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* Countries reaffirm "all goods" subject to negotiation
* Statement acknowledges Japan's "sensitivities" in agriculture
* Senior U.S. Democrat calls joint statement "worrisome"
By Doug Palmer
WASHINGTON, Feb 22 (Reuters) - The United States and Japan on Friday agreed on language aimed at giving Japanese Prime Minister Shinzo Abe political cover to bring the world's third-largest economy into negotiations on a U.S.-led free trade agreement in the Asia Pacific region.
In a carefully worded statement following Abe's meeting with President Barack Obama, the two countries reaffirmed that "all goods would subject to negotiation" if Japan joins the talks with the United States and 10 other countries.
At the same time, the statement leaves open a possible outcome to the Trans-Pacific Partnership, or TPP, talks where the Japan could still protect its rice sector and the United States could keep duties on Japanese autos.
"Recognizing that both countries have bilateral trade sensitivities, such as certain agricultural products for Japan and certain manufactured products for the United States, the two governments confirm that, as the final outcome will be determined during the negotiations, it is not required to make a prior commitment to unilaterally eliminate all tariffs upon joining the TPP negotiations," the statement said.
Jeffrey Schott, a senior fellow at the Peterson Institute for International Economics, called the joint statement "a big step forward" in the process of determining whether Japan will join TPP talks, which members hope to finish this year.
"The United States and Japan agreed that the deal has to be comprehensive, but you don't commit to the final terms before you even get into the negotiations," Schott said.
But Representative Sander Levin, the top Democrat on the powerful House of Representatives Ways and Means Committee, called the statement "worrisome" and warned any agreement that includes Japan would not pass Congress unless it truly pries open that country's farm and automotive markets.
Abe, who is on his first trip to Washington since taking office in December, has vowed to revive Japan's economy with an expansive monetary policy, big spending and structural reform.
Joining the TPP talks could help with the third task by exposing Japanese companies and farmers to more competition.
But Japanese rice and other farmers who have long enjoyed high tariff protections are opposed to Tokyo entering the talks, and Abe curried their favor during his campaign last year by promising not to unilaterally agree to eliminate tariffs on certain sensitive products.
The current TPP members - United States, Canada, Mexico, Australia, New Zealand, Chile, Peru, Singapore, Malaysia, Vietnam and Brunei - have pledged to negotiate an agreement that eliminates tariffs in as many areas as possible.
To accomplish that goal they have agreed not to exclude any sectors or products from the negotiations.
That stance also worries Ford Motor Co and the United Auto Workers, which have pressured the Obama administration not to allow Japan into the talks until Tokyo makes reforms to open its market to more auto imports.
Although Japan already has no auto tariffs, Ford and the UAW argue that the country relies on regulatory and other non-tariff barriers to keep out auto imports.
The U.S.-Japan joint statement said the two governments would continue their discussions on the possibility of Japan joining the TPP talks.
"While progress has been made in these consultations, more work remains to be done," in areas such as autos and insurance, the joint statement said.
A final decision to allow Japan into the negotiations would have to be made by all the current TPP members.
Additionally, the White House would have to give Congress 90 days notice before starting talks with Japan.