MUMBAI, Jan 7: Improving relations between India and Pakistan could open a window of opportunity for commodities trade and greatly benefit the neighbours, traders said on Wednesday.

India and Pakistan reached a breakthrough agreement on Tuesday to open formal talks. "We simply want trade with India as freight cost and delivery time is far less," said Jan Muhammad, a cotton trader in Karachi.

Unlike consumer goods, where Indian industry may overshadow Pakistan, commodity trading between the two countries should not harm Pakistan. "Pakistan may be a little scared in trading industrial and consumer goods with India as they have a large small-scale sector, but they shouldn't have the same kind of fear for commodities trading," said Abhijit Sen, professor of economics at the Jawaharlal Nehru University in Delhi.

Traders said the bilateral trading list could include commodities such as sugar, wheat, soyameal, tea and cotton, with more additions possible provided the nations agree to open their rail and road routes for trading.

The two countries re-opened road, rail and air links in recent weeks for transporting people, but have yet to revive the links for moving goods. Pakistani mills have booked about 150,000 cotton bales from India for the first time in several years after local prices touched record highs in recent months, but the commodity is being moved by ship - a more expensive mode of transport than road or rail.

In recent years the two nations have traded sugar, but both now have surplus production. Nonetheless, a drop in production in either country could induce traders to import from their neighbour, given prompt supply and attractive prices, traders said.

Indian sugar could be the cheapest for Pakistan due to low transportation costs, said New Delhi-based Vinay Kumar, managing director at the National Federation of Cooperative Sugar Factories.

The Indian tea industry, hurt by falling exports and rising output, is upbeat about the peace talks. Producers in India, the world's largest tea producer, are already anticipating a sharp jump in sales to Pakistan, the third-biggest importer.

India's tea exports to Pakistan, stunted for years because of tensions between the two nations, could rise to around 22 million kg by March 2005, said Chandra Kumar Dhanuka, chairman of the Indian Tea Association, India's largest planters body.

Dhanuka is planning to lead a delegation to Pakistan in the coming months. India expects to export around seven million kg of tea to Pakistan in the year ending March 2004, double the amount of the preceding fiscal year but just around five percent of the roughly 130 to 140 million kg that Pakistan imports in a year.

India, which has emerged as a leading wheat exporter, could also find an attractive market in Pakistan, provided some quality concerns are addressed. India exported more than four million tons of wheat, mainly to Southeast Asia and the Middle East, in 2003. On the other hand, Pakistan said in November it would buy about 500,000 tons of wheat through international tenders.

"If road and rail transportation links are re-established, traders in both the countries will derive benefits of border states such as speedy delivery and freight advantage," an Indian trader said.

Traders said India's cotton exports to Pakistan could gradually rise as the neighbouring country does not grow some of the cotton varieties sown in India.Naseem Usman, a broker in Karachi, said Indian cotton had started making its place into the Pakistani market because of its quality and competitive price.-Reuters