The leaders of New Caledonia and Vanuatu have signed an agreement to free up trade for a range of products.
It will apply to about 50 products, with Vanuatu being able to export agricultural products including coffee without duties or quantity restrictions.
In return, New Caledonia can supply processed food and building materials.
The agreement is yet to be approved by New Caledonia's Congress and Vanuatu's parliament.
New Caledonia's president Philippe Germain says the deal will enrich the region and make it economically more solid.
The deal is seen as a way of integrating New Caledonia into its Melanesian neighbourhood and may be replicated with Solomon Islands and Fiji.