Some Ugandan businesses worry about competition from Kenya

Kenya's Mwai Kibaki, Uganda's Yoweri Museveni and Tanzania's Benjamin Mkapa signed the document in the northern Tanzanian town of Arusha.

The union, designed to harmonise external tariffs and boost trade, will come into force when the three countries ratify the protocol.

The ratification process is expected to take several months.

The fine details of the deal have not been made public.

Broadly it calls for the elimination of most duties on goods within the East African Community (EAC).

EAC Deputy Secretary-General Ali Mchumo told the BBC that while all customs duties will be abolished between the countries after five years, Kenyan goods being exported to its neighbours will still be subjected to tariffs over the next five years.

The deal also imposes three tariff bands on goods entering the community from outside.

We have reached a significant milestone in the development of the East African Community Amanya Mushega EAC secretary general

Finished goods will be subject to 25% tariffs, semi-processed goods 10% and raw materials zero.

Officials were very upbeat about the protocol.

"This is a rare occasion," EAC Secretary-General Amanya Mushega told Reuters news agency.

"With the signing of this protocol we have reached a significant milestone in the development of the EAC. It has been a long journey."

The signing was originally set for 30 November last year, but was delayed because Mr Mkapa was ill.

There have been further delays over disagreements about how to classify goods into tariff bands, and concerns in Tanzania and Uganda that their industries would be threatened by Kenya's much more highly developed manufacturing base.

Correspondents say the three countries, with a total population of 90 million people and a combined annual gross domestic product of $25bn, see the customs union as a key step in plans for a common market and a single currency modelled on the European Union.