July 13 (Bloomberg) -- South Korea and the European Union concluded negotiations on a free-trade deal that may take effect as early as the first half of next year, the Asian nation said, putting pressure on the U.S. to ratify a similar accord.

South Korea and the 27-nation EU have wrapped up 26 months of talks and a preliminary signing will take place in September after a legal review, South Korean Deputy Trade Minister Lee Hye Min told reporters today in Seoul. Final approval will come in January or February, allowing the accord to take effect “some time” in the first half of 2010.

The partners “are choosing to open our markets rather than protecting them during a time of global economic downtown,” he said. “That speaks volumes to other nations who may be leaning toward protectionism.”

South Korean President Lee Myung Bak’s success in negotiating the EU deal contrasts with the stalling of a similar agreement with the U.S. Neither U.S. nor South Korean legislators have approved the accord and President Barack Obama’s trade representative, Ron Kirk, vowed during his confirmation hearing to alter the agreement on the grounds it “isn’t fair.”

“South Korea’s trade pact with the EU puts pressure on American exporters,” said Kim Deuk Kab, a senior research fellow at Samsung Economic Research Institute. “If Korea’s FTA with the EU gets ratified before that of the U.S., American exporters lose out that much of a competitive edge going forward.”

Betting on Trade

South Korea and the EU are betting a trade deal can help minimize the impact of the global economic crisis, choosing to increase their 76 billion-euro ($106 billion) trade relationship by eliminating tariffs in what will be the largest free-trade agreement for both governments.

“The free-trade agreement will send a strong signal against protectionism globally,” Lee told reporters in Stockholm after meeting Swedish Prime Minister Fredrik Reinfeldt, holder of the EU’s six-month presidency.

A final deal will need approval of EU governments, as well as the South Korean National Assembly. France and Germany have expressed concern that the tariff cuts might hurt carmakers such as Daimler AG and Renault SA. European automakers have attacked the agreement, saying their interests are being sacrificed at the expense of service industries.

‘Outstanding Questions’

“There might also be some outstanding questions,” Reinfeldt said. “When you finalize this kind of agreement with the European Union, we need to also finalize it with our different member countries.” He expressed “good hope” that a final deal will be done by December.

South Korea’s gross domestic product may increase by 3.08 percent, or by 24 trillion won ($18.6 billion) in the “long term” as a result of the trade pact with the EU, the state-run Korea Institute for International Economic Policy said in a report today. The deal could also boost employment by 3.58 percent, the think tank said.

South Korea’s exports to the EU reached $58.4 billion last year, while imports from the EU stood at $40 billion. South Korea’s automobile, electronics and textile exporters may benefit from the trade agreement, while domestic machinery, medical equipment, dairy and pork industries may suffer from European competition, the Korea Trade and Investment Promotion Agency said in a report today. South Korea exports about 16 percent of its automobile shipments to the European market.

Exports to U.S.

South Korea’s exports to the U.S. reached $46.4 billion won last year, while imports from the U.S. were $38.4 billion, the Trade Ministry said.

The trade agreement with the EU drafted in March by the European Commission, the bloc’s executive arm, and Korea would make 97 percent of trade between the two duty-free within five years. It would phase out the EU’s 10 percent tariff on Korean cars in three to five years and scrap Korea’s 8 percent tax on European cars in the same period.

The accord would help shipments of European cars to the Korean market increase to about 50,000 units per year from 33,000 units last year, the Korea Institute for Industrial Economics and Trade said in a separate report last week.

To contact the reporter on this story: Heejin Koo in Seoul at hjkoo@bloomberg.net

Last Updated: July 13, 2009 07:40 EDT