In a move that would extend the co-operation at the multilateral trade level to the bilateral platform, the Cabinet cleared a preferential trade agreement between India and Mercosur countries. Mercosur is a regional grouping comprising Brazil, Argentina, Uruguay and Paraguay.

While the agreement is expected to be signed during Brazilian president Luiz Inacio Lula da Silva's visit for the Republic Day celebrations, the negotiations on issues like preferential duties, rules of origin, state trading enterprises and dispute settlement are yet to be completed.

Officials indicated the agreement with annextures for items on which duties were to be cut would be worked out in about three months. A framework agreement for the PTA was signed in June last year.

India is seeking a lower duty access to the Mercosur region for around 500 items, including auto parts, chemicals, pharmaceuticals, textiles products, engineering goods and handicrafts.

Trade between India and Mercosur was estimated at $2.5 billion during 2002-03, of which India's exports were estimated at around $1.5 billion. The pharmaceutical sector tops the list of items exported from India.

The officials said Mercosur was yet to furnish the list of products on which it would want lower tariffs in India. India and Mercosur will also negotiate a free trade area with zero duty access for products from the two trading partners in due course.

While Mercosur was not keen on a PTA with India initially, the recent bonhomie at the multilateral level seemed to have an effect on improving bilateral ties.

Besides, both India and Mercosur have embarked on free and preferential trade agreements drive in recent months. The officials said in the wake of Lula's visit the two partners even hurried the completion of negotiations.

While some negotiations were held through a video conference recently, the commerce ministry prepared a Cabinet note only this week for its inclusion in the agenda for this week's Cabinet.