Britain and South Korea have agreed to extend a period of low or zero tariffs on bilateral trade by two years, ahead of talks to forge a new trade deal, the British government said on Monday, in a boost for the car industry.

Without the extension, British businesses, such as automakers and food and drink companies, would have faced high tariffs from Jan. 1 on exports of products made using materials from the European Union, under so-called rules of origin, and on products shipped via the EU.

Annual trade between Britain and South Korea is worth 18 billion pounds ($21.9 billion), and the two sides will begin talks later this year on a new trade deal. Their current agreement was rolled over from Britain's membership of the EU.

Britain's minister for international trade, Nigel Huddleston, said extending the tariff-free period would provide welcome certainty for businesses.

"This is fantastic news for UK businesses who can continue selling their fantastic goods with confidence to South Korea," Huddleston said.

South Korea is the seventh-biggest export market for British-made cars and the third-largest supplier of new cars for Britain, meaning any new tariffs "would have been bad for both sides," said Mike Hawes, the head of the British car industry trade body.

"We look forward to the start of negotiations and swift conclusion of a modernised trade deal that delivers more benefits to our respective automotive sectors, in particular boosting trade in EVs and related technologies," Hawes, the Chief Executive of the Society of Motor Manufacturers and Traders, said.

(Reporting by Sachin Ravikumar; Additional reporting by William James, Editing by Louise Heavens)