* Ukraine in talks on Association agreement with EU
* But says free trade zone terms would hit budget hard
YALTA, Ukraine, Oct 1 (Reuters) - Ukraine would need billions of euros in investment to compensate for losses in the event of it entering a free trade zone with the European Union, President Viktor Yanukovich said on Friday.
The ex-Soviet republic is in active talks with the EU bloc to sign an Association agreement, of which the free trade zone is the core.
"Our strategic task is to sign an Association agreement with the European Union ... But Ukraine's wish alone is not enough to set up this free trade zone," Yanukovich told an international conference in the Ukrainian Black Sea resort of Yalta.
"Ukraine has no alternative to the European choice, but as the European Union is not even ready to discuss Ukrainian membership, we will select the pace, the forms and the methods of integration in accordance with our national interests," he said.
Ukraine, whose main exports are agriculture, metal and chemical products, needs access to the lucrative European market to help local industries upgrade obsolete technologies.
But Yanukovich said the latest proposals by the EU were too difficult for Ukraine to accept.
He said EU proposals to lift all duties for European goods imported into Ukraine would cost the budget about 20 percent in lost income from customs payments.
He said Ukraine could compensate for the loss by an increase in its agriculture exports to the EU, but the country needed large investments to make this possible. (Writing by Pavel Polityuk; editing by Richard Balmforth)