UPDATE 1-Japan meets most conditions for "vital" EU trade talks -documents

Mon May 5, 2014 9:37am EDT

* EU to decide if talks can continue for deal by end-2015

* Abe due to hold summit with EU in Brussels on Wednesday

* Japan, EU also negotiating trade deals with US (Recasts; adds quotes, economic impact of trade deal)

By Robin Emmott

BRUSSELS, May 5 (Reuters) - The European Union will tell Japanese Prime Minister Shinzo Abe on Wednesday that Brussels is broadly satisfied with Japan's progress in negotiations towards an ambitious free-trade deal, likely allowing talks to continue, according to EU documents.

On the eve of Abe's visit to Brussels, one EU document shows that Japan has complied with, or is in the process of complying with, the majority of its commitments to help reach a trade pact that could encompass a third of global economic output.

Doubtful of Tokyo's willingness to bring down barriers to European exports, EU trade negotiators were told to pull the plug on talks, which began in April 2013, after a year if Japan did not show sufficient progress in areas from food to cars.

Abe, who arrives on Tuesday night for the EU summit the next day, has touted trade deals with Europe and the United States as crucial for Japan. But he failed to wrap up negotiations with Washington last month because of a pledge to protect Japan's politically powerful farmers.

After five rounds of talks with the European Union, the world's largest trading bloc, EU officials and diplomats say Japan has done enough for the negotiations with Europe to continue, although EU countries will likely decide on May 23.

"Japan has demonstrated it is as serious as any other of our trading partners," said one person close to the issue who declined to be identified. "We should allow talks to continue. If we push Japan too far, we will lose their confidence."

A draft of the EU-Japan summit's final statement seen by Reuters also reaffirms the "vital role that a fully comprehensive and ambitious free-trade agreement could play". Abe has said he hopes to agree the pact by the end of next year.

Potentially one of the world's biggest trade deals, an EU-Japan agreement could lift the economic output of both sides by almost 1 percent, according to the European Commission, at a time when both are struggling to generate growth.

Japan is the EU's seventh-largest export market buying some 70 billion euros ($96 billion) worth of European goods last year. For Japan, the EU ranks as its third-biggest market with shipments of 6.5 trillion yen ($63.57 billion) in 2012.

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

BARRIERS TO CARS

A Japan-EU deal would also fit into an emerging patchwork of sophisticated accords between the world's richest countries as they search for growth following the worst financial crisis in a generation and the failure of global free-trade talks.

The European Union is negotiating a separate trade pact with the United States that could generate $100 billion in additional economic output a year on both sides of the Atlantic.

European Commission President Jose Manuel Barroso and European Council President Herman Van Rompuy are expected to relay a message of support to Abe's trade agenda during their 90-minute summit and lunch on Wednesday, although French and Italian carmakers want to keep pressure on Japan.

In its review of Japan's progress in dropping trade barriers, the European Union is still demanding that Japan end preferential tax treatment for domestically produced small-engine cars. European carmakers such as Fiat and PSA Peugeot Citroen say they hamper their access to the Japanese market.

European cars are unable to benefit from Japanese tax breaks because they do not fit the criteria on size and power, an annoyance to Italy and France despite their specialisation in smaller cars.

EU carmakers say other barriers also hinder exports. Japan's use of its own safety and environmental standards rather than international ones adopted by the EU make approvals costly and time-consuming for Europeans.

Brussels is also warning that work to streamline Japan's process of authorising medical devices could take several years. (Additional reporting by Philip Blenkinsop; Editing by Hugh Lawson)

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