Japan and Malaysia on Tuesday signed a free trade agreement that removes tariff barriers on 97% of their trade and commits Malaysia to open its car industry to Japanese products over 10 years.

Reuters said Malaysia is Southeast Asia's biggest passenger car market, and the pact, a part of Tokyo's bid to create a free trade zone with the region, was reached after haggling over tariffs on Japanese cars set by Malaysia to protect its vehicle industry.

"The 'national car' was a very sensitive topic," one Japanese official told the news agency, referring to Malaysia's policy.

The FTA, signed on the sidelines of a summit of the 10-member Association of South East Asian Nations in the Malaysian capital, also binds Malaysia to eliminate or cut import duty over the next 10 years on chemicals, petrochemicals, steel and paper products, Reuters added.

"Progressive liberalisation ... will make Malaysia an automotive production hub," the country's trade ministry said in a statement cited in the report.

Earlier on Tuesday, Japanese Prime Minister Junichiro Koizumi and ASEAN leaders reaffirmed their efforts to conclude talks on a Japan-ASEAN free trade agreement by April 2007, Reuters said, adding that Tokyo has already reached a basic deal on a free-trade pact with the Philippines and Thailand, and is working towards one with Indonesia, all three of which are members of ASEAN.

On Monday, Koizumi also agreed to start initial talks for FTAs with the leaders of Vietnam and Brunei, also ASEAN members, the report added.

Analysts reportedly said Japan has become increasingly keen to enter such talks, hoping not to lose out to its rival China which appears to have pulled ahead after a 2002 pact establishing a framework for FTA talks with ASEAN.

Tuesday's pact is part of a broader Japan-Malaysia Economic Partnership Agreement, which is Japan's third, following two with Singapore and Mexico, but the first for Malaysia, Reuters said.

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