Japan and the European Union launched talks on a free trade agreement Monday with a telephone summit held between their leaders, a Japanese minister said.

The telephone talks were in place of a face-to-face meeting between Japan's Prime Minister Shinzo Abe and EU Council and Commission heads Herman Van Rompuy and Jose Manuel Barroso, which was shelved while Europe grappled with debt problems in Cyprus.

"A formal decision to launch free trade negotiations has just been made during a phone conversation between the EU leaders and Prime Minister Abe," Japan's Minister of Economy, Trade and Industry Toshimitsu Motegi said.

The EU and Japan combined account for around a third of global economic activity, EU Trade Commissioner Karel De Gucht said, yet a phalanx of barriers has hamstrung trade.

"Only 3 percent of European foreign direct investment is in Japan; this shows the EU-Japan trade and investment relationship could and should be greatly enhanced," he said.

The EU is feverishly trying to broker bilateral trading agreements with leading world economies the US and Japan as the 27-nation block looks to boost its struggling economy.

Japan is a big prize for exporters, who complain that its large market is heavily weighted in favor of domestic producers, with sometimes eye-watering tariffs and a range of other barriers to entry, which it is seen as unwilling to remove.

De Gucht on Monday said any talks had to produce substantial progress on the tariff issue within 12 months.

"From the European perspective, it's clear to me that dismantling the persistent non-tariff barriers will be the key for the success of the negotiations.

"In order to convince the skeptics, we need to include a review clause in the mandate.

"After one year from starting off the negotiations, I will take stock of the progress made by Japan in implementing the road maps on non-tariff barriers and ... procurement, and if the conclusion would be that the progress has not been satisfactory, the negotiations would be suspended."

Japan's Chief Cabinet Secretary Yoshihide Suga told a news conference earlier in the day that telephone talks would help "secure close communications between the two leaderships."

The telephone conversation was also believed to have included discussion on the outcome of crisis talks on Cyprus.

Nicosia, the European Union, the European Central Bank, the International Monetary Fund and eurozone leaders have agreed a deal that will mean breaking up the island's second largest lender Laiki (Popular Bank), and a hefty levy on deposits above 100,000 euros ($130,000).

Markets feared that failure to reach a deal would have seen the tiny Mediterranean country exit the 17-nation eurozone, with the fallout spreading to other troubled bloc members including Italy and Spain.

AFP