EU and Korea fail to conclude free trade deal

European carmakers are particularly concerned that the refunds would give South Korean manufacturers an unfair advantage.

The EU does not allow the refunds, known as duty drawbacks, with its other bilateral free trade partners, Mexico and Chile.

European commission president Jose Manuel Barroso and Czech president Vaclav Klaus attended the meeting with South Korea's president Lee Myung-Bak. EU trade commissioner Catherine Ashton and external relations commissioner Benita Ferrero-Waldner were also present.

The Czech Republic currently holds the EU's six-month rotating presidency, due to expire at the end of June.

Previous meetings, including on the sidelines of the G20 leaders' summit in London on 2 April, also failed to break the deadlock.

The bilateral agreement is estimated to be worth €71.4 billion, with both sides now saying they hope it to be concluded before the end of this year.

"There are some pending issues to be resolved. It is not going to be easy to resolve all of these but I am confident that we will be able to come to a conclusion as soon as possible in the near future," President Lee said after the meeting.

"The most important thing is that we move towards a more practical cooperation than in the past," said Klaus, admitting that the deal would not be signed under the Czech presidency.

The two sides also urged North Korea to return to talks on nuclear disarmament after the communist regime broke off discussions following a rocket launch in April that caused the United Nations to increase sanctions.

However the summit's announcements were overshadowed by the death of former South Korean president Roh Moo-Hyun, who apparently committed suicide having recently become embroiled in a corruption scandal.

Mr Roh, who left office in February 2008, was known for his attempts to draw the North Korean regime further into the political fold and was seen as a clean politician in a corrupt system.

However his reputation took a knock last month when prosecutors summoned him to answer charges that his family received $6 million (€4.27m) from a rich businessman while he was in office.