Japan's readiness to join Asia-Pacific free trade talks gave a major boost on Friday to President Barack Obama's drive to assert U.S. leadership in the world's most economically dynamic region and promote growth at home.
Obama is seeking to reset his relations with Pacific nations and offer a counterweight to China's growing power at the Asia-Pacific Economic Cooperation leaders' summit this weekend in Honolulu, the city of his birth.
With Europe's debt crisis sending shock waves around the globe, the annual gathering of APEC's 21 members -- who account for more than half of the world's output -- was also shaping up as a forum to press the euro zone to sort out its problems and for APEC countries to bolster defences against the fallout.
Setting the tone, U.S. Secretary of State Hillary Clinton opened ministerial talks by warning: The stakes are high for all of us.
U.S. officials had reason to be upbeat after Japanese Prime Minister Yoshihiko Noda announced in Tokyo that the world's third-largest economy wanted to join U.S.-led talks to forge a Trans-Pacific Partnership among nine countries.
Incorporating Japan and concluding a deal would create a regional market around 40 percent bigger than the 27-nation European Union.
Tokyo's move marked a breakthrough in Washington's efforts to create a new free trade area and seize the initiative from Beijing, which has made deep economic inroads in the region.
As a trading country that has built its prosperity of today, we must take advantage of growth in the Asia-Pacific region, Noda said in Tokyo before leaving for the summit.
While welcoming the decision, U.S. Trade Representative Ron Kirk insisted Japan must be prepared to meet the high standards of liberalized trade the talks are striving for by reducing barriers to agriculture, services and manufacturing.
This may prove to be a high hurdle for Japan, where farmers have protested against removing protectionist measures.
Japan also must overcome scepticism in the U.S. Congress and among American business and labour leaders over whether it will be truly committed to a level playing field on trade.
At least one major U.S. company, Ford Motor Co, said it opposed letting Japan into the pan-Pacific negotiations because it believes Tokyo is not prepared to address its barriers that block imports of American cars.
Australia hailed Japan's interest in a comprehensive agreement, with Trade Minister Craig Emerson calling it an extremely positive development.
EXECUTIVES APPLY PRESSURE
Asia-Pacific chief executives, also meeting in Honolulu, pressed world leaders to step up free trade initiatives.
Business leaders advising the APEC summit said a volatile and uncertain economic environment was discouraging private sector investment and could spawn protectionist sentiment.
With Europe in danger of slipping into recession and U.S. growth sluggish, Asia represents the best bet for keeping the world economy on track.
Senior officials drafting an APEC communique agreed on Thursday on the need for Europe to act more forcefully to sort out its debt woes and for Asia-Pacific countries to bolster themselves against the potential spillover from the euro zone.
But there was no sign the summit would offer any concrete measures to help the euro zone cope with its crisis.
Europeans have to ... provide a clear picture and provide a solution and put their hands around their own issues, and the international community is willing to help, Zhu Min, deputy managing director of the International Monetary Fund, said in Honolulu.
APEC leaders, who begin meetings on Saturday, are expected to keep the heat on China over what many see as an artificially undervalued yuan that hurts competitors like the United States.
Finance ministers pledged to take steps to strengthen growth and move faster towards market-based pricing of their currencies. The currency issue has been a major irritant between Washington and Beijing.
Despite the APEC statement, China's deputy finance minister Wang Jun offered little prospect for a faster appreciation of the yuan.
Facing current economic conditions, the Chinese government will continue to adopt proactive financial policy and stable currency policy, Jun said, according to the state news agency Xinhua.
But he did commit to quicken the pace of China's move over the longer term towards a domestic consumer market, in balance with its export-driven economy.
China will accelerate the transformation of the mode of economic development, strive to build a long-term and effective mechanism to broaden domestic demand and boost consumption, while continuing to stabilise and expand external demand, and actively expand imports, Jun said.
(Writing by Stella Dawson and Matt Spetalnick; Additional reporting by Kiyoshi Takenaka and Michael Martina; Editing by John O'Callaghan)