SEOUL, July 18 -- South Korea and China on Friday agreed "in principle" on a way of liberalizing mutual service and investment during the negotiations for a bilateral free trade agreement (FTA), Seoul's trade ministry said.

Negotiators from both sides held the 12th round of talks from Monday to Friday in South Korea's southeastern city of Daegu, according to the Ministry of Trade, Industry and Energy.

During the talks, the two sides reached an agreement "in principle" on how to liberalize service and investment.

As for the service sector, South Korea has called for a negative way of liberalization, which stipulates the list of unopened sectors. China has demanded the positive way of liberalization, which lists open areas.

The two sides agreed to adopt the positive way of service liberalization when the free trade pact comes into force, and later hold follow-up talks to change it to the negative way of liberalization, which is more comprehensive.

As for the investment, Seoul has called for liberalization of investment, while Beijing has demanded the inclusion of investment protection alone.

With this round of talks, the two sides agreed to draw up a free trade deal, which stipulates the already-adopted topics on investment liberalization as well as regulations on investment protection. After the deal takes effect, the two nations will hold follow-up negotiations to reflect factors of investment liberalization in a negative way.

For the goods sector, the two sides made efforts to narrow differences on liberalizing the manufacturing industry in China and opening the agricultural market in South Korea.

Great strides were made in areas of rules and cooperation, the ministry said. The two sides agreed completely on competition and e-commerce sectors and made progress in talks for environment.

There was meaningful progress made on customs, economic cooperation and government procurement sectors during this round of negotiations, the ministry said.

Seoul and Beijing will hold the 13th round of FTA talks in September in China, with detailed schedules set to be discussed later.

The advancement in the FTA talks came after Chinese President Xi Jinping and his South Korean counterpart Park Geun-hye held a summit meeting in Seoul earlier this month.

The two presidents vowed to endeavor to finish the negotiations before the end of 2014, pledging to expand the bilateral trade volume to 300 billion U.S. dollars in 2015.

Trade between the two countries surpassed 270 billion dollars in 2013, an annual increase of 7 percent and equaling to South Korea's trade volume with the United States and Japan combined.

China and South Korea launched the FTA negotiations in May 2012, and had completed the first stage of talks in September last year with a total of seven rounds of negotiations.

Seoul and Beijing tentatively agreed to abolish tariffs on 90 percent of all products during the first-stage talks, but they opened the door for raising the threshold during the second-phase negotiations.

China is South Korea's No.1 trading partner, largest export destination and import source and No.1 destination of overseas investment. South Korea is China's third-largest trading partner and fifth-largest source of foreign direct investment.