Palau has created a free trade zone aimed at light manufacturing.
The move is expected to draw interest from tuna canneries as investors will also be attracted by the country's trading privileges with the United States.
Palau is allowed to provide up to ten per cent of American canned tuna imports tariff-free.
The free trade zone is in an as yet undeveloped area of one of the northern islands of Palau.
A US funded road on the island is due to be completed by 2005 but improvements to the port are still needed.
The island has only 220 inhabitants