Chilean President Ricardo Lagos and Japanese Prime Minister Junichiro Koizumi met a day after attending this year's summit of the Asia-Pacific Economic Cooperation (APEC) forum here.

"Japan and Chile are far apart geographically," Koizumi told a joint news conference with Lagos at the presidential office.

"But if we can sign a free trade accord, I'm sure that Japan and Chile will be great partners in the international community," the Japanese leader said.

"Concluding an FTA will be have an extremely positive impact on the development of the two countries."

As a first step, the two countries set up a joint study group to discuss conditions to sign an economic agreement as well as an FTA, a joint statement said.

The study group of government officials, experts, business leaders and journalists will hold its first meeting next year, it said.

"In the 21st century, the Pacific region will be more and more important," Lagos told the conference. "Chile is ready to make a big contribution by playing a role in bridging the two sides."

The announcement came after Chilean Foreign Minister Ignacio Walker and Japanese Foreign Minister Nobutaka Machimura reached a basic accord on the issue on Thursday, officials said.

At the conference, Koizumi brushed aside a concern that a free trade accord, mainly designed to lower tariffs, may cause a trade friction between Chile and Japan, which sets extremely high tariffs on farm products, notably rice.

"There must be a lot of benefit from an FTA as Japan and Chile have reciprocal relations," Koizumi said. "I don't think many frictions will come out."

Japan's major shipments to Chile include cars, motorcycles, auto parts, machinery, while its imports from Chile are copper and fishery products, which annount for nearly 80 percent of Chilean shipments to Japan.

In the third quarter of 2004, Chilean exports to the Japanese market amounted to 2.7 billion dollars. Imports came to 565 million dollars.

Japan is Chile's fourth-largest trading partner.

Japan, now gradually shifting its trade policy from multilateral talks to bilateral negotiations, is competing with its arch-rival China to win their free trade partners.

China agreed with Chile on Thursday to begain formal negotiations on a free trade pact. Beijing has been eager to tap into Latin American energy and mining resources, while remaining one of the main importers of Latin American soybeans and wheat.

On Friday, Japan reached a basic accord with the Philippines on a bilateral free trade agreement.

So far Japan has concluded FTAs with Singapore and Mexico and is currently in bilateral free trade talks with Malaysia, South Korea and Thailand.

During the meeting with Koizumi, Lagos offered his support for Japan's ambitious bid to become a permanent member of the United Nations Security Council, officials said.

The two leaders also agreed to push for stalled World Trade Organization (WTO) talks, while expressing hope for their further cooperation in the global warming issue in line with the Kyoto Protocol.

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