by Elisia Yeo =(PICTURE)= ATTENTION - UPDATES ///

KUALA LUMPUR, Aug 23, 2006 (AFP) - Southeast Asian and Japan agreed Wednesday to investigate establishing a giant 16-nation Asian trade bloc, but the two sides must first overcome a wrangle over their own free-trade deal. Japan has proposed a massive new trade zone embracing half the world's population, from the 10-member Association of Southeast Asian Nations (ASEAN) plus China, Japan, South Korea, Australia, India and New Zealand. Despite the lofty goal, Japan and Southeast Asia are embroiled in a row over the shape of an ASEAN-Japan free-trade deal, with the region resisting efforts to bundle together a series of individual agreements, officials said. Japan is also reluctant to cave in to ASEAN demands to invest in sensitive sectors such as forestry and fisheries. But despite the dispute, ASEAN economic ministers meeting here agreed to Japan's plan to carry out a study conducted by academics from the 16 nations into the prospects of an East Asia trade bloc. They also welcomed Japan's proposal to put 10 billion yen (86 million dollars) into setting up the Economic Research Institute, a regional trade thinktank. Japan's Minister of Economy, Trade and Industry Toshihiro Nikai said the new European-style trade zone would benefit from a population of 3.0 billion people and current economic activity of 9.0 trillion dollars. "We are certain it will be to the benefit of all the countries in this region," he said. But with many observers saying such a trade bloc is decades away from reality, he added there was "no need to make any haste" in pushing the integration of the 16 nations which last year formed the East Asia Summit. The talks Wednesday also covered the split in opinion over the ASEAN-Japan free-trade agreement (FTA) which Malaysian Trade Minister Rafidah Aziz said was the top priority. "The ASEAN ministers agreed to the proposal to do the study but however we reiterated that Japan and ASEAN should focus on the expeditious conclusion of the ASEAN-Japan (trade deal) that is to us very important. It can be the basis for a wider regional integration," she said. ASEAN secretary-general Ong Keng Yong said the grouping wants Japan to offer a region-wide FTA, rather than "stringing together" existing pacts forged with individual nations in the grouping. Japan has signed bilateral FTAs with Malaysia, the Philippines, Singapore and Thailand, and Ong said Tokyo wanted to bundle those along with a possible deal with Cambodia, Laos, Myanmar and Vietnam. "We believe it should not be intertwined," Rafidah said. Nikai said the issue was "a challenge which is unprecedented up to now". "This is a matter of how to reconcile the regional agreement and the bilateral agreements," he said. One ASEAN official told AFP that the bloc also wants Japan to invest in its forestry sector -- important to Malaysia and Indonesia -- and fisheries sector -- sensitive to Thailand, Malaysia, Vietnam and Indonesia. The official said that Japanese expertise would help invigorate industry and provide employment for the region's vast population. "For example, ASEAN wants to learn the business on how to can the fish. And in forestry, we do not want Japan to just buy the logs but to share its experience on producing the finished products," he said on condition of anonymity. "But Japan's position is that it just wants trade." ASEAN and Japan agreed in 2002 to work towards a comprehensive economic partnership, including an FTA, and have pledged to try to finish negotiations on the entire deal by mid-2007. ey-jsm/sls/lh