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[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]

 U.S. ASSISTANCE TO MICRONESIA AND THE MARSHALL ISLANDS: A QUESTION OF 
                             ACCOUNTABILITY

=======================================================================

                                HEARING

                               BEFORE THE

                  SUBCOMMITTEE ON ASIA AND THE PACIFIC

                                 OF THE

                              COMMITTEE ON
                        INTERNATIONAL RELATIONS
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED SIXTH CONGRESS

                             SECOND SESSION

                               __________

                        WEDNESDAY, JUNE 28, 2000

                               __________

                           Serial No. 106-139

                               __________

    Printed for the use of the Committee on International Relations

        Available via the World Wide Web: http://www.house.gov/
                  international--relations

                                 ______

                     U.S. GOVERNMENT PRINTING OFFICE
66-709 cc                   WASHINGTON : 2000

                  COMMITTEE ON INTERNATIONAL RELATIONS

                 BENJAMIN A. GILMAN, New York, Chairman
WILLIAM F. GOODLING, Pennsylvania    SAM GEJDENSON, Connecticut
JAMES A. LEACH, Iowa                 TOM LANTOS, California
HENRY J. HYDE, Illinois              HOWARD L. BERMAN, California
DOUG BEREUTER, Nebraska              GARY L. ACKERMAN, New York
CHRISTOPHER H. SMITH, New Jersey     ENI F.H. FALEOMAVAEGA, American 
DAN BURTON, Indiana                      Samoa
ELTON GALLEGLY, California           MATTHEW G. MARTINEZ, California
ILEANA ROS-LEHTINEN, Florida         DONALD M. PAYNE, New Jersey
CASS BALLENGER, North Carolina       ROBERT MENENDEZ, New Jersey
DANA ROHRABACHER, California         SHERROD BROWN, Ohio
DONALD A. MANZULLO, Illinois         CYNTHIA A. McKINNEY, Georgia
EDWARD R. ROYCE, California          ALCEE L. HASTINGS, Florida
PETER T. KING, New York              PAT DANNER, Missouri
STEVE CHABOT, Ohio                   EARL F. HILLIARD, Alabama
MARSHALL ``MARK'' SANFORD, South     BRAD SHERMAN, California
    Carolina                         ROBERT WEXLER, Florida
MATT SALMON, Arizona                 STEVEN R. ROTHMAN, New Jersey
AMO HOUGHTON, New York               JIM DAVIS, Florida
TOM CAMPBELL, California             EARL POMEROY, North Dakota
JOHN M. McHUGH, New York             WILLIAM D. DELAHUNT, Massachusetts
KEVIN BRADY, Texas                   GREGORY W. MEEKS, New York
RICHARD BURR, North Carolina         BARBARA LEE, California
PAUL E. GILLMOR, Ohio                JOSEPH CROWLEY, New York
GEORGE P. RADANOVICH, California     JOSEPH M. HOEFFEL, Pennsylvania
JOHN COOKSEY, Louisiana
THOMAS G. TANCREDO, Colorado
                    Richard J. Garon, Chief of Staff
          Kathleen Bertelsen Moazed, Democratic Chief of Staff
                                 ------                                

                  Subcommittee on Asia and the Pacific

                   DOUG BEREUTER, Nebraska, Chairman
JAMES A. LEACH, Iowa                 TOM LANTOS, California
DANA ROHRABACHER, California         HOWARD L. BERMAN, California
PETER T. KING, New York              ENI F.H. FALEOMAVAEGA, American 
MARSHALL ``MARK'' SANFORD, South         Samoa
    Carolina                         MATTHEW G. MARTINEZ, California
MATT SALMON, Arizona                 SHERROD BROWN, Ohio
JOHN McHUGH, New York                ROBERT WEXLER, Florida
RICHARD BURR, North Carolina         JIM DAVIS, Florida
PAUL GILLMOR, Ohio                   EARL POMEROY, North Dakota
DONALD A. MANZULLO, Illinois         GARY L. ACKERMAN, New York
EDWARD R. ROYCE, California          ALCEE L. HASTINGS, Florida
JOHN COOKSEY, Louisiana
             Michael P. Ennis, Subcommittee Staff Director
           Robert King, Democratic Professional Staff Member
                         Matt Reynolds, Counsel
                  Alicia A. O'Donnell, Staff Associate

                            C O N T E N T S

                              ----------                              

                               WITNESSES

                                                                   Page

Susan S. Westin, Ph.D., Associate Director for the International 
  Relations and Trade Division, U.S. General Accounting Office 
  (GAO)..........................................................     7
Allen Stayman, Special Negotiator for Compact of Free 
  Association, Bureau of East Asian and Pacific Affairs, U.S. 
  Department of State............................................    23
Ferdinand Aranza, Director, Office of Insular Affairs, U.S. 
  Department of the Interior.....................................    25
Fred Smith, Special Assistant to the Undersecretary for Asia-
  Pacific Issues, U.S. Department of Defense.....................    28

