Seoul - South Korea and the European Union on Tuesday reported progress in the latest round of talks on a free trade agreement, but problems remained.

The outstanding issues were "inevitably complex and complicated," EU Trade Commissioner Catherine Asthon said in Seoul.

"I hope my presence here demonstrates the priority that we place upon this free trade agreement, and certainly I'm putting a lot of effort into resolving the outstanding issues."

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Seoul - EU and South Korean negotiators began two days of talks Monday to tackle issues that are holding up a free trade agreement, including industrial tariffs and trade barriers in the automotive industry.

"We are close to a gate that leads to a new era," South Korean Trade Minister Kim Jong Hoon, who is leading the talks along with EU Trade Commissioner Catherine Ashton, was quoted as saying by the South Korean news agency Yonhap ahead of the meetings in Seoul.

Seoul - South Korean President Lee Myung Bak on Monday named new ministers for finance and North Korean policy as his country has been hit hard by the global economic crisis and has seen tensions rise with its northern neighbour.

The cabinet shake-up came nearly 11 months into Lee's administration as his government has been criticized in the wake of the economic downturn and worsening relations with North Korea.

Seoul - North Korea's military Saturday threatened military conflict with South Korea, in the first public statement by the general staff of the North Korean People's Army in ten years.

The message, read by a military spokesman on North Korean television, according to the South Korean Yonhap news agency.

It said that South Korean President Lee Myung Bak and his "puppet military warhawks" would force North Korea's military forces "to take a strong military retaliatory step to wipe them out."