Leading economist Ross Garnaut is calling on the Australian Government to negotiate a deal with Papua New Guinea to prevent the arbitrary use of its immigration powers to disrupt business between the two countries.

The call comes after Professor Garnaut was forced to resign as chairman of PNG's largest mining company because of a travel ban imposed on him by the nation's prime minister, Peter O'Neill.

The ban on Professor Garnaut travelling to PNG was imposed in November after he expressed an opinion on a spat between BHP Billiton and Mr O'Neill over the control of the PNG Sustainable Development Program (PNGSDP).

The PNGSDP is a $1.4 billion charitable trust set up by BHP when it handed over its shares in Ok Tedi to the people of Papua New Guinea.

Professor Garnaut says the ban represents a dark day for PNG.

"My ban was a low point for Australian diplomacy generally, a low point for PNG development, and a low point for Papua New Guinea democracy," he said

Professor Garnaut says his resignation was necessary because Ok Tedi has important issues - such as its mine life extension plan - that need immediate attention which he is not able to handle from outside the country.

'Personally offensive'

Mr O'Neill was not available for comment but in a statement he said the central issue was not what he described as ill-informed comments by Professor Garnaut, but BHP Billiton's colonial mentality.

He says the mining giant failed to accept the favour PNG did the company when it allowed it to relinquish its ownership of Ok Tedi without accepting financial or moral responsibility for environmental and social damage.

Mr O'Neill says BHP Billiton and Professor Garnaut are alleging he wants to get his hands on the funds of the PNGSDP, which he says is both wrong and personally offensive.

Professor Garnaut says he now wants to move on but he is concerned the PNG government action against him may have set a precedent.

"The important thing now is that things like this never happen again, that a government never again seeks to exercise leverage over legitimate international corporate interests through the misuse of immigration powers," he said.

"If it became an accepted precedent it would introduce a major new element of sovereign risk, a barrier to PNG development and a recurring volcano in bilateral relations."

The Ok Tedi Mine in Papua New Guinea ( Ok Tedi Mine CMCA Review )

Long-time PNG observer Stephen Howes from the Australian National University says the Federal Government should have criticised the ban.

He says if Australia had spoken out, Professor Garnaut might not have been forced to resign.

"It is very unfortunate that the Australian Government didn't issue any sort of public protest when the PNG government put this travel ban in place," he said.

"In fact the only public comment from the Australian Government said it was up to PNG to decide who was or wasn't allowed to visit the country.

"Australia should be supporting free speech in PNG and Australia should certainly be supporting the rights of its citizens to engage in lawful business activities in other countries."

He says the Australian Government may have stayed silent because it needs PNG's support for the asylum seeker processing centre on Manus Island.