Korea and the European Union yesterday declared the conclusion of more than two years of negotiations for a free trade agreement.

The landmark deal to scrap tariffs for an annual $100 billion trade within five to seven years is expected to take effect as early as the first half of next year, following a formal signing and ratification.

The announcement was made by President Lee Myung-bak and Swedish Prime Minister Fredrik Reinfeldt during their summit in Stockholm. Sweden holds the rotating presidency of the 27-member European Union.

The leaders hailed what would be the biggest free trade accord for both sides.

"This would bring about an epochal change to our trade, more than any other FTA has done," Lee told Koreans through a fortnightly address on radio and the internet early in the morning before he met Reinfeldt.

The European Union is Korea's second-largest export destination, and Korea is the EU's fourth-biggest non-European trade partner. Two-way trade reached $98.4 billion last year.

At the summit, the leaders agreed that the deal would also help the world out of the slump by encouraging other economies to pursue the free flow of goods, services and investment.

"By creating a new opportunity for trade and growth in this time of global economic crisis, the Korea-EU FTA will not only significantly benefit the two economies but also will send a strong signal against protectionism globally," Lee said during a news conference after the summit.

The Swedish prime minister said the FTA would be finalized before the end of the year,

"The finalization of the agreement will follow during the Swedish presidency (which expires at the end of the year)," he told reporters.

The two sides would initialize a final agreement by September after a legal review, according to Lee Hye-min, Seoul's chief negotiator. A formal signing is expected to take place in January or February and ratifications would be done in the first half of next year, he added during a news conference in Seoul.