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KUALA LUMPUR, Malaysia -- Japan on Wednesday proposed creating a 16-nation free trade area including itself, China, India and Australia and covering more than half the world's population.

Tokyo wants experts to begin a study next year on the trade zone that would also include SouthKorea, New Zealand and the 10-member Association of Southeast Asian Nations, according to Toshihiro Nikai, Japan's economy, trade and industry minister. The zone would bypass the United States, Japan's foremost trading partner.

Southeast Asian ministers gave the idea cautious support, but urged Tokyo to focus first on completing its free trade negotiations with the ASEAN group.

"ASEAN countries expressed their interest and support...it will be discussed in detail between now and the end of the year," Nikai said after talks with ASEAN trade ministers.

The 16-nation zone Japan proposed has a combined population of 3.1 billion people and gross domestic product of almost $10 trillion a year.

U.S. Trade Representative Susan Schwab urged caution.

"The U.S. is very interested in the region commercially in terms of our trade agreements and if there are comprehensive regional agreements that are going to further open trade ... I think its a good idea," said Schwab.

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"But, if for example, you start excluding sensitive items like agriculture, exclude textiles or certain products and sectors, at that point you start institutionalizing barriers that are going to affect everybody multilaterally as well."

Agriculture - and access to markets in key producers - is a contentious issue globally, and is partly responsible for the failure of World Trade Organization talks last month.

Japan has also proposed setting up of a research center - with funding of about $86 million over a decade - to explore the possibilities of future economic collaboration between Japan, its ASEAN partners and other nations.

Malaysian Trade Minister Rafidah Aziz said Japan's proposal "is all right" but it must first move to conclude free trade talks with ASEAN before such an expanded regional economic collaboration can be discussed.

She said ASEAN's 10 members are open to Japan's call for an exploratory study, but that it should not derail its own talks. The deadline for concluding a Japan-ASEAN collaboration is mid-2007, Rafidah said.

"All the basic principles are there," she said. "Japan and ASEAN will prioritize (its free trade pact), that is very important to us."

Both Nikai and Rafidah admitted there were differences as to how to conclude the pact.

The sticking point, Nikai said, was reconciling Japan's free trade pacts with individual ASEAN members with one that encompasses the region.

ASEAN already has similar agreements with China and SouthKorea.

ASEAN members include Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Singapore, Thailand, the Philippines and Vietnam.

© 2006 Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten or redistributed.

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