SEOUL: South Korea and the European Union (EU) will sign a free trade deal next week after resolving the final sticking points, the trade ministry said on Thursday.

Trade Minister Kim Jong-Hoon and his EU counterpart Catherine Ashton will sign the accord in Brussels on October 15, Kim's office said.

The EU was South Korea's second-largest trading partner after China last year, with two-way trade totalling more than 90 billion dollars.

The Korea Institute for International Economic Policy has estimated the pact will eventually increase trade by up to 20 percent.

The two sides will phase out tariffs on 96 percent of EU goods and 99 percent of South Korean exports within three years after the pact takes effect, the ministry said.

South Korea and the EU in March reached a deal on most points but failed to settle differences on duty drawback and rules of origin.

The accord will permit drawbacks, which allow manufacturers to reclaim tariffs paid on imported materials that are used to make products for export.

On rules of origin, the two sides agreed on the level of allowable foreign content at 45 percent, according to the trade ministry. South Korean manufacturers import many parts from China and elsewhere.

They agreed to eliminate tariffs on cars with an engine displacement of more than 1.5 litres within three years, while tariffs for smaller cars would be lifted after five years.

South Korea currently imposes an eight percent duty on European cars compared to the EU's 10 percent.

Seoul officials have said the pact is expected to come into effect around July next year, taking into account the time needed to translate the 1,000-page document into the EU's 23 languages.

Britain's business minister Lord Mandelson, in his previous post as European Trade Commissioner, played a key role in promoting the agreement.

The signing "will be a cause for great celebration," he said on Wednesday during a visit to Seoul.