U.S., Japan econ dialogue to seek common ground on thorny trade issues

By Leika Kihara

WASHINGTON (Reuters) - The United States and Japan will seek to find common ground in thorny issues on trade in their second round of bilateral economic dialogue on Monday, with Tokyo showing little appetite to meet U.S. calls to open up its highly protected agricultural markets ahead of a general election this week.

The U.S. delegation led by Vice President Mike Pence has said his administration hopes the dialogue, which kicked off in April, will lead to negotiations on a two-way trade deal that will give U.S. goods more access to Japanese markets.

Deputy Prime Minister Taro Aso, who heads the Japanese team, hopes to diffuse such calls with cooperation on infrastructure and energy, for fear a two-way trade agreement would expose it to stronger U.S. pressure to open up politically sensitive markets like farm products and beef.

While Aso has said he hopes for a "win-win" deal, there is uncertainty on whether the two sides can narrow differences exposed at the first round of talks, analysts say.

"Japan has no plan to open talks for a bilateral free trade agreement (FTA) any time 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.

Pence, Aso and U.S. Commerce Secretary Wilbur Ross will attend the meeting, at which officials will work on topics ranging from trade and investment rules to economic and structural policies. A joint statement will be released later.

TEST OF BILATERAL RELATIONSHIP

Japan will propose changes to safeguard mechanisms on U.S. frozen beef imports, though it is uncertain this would appease U.S. complaints, sources have told Reuters.

The two sides may also discuss U.S. requests to loosen safety and environment requirements for Japan's auto market, though Tokyo is against making any compromise.

The dialogue is shaping up to be a test of whether the close U.S.-Japan relationship can withstand U.S. President Donald Trump's campaign pledge to put "America First".

Japan has little political room for compromise, as premier Shinzo Abe's ruling coalition seeks to win votes from farmers and dairy producers in a general election on Sunday.

Trump campaigned for office saying he would boost U.S. manufacturing jobs and shrink the country's trade deficit. He also abandoned the 12-nation Trans-Pacific Partnership (TPP) and vowed to focus on two-way agreements.

In the first dialogue in Tokyo, Pence said the dialogue could lead to negotiations on a two-way trade deal.

Japan is opposed to two-way talks and negotiating on a TPP deal without the United States.

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