As part of the deal, South Korea will recognize European rules protecting regional products such as France's famous Champagne bubbly, Italy's Parma ham and Greece's feta cheese.
EU Trade Commissioner Catherine Ashton said the pact would create "deep economic ties," opening new opportunities for European companies in services, manufacturing and agriculture.
"This agreement is particularly important in the current economic climate, helping to fight the economic downturn and create new jobs," Ashton said.
Ashton and South Korean Trade Minister Kim Jong-hoon put their initials on the deal during a brief ceremony at EU headquarters here, signaling the end of negotiations on the agreement.
The deal will see the elimination of euro1.6 billion ($2.4 billion) worth of industrial and agricultural duties for European exporters to South Korea, the European Commission said. The EU will cut some euro1.1 billion ($1.6 billion) of duties for Korean importers.
The accord also will see South Korean authorities recognize Europe-wide standards for manufactured goods, eliminating red tape.
The deal comes after two years of often arduous negotiations amid doubts from Europe's car sector that cheap Korean imports would undercut local manufacturers.
To ease car manufacturer concerns, Ashton said she had obtained "safeguards" to limit foreign content of cars assembled in Europe, giving EU authorities a right to impose temporary duties if they notice sudden surges of cheap car imports.
She added European-made cars, especially mid-size and larger models, would likely increase their sales in South Korea due to the deal because Korean authorities would also now recognize European environmental standards for vehicles.
The pact still faces scrutiny by all 27 EU governments, the European Parliament and South Korea's Cabinet, parliament and president all of which have to approve it before it can come into force. Ashton hoped ratification of the accord can be wrapped up by the middle of next year.
Ashton's office, which led negotiations with Seoul, said trade trends suggest the Korean market offers significant growth potential for European business, particularly for chemicals, pharmaceuticals, auto parts, industrial machinery, shoes, medical equipment, steel products, and fur and leather goods.
European farmers will also gain from increased exports of their products to South Korea, the Commission said.
South Korea and the EU began negotiating the accord to slash tariffs and other barriers to trade in May 2007.
Bilateral trade reached $98.4 billion in 2008. The EU is South Korea's second-largest trading partner after China and its largest foreign investor. EU statistics show machinery and transport equipment dominate as both export and import products in trade with South Korea.