Japan, Australia said to clinch trade deal as US-Tokyo talks heat up

TOKYO (Reuters) - Japan and Australia clinched a basic trade deal to cut import tariffs, the Australian media reported, as United States and Japanese officials stepped up efforts to reach a parallel agreement that would re-energise stalled talks on a broader regional pact.

The agreement between Tokyo and Canberra comes as the US and Japan push for their own two-way trade deal - a key component of a broader US-led Trans-Pacific Partnership (TPP) pact, before a visit later this month by President Barack Obama.

"After seven long years of negotiation this historic agreement has been concluded," Australian media quoted Australian Trade Minister Andrew Robb as saying in Tokyo.

Monday's bilateral deal, which is expected to be formally announced after a summit later in the day between Australian Prime Minister Tony Abbott and Japanese Prime Minister Shinzo Abe, features cuts to Tokyo's tariffs on Australian beef and an end to Canberra's duty on cars, major newspapers reported earlier.

A deal with Australia that allows Japan to keep even reduced tariffs on politically-sensitive agricultural products such as beef would give Tokyo ammunition against US demands to scrap tariffs in the TPP deal, which aims to remove import levies, experts said.

Such a deal means "Australia gets preferential treatment over the US, and America will be under pressure to strike a TPP deal short-term that puts it on a level playing field with Australia", said Professor Aurelia George Mulgan, a professor of Japanese politics at the University of New South Wales.

Japan will agree to cut its tariffs on Australian beef to below 30 per cent from the current 38.5 per cent and Australia will scrap its 5 per cent duty on small and mid-sized Japanese cars, the media reports said, citing unnamed sources.

Canberra had a lower hurdle on tariffs for Japanese cars after Australia's three remaining carmakers - Toyota Motor Corp, General Motors Corp and Ford Motor Co - decided to quit Australian domestic production by 2017 due to high costs and a strong Australian currency.

US Trade Representative Michael Froman leaves on Monday for Tokyo, his office said. He will meet with Economy Minister Akira Amari on Wednesday, the Japanese media said, in a bid to break a bilateral stalemate bogging down the 12-nation TPP talks.

Washington and Tokyo are each urging the other to be more flexible on the sticking points of access to Japan's farm and car markets and US tariffs on imported cars and trucks.

The TPP is a centrepiece of Mr Obama's push to expand the US presence in Asia. The talks have entered their fifth year. The Japanese and US economies dominate the grouping, which encompasses one-third of global imports and exports.

"What is going on is a game of chicken," Prof Mulgan said. The US and Japan "want an agreement but they are not prepared to pay a high price. Japan knows that America wants it on board because TPP without Japan is not worth all that much. Japan is playing hardball". The United States wants Japan to open its rice, beef and pork, dairy and sugar sectors - areas Mr Abe has vowed to defend.

Japan wants a timetable on US promises to drop tariffs of 2.5 per cent on imports of passenger cars and 25 per cent on light trucks.

Advocates say the TPP could accelerate global economic growth, boost US exports and level the playing field between emerging and rich nations in. The TPP talks, including Canada, Mexico, New Zealand, Malaysia and others, missed a deadline for an agreement by the end of last year.

Mr Abe and Mr Abbott are also stressing their countries' close security ties as Tokyo seeks tighter relations with regional partners to cope with a rising China.

In a symbolic gesture, Mr Abbott became the first foreign leader to attend a special session of Japan's National Security Council, set up last year to coordinate policies.

"Tony, you are the very first foreign leader to attend our session at Japan's national security council," Mr Abe said.

"I think this fact that we are having this session with you signifies the fact that there is a strong bond of trust between Japan and Australia," he said.