The European Union and South Korea signed a record free-trade agreement in Brussels on Wednesday. It's expected to cut around 3 billion euros' ($4 billion) worth of tariffs and lift administrative barriers and regulations on goods ranging from cars to whisky.

"This agreement is by far the most important trade deal ever concluded be the European Union with one country and the first free trade deal with an Asian country," said European Commission chief Jose Manuel Barroso.

The accord is set to take effect on July 1, 2011, once ratified by the European Parliament.

Germany's luxury car industry may cash in on the deal

The deal could double trade between Europe and South Korea by boosting business by 30 billion euros a year.

"The pact sends a strong signal that trade liberalization is a key element for recovery of the world economy," said EU President Herman Van Rompuy.

The EU runs a deficit with South Korea in goods trade, although trends suggest the Korean market offers significant growth potential for European firms.

Expanding trade with Asia

The EU hopes that trade liberalization will broaden its influence in Asia. Lifting customs duties on imported goods will make imported South Korean products cheaper in the EU and EU goods cheaper in South Korea.

Europe's spirits industry welcomed the deal for its potential in boosting sales of EU-produced drinks such as Scotch whisky and French cognac. The German luxury car and meat industries also hope to benefit from this arrangement.

Italy was initially hesitant about the deal, fearing its national carmaker, Fiat, could be outdone by South Korea's Kia und Hyundai car manufacturers.

But the country dropped its veto in return for delaying the treaty's implementation until July 1. Tariffs on some goods, such as small cars, will continue for up to five years thereafter.

Rompuy: free trade will help economic recovery

The EU deal with South Korea could trigger a rush among Asian states to enter trade pacts with the 27-nation bloc.

Japan is keen to have better access to European markets. On Tuesday, Japanese officials said that they hoped to start free-trade talks with the EU in the spring, partly in reaction to the Korean agreement.

As Japan and Korea are competitors in several industries, Japanese manufacturers stand to lose market share in Europe's automotive and electronics markets.

Malaysian diplomats said that they, too, had agreed to open free-trade negotiations with the EU.

Author: Natalia Dannenberg (dpa/Reuters/AFP)

Editor: Nancy Isenson