New Zealand and Australia are seeking discussions with Pacific Island countries on a free trade agreement, said New Zealand Trade Minister Phil Goff Tuesday.

He said the deal aims at involving member states of the Pacific Islands Forum, the regional intergovernmental body.

"Forum Trade Ministers are scheduled to hold their annual meeting in Vanuatu in early August and we have asked the Forum Secretariat to convene preliminary exploratory consultations on how we should move forward to remove barriers to trade within the region," said Goff.

Under the Pacific Agreement on Closer Economic Relations (PACER) signed in 2002, Pacific countries agreed on the need to cooperate to foster economic growth, investment and employment in the region.

Last year at the Forum Trade Ministers' Meeting the Forum members moved the process forward by commissioning a joint study to find out the potential impacts of a closer economic relationship, and what Pacific Island countries need to build capacity, promote trade and create sustainable economies.

Goff said that any movement towards a free trade agreement in the Pacific would, however, be measured rather than rapid.

He said the process for liberalizing trade would need to be phased to take into account capacity constraints. A strong focus would be on providing assistance to developing economies to build their capacity to take advantage of any new trading arrangements.

Trade is currently strongly in New Zealand's and Australia's favor reflecting the smallness of Pacific Island economies. This is partly balanced by services such as tourism and remittances back to the Islands.

Goff said New Zealand's recent announcement of its Recognized Seasonal Employer Policy would assist Pacific countries greatly. It is an example of how regional integration can work to mutual advantage.

Goff said New Zealand's aim is to develop an economic and trade policy that works to strengthen our development assistance policies and promote stability and prosperity.

"In the face of other regional trading entities such as the European Union, ASEAN and the North American Free Trade Agreement, it makes sense for the Pacific Islands Forum countries to examine how we can work more closely together for our common benefit," said Goff.