                                APPENDIX

Prepared statements:

The Honorable Doug Bereuter, a Representative in Congress from 
  Nebraska.......................................................    44
Susan S. Westin..................................................    48
Ferdinand Aranza.................................................    64
Allen Stayman....................................................    71
Fred Smith.......................................................    80
The Honorable Robert Underwood, a Delegate in Congress from Guam.    83
The Honorable Edward Royce, a Representative in Congress from 
  California.....................................................    85

Additional material:

Answers to Questions for the Record submitted to the Department 
  of State by the Honorable Richard Burr.........................    86
Answers to Questions for the Record submitted to the Department 
  of the Interior by the Honorable Richard Burr..................    92
Materials for the Record submitted by the Ministry of Foreign 
  Affairs of the Marshall Islands................................    95

 
 U.S. ASSISTANCE TO MICRONESIA AND THE MARSHALL ISLANDS: A QUESTION OF 
                             ACCOUNTABILITY

                              ----------                              

                        Wednesday, June 28, 2000

                  House of Representatives,
              Subcommittee on Asia and the Pacific,
                      Committee on International Relations,
                                                   Washington, D.C.
    The Subcommittee met, pursuant to notice, at 2:25 p.m., in 
room 2172, Rayburn House Office Building, Hon. Doug Bereuter 
(Chairman of the Subcommittee) presiding.
    Mr. Bereuter. The Subcommittee will come to order.
    I regret we have had a delay because of a series of House 
votes. It is a hectic day, and we will do our best to try to 
give the subject of today's hearing the rapt attention it 
deserves, but we will undoubtedly be interrupted. I myself am 
involved in a Banking Committee markup and will have to leave 
at least briefly for one of the votes.
    Today we meet in open session to receive testimony on the 
impact of U.S. financial assistance to the Federated States of 
Micronesia (FSM) and the Republic of the Marshall Islands (RMI) 
in view of the ongoing negotiations to renew the financial 
provisions of the Compact of Free Association which expires in 
2001.
    In 1986, the U.S. Government entered in a Compact of Free 
Association with the FSM and the RMI. The Compact granted these 
former U.S. trust territory districts their independence and 
provided a framework for future governmental relations, 
including the provision for 15 years of U.S. direct payments 
made by the Department of Interior to the bank accounts of the 
FSM and the RMI. The direct payments from Interior were to be 
used for such purposes as capital construction projects, energy 
production, communication capabilities, and recurring 
operational activities such as infrastructure maintenance. 
Nineteen U.S. Federal agencies have provided aid through 
grants, loans, equipment, and technical assistance.
    Title II of the Compact, regarding economic relations, and 
Title III, regarding the defense veto and additional base 
rights but not the right of strategic denial or the use of 
Kwajalein Atoll, will expire in 2001. The United States is 
already engaging both Micronesia and the Marshall Islands in a 
new round of negotiations to extend these Compact titles. 
However, before negotiations proceed much further, I believe it 
is incumbent on us to examine carefully and objectively the 
record of the Compact since 1986 in order to provide a more 
accurate and acceptable direction for relations in the future.
    It is in this context that the Chairman of the Senate 
Committee on Energy and Natural Resources, Senator Frank 
Murkowski (R-AK) and I tasked the General Accounting Office 
(GAO) to undertake a two-part review of the Compact.
    The first report, which was issued last month, examines, 
one, the cost to the U.S. of providing assistance to the FSM 
and the RMI from fiscal years 1987 through 1999; and second, 
funds provided prior to the Compact for the effects of nuclear 
weapons testing on what is now the RMI. According to the GAO, 
more than $2.6 billion--yes, this is ``B'' for billion--in 
financial and other assistance has been provided to the FSM and 
the RMI during this time period.
    Of that, approximately $2 billion has been through 
quarterly cash payments with minimal or no oversight to the 
islands' bank accounts. The remaining $500 million was provided 
by 19 Federal agencies in various services such as education, 
Head Start and Pell grant funding, weather forecasting support, 
preventive health services, Job Training and Partnership Act 
aid, and the like.
    This translates over the past 13 years into approximately 
$1.5 billion to the FSM, a nation of 131,500 people, and $1.1 
billion to the 50,500 inhabitants of the RMI.
    The GAO found significant inaccuracies and inconsistencies 
with the data being used by the Department of the Interior to 
supervise and monitor Federal assistance programs. In fact, 
Interior is still unable to document $27 million in 
reimbursements. As the GAO reports, ``Collectively, therefore, 
Interior's ability to accurately report on assistance provided 
is called into question.''
    This Subcommittee's own initial investigation revealed that 
