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Japan eyes U.S.-led free trade pact despite backlash

By Linda Sieg

TOKYO (Reuters) - Japan's economics minister said on Friday that Tokyo should join a U.S.-led Asia-Pacific free trade initiative to keep its firms from fleeing abroad, despite a backlash in the ruling party against the proposed deal.

Japanese firms are pressing the government to forge more trade pacts and catch up with regional rivals such as South Korea. Economists agree such deals are vital to keep more manufacturers from moving overseas, taking jobs with them.

The government is expected to unveil its stance on free trade deals, including the U.S.-led Trans-Pacific Partnership (TPP), ahead of an Asia-Pacific leaders summit next month in Yokohama, near Toyko, which U.S. President Barack Obama will attend.

Many lawmakers in Prime Minister Naoto Kan's Democratic Party of Japan (DPJ), however, are worried about the fallout from such trade deals on long-protected and politically powerful farmers.

"Japan needs to show its intention to join the TPP early ... But some ruling party members are opposed, as there has not been enough debate within the party," Economics Minister Banri Kaieda told a news conference.

"As the yen remains strong, Japanese manufacturers have to produce high value-added products (to stay competitive) ... But their products won't sell in Asian markets if high tariffs are levied," Kaieda said. "Joining TPP would thus be unavoidable in order to keep manufacturing products in Japan."

The yen's surge to 15-year-highs has eroded an export-led recovery and is pushing firms to rethink production plans.

The United States and seven other countries launched talks on a proposed TPP agreement earlier this year and Washington is trying to bring Malaysia on board too. U.S. free trade advocates see the initiative as a way to ensure the United States isn't locked out of regional arrangements.

BUSINESS LOBBY, MP BACKLASH

Japan's biggest business lobby wants Kan to offer to take part in TPP at the November 13-14 Asia-Pacific Economic Cooperation (APEC) summit, where the forum's leaders will discuss a proposed Free Trade Area of the Asia-Pacific covering all 21 members.

"If we miss this chance, Japan will lag far behind other countries in developing an international business environment," business lobby Keidanren said this week, urging Kan to declare his intention to join the TPP talks at the APEC summit.

A free trade deal inked between South Korea and the European Union this month in particular has given corporate Japan the jitters, while rival China is also considered ahead in the race.

The trade pact talk is prompting a backlash, however, among ruling Democratic Party lawmakers reluctant to upset farmers, whose political clout is amplified by an electoral system that gives rural votes more weight than those in urban areas.

"I hope the government will only consider the idea and stop there," former farm minister Masahiko Yamada told reporters after more than 100 lawmakers gathered on Thursday to oppose joining the trade initiative, which also includes Australia, Brunei, Chile, New Zealand, Peru, Singapore and Vietnam.

Many of the lawmakers at the meeting are supporters of Kan's rival, DPJ heavyweight Ichiro Ozawa, who last month lost a leadership race to Kan. Ozawa now faces indictment over a funding scandal but he remains a force in the party.

Chief Cabinet Secretary Yoshito Sengoku, the No.2 in Kan's cabinet, acknowledged the conflicting pressures.

"We must preserve what needs to be preserved from the perspective of food security and national land conservation," he told a news conference, stressing changes were needed to attract young people to a sector whose population is aging fast.

"At the same time, Japan as a country must open up, and as policies for that, there are EPAs (economic partnership agreements) and TPP," he said.

"How to express this is a big issue for the party."

(Additional reporting by Rie Ishiguro, Kiyoshi Takenaka and Yoko Nishikawa; Editing by Joseph Radford)

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