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* Japan could take part in TPP talks in July
* TPP key to "third arrow" of "Abenomics" policy
* Japan's Abe over-rode farm lobby on TPP
* U.S. to phase out auto tariffs over long period
By Kaori Kaneko and Doug Palmer
TOKYO/WASHINGTON, April 12 (Reuters) - Japan and the United States on Friday agreed on a deal paving the way for Tokyo to join talks on an Asia-Pacific free trade agreement, increasing the economic weight of the proposed pact and triggering a loud protest from U.S. automakers.
The deal brings Japan closer to entering talks on the Trans-Pacific Partnership (TPP), which the United States, Canada, Mexico, Peru, Chile, Vietnam, Malaysia, Singapore, Brunei, Australia and New Zealand hope to finish this year.
"I think Japan's national interests are protected under this U.S.-Japan agreement," Japanese Prime Minister Shinzo Abe told reporters on Friday after a meeting with Cabinet ministers.
Abe, who took office in December, is making the regional free trade pact a keystone of his strategy to open Japan's economy and spur long-sought growth.
He is pursuing the agreement, despite fierce opposition from Japan's politically powerful farm lobby, as part of a "third arrow" in his "Abenomics" policy triad, after fiscal spending and drastic monetary policy easing.
President Barack Obama's administration sees the TPP as part of U.S. economic rebalancing toward Asia.
"Having Japan in TPP and contributing to the high standards of TPP is good for the U.S., it's good for the Trans-Pacific Partnership as a whole and its very good for the multilateral trading system itself," Mike Froman, White House international economic affairs adviser, told reporters in Washington.
With the entry of Japan, the world's third-largest economy and fourth-largest U.S. trading partner, the final TPP pact is expected to cover nearly 40 percent of global economic output and one-third of all world trade, Froman said.
The United States also plans to launch free-trade talks with the 27-nation European Union in coming months. With world trade talks dead in the water, regional initiatives have become the main forum for trade liberalization.
The TPP talks have been under way for three years and Japan hopes to participate in the negotiations beginning in July. But that requires a formal decision by all 11 countries currently taking part in the talks.
The U.S.-Japan agreement was applauded by the U.S. Chamber of Commerce and the Business Roundtable, but it got a chilly reaction from Detroit-based automakers that have lost substantial market share to Japanese competitors over decades.
Ford Motor Co has fought hard to keep Japan out of the pact, arguing the U.S. ally has repeatedly failed to follow through on promises to import more cars, and that the Japanese government has been driving down the value of the yen to help its automakers export more cars.
"It is stunning that the U.S. government would endorse a trade policy that puts the industry at a competitive disadvantage and comes at the cost of American auto jobs," Matt Blunt, president of the American Automotive Policy Council, said in a statement on the U.S.-Japan deal. "We urge the administration to reconsider its position."
The United Auto Workers said it was concerned that U.S. government efforts that helped the U.S. auto industry recover in recent years "could be threatened by Japan's entry into Trans-Pacific Partnership (TPP) negotiations."
"Despite decades of efforts by Japan's trading partners to open the Japanese market to imported automobiles, Japan remains the most closed automotive market in the world, with import penetration of less than 6 percent, despite a Japanese automotive import tariff that is already at zero percent," the union group said.
Powerful U.S. lawmakers from Michigan, the traditional heart of the U.S. auto sector, also expressed concern.
Representative Dave Camp, the Republican chairman of the House of Representatives Ways and Means Committee, said he would not support Japan's entry into TPP without "airtight assurances" it will address longstanding barriers to U.S. auto, insurance and agricultural exports.
Representative Sandy Levin, the top Democrat on the Ways and Means Committee, who is also from Michigan, said the deal announced on Friday "does not provide an adequate basis for Japan's entry into the Trans-Pacific Partnership."
Levin vowed to use the next several months to push for tougher preconditions for Japan to join the talks.
U.S. trade officials said Tokyo agreed to a separate set of negotiations, in parallel with the TPP talks, focused on a number of regulatory and non-tariff barriers believed to keep U.S. autos out of the Japanese market.
"For the first time ever, we have the opportunity to negotiate a resolution of these issues in a way that is subject to binding and enforceable dispute settlement," Acting U.S. Trade Representative Demetrios Marantis said.
Japan also agreed the United States could phase out its auto tariffs, which are 2.5 percent on cars and 25 percent on trucks, over the longest period possible in the future TPP deal.
Levin criticized the commitment in that area, saying any phase-out of the U.S. tariffs should be linked to measurable improvement in sales of U.S. cars in Japan.
The Japanese Automobile Manufacturers Association welcomed Friday's announcement, but said the protracted process for eliminating U.S. tariffs was "regrettable."
"We look forward to the Japanese government's entering the TPP negotiations on a sure footing of promoting national interests and taking into account the views of our industry," said Akio Toyoda, the group's chairman.
Tokyo also pledged to expand its "preferential handling procedure" for imports, a simpler and faster certification method used by U.S. auto manufacturers to export to Japan.
That would allow U.S. companies to export up to 5,000 vehicles of each type of vehicle under the program, compared with the current annual ceiling of 2,000 for each vehicle type.