Interior has assigned only one mid-level individual, only one 
individual in the field to simply monitor, not to manage, these 
vast sums of American aid. His responsibilities are extended 
even further to also include the distant, Freely Associated 
State of Palau, also a former trust territory, and its $14 
million annual aid program. In other words, one individual has 
a jurisdiction extending over an area of 2,400 miles in length 
and four time zones. I am told there is only one other 
individual identified in the Office of Insular Affairs with 
exclusive responsibilities for the FSM and RMI, and this person 
is in Washington DC. The neglect and indifference of the 
Interior Department is nothing more than a failure by our own 
government to fulfill its basic responsibilities to the 
American taxpayer. That is my conclusion.
    Before another dollar is blindly committed, we need to get 
the U.S. Government's own affairs in order. Given what the GAO 
has revealed, I have serious concerns about the Interior 
Department's ability to manage U.S. assistance and advance 
economic development in the FSM and the RMI. Indeed, Interior's 
only other experience in this field is with the Bureau of 
Indian Affairs, and we are all too aware of the billions of 
dollars in missing Indian trust fund moneys and the deplorable 
conditions in and the vast number of failed economic 
development programs on America's own Indian reservations.
    We need to examine the following question: should some 
other agency have primary responsibility?
    The second part of the GAO review focuses on the use and 
the impact of U.S. financial assistance to the FSM and the RMI. 
Where has the $2.6 billion gone? I would say very candidly that 
when I visited our four trust territories in the Pacific in the 
early 1980's as a very junior member of the Interior and 
Insular Affairs Committee I saw endemic waste, mismanagement, 
and massive corruption in at least one of those territories. 
Unfortunately, as the GAO will report, it is evident that 
corruption, waste, mismanagement, and misuse of funds 
continues. The abuse continues to divert a significant amount 
of the resources that ought to have gone to the people of the 
region but didn't.
    America's investments in Micronesia and the Marshall 
Islands seem to have disappeared or to be rusting away in 
perpetuity. Most economic development projects have failed. The 
squalor I saw on Ebeye almost 20 years ago apparently still 
remains there today, perhaps even more intolerable despite $1.1 
billion in overall assistance to that area.
    Sixty million dollars have gone into fishing fleets and 
processing plants in the FSM, yet the ships are rusting in the 
harbor. They were never appropriate for the kind of fishing 
that would make sense, or they are smashed up on the reef and 
the plants are empty and closed with little or absolutely no 
operational time resulting from those expenditures.
    With the renewal of Title II of the Compact, significant 
changes are needed to stop this deplorable, outrageous example 
of the fleecing of the American taxpayer and to ensure that our 
assistance does, in fact, lead the FSM and the RMI on a 
successful path to economic self-sufficiency in which all 
islands, not just the chosen few, benefit.
    A successful Compact with genuine and sustainable economic 
development in these Freely Associated States is certainly in 
America's short-term and long-term national interest. The 
mismanagement and waste of Compact financial assistance is not 
a partisan issue; this financial and human tragedy has 
transpired through Republican and Democrat Administrations in 
Washington, and many different governments in Palikir and 
Majuro, largely without public notice.
    I am encouraged, although guardedly so, with a few positive 
reforms that have already occurred or are being proposed in 
both the FSM and the RMI under the new governments. However, 
actions speak much louder than word and significant actions are 
still needed.
    With the current negotiations, both the United States and 
the Freely Associated States have a special opportunity to 
reformulate our financial relationship. The FSM and the RMI 
should recognize that both the world and the U.S. Congress have 
changed since 1986. While our special defense relationship 
certainly remains of important strategic value--and in no way 
is this special defense relationship in question or even on the 
table--the Soviet Union and the threats it posed no longer 
exist.
    In our successful effort to balance the U.S. Federal 
budget, certain domestic programs and constituencies have 
endured painful cuts. The FSM and the RMI cannot expect to 
continue to be shielded from similar experiences. Much, much 
more will have to be done with less.
    But the good news is that this can be done with no hardship 
if the funds are no longer spent in such a scandalous fashion. 
The challenge for the negotiations ahead is to determine how 
best to do more with less.
    I am pleased today to have the opportunity to hear from 
both the GAO and the Administration on the Compact's record and 
to begin to understand where our government should go from 
here. I am going to work with Mr. Lantos and other Members of 
the Subcommittee because I think there are tasks beyond this 
for the GAO where they can be helpful.
    Mr. Lantos, I will introduce our witnesses in a moment but 
I want to give you a chance to make any comments at this stage 
before I go to introductions.
