Afghanistan, Pakistan sign border trade pact

ISLAMABAD (Reuters) - Afghanistan and Pakistan signed a long-awaited trade deal on Sunday, which the United States hopes will help boost cooperation between the neighbors and open more Afghan trade routes to regional powerhouse India.

The Afghan and Pakistani commerce ministers signed the pact in Islamabad during a visit by U.S. Secretary of State Hillary Clinton who is on a visit seeking to bolster both Pakistan and Afghanistan in their joint struggle against militant insurgents.

"Bringing Islamabad and Kabul together has been a goal of this administration from the beginning. This is a vivid demonstration of the two countries coming closer together," Richard Holbrooke, the U.S. special envoy for Afghanistan and Pakistan, said after the signing ceremony.

The pact, which has to be ratified by the parliaments of both countries, marks an effort to resolve Afghan demands to use Afghan trucks to transport exports to India via Pakistan by the sensitive Wagah land route.

Pakistan has fought repeated wars with India and remains deeply suspicious of its larger neighbor, and will not permit Indian exports to Afghanistan through the Wagah route, although both sides agreed to discuss this further.

U.S. officials said the final deal was reached in part after the Pakistani military signed off on the transit plan despite persistent fears of weapons smuggling.

More exports would help President Hamid Karzai counter a Taliban insurgency by improving economic conditions, which is also an important goal for Washington as it looks ahead to President Barack Obama's July 2011 target date to begin withdrawing U.S. troops.

Almost 50 percent of Afghanistan's trade is with its five neighbors Pakistan, Iran, Tajikistan, Turkmenistan and Uzbekistan. Trade between Afghanistan and Pakistan is worth more than $1 billion.

But the World Bank says trade remains very one-sided in favor of Pakistan, with Afghanistan exporting little to its more populous neighbor.

The trade deal comes ahead of an international conference in Kabul on Tuesday at which donor countries and Karzai's government will try to chart a path forward for the conflict-torn country.

Afghanistan, due to its strategic geographic position, hopes to become a regional transit hub for trade with Central Asia, South Asia, the Middle East and China, if the security situation in the country can be stabilized.

Both Afghanistan and Pakistan have agreed on the need for a new agreement to give Afghanistan sea access and provide Pakistan with direct routes to Central Asia.

U.S. officials say the new deal will reduce average transit costs between the two countries by half, lower import costs and make exports more competitive, along with helping employment prospects on both sides of the border.

The agreement also sets up a joint Chamber of Commerce between the private sectors of the two countries, which U.S. officials say will help further strengthen their tentative alliance as they seek to turn back al Qaeda-linked Taliban insurgents and modernize their economies.

(Reporting by Andrew Quinn; Editing by Jon Hemming)