By Kate Chapman of NZPA

Seoul, July 5 NZPA - Agriculture is back on the table for free trade negotiations with South Korea, Prime Minister John Key says.

Negotiations for the free trade agreement (FTA) began last year but have all but stalled over Korean fears about the impact of New Zealand's agriculture sector.

During the fourth round of negotiations held recently agriculture was not discussed.

After, his meeting with President Lee Myung-bak today Mr Key said agriculture was now a renewed part of negotiations.

A joint statement by Mr Key and Mr Lee, issued after they met today, said they had discussed progress on the FTA and reaffirmed an expectation that negotiations be concluded as early as possible.

They agreed to promote co-operation in energy and natural resources and welcomed the expansion of bilateral co-operation in infrastructure, particularly broadband.

The statement also mentioned deepening co-operation in education, culture, film, information communication technology, and research and science -- particularly in the areas of climate change, agriculture and forestry.

That was the only mention of agriculture in the statement.

However, Mr Key later told reporters he had had a firm and frank discussion with Mr Lee when the two met for 90 minutes and talk focused entirely on the FTA.

"I think a deal is possible, a bad deal is possible tomorrow but we're just simply not interested in a bad deal," Mr Key said.

"While he (Mr Lee) faces domestic sensitivities, so do we in New Zealand and for us to sign up to a deal that excludes dairy and beef and forestry and horticulture is really a deal that would be unacceptable to the New Zealand public."

While his talks with Mr Lee were robust, Mr Key said the relationship remained strong.

"He's a wonderfully engaging person. I like him a lot."

Mr Key has said he does not believe New Zealand goods would compete with domestically produced ones in South Korea.

He sees New Zealand's exports to South Korea in competition with those from the United States, European Union and Australia.

Tariffs on goods entering South Korea were huge -- between 100 and 300 percent, he said.

If the other countries signed an FTA their goods would be much cheaper than those of New Zealand.

The Government would not sign up to an FTA that did not include agriculture, Mr Key said.

"Always you'll get a fear factor that develops within agriculture domestically that New Zealand, because of its prowess, will somehow do damage to them."

Mr Lee had staked his leadership on expanding free trade. He is halfway through his term so New Zealand needs to act now to capitalise on his presidency.

Mr Key said Prime Minister Chung Un-chan was also very constructive about the prospect of an FTA when they met earlier today.

"The prime minister was quite firm in the view that New Zealand shouldn't be put in a worse position," he said.

Two-way trade between New Zealand and South Korea was worth about $2.6 billion annually.

New Zealand exporters pay $195 million in tariffs while Korean exporters pay $5 million for goods taken into New Zealand.

Mr Key said the New Zealand economy was dominated by small and medium sized businesses which felt more comfortable expanding to Australia rather than Asia.

An FTA with South Korea would help to break down some of those barriers, he said.

Trade Minister Tim Groser will now meet with his Korean counterpart in the next two months.

(Kate Chapman travelled to Korea with the help of funding from Asia New Zealand Foundation)