PHUKET, Feb 8: Six Asian nations led by India and Thailand agreed on Sunday to create a free trade zone encompassing nearly two billion people, but Bangladesh held out over compensation issues.

Ministers from India, Myanmar, Sri Lanka and Thailand signed a deal aimed at boosting investment and lowering costs in a free-trade zone by 2017. Regional minnows Bhutan and Nepal, the newest members of the economic grouping of South and Southeast Asian nations, also agreed to join.

Bangladesh, which fears lower tariffs may hurt its manufacturing, said it would sign later after compensation issues were sorted out and cabinet approved the agreement.

"Our point was in the South Asian Free Trade Agreement, we have that issue (compensation) already accepted by most of the members. We wanted to follow the same pattern," Bangladeshi Foreign Affairs Minister Morshed Khan told Reuters.

The compensation idea got little support from other countries, but they agreed to work to solve the problem before the leaders of the seven nations meet in Bangkok in July.

"Of course, officials concerned will have to get together and find a way to deal with the concern of Bangladesh," Thai Foreign Ministry spokesman Sihasak Phuangketkeow told reporters.

Khan said: "As soon as the issues are addressed and the procedural matter (cabinet approval) is over, we'll be ready to sign". Initially the leaders of the seven nations had been expected in Phuket to sign the pact, but their gathering was postponed because the Indian prime minister could not attend.

The free trade pact, if implemented, would span South Asia, which has a population of more than 1.3 billion and Southeast Asia, home to 500 million people.

The seven members of the regional economic cooperation group, known as BIMST-EC, have a combined gross domestic product of more than $700 billion.

India, Sri Lanka and Thailand, categorised in the pact as developing countries, plan to charge no tariffs on each others' goods and services by July 2012, five years ahead of Bangladesh, Myanmar, Nepal and Bhutan, grouped as least developed countries. -Reuters