The new island state with moral values (7)
I believe the answer is:
ethical
'with moral values' is the definition.
(with morals or ethics)
'the new island state' is the wordplay.
'new' is an anagram indicator.
'island' becomes 'i' (geographical abbreviation).
'state' becomes 'cal' (short for California).
'the' with letters rearranged gives 'eth'.
'eth'+'i'+'cal'='ETHICAL'
(Other definitions for ethical that I've seen before include "Abiding by moral principles" , "lt's available on prescription only" , "Principled (behaviour)" , "Morally correct, honourable" , "not advertised to the general public" .)