At talks in Brisbane, Australia says it has offered concessions and will permit thousands more Pacific islanders to work here on temporary visas.
The Pacer Plus deal is scheduled to be signed in June after more than six years of negotiations.
The Pacific is home to some of the poorest countries in the world.
Under negotiation is a deal between 16 island nations to reduce poverty through trade.
Solomon Island's Foreign Minister Milner Tozaka is the chair of the Pacer Plus trade talks.
"A stable and prosperous Pacific would benefit all our countries."
But it's unlike Australia's free trade deals with China, Japan and South Korea.
And the largest Pacific Island economy has thrown a spanner into the works.
Papua New Guinea's Director General for Trade Max Rai says the country is not yet satisfied with the terms of the deal.
"PNG's position is that it is not ready to sign Pacer Plus, especially in it's current form."
The Pacer Plus free trade agreement will cover Australia's $21 billion in trade with Pacific.
It is designed to direct aid toward trade infrastructure and promote economic development.
But it will also cut island nations' trade tariffs, a hit to struggling Pacific budgets.
Adam Wolfenden is from the Pacific Network on Globalisation.
He says the deal could stifle economies in the region.
"The Pacific relies on import taxes from a lot of Australian and New Zealand goods, and the revenue they get is a huge part of government revenue."
Fiji, which was devastated last month by cyclone Winston, shares PNG's fears.
Those fears, Mr Rai says, are that it could endanger local industries.
"PNG is concerned that the development of our local industries will be threatened by the heavily subsidised and technologically advanced industries in Australia and New Zealand."
Australia rejects the criticism from its largest Pacific trading partners.
Assistant Trade Minister Senator Richard Colbeck says the capabilities of different nations are being considered.
"It's important to note, Pacer Plus takes into account different development levels and capacities in various Pacific nations."
The details of the trade talks are secret, as is usually the case in these types of negotiations, but with the region's two largest island economies unhappy with what's on offer, the June deadline looks in doubt.
But Mr Tozaka, the Solomon Islands foreign minister, remains optimistic.
"Papua New Guinea being a huge economy has come up with some issues and it's important they are talked about."
Senator Colbeck says Australia has already met a key Pacific demand, agreeing to allow thousands more Pacific seasonal workers into the country at a time of labour shortages on the land.
"On 8 Feb Australia announced the extension of the program to cattle, sheep, grain and mixed enterprises, and I can say to you that is very popular amongst our agricultural sector."
More talks a due in April, ahead of the June deadline.
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