- Seven of the smallest island nations Wednesday rejected calls to drop tariffs and form a South Pacific free-trade area.

The grouping, led by Niue Premier Toke Tufukia Talagi, is meeting on the sidelines of the Pacific Islands Forum in the east-coast city of Cairns. The other nations represented are Cook Islands, Kiribati, Nauru, Palau, Marshall Islands and Tuvalu

"We have decided that we will continue with the pace that we want to develop this partnership and closer economic relations with Australia and New Zealand," Talagi told reporters. "We need time to consider the implications as well as the consultations with our countries before we proceed to final negotiations."

It is a rebuff for the host of this year's forum, Australian Prime Minister Kevin Rudd, who had hoped the 40th annual meeting of the 16-member grouping would generate enthusiasm for economic reform in the region.

Talagi also broke ranks with host Australia by calling for Fiji's membership of the forum to be restored. Fiji was suspended in May because strongman Commodore Frank Bainimarama has defied calls for a return to democracy.

Talagi said Fiji should be included in the forum's deliberations even though it is barred from taking part in them.

Australian Foreign Minister Stephen Smith made the obvious point that Fiji's suspension would be meaningless if it had a seat at the table.

"Because Fiji has moved away from democracy it has been suspended from the forum and so, as a consequence, it can't take part in the forum," he said.