    I would yield to the distinguished gentleman from 
California, Mr. Lantos, the Ranking Member.
    Mr. Lantos. Thank you very much, Mr. Chairman. Before 
making a few comments, I want to pay tribute to my Chief of 
Staff, Dr. Bob King, who recently returned from the area, who 
has provided me with an invaluable analysis of developments in 
this region.
    Mr. Chairman, I want to commend you for holding this 
hearing. This is not an issue that is at the top of the 
headlines, but it represents an area of enormous strategic 
interest for the United States. This hearing reflects your 
typical thoughtful and responsible approach to dealing with an 
issue, an area of importance to our Nation.
    The United States has had a long-standing relationship with 
the people of Micronesia and the Marshall Islands. For over 
four decades, these areas were trust territories of the United 
States. When they became independent states in the mid-1980's, 
we established a special relationship through a Compact of Free 
Association with both the Federated States of Micronesia and 
the Republic of the Marshall Islands.
    Our particularly close relationship has been very 
beneficial to the United States and to these two countries. 
This area has great strategic importance for us.
    These islands cover a huge area of the Pacific Ocean. 
During World War II, American military personnel gave their 
lives to gain control of these strategically significant areas. 
We continue to maintain a critical military facility at 
Kwajalein Atoll in the Marshall Islands. This facility, which 
we have leased under an agreement with the Republic of the 
Marshall Islands, has great importance for our national missile 
defense system testing and for testing other missile and 
missile defense systems. This facility is also important in 
tracking space activities. It continues to be in our interest, 
Mr. Chairman, to maintain close and friendly relationships with 
the Marshall Islands and Micronesia.
    This doesn't mean that there are not problems in the way in 
which the United States' assistance to these two countries has 
been administered.
    I want to commend you for requesting the GAO report this 
hearing will consider. Over the past 15 years, since the full 
independence of Micronesia and the Marshall Islands, the United 
States has provided some $2.6 billion in assistance under terms 
of the Compact of Free Association with these two countries. 
This assistance has been very important for both countries, and 
the American taxpayers have recognized the importance of doing 
this. At the same time, the GAO report clearly indicates that 
the handling of these funds has been seriously deficient.
    There is plenty of blame to go around. The Department of 
Interior has been seriously deficient in its oversight of these 
programs. The governments which have received this aid also 
have not exercised the oversight that should have been done. 
The assistance has not achieved its intended benefit s for the 
people of Micronesia and the Marshall Islands.
    I want to strongly emphasize, Mr. Chairman, the point you 
made. This is not a partisan issue. The Compacts of Free 
Association with these countries have been associated with and 
administered by Republican and Democratic Administrations over 
the course of more than 20 years, during the Reagan, Bush and 
the current administration. The problems that are evident are 
not the responsibility of any particular administration or any 
particular party.
    It is my sincere hope that we can continue to deal in a 
constructive and bipartisan fashion with the matter of 
reconsidering some of the provisions of these two Compacts.
    Mr. Chairman, I appreciate the serious and responsible way 
you have approached this matter, and I want to assure you that 
I will work with you in the same manner to work out solutions 
that are in the best interest of our Nation.
    Thank you, Mr. Chairman.
    Mr. Bereuter. Thank you, Mr. Lantos. I can assure you we 
will attempt and we will, without a doubt, work constructively 
in a bipartisan fashion; and I appreciated your assurance, 
although I knew that it would be there without you mentioning 
it.
    I want to welcome to the panel today the Delegate from 
Guam, Mr. Robert Underwood, and I would just tell him that as 
far as this hearing is concerned, today he can consider himself 
a Member of the Subcommittee and fully participate.
    I will turn now to Mr. Royce, the Vice Chairman of the 
Subcommittee, for any comments that he might make before we 
introduce our witnesses.
    Mr. Royce. Thank you, Mr. Chairman. I will take only a 
minute, but let me just say that this Subcommittee is now doing 
some very important oversight work, and I want to thank the 
Chairman for calling this hearing.
    The fraud and the waste and the abuse that the GAO has 
managed to uncover here at the direction of the Chairman is 
frankly, very troubling. We are not talking about a small sum 
of money here, as mentioned; as you go through that GAO report, 
item after item is identified as poor planning, poor 
management, inadequate construction, inadequate maintenance, 
misuse of funds.
    Just to tick off a couple here, $180,000 in funds intended 
for economic infrastructure upgrade used instead to build a 
dock in front of the mayor's house; 600,000 of heavy equipment 
purchased for a $1.3 million road used instead for--at the 
mayor's personal dock for activities unrelated to road 
maintenance.
    There is little accountability in these expenditures, and 
the Interior Department's reports of these expenditures are a 
mess.
    This is more than an accountability problem, though, as we 
go through it. The GAO has found that the money we have sent to 
these countries has done little to promote economic 
development, which is the stated purpose of the aid. While this 
aid failure is common throughout the world, what is different 
here in this case is the amount of money we are spending per 
person.
    Here is $760 per capita in Micronesia and $1,095 in the 
Marshall Islands. Now if you compare that to Africa for a 
minute, we are spending some $1 per person per year on the 
African continent, and in these islands, we have fostered a 
dependence mentality that counters economic development and it 
counters independence.
    We have, yes, a very strategically important relationship 
with the Marshall Islands and with Micronesia, and as we look 
forward to renewing this Compact, it is very important that we 
understand the problems we have had and it is very important 
that we remedy this situation; our failure to do so would hurt 
our interests there and would hurt support for American 
engagement elsewhere in the world.
    That is why I want to thank the Chairman for holding this 
important oversight hearing and for the steps that we will be 
taking to remedy the situation.
    Thank you, Mr. Chairman.
    Mr. Bereuter. Thank you very much, Mr. Royce.
    Mr. Underwood, do you have an opening statement? If so, you 
are recognized.
    Mr. Underwood. Thank you, Mr. Chairman. I appreciate your 
leadership on this particular issue and bringing attention to 
what is not ordinarily understood in the halls of Congress, our 
relationship with the Compact States of the Federated States of 
Micronesia and Republic of the Marshall Islands. I have a 
statement that I would like to enter into the record.
    Mr. Bereuter. Without objection.
    Mr. Underwood. At the same time, I just want to relate two 
perspectives on this particular issue.
    First, is that while we certainly have an obligation to the 
American taxpayer to ensure that money is spent wisely and to 
make sure that the Federal agencies which are responsible for 
monitoring and accounting these funds should do their job--and 
there is much evidence that perhaps they haven't--we should 
bear in mind that this is a very important relationship. This 
is a very strategic area. This is an area of the world which 
will continue to grow in importance. It represents a 
significant part of the Pacific Ocean, and we should bear that 
in mind lest we have any difficulties in the future.
    Second, I want to also raise the issue, although it is not 
entirely within the context of this, to understand that in the 
region there live Americans, Americans in Guam and Americans in 
the Commonwealth of the Northern Mariana Islands, and that the 
nature of the programs that we have in place in the Compact 
States of the FSM and RMI have a direct impact on these two 
territories, as well as the State of Hawaii--a very dramatic 
impact in terms of the utilization of resources. Those of us in 
Guam, in particular, want to be helpful to our island brothers 
and sisters and neighbors in the region; but at the same time, 
we also want to make sure that any negative effects of lack of 
economic development which are translated into dramatic out-
migration into a place like Guam, which I represent, should be 
considered in the context of the negotiations.
    Again, I want to thank you for your efforts in this regard. 
Thank you.
    Mr. Bereuter. Thank you very much, Mr. Underwood. We will 
try not to neglect a consideration of those impacts, and, of 
course, we have the people of American Samoa in the region as 
well.
    Without objection, additional questions for the record will 
be submitted by Mr. Burr of North Carolina.
    [The information referred to appears in the appendix.]
    Mr. Bereuter. The Subcommittee has also received testimony 
from the Commonwealth of the Northern Mariana Islands, a letter 
from the Minister of Foreign Affairs and Trade of the Republic 
of Marshall Islands, which will also be included in the record, 
without objection.
    Hearing no objection, that will be the order.
    [This information is available for viewing in the 
Subcommittee's office]
    Mr. Bereuter. Testifying first, if she will come to the 
witness table--and anyone she would like to bring The 
International Relations and Trade Division with her--is Dr. 
Susan Westin, Associate Director for the U.S. General 
Accounting Office. In this capacity, she has led a number of 
cross-cutting assignments on competitiveness, in addition to 
heading GAO's assessment of the U.S. response to Mexico's 
financial crisis and the second part of the GAO's review of the 
FSM and RMI. Before joining the GAO, Dr. Westin held faculty 
positions at the University of Toronto, Northwestern 
University, and Southeastern University in Washington.
    We will then have a distinguished second panel of 
witnesses, which I hope we will get to today if we have any 
kind of cooperation from our colleagues on the Floor, and I 
will introduce them at that time.
    Dr. Westin, I am not placing you under time restraints 
here. I know that you will use the time judiciously. This is 
something we are not going to cut you short on. You and your 
team are the primary witness here today, and we want to listen 
and hear you in a very thorough fashion.
    You may proceed as you wish.

   STATEMENT OF SUSAN S. WESTIN, Ph.D., ASSOCIATE DIRECTOR, 
  INTERNATIONAL RELATIONS AND TRADE DIVISION, U.S. GOVERNMENT 
                       ACCOUNTING OFFICE

    Ms. Westin. Thank you, Mr. Chairman. I am pleased to be 
here today----
    Mr. Bereuter. Are you short some lights that you need to 
see?
    Ms. Westin. I see I do need my little flashlight that I 
brought with me, so I will go ahead and use it.
    I am pleased to be here today to provide information 
regarding economic assistance provided by the United States 
from 1987 through 1998 to the Federated States of Micronesia 
and the Republic of the Marshall Islands under the Compact of 
Free Association. The Compact represents a continuation of U.S. 
financial support that had been supplied to these areas after 
World War II under the United Nations Trust Territory of the 
Pacific Islands.
    Specifically, my testimony will address four main 
objectives:
    First, how have the FSM and RMI used Compact funding?
    Mr. Bereuter. Would you excuse me for just a second? This 
is the first time we have used some of this audio-visual 
equipment, and I realize that for people here in attendance the 
best screen is the one that is behind you. If you want to crane 
around or slightly move your chairs, please feel free to do 
that.
    You may proceed.
    Ms. Westin. Right. Mr. Chairman, the same thing will be 
televised on the two screens on either side.
    Second, what progress has been made by both nations in 
advancing economic self-sufficiency?
    Third, what has been the role of Compact funds in 
supporting economic progress?
    Fourth, how much accountability has there been over Compact 
expenditures?
    I will also provide observations on several issues that 
need to be resolved during the ongoing negotiations to renew 
Compact economic assistance to both countries.
    The main message of my testimony this afternoon is that 
both the Federated States of Micronesia and the Republic of the 
Marshall Islands remain highly dependent on U.S. assistance. 
Furthermore, Compact expenditures have led to little 
improvement to date in economic development for the FSM or the 
RMI. Many Compact-funded projects have failed due to poor 
planning and management, inadequate construction and 
maintenance and misuse of funds. In addition, there has been 
limited accountability over Compact funds.
    Let me first give a little background on the two countries. 
The FSM is a grouping of 607 small islands in the Western 
Pacific about 2,700 miles southwest of Hawaii, lying just above 
the Equator. The FSM has a total land area of about 270 square 
miles that occupies more than 1 million square miles of the 
Pacific Ocean. The FSM is composed of four states--Kosrae, 
Pohnpei, Chuuk and Yap--with an estimated total population of 
131,500.
    The RMI is located in the central Pacific about 2,100 miles 
southwest of Hawaii and about 2,300 miles southeast of Japan. 
The country is made up of more than 1,200 islands, islets and 
atolls with a total land area of about 70 square miles, about 
the same as the District of Columbia. The RMI occupies about 
750,000 square miles of the Pacific Ocean and has a total 
population of approximately 50,500 people.
    In 1986, the United States entered into international 
agreements--called the Compact of Free Association--with the 
FSM and RMI. The Compact granted independence to these former 
trust territory districts, following U.S. administration since 
1947, and enabled the newly formed countries to participate in 
world affairs as sovereign nations. The Compact provided 15 
years of direct U.S. payments to the countries through the 
Department of the Interior, to assist them in their efforts to 
develop self-sustaining economies. This assistance expires in 
the year 2001, although there is a possible 2-year extension. 
The Compact also gave other U.S. Federal agencies the authority 
to provide assistance such as grants, loans, equipment and 
technical assistance.
    Turning to the first issue regarding how Compact funds were 
spent, we found that the FSM spent over $1 billion and the RMI 
spent over $500 million in direct funding provided by the 
Compact. There were three types of expenditures made by both 
countries: general government expenditures, which supported 
salaries and supplies; capital expenditures which supported 
infrastructure projects, business ventures and debt service; 
and expenditures targeted to support specific sectors such as 
energy, communication, health and education. In the RMI, 
Compact funds were also spent to compensate landowners for use 
of land on the Kwajalein Atoll by the U.S. military.
    Each government has used the money differently. The largest 
area of expenditures in the FSM was general government 
operations, which accounted for over 47 percent of the total 
Compact expenditures. In the RMI, the largest amount of total 
expenditures, or 45 percent, went to support capital fund 
activities.
    One of the priority areas under the Compact was spending 
for capital projects. The FSM and the RMI together spent $484 
million in this area to build infrastructure and government 
buildings and to support economic development such as fishing 
boats and processing plants.
    The Compact does not provide guidelines to control the 
timing of expenditures. The FSM and the RMI decided to gain 
access to funding primarily in the early years of the Compact 
by issuing $389 million in Compact revenue-backed bonds. This 
funding was used to retire existing debt, fund capital projects 
and make financial investments.
    This strategy has not paid off for the RMI, which in recent 
years has had to use a high percentage of Compact funding to 
repay debt. For example, in 1998, RMI used 64 percent of its 
Compact funds to service its debt, severely limiting the amount 
available to support new capital investment or general 
government operations.
    The second issue we reviewed was the progress made by the 
FSM and the RMI in advancing economic self-sufficiency. The FSM 
and the RMI have made some progress in this area, but both 
countries remain dependent on U.S. assistance to maintain 
artificially high standards of living.
    We chose dependence on U.S. assistance as our indicator to 
gauge economic self-sufficiency. Total U.S. assistance, which 
includes Compact and all other U.S. program assistance, still 
accounts for at least half of total government revenue in both 
countries, although government dependence on U.S. funds has 
fallen from 1987 levels due to, among other things, increases 
in local revenues.
    As to the third issue, we found that Compact expenditures 
of $1.6 billion have led to little progress in economic 
development. Substantial Compact expenditures have supported 
general government operations that have maintained high levels 
of public sector employment and wages, and have acted as a 
disincentive to private sector growth.
    The FSM and the RMI also spend Compact funds for physical 
infrastructure improvements. Both countries viewed these areas 
as critical to improving quality of life and creating an 
environment attractive to private businesses. For example, 
Compact funds of at least $97 million have been spent to 
operate and improve energy, including electrical systems. Some 
of the power-generating facilities we visited are quite small. 
For example the Tonowas power plant runs daily from 5 p.m. To 5 
a.m. Provides electricity to 53 households.
    The countries have spent $22 million to operate and improve 
communications, including telecommunications systems. Access to 
and dependability of these services have increased. However, 
such improvements have not been sufficient to promote 
significant private sector growth, although we identified one 
tuna processing plant in the RMI that located to that country 
in part as a result of dependable electricity.
    Both countries have also spent Compact funds to provide 
subsidized transportation systems. These efforts have been 
targeted at improving transportation between main population 
centers and outer islands. In the FSM, cargo ships purchased 
prior to the Compact have been maintained with Compact capital 
account funds. In the RMI, the national airline has received 
about $30 million in Compact assistance.
    Another important government investment has been in the FSM 
where the College of Micronesia has received $12.8 million in 
Compact funds over the last few years. The college provides the 
FSM with its only post-high school educational institution.
    I would now like to discuss some examples of unsuccessful 
government investment of Compact funds to support business 
enterprises.
    Government officials from both countries told us that 
investing in business ventures had been a bad strategy. During 
our visit government officials reported that virtually no 
Compact-funded business ventures were operating at a profit, if 
at all. One example of a failed business venture is the $60 
million in capital account funds the FSM spent on fisheries 
activities. The FSM has undertaken an unprofitable fishing 
investments in each of the four states.
    We visited storage and processing facilities in all four 
states of the FSM. Not one of the facilities was operating 
during our visit. As you can see, the warehouses are virtually 
empty. Officials from all four states of the FSM said that 
ventures in fisheries were failures due to inexperience and 
poor business judgment.
    In Pohnpei, the state government spent $870,000 to develop 
a pepper exporting industry. As part of this effort, the 
government started a pepper processing plan to provide farmers 
an alternative buyer to the one successful private sector 
pepper company already in operation. The intent of the project 
was to provide an opportunity to pepper farmers to purchase, 
process, market and export their pepper at higher prices than 
paid by the private sector company. As a result of the 
government effort, the private sector company went bankrupt. 
Subsequently, the government effort failed and there is no 
longer any pepper industry at all in Pohnpei.
    In the RMI, almost $2.4 million in Compact funds were 
expended to build a garment factory. This facility was a 1993 
Marshallese-Chinese joint venture which was to manufacture and 
export clothing using Chinese workers. However, management 
disagreements ensued and no clothing was ever sold. The 
facility has closed.
    The RMI used over $11 million in Compact funds to build a 
major resort hotel. This hotel was built so that the RMI could 
host a meeting of the South Pacific Forum in 1996. The hotel 
now operates at a loss and receives government subsidies. For 
example, in 1998, subsidies amounted to more than $1 million.
    We visited more than 80 projects undertaken with Compact 
capital account funds in both countries. We determined that 
numerous Compact-funded projects, both infrastructure and 
business ventures, experienced problems as a result of poor 
planning and management, inadequate construction and 
maintenance, or misuse of funds. Let me provide examples of all 
of these problems, but keep in mind that these countries had 
just emerged from over 40 years of U.S. Administration under a 
U.N. Trusteeship, they had few planning and management skills 
and little experience in managing projects.
    Poor planning and management were evident for several 
failed projects we visited. One example was Pohnpei Coconut 
Products, a company involved with the production and 
distribution of soap and other products made from island-grown 
coconuts. Based on a 1996 contract with a foreign national, the 
soap company requested and received $133,000 in Compact funding 
to purchase new equipment to increase production. The foreign 
national disappeared shortly after the equipment was installed, 
and the company is currently losing money. As you can clearly 
see, the expensive new machinery on the right sits idle and 
rusting, while soap is made using the old technology.
    The Pohnpei state government, in conjunction with national 
government, spent over $21 million in Compact funds on fishing 
