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The presidents of the European Commission and European Council agreed to consider a deal after talks with Mr Key in The Hague, Radio New Zealand reported.
Mr Key said New Zealand had been struggling to make progress in free trade agreement (FTA) negotiations with the EU for a very long time.
"That puts New Zealand in an unusual position because there are only six countries who are part of the World Trade Organisation who are either not in negotiations or haven't negotiated an FTA with Europe," he told Radio New Zealand.
Any deal would eliminate the costs New Zealand businesses pay to sell goods in Europe, Mr Key said.
"What we've agreed with the commission today is that there'll be scoping work undertaken, which would be a precursor potentially to a free trade agreement.
"That's of great significance to New Zealand because essentially there's $16 billion of trade currently taking place between Europe and New Zealand. Put that in context - China is $18.2 billion as we sit here today."
The trade talks took place alongside the Nuclear Security Summit in The Hague.