Malaysia and Japan have agreed on a broad economic framework to pave the way for a free trade pact after overcoming major differences over the auto and steel sectors, their ministers said.

"We have now finalised everything," Malaysian International Trade and Industry Minister Rafidah Aziz said at a joint press conference after emergency talks on the pact.

"It will really be a comprehensive economic framework agreement covering all the areas that we both feel we would like to cover," she said.

The deal was reached after Japanese Economy, Trade and Industry Minister Shoichi Nakagawa held talks with Rafidah yesterday in a bid to reach a breakthrough in the free trade agreement (FTA) deal ahead of Malaysian Prime Minister Abdullah Ahmad Badawi's visit to Japan from Wednesday this week.

"What we have decided on will become the basis for agreement in principle by the two prime ministers when they meet in Japan on Wednesday, on the entire thing, the Malaysia-Japan Partnership Agreement, including the FTA," Rafidah said.

The two countries are expected to sign the deal in December this year.

Divided over auto sector

Earlier this month, Japan and Malaysia agreed to reach a basic agreement by the end of May but last week negotiations were deadlocked as the two countries remained divided on the auto sector because Malaysia was reluctant to review its policy to protect its domestic industry.

They were also trying to narrow differences in such areas as auto parts, steel and investment and services.

Malaysia imposes high import and excise duties on imported cars as part of efforts to protect its national Proton and Perodua cars from competition. The two control more than 70 percent of Malaysia's auto market, but face greater pressure from Japanese and Korean carmakers.

The two ministers declined to give details on how differences had been ironed out, but Nakagawa said: "I do think that the trust and confidence between the two prime ministers and between minister Rafidah and myself has led us to this win-win relationship."

"I would say that coverage is comprehensive, it covers all areas, goods, services, even agriculture and economic cooperation," Rafidah said.

"The mechanism for tariff-cutting, tariff abolishment, in terms of FTA, will start as and when it is scheduled to start," she said, adding both sides were "very happy."

Japan already has a free trade agreement with Singapore, which was the first country in a new push to seek trade pacts. Japan's second free trade deal went into force this month with Mexico, seen as a gateway to the US market.

Japan has also reached a draft agreement with the Philippines on a bilateral free trade deal, which would allow Filipino nurses and careworkers to work in Japan. Negotiations are also under way with Thailand.