(Adds reaction, background, changes headline)
WASHINGTON, June 19 (Reuters) - New Zealand Prime Minister John Key said on Thursday Japan should be cut out of Pacific trade talks if it will not open its markets to more farm imports, and he urged the Obama administration to hold firm.
Japan has been reluctant to open up agricultural markets such as pork, beef, rice and dairy, and U.S. trade negotiators seem willing to allow the country to keep some protection for sensitive products, upsetting U.S. farmers.
Key, who is visiting Washington, said it was essential to keep a high standard for the Trans-Pacific Partnership (TPP), which would connect a dozen economies by cutting trade barriers and harmonizing standards in a deal covering two-fifths of the world economy and a third of global trade.
All countries had sensitivities, but all signed up to an ambitious, comprehensive deal - including Japan.
"If they can't meet those terms and the other 11 partners can, then we should get on and do a deal with those 11 partners," Key said at a U.S. Chamber of Commerce event, adding that his preference was to keep Japan in.
Rather than accept a deal that does not eliminate tariffs on key products, some U.S. farm groups have also asked for Japan to be excluded from the talks, now in their fifth year.
Trading partners are concerned that too-generous concessions to Japan could have a domino effect and cause the whole agreement to collapse.
Without access to new export markets, smaller TPP countries will have little incentive to accept common standards on issues such as copyright, patents and worker protection.
"If ambition comes down in the agricultural sector, then ambition will be lowered in every other sector, and that means intellectual property, that means (state-owned enterprises), that means everything else because there is always going to be a degree of contentiousness about TPP in every country," Key said.
"If I was part of the dairy sector in the United States, or if I was part of the broader agricultural sector in the United States, I would be at the president's door telling him: 'Sign up to a comprehensive deal with total elimination of tariffs.'"
For their part, U.S. businesses may get little value from the TPP if it does not provide more protection for intellectual property rights and overseas investments.
"The U.S. Chamber welcomed Japan to the TPP negotiating table on the strength of its pledge to put everything on the table - with no exclusions," said Myron Brilliant, the U.S. Chamber's executive vice president. (Reporting by Krista Hughes; Editing by Jonathan Oatis and Steve Orlofsky)