* EU-South Korea deal potentially worth 100 billion euros
* European carmakers oppose deal, say it favours Korean cars
* Services, drink industry say deal sends positive signal
(Updates with car makers' protest, background))
By Marcin Grajewski and Darren Ennis
BRUSSELS, Oct 15 (Reuters) - The European Union and South Korea initialled a free trade deal on Thursday despite protests from EU car makers which fear Asian competition.
The long-awaited trade pact, which scraps nearly all import tariffs, is potentially worth 100 billion euros ($149 billion) to both economies and its advocates say it will help both sides fight the worst financial crisis in decades.
But ACEA, the EU association of auto makers, said it gave South Korean car companies an unfair advantage because it allowed them reclaim tariffs paid on imported materials from cheap countries such as China.
"We call on the EU member states not to ratify the current text," ACEA secretary general Ivan Hodac said in a statement.
European car makers are closing factories and laying off workers as the economic crisis bites.
"The Korean negotiators have not only obtained unrestricted access to a market of over 500 million people, the European Commission has in addition allowed South Korea to subsidise exports from its key industries to the EU," he said.
EU Trade Commissioner Catherine Ashton brushed aside the protest, saying the benefits outweighed any shortcomings.
"But we must address all the economic issues right across all European industry, not just one industry," she told Reuters.
"I am confident that this deal will help support the whole of the European economy and therefore support the car industry."
MOST IMPORTANT
The deal, the most important negotiated between the 27-nation EU and a third country, will be worth some 19 billion euros in new trade in goods for EU exporters, the Commission said, and 12 billion euros in goods for Korean companies.
"It will create new market opportunities for European companies in services, manufacturing and agriculture," Ashton said.
Europe's largest business lobby BusinessEurope described the deal as a positive result for European companies".
"Of course some of the provisions of the deal have raised concerns. Though not all of these have been addressed, much has been achieved to improve the package," BusinessEurope Director General Philippe De Buck told Reuters.
"We feel the balance is positive for European business as a whole."
Europe's leading food and drinks companies also backed the initialling of the trade pact.
"Given the current economic downturn, the well-timed conclusion of the EU-Korea FTA will bode well for the future competitiveness of our industry," said Confederation of the Food and drink industries of the EU (CIAA) President, Jesus Serafin Perez.
The deal still needs to be approved by a majority of EU governments and the European Parliament.
EU-Korea goods trade was worth around 65 billion euros in 2008. The EU currently runs a deficit with South Korea although trends suggest that the Korean market offers significant growth potential for European companies.
The deal will see the quick elimination of 1.6 billion euros of duties for EU exporters to South Korea and tackle non-tariff barriers including regulations and standards in industries such as automotive, pharmaceuticals and consumer electronics.
The agreement is expected to enter into force in the second half of next year after approval by the European Parliament.
(Additional reporting by Bate Felix and Christan Leveaux; Editing by Angus MacSwan)