US Trade Representative Robert Zoellick on Thursday said the agreement with Bahrain opened up new export and investment opportunities for US industries ranging from aircraft and sports equipment to agricultural and financial services.
The Bahrain pact builds on existing US free trade agreements with Israel and Jordan and a pact with Morocco that will be signed on 11 June.
The latest agreement could prompt similar accords with other Gulf countries, including Qatar, Kuwait and eventually Saudi Arabia.
President George Bush has proposed a Middle East free trade pact stretching from Morocco to Iran by 2013.
"Bahrain's leaders ... are reformers in a region searching for the fresh winds of new ideas, and the US-Bahrain FTA is a pacesetter showing the way to implement the president's initiative for building prosperity, opportunity and hope in the Middle East," Zoellick said.
"The US-Bahrain FTA is a pacesetter showing the way to implement the president's initiative for building prosperity, opportunity and hope in the Middle East"
US Trade Representative
Bahrain's Finance Minister Abd Allah Hasan al-Saif said the pact would firmly position Bahrain as a gateway to the rest of the Gulf.
With a population of 650,000, Bahrain provides "trading access to about 1.3 billion in the surrounding region", he said.
The agreement, which must be approved by Congress before it goes into effect, would immediately eliminate tariffs on all consumer and industrial products trade.
Most agricultural tariffs would also be eliminated immediately, although Bahrain will phase out duties on some sensitive farm goods over 10 years, US officials said.
Bahrain also agreed to open its market to US health care, telecommunications, express delivery, engineering and other service industry companies further than any other country has in previous trade pacts, Zoellick said.
The United States is already Bahrain's largest trade partner with exports totaling $509 million in 2003, including aircraft, machinery, vehicles, pharmaceuticals, toys, games and sports equipment and assorted farm goods.
Bahrain exported $378 million worth of goods to the United States in 2003, including apparel and clothing accessories, aluminum, fertilisers and organic chemicals.