By Stanley White and Kaori Kaneko
TOKYO (Reuters) - Japan rejected U.S. demands for more access to Japan's car market on Friday, casting doubt over whether it can avoid friction over autos and agriculture imports at high level bilateral talks on economic relations next month.
The joint economic dialogue, to be chaired by Deputy Prime Minister Taro Aso and U.S. Vice President Mike Pence, could re-write ties between the world's largest and third-largest economies.
"We do not impose import tariffs on cars, and we do not impose any non-tariff barriers," Chief Cabinet Secretary Yoshihide Suga told reporters.
"Our position is that Japan's auto market is already open. This is something that will be settled in our bilateral dialogue."
Suga issued the rebuff after the U.S. government submitted a statement to the World Trade Organization on Wednesday saying "a variety of non-tariff barriers impede access to Japan's automotive market."
The U.S. government also said Japan's agriculture sector remains protected by "substantial" barriers, giving the clearest indication yet of where battle lines will be drawn in the upcoming bilateral talks.
In 2015 the U.S. government submitted a similar statement to the WTO as part of a regular review of Japan's trade policies, but this year's statement could carry more weight given the new U.S. administration's emphasis on renegotiating trade deals.
Japanese officials have indicated that they would prefer the talks focused on infrastructure, foreign direct investment and energy to avoid more thorny issues like autos and agriculture.
Japan had already agreed to gradually lower tariffs on U.S. beef and pork for the Trans-Pacific Partnership (TPP), a multilateral trade deal that was left in tatters after U.S. President Donald Trump withdrew from the pact.
The new U.S. president has clearly indicated that he prefers to curb free trade to protect U.S. jobs, raising fears of a return to trade friction that marred U.S.-Japan relations in the 1980s.
Trump also rattled Japanese policymakers by criticizing the small number of U.S. auto exports to Japan shortly after taking office in January.
If pressed on agriculture, Japan could fall back on some parts of the TPP agreement, some economists say.
"The U.S. would like to increase agriculture exports, but Japan has already made some concessions for the Trans-Pacific Partnership," said Daiju Aoki, economist at UBS Securities.
"If the United States uses taxes to curb auto imports, that would severely damage Japan's auto industry. I hope this can be avoided."
Autos, which have been a source of trade friction before, could be more difficult. Trump has sent mixed signals on whether he supports a Republican proposal to use a border tax to lower imports of specific goods.
The potential damage to Japan's economy would be significant because it relies on its auto sector to drive exports and create jobs domestically.
