The European Union and South Korea signed a free trade pact on Wednesday, cutting billions of dollars in industrial and agricultural duties despite EU carmakers' fears of a surge in cheap imports.
The deal should come into force on July 1, 2011 but still needs the approval of the EU parliament. European carmakers are still hoping lawmakers will ensure safeguards for their industry. Italy, were automaker Fiat is based, long held up the agreement to get such guarantees.
The pact, three years in the making, was signed Wednesday at an EU-South Korea summit and European Commission President Jose Manuel Barroso called it "by far the most important trade deal ever concluded by the European Union with one country."
South Korean President Lee Myung-bak, said the "free trade agreement will have great economic benefits" for both sides.
The next challenge, however, will be to get it through the EU legislature ahead of next summer — the car industry is worried about a huge trade deficit with Korea and will be looking for more effective measures to protect itself from cheaper imports from Hyundai Motor Co. and Kia Motors.
South Korea exported 303,205 vehicles to the EU in 2009, according to the Korea Automobile Manufacturers Association. By contrast, EU automakers exported only 40,097 vehicles to South Korea.
Overall, the EU is South Korea's second-largest export destination, and the Asian country is the bloc's eighth largest trade partner, according to figures from the European Commission. EU trade with South Korea exceeded €65 billion ($84 billion) in 2008.
The European Commission estimates the deal will see the elimination of €1.6 billion ($2.1 billion) worth of industrial and agricultural duties for European exporters to South Korea. The EU will cut some €1.1 billion of duties for Korean importers.