Trade, North Korea dominate U.S.-Japan economic talks

By Leika Kihara

WASHINGTON (Reuters) - The United States and Japan made tentative progress on some long-standing trade irritants on Monday, during economic talks at which leaders emphasized cooperation at a time when North Korea is building up its nuclear capabilities.

A month before U.S. President Donald Trump stops in Tokyo during his first trip to Asia - a tour expected to focus on how to further isolate North Korea over its aggressive nuclear program - his Vice President Mike Pence met with Japanese Deputy Prime Minister Taro Aso at the White House.

"The United States of America will continue to bring the full range of American power to bear on the regime in Pyongyang as we hope to achieve through diplomatic and economic means a peaceable solution and the achievement of the long-sought goal of a nuclear-free Korean peninsula," Pence told Aso during the talks.

Aso, noting the two nations' relationship was underpinned by economic ties, said: "The threat of North Korea has never been so imminent, which is why the importance of the U.S.-Japan alliance for peace in the Asia-Pacific has increased."

Japan agreed to streamline noise and emissions testing procedures for U.S. auto exports as part of the Preferential Handling Procedure (PHP) program, Pence and Aso said in a joint statement. Japan also agreed to lift trade restrictions on U.S. potatoes from Idaho, while the United States agreed to lift restrictions on Japanese persimmons.

The talks are shaping up to be a test of whether the close U.S.-Japan relationship can withstand Trump's "America First" trade policies. The Trump administration has said it would like to negotiate a two-way trade deal to give U.S. goods more access to Japanese markets.

Tokyo has shown little appetite to meet U.S. calls to open up its highly protected agricultural markets ahead of a general election on Sunday in which Prime Minister Shinzo Abe's ruling coalition is seeking to win votes from farmers and dairy producers.

Aso had hoped to diffuse calls for a bilateral trade deal by cooperating on infrastructure and energy, for fear a two-way trade agreement would expose it to stronger U.S. pressure to open up its politically sensitive farm product markets.

The governments said they agreed to boost cooperation in the transportation sector, including infrastructure development, financing, and maintenance, and in intelligent transportation systems.

Ahead of the talks, analysts said it was unclear whether the two sides could narrow their trade differences.

"Japan has no plan to open talks for a bilateral free trade agreement (FTA) anytime soon," said a Japanese government official with knowledge of the negotiations.

"We may not see much progress as Washington seems to have a lot on their plate," with talks on renewing the North American Free Trade Agreement (NAFTA) also under way, the official said on condition of anonymity as he was not authorised to speak publicly.

(Additional reporting by David Lawder and Roberta Rampton; editing by Chizu Nomiyama)