The dispute centred on South African legislation which enabled local companies to manufacture drugs which could be sold at a fraction of the price of similar imported medicines.

South Africa argued that US pharmaceutical companies were charging exorbitant prices for the drugs needed by African countries to combat the Aids epidemic.

The US countered that the South African laws undermined drug manufacturer's patent rights.

The dispute put a strain on trade relations between the two countries. Washington placed South Africa on its "watch list", indicating it was unhappy with the country's intellectual property safeguards.

'Pandemic'

Caring for children orphaned by Aids is a huge concern

But on Friday, US trade representative Charlene Barshefsky announced that the two countries had reached an agreement, saying that the US fully supported South Africa's efforts to combat Aids.

"The government of South Africa is battling a very serious Aids pandemic," Ms Barshefsky said in a statement.

South Africa has however agreed to make sure that imported drugs will continue to enjoy intellectual property right protection as spelled out by the World Trade Organization.

The agreement comes shortly before President Thabo Mbeki's first visit to the US since taking office in June.

One purpose of this trip is to attract US investment in the hope of creating jobs and boosting South Africa's troubled economy.

Spreading fast

An estimated 3.6 million people in South Africa - 8.6% of the population - are infected with the HIV virus which causes Aids.

South Africa's Medical Research Council says one in five mothers have the virus, and the epidemic is spreading fast.