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The deal could trigger a wave of agreements across Asia and is seen as vital to keeping US trade policy alive in the face of growing political discontent over the benefits of free trade.
The accord still has to be ratified by the US Congress and the South Korean national assembly, where it is likely to face difficulties because of the unpopularity of both presidents and their weak representation in their respective houses.
The pact was struck just minutes before the final deadline for George W. Bush, the US president, to notify Congress of his intent to ratify the agreement before his authority to "fast track" deals with a simple yes or no vote expires.
Mr Bush sent a letter to the Democratic leadership in Congress within moments of the deal being signed saying the agreement would "further enhance the strong US-Korea partnership, which has served as a force for stability and prosperity in Asia".
There was immediate condemnation from Democrats, led by members of Congress from states that depend on farming and car manufacturing – two sectors that lost out in the negotiations.
Michigan Senator Debbie Stabenow said: "I will do everything in my power to defeat this agreement."
Bill Rhodes, vice-chairman at Citigroup and head of the US Korea Business Council, said that company worries about a watered down agreement had been largely addressed. But Ford, the carmaker, called on Congress to reject the deal as it did not go far enough in tearing down South Korean barriers to vehicle imports.
Under the agreement, tariffs on all vehicles under 3,000cc will be eliminated immediately and phased out over three years for bigger passenger cars and 10 years for pick-up trucks.
Rice was entirely excluded from the deal, in line with Seoul's wishes, while Washington received an undertaking that South Korea would allow the resumption of beef imports, suspended after health scares.
Seoul also agreed to eliminate import tariffs on US beef gradually over the next 15 years, while the US declared it would immediately abolish 61 per cent of tariffs on textiles and garments in terms of its import value.
Significantly, Washington accommodated Seoul's requests to consider development of Kaesong, the South Korean-run industrial zone in North Korea.
About 94 per cent of tariffs on commodities will be scrapped within three years, gradually increasing to 100 per cent.