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The National Assembly on Friday approved the free trade agreement, known officially as a Comprehensive Economic Partnership Agreement, which will tear down trade barriers between two of Asia's biggest economies.
The trade pact, which does not require ratification by India, takes effect on Jan. 1 next year. The two countries started their negotiations in March 2006 and signed the bilateral trade pact in February this year.
The accord calls for the two sides to eliminate or cut tariffs for 90 percent of Indian goods in terms of value and 85 percent of South Korean products, according to Seoul's trade ministry.
The pact could nearly double the volume of bilateral trade, which reached US$15.6 billion last year, it said. The state-run Korea Institute for International Economic Policy says the pact could boost annual two-way trade by US$3.3 billion and raise South Korea's GDP by 1.3 trillion won (US$1.06 billion).
South Korea's main exports to India are auto parts, petroleum products and mobile phones. Its largest import from India is naphtha, accounting for more than half of imports in 2008.
South Korean Trade Minister Kim Jong-hoon said the free trade accord with India sends "signals to the world that the two countries are committed to free trade and are against protectionism."
South Korea has campaigned to counter trade protectionism that has been mounting in the wake of the global financial crisis, threatening South Korea's export-driven economy.
Seoul considers its free trade network the most effective tool to fight a growing trend toward protectionism, and is pushing to turn itself into an "FTA hub" linking Europe, Asia and the American continent.
Last month, South Korea and the European Union signed a free trade agreement, ending two years of tough negotiations marred by protests by farmers and civic activists. South Korean officials said the pact should come into effect in the second half of next year after legislative approvals by both sides.
South Korea also signed a free trade accord with the United States in June 2007, but it is still awaiting ratification by both countries' legislatures. The Obama administration has vowed to seek renegotiation of the deal signed by the Bush administration, citing an imbalance in auto trade and restrictions in beef shipments.
U.S. Trade Representative Ron Kirk called on South Korea on Thursday to "level the playing field" by removing barriers to U.S. automobile sales in order to clear the way for the free trade agreement.
"Our market is open to Korean autos. All we are asking for is for our own auto companies to be able to compete on a level playing field in the Korean market," Kirk said in a speech to the U.S.-Korea Business Council. Kirk is scheduled to meet with South Korea's trade minister next week in Singapore.
The free trade deal will be high on the agenda when U.S. President Barack Obama travels to Seoul for summit talks with President Lee slated for Nov. 17.
"South Korea's trade pact with the EU puts pressure on American exporters and is likely to force U.S. Congress again to ratify the FTA accord with Seoul," said Kim Deuk-kab, a senior research fellow at Samsung Economic Research Institute.
The free trade deal with India is also part of Lee's "New Asia Initiative," which calls for South Korea to conclude free trade accords with all Asian countries in order to play "a central role in representing the interest of Asian nations in the international arena."
"Asia is our new frontier for growth," the presidential office said. "First of all, South Korea will have to take leadership in addressing major international issues, such as the global financial crisis and climate change," it said.
In a recent radio address, Lee vowed to seek close ties with Asian nations. "Asia is rich in resources and home to about half of the world's population," he said. "The region accounts for 48 percent of Korea's trade. That's why I have promoted New Asia diplomacy."