boats and processing facilities that were not compatible. 
Because of poor planning and management, the boats never 
returned to profit and the processing plant currently is idle. 
According to a Pohnpei government official, the government knew 
nothing about the fishing industry when it made the investment 
and was duped into paying too much for three 25-year-old boats 
that were too small for the Pacific environment. In addition, 
the processing plant was intended to process high-grade tuna 
not the lower-grade tuna caught by the three boats.
    Chuuk State spent Compact funds on a tuna cannery that was 
never built. Chuuk spent $2.6 million on engineering designs, 
specifications, site plans and other preparatory work for the 
cannery. The objective was to plan, design and eventually 
construct and operate a cannery on the island of Tonowas. 
However, when we visited the island, we found that no cannery 
had ever been built.
    In the RMI, the government spent $9.4 million in Compact 
funds to build a causeway from Ebeye, an extremely crowded 
island in the Kwajalein Atoll, to a planned development on the 
nearby island of Gugeegue. This causeway was meant to relieve 
population problems on Ebeye by allowing residents to move to 
Gugeegue. However, the causeway remains unfinished and 
residents have not moved. Ebeye officials told us that the 
causeway is still covered with water in places during high 
tide, and is considered an inadequate and unreliable 
connection. Further construction has been halted.
    Another example of poor planning we identified was in the 
FSM state of Kosrae. The state has used $9.3 million in Compact 
funds since 1988 to construct a road around the island. When we 
visited, the road was in obvious disrepair, as you can see in 
these pictures, and we were told that the road surface had been 
largely removed. In reviewing the project file for road 
construction, it was revealed that an inferior, although 
cheaper, paving technology had been used. Kosrae had been 
informed prior to construction that the cheaper paving 
technology would not hold up. Kosrae chose the cheaper method 
and is now preparing to pave its roads again.
    Inadequate construction and maintenance were also evident 
during our site visits. In Chuuk, we saw an example of a 
partially Compact-funded, poorly constructed dirt road that was 
an extension of a concrete road built more than 50 years ago; 
and you can see the concrete road as marked in the photograph. 
The concrete road is still in good shape while the dirt road 
has many potholes.
    During our visit to a courthouse in Kosrae, completed in 
1998 with $550,000 of Compact funds, large stains were evident 
in both courtrooms due to water leaks.
    The capitol building in Majuro, RMI, built during the 
1990's using $8.3 million in Compact funding, has visible signs 
of deterioration. Metal stairs are rusting, elevators are 
inoperable and roof leaks appear throughout the building.
    We visited schools and hospitals in all four states in the 
FSM, which spent $80 million under the Compact health and 
education block grants. In Pohnpei and Chuuk, we toured schools 
where sections of ceilings were missing, bathrooms were in 
disrepair and electricity had been disconnected. Many schools 
appeared poorly maintained in these two states. Salaries 
consumed 97 percent of the elementary education budget in 
Pohnpei and 100 percent in Chuuk, leaving almost no funds for 
educational materials or facility maintenance.
    At the Pohnpei Hospital, the director told us that the 
hospital lacked adequate funding, drugs and supplies. He said 
that the entire health care system would collapse without 
Compact funds, in part because collection fees cover less than 
20 percent of health care costs. As a cost-cutting measure, the 
hospital no longer provides sheets to patients. The director 
said patients who cannot afford sheets simply lie on hospital 
mattresses where their infections seep into the mattresses and 
infect future patients. The U.S. embassy reported in January 
2000 that because the hospital lacked funding for cleaning 
products, infectious viruses had been found in 37 locations, 
including 10 sites in the operating and emergency rooms.
    In the Ebeye Hospital in the RMI, water leaks were evident 
in the surgery ward, as you can see, and the supporting roof 
beams were crumbling from rust. The new Ebeye Hospital which is 
at least 2 years away from opening will need to have support 
beams replaced before construction can continue. The support 
beams were not adequately protected from the corrosive 
environment and are already rusting away. You can see that in 
the photograph on the left.
    We identified Compact expenditures that appeared to be a 
misuse of funds. For example, in Chuuk, the Udot road and dock 
project was intended to upgrade basic social and economic 
infrastructure in Udot. The project cost $188,000 in Compact 
funding. When we visited the site, we noted that the dock was 
built directly in front of the mayor's house. We were told that 
the crane used to build the dock would be left to rust after 
the dock was completed. The road led from the mayor's house 
through the jungle to a small village with few other houses 
along the road.
    In contrast, at the end of a road was a junior high school 
that had received $2,8000 in Compact funding to repair the one-
room schoolhouse. There were no desks or chairs for the 
students. Further, we were told the students did not have their 
own books and were read to by the teacher who used the one set 
of available textbooks.
    As another example of misuse of funds, the FSM used funds 
in what the U.S. embassy described as ``cars and boats for 
votes.'' The FSM public auditor reported that $1.5 million was 
spent on cars and boats that were simply given away to 
individuals for their personal use. Furthermore, the U.S. 
embassy reported another 187 cars arrived in May 1999 and were 
used for reelection assistance.
    The fourth issue we examined was the accountability over 
Compact expenditures. We found that all