INTERVIEW - Afghan-Pakistan trade deal close - minister

WASHINGTON (Reuters) - Afghanistan is close to reaching a long-delayed trade transit deal with Pakistan that would allow produce to be trucked across its neighbour to key importer India, Afghanistan's agriculture chief said on Thursday.

A trade pact would help Afghan farmers move goods to market in India more easily, which has been a challenge as officials try to entice farmers away from growing poppy crops whose proceeds fuel the Taliban insurgency.

Agriculture Minister Mohammad Asif Rahimi was optimistic a deal could be signed in time for an international conference in Kabul on July 20, but he said this would be the first phase of a new arrangement with the option to negotiate more later.

"By end of July" the deal should be signed, Rahimi told Reuters in a joint interview with U.S. Agriculture Secretary Tom Vilsack.

Rahimi, who is in Washington with Afghan President Hamid Karzai this week, cautioned: "Last May we said it (the trade transit deal) would be December and hopefully nothing dramatic will happen in the region to stop the signing of this."

A trade transit agreement between Pakistan and Afghanistan has been in limbo for years. It was meant to be pushed through last December but that timetable lapsed.

Additional talks are expected in the coming weeks to hammer out a final arrangement, which Rahimi said was not everything Afghanistan wanted but a good first step.

One problem still to be overcome, he said, is that while trucks would be allowed to cross Pakistan, they would not be permitted to enter India, Pakistan's key rival.

Instead, fruit, vegetables and other produce, much of it perishable, would be loaded onto Indian trucks at the border and taken to their ultimate destination.

AIR FREIGHT

Rahimi said this was an improvement on the current arrangement where trucks were stopped in Peshawar City and goods transferred to Pakistani trucks, then taken to a "no man's land" near the border and placed on Indian vehicles.

"It is still not optimal," he said of the proposed new deal. "We agree on this at this stage with a clause there to further negotiate in the future."

India offers the greatest potential for Afghan produce but problems in transporting goods across neighbouring Pakistan have been a stumbling block in boosting sales of apples, pomegranates and nuts -- higher value products being touted to pull farmers away from planting opium poppies.

A big chunk of produce transported to India from Afghanistan is now sent via air freight, which adds additional cost. "Anything that makes exports easier, cheaper, exports more competitive, that is a good thing," said Vilsack.

He hoped greater road access for Afghan goods would also give Afghanistan's farmers more room to negotiate better prices with air freight companies.

"A phased-in approach is better. It still doesn't get the minister (Rahimi) precisely what he wants but it gets him a lot closer than he is today," said Vilsack.

When in Afghanistan in January, Vilsack and Rahimi discussed how to get credit to farmers, especially those who rely on the Taliban to pay them up front to grow illegal poppy crops whose proceeds fuel the insurgency. Poppies are a raw ingredient in heroin.

Vilsack said there was a plan to offer short-term credit to about one-third of Afghanistan's farmers for the fall planting season as a way to resolve this problem.

Ultimately there are plans to revive a credit bank which is no longer in use, a goal Rahimi said would take several years. In the meantime, he said about $100 million of U.S. funds had been promised for initial loans to farmers.

(Editing by Philip Barbara)