* Swedish EU presidency plans to conclude S. Korea pact

* Free-trade agreement estimated to be worth $100 bln

* Diplomats see initialling of deal in September

* EU carmakers remain opposed, BusinessEurope in favour

(Adds details, background)

By Veronica Ek and Darren Ennis

The European Union plans to finalise a $100 billion trade pact with South Korea by the end of the year, the prime minister of EU president Sweden said on Monday.

The finalisation of the agreement will follow during the Swedish presidency, Prime Minister Frederik Reinfeldt told a news conference in Stockholm following talks with South Korean President Lee Myung-bak.

The agreement with Seoul to lower barriers to trade and investment would be the EU's first such pact in Asia. The EU is South Korea's second largest export market after China, and South Korea is the EU's fourth largest non-European trade partner with bilateral trade reaching $98.4 billion in 2008.

Trade officials from the 27-nation bloc gave their tentative assent for the European Commission -- which oversees EU trade policy -- to complete negotiations with a view to initialling the deal in September.

The pact is estimated to be worth an additional $100 billion to the two economies.

We had a breakthrough in the negotiations last week. That's why I signalled I have good hope to finalise this during the presidency, Reinfeldt, whose country assumed the six-month rotating stewardship of the EU this month, said.

Brussels and Seoul began negotiations in 2007 to scrap import duties and other barriers in industries including pharmaceuticals, consumer electronics and cars.

But efforts to clinch the so-called free-trade agreement (FTA) were stymied by some countries concerned that the deal to open EU markets to South Korean producers would severely damage Europe's ailing car industry.

AUTO CONCERNS The EU's auto sector -- employing 2.3 million people directly and a further 10 million in related sectors -- is unhappy that South Korean manufacturers would be allowed to avail of so-called duty drawback.

Under the politically sensitive duty drawback scheme, South Korean carmakers would be able to import cheap components and have all import duties paid on those parts reimbursed if they are in cars destined for the EU market.

Europe's carmakers, suffering from the worst financial crisis since World War Two, also wanted to limit the amount of foreign components -- mostly from China -- used by South Korean producers.

European automobile association ACEA said last week that the FTA would create a severe competitive disadvantage for European industries and effectively open the door for cheap imports from China and other Asian countries.

But Lutz Guellner, spokesman for EU Trade Commissioner Catherine Ashton, said the deal will give a much-needed boost to dwindling global trade and sends a positive signal ahead of negotiations to complete the Doha round of World Trade talks.

We have addressed, as best we can, the concerns of the auto industry and the overall benefits for the European economy are critical at this time, Guellner said.

Europe's top business lobby, BusinessEurope, also backs the deal currently tabled by the Commission.


The latest agreement drafted by the Commission and South Korea would make 97 percent of trade between the two governments duty-free within five years, phase out the bloc's 10 percent tariff on Korean cars in three to five years and scrap South Korea's 8 percent duty on European autos over the same period. Brussels says the trade pact would eliminate duties worth 1.6 billion euros ($2.2 billion) for European exporters and around 1.2 billion euros in levies on industrial goods.

The Commission estimates the accord would save European carmakers such as Volkswagen (VOWG.DE) and PSA Peugeot Citroen (PEUP.PA) around 2,000 euros on every car worth 25,000 euros.

Once initialled, the agreement must be translated into each of the EU's 23 official languages before requiring the final green light from EU governments, which normally would take at least six months after initialling.

The South Korean parliament must also approve the deal, which could take up to another seven years to be fully implemented.

For a related factbox, click on [ID:nSP459202] (Editing by Dale Hudson)