UPDATE 3-EU, Japan to seek trade deal despite carmaker fears

* Agreement comes after concerns from France, Italy

* EU car industry fears influx of Japanese cars

* Negotiations could take several years

BRUSSELS, Nov 29 (Reuters) - EU trade ministers overcame

resistance from the car industry on Thursday and agreed to start

negotiations to create a free-trade pact with Japan, Europe's

most ambitious step so far in a strategy to tie up deals with

the world's biggest economies.

Agreement was reached only after France and Italy secured

safeguards for carmakers that are already cutting jobs because

of falling demand at home and worry a deal could lead to greater

Japanese imports and damage the industry.

EU negotiators were told they should pull the plug on the

talks - expected to last two or three years - if Tokyo failed to

remove the barriers to trade that Europeans say make it hard to

do business in Japan.

The country already has low or zero import tariffs, with no

duty on Scotch whisky or French cognac for instance, and the

real prize for Europe is removing special regulations on

everything from music to imported cars.

"Let's not be anxious, Europe is not naive, Europe is going

into this negotiation with our eyes wide open," EU trade chief

Karel De Gucht told a news conference.

Struggling to resolve a three-year debt crisis, Europe's

push for an accord is part of its ambition to supplement

stagnant domestic consumer demand with free-trade pacts with

major economies.

A deal with South Korea came into effect last year, one with

Canada is near completion, and preliminary talks are underway

for an agreement with the United States.

Japan was the European Union's seventh-largest trading

partner in 2011, accounting for 116 billion euros ($151

billion)in goods trade. The EU and Japan are together

responsible for a third of global economic output.

The Japanese business group Keidanren welcomed the deal.

"We want negotiations to start rapidly in order to agree a

deal quickly," it said in a statement. "We want (the Japanese

government) to continue to put into effect regulatory and

structural reform."

SUSPICION IN EUROPE

The European Commission - the EU executive, which negotiates

on behalf of the 27 member states - says a Japan trade deal

could boost EU output by up to 1.9 percent, or 320 billion

euros, by 2020, thanks to increased exports including food,

drink and luxury goods. It says that could create 400,000 jobs.

But the EU carmakers' association ACEA estimated a trade

deal with Japan would cost the European auto industry up to

70,000 jobs.

"I don't believe the Japanese have any intention to remove

their barriers to our vehicles," Ivan Hodac, ACEA secretary

general, told Reuters. "It is not clear at all how these

safeguard clauses would work."

On the surface, the EU car market has more barriers than

Japan's, with a 10 percent tariff on imported Japanese cars and

22 percent on trucks, compared to Japan's zero import tariffs.

But EU carmakers say numerous barriers hinder exports, such

as Japan's category of "light" cars. These benefit from tax

breaks, but most small European cars do not fit the category's

demanding criteria on size and power.

Such rules particularly annoy France and Italy, whose

automakers specialise in smaller cars.

France recently requested the Commission monitor the import

of South Korean cars, after the trade deal with Seoul was

accompanied by a surge in European sales for Korean car brands.

Still, France agreed to negotiations after the Commission's

assurances that EU tariffs would only be lowered if Japan's

non-tariff barriers were removed.

French Trade Minister Nicole Bricq said the safeguards

against excessive Japanese car imports were tougher than those

in the South Korea accord, though she did not specify how they

would be implemented.

"The Commission must take into account the needs of

sensitive sectors - carmakers," she told reporters in Brussels,

warning that Paris would fight to defend its industry during

negotiations.

Trade chief De Gucht cited victories over Japanese

regulation that the EU had achieved in preliminary talks, such

as the granting of new liquor licenses to European companies.

British Trade Minister Stephen Green said the complexity of

the European and Japanese economies meant the negotiations would

be very difficult.

"There was a clear recognition that this will be a long and

painful process," he told reporters.

For Japan, a trade deal with the EU could boost economic

output by 0.7 percent, according to the EU estimate.

"Given the potential of the Japan-EU (free-trade pact) to

contribute to economic growth of both sides, Japan will continue

to work towards a high level" agreement, Japanese Foreign

Minister Koichiro Genba said in a statement.

But the plan stirs little passion in Tokyo, where officials

are focused on the proposed Trans-Pacific Partnership that would

link Asia, the United States and Australia.

The country is also distracted by a general election next

month, which looks likely to return to power the long-dominant

Liberal Democratic Party, which has been vaguer about its trade

agenda than the current Democratic Party of Japan government.

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