Rock International Tobacco, a Singaporean-based foreign investment company, was rejected in its application to establish a manufacturing operation in Vanuatu due to government health concerns.
Vanuatu Investment Promotion Authority's Chief Executive, Smith Tebu, told Radio Australia's Pacific Beat that very strict Health Department regulations forced the government to withhold approval for the project.
"This company was not the only company that has applied for investment in the tobacco processing," Mr Tebu said.
"There were a number of companies who have applied in the past for this same activity and they were all rejected based on the same reason."
Vanuatu passed the Tobacco Control Act in 2009, which bans all forms of advertising of tobacco, the sale of tobacco or cigarettes to children and adolescents, and bans smoking in hospitals and schools.
But health advocates are worried that tobacco manufacturers may target other Pacific countries as cheap sources of labour and a market for cheap cigarettes.
New Zealand Heart Foundation's Manager for Pacific Health, Louisa Ryan, says a lack of tobacco regulation in the Pacific has attracted tobacco companies.
"If you mirror countries like Australia and New Zealand where we were able to control some of the flow of the tobacco in and some of the use and how its sold, they don't have such laws in the Pacific islands," Ms Ryan said.
"We're always very concerned when we hear that the tobacco companies are going in there not just to continue to sell but they're producing the tobacco on-site."
She says the market in the Pacific is getting younger and younger, with some children beginning to smoke at age 8 or 9.
Ms Ryan says smoking also exacerbates other problem diseases in the Pacific, such as cardiovascular disease, lung cancer and diabetes.
"You're seeing a similar health pattern that you're seeing in countries like New Zealand, Australia and the US," she said.
"The non-communicable disease is kind of emerging as an even worse problem than communicable diseases.
"So whilst they're fighting the battle around such things as typhoid and malaria and AIDS, they're now having to fight the battle of heart disease and diabetes and cancer."