TOKYO - Japan and Malaysia today agreed to launch free trade talks early next year as their leaders met on the sidelines of a Japan-Asean summit here, Japanese officials said.

After Japanese Prime Minister Junichiro Koizumi met his Malaysian counterpart Abdullah Ahmad Badawi , the two issued a joint announcement on "the Japan-Malaysia economic partnership."

It said the upcoming talks "should encompass the broad-ranging areas" discussed by a bilateral study group earlier, "while giving due consideration to the need for flexibility to deal with sensitive areas."

"They (the prime ministers) also decided that the negotiations should begin in early 2004, and be concluded within a reasonable period of time," it added.

Koizumi plays host to the leaders of the 10-member Association of Southeast Asian Nations (Asean) to celebrate three decades of relations.

Japan also agreed with Thailand and the Philippines for starting talks on bilateral free trade pacts.

Sensitive industries

In what is seen as an attempt to counter China's growing influence in the region, the moves seek to open to Japan markets of 165 million people representing an annual 300 billion dollars in economic output.

In exchange, the three countries are looking for free access to the world's second largest economy, worth four trillion dollars a year and home to 127 million people.

No deadlines were set for negotiations to wrap up.

"I hope an FTA (free trade agreement) will promote not only economic relations but also contribute to developing broad friendly relations between Japan and Thailand," Koizumi told Thai Prime Minister Thaksin Shinawatra during a face-to-face meeting, a Japanese briefer said.

Shinawatra replied: "There may be difficult issues but it is important for us to start talks," the briefer said.

Noting that "due consideration" was needed for sensitive industries the two leaders said in a joint statement that "negotiations should begin in early 2004 and be concluded within a reasonable period of time."

Japan's first bilateral free trade agreement, with fellow Asean member Singapore, took effect in November last year. - AFP