EU ranks as its third-biggest market with shipments of 6.5 trillion yen ($68.79 billion) in 2012. The European Commission believes a free-trade deal could lift the economic output of both sides by almost 1 percent each.

Japan already has low or zero import tariffs on EU goods, with no duty on cars, Scotch whisky or French cognac for instance, so the real prize for Europe is removing special regulations on everything from music to imported cars.

Reform-minded Abe, who was elected in December, has so far given positive signals his government is ready to move, allowing two European companies to join bidding for Tokyo railway contracts.

His decision to join the proposed Trans-Pacific Partnership that would link Asia, the United States, Australia with several Southeast Asian and South American nations is seen as another step to opening Japan's economy to unlock long-stalled growth.

SCEPTICISM IN EUROPE

European carmakers doubt Tokyo's commitment to opening up its market.

"We're more than deeply sceptical. There's not a single foreign (car) manufacturer in Japan, so there's really no possibility to enter the market," Stephen Biegun, Ford vice president of international governmental affairs, told Reuters.

At first sight, the EU market is more protected than Japan's, with a 10 percent tariff on imported Japanese cars and 22 percent on trucks.

But EU carmakers say numerous barriers hinder exports. One is Japan's use of its own safety and environmental standards rather than international ones adopted by the EU, which makes approvals costly and time consuming.

Another contentious issue is Japan's category of "light" cars. These benefit from tax breaks, but most small European cars do not fit the category's criteria on size and power.

Such rules particularly annoy France and Italy, whose automakers specialise in smaller cars and struggle with foreign competition and a shrinking market at home. Car sales in Europe fell to their lowest level in at least 23 years in February.

EU trade negotiators have been told to pull the plug on talks after a year if Japan does not show sufficient willingness to bring down its "non-tariff barriers".

"It is now important for both sides to stick to the commitments made in the scoping exercise mainly on the continued dismantling of the non-tariff barriers," said European Union trade chief Karel De Gucht, in Tokyo for the announcement. ($1 = 0.7694 euros) ($1 = 94.5 yen) (Additional reporting by Philip Blenkinsop in Brussels; Editing by Tomasz Janowski and Patrick Graham)

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