By Leika Kihara
WASHINGTON (Reuters) - The United States and Japan agreed to work together against the rising threat from North Korea but failed to bridge differences on thorny issues of trade during economic talks on Monday, with Tokyo skirting U.S. demands to negotiate a two-way trade deal.
In the second round of bilateral economic dialogues held a month before U.S. President Donald Trump's first trip to Asia, his Vice President Mike Pence and Japanese Deputy Prime Minister Taro Aso emphasized cooperation to deal with Pyongyang's rising nuclear capabilities.
"The United States...will continue to bring the full range of American power to bear on the regime in Pyongyang as we hope to achieve through diplomatic and economic means a peaceable solution and the achievement of the long-sought goal of a nuclear-free Korean peninsula," Pence told Aso during the talks.
Japan agreed to streamline noise and emissions testing procedures for U.S. auto exports, while the two countries lifted trade restrictions on U.S. potatoes and Japanese persimmons.
But the United States and Japan remained at logger-heads on how to frame future trade talks with Tokyo pushing back against U.S. calls, made by Pence, to open up talks for a bilateral free trade agreement (FTA).
"The U.S. side expressed strong interest in U.S.-Japan FTA ... They also voiced interest in ways to cut the U.S. trade deficit," said a Japanese government official.
Japan explained how its companies were creating U.S. jobs through investment and argued against focusing narrowly on the bilateral trade deficit, the official said.
"We will continue to discuss what framework Japan and the United States would create on trade," he told reporters, adding that there was no agreement between the two countries on whether to open up talks for a two-way trade deal.
There was also no agreement on U.S. complaints about Japan's safeguard mechanism on U.S. frozen beef imports. Sources have told Reuters that Tokyo will propose technical changes to the system to reduce U.S. pressure.
"There were some exchanges on the topic today. But discussions are ongoing," the official said.
The talks are shaping up to be a test of whether the close U.S.-Japan relationship can withstand Trump's "America First" trade policies. The Trump administration has said it would like to negotiate a two-way trade deal to give U.S. goods more access to Japanese markets.
Tokyo has shown little appetite to meet U.S. calls to open up its highly protected agricultural markets ahead of a general election on Sunday in which Prime Minister Shinzo Abe's ruling coalition is seeking to win votes from farmers and dairy producers.
Aso had hoped to defuse calls for a bilateral trade deal by cooperating on infrastructure and energy, for fear a two-way trade agreement would expose it to stronger U.S. pressure to open up its politically sensitive farm produce markets.
In Monday's talks, the governments said they agreed to boost cooperation in areas such as transportation, infrastructure development and finance, without elaborating.
No date or venue were set for the next round of dialogue.
Ahead of the talks, analysts said it was unclear whether the two sides could narrow their trade differences.
"Japan has no plan to open talks for a bilateral free trade agreement (FTA) anytime soon," said a Japanese government official with knowledge of the negotiations.
"We may not see much progress as Washington seems to have a lot on their plate," with talks on renewing the North American Free Trade Agreement (NAFTA) also under way, the official said on condition of anonymity as he was not authorized to speak publicly.
(Additional reporting by David Lawder and Roberta Rampton; Editing by Chizu Nomiyama and Sam Holmes)