Seoul and Beijing on Wednesday announced the beginning of negotiations for a bilateral free trade agreement expected to boost the Korean economy through increased trade with the world’s second-largest economy.

China is Korea’s biggest trading partner and trade between the neighboring countries is forecast to reach $300 billion by 2015.

A state-funded think tank in Seoul projected Korea’s economic output to gain up to 1.25 percent within five years and up to 3 percent within 10 years of the FTA taking effect.

“The commencement of the negotiations is a historic event for both countries,” Korea’s Trade Minister Bark Tae-ho said in a press conference with Chinese Commerce Minister Chen Deming in Beijing.

The FTA negotiations will be carried out in two stages, the first of which will be on settling the sizes of baskets for general, sensitive and ultra-sensitive items. The second stage of talks will not proceed unless the two countries reach an agreement in the first stage.

Seoul is seeking to categorize agricultural and fisheries products as sensitive or ultra-sensitive items, while Beijing is eying autos, machinery and petroleum.

“The two sides will first discuss the negotiation modalities for goods, service and investment, and then negotiate tariff concessions and other issues based on the agreed modalities,” Bark said.

“We will discuss gradual tariff cuts and exclusion from tariff concessions for sensitive and ultra-sensitive items.”

Some experts here fear the FTA with China will devastate Korea’s agriculture sector. According to an institute report, damage to Korea’s farming industry from a free trade pact with China could reach up to $2.8 billion.

The two countries will also discuss applying preferential duties on products manufactured outside their territories such as those made in the South Korean industrial park in North Korea’s Gaeseong.

Seoul and Beijing have prepared for the FTA talks for seven years including three years of joint study and discussed how to handle sensitive items since 2010.

The FTA is likely to help Korean exporters predominate the Chinese market and better protect Korean businesses in China, according to Seoul’s Trade Ministry.

Currently, some 23,000 Korean companies, or 70 percent of the nation’s 300 largest manufacturers, are operating in China.

The Seoul government expects the FTA with China to make Korea the hub of FTAs, binding trade with the three largest economies of the world including the U.S. and the EU, and therefore one of the most attractive investment destinations in the world.

By Kim So-hyun(sophie@heraldcorp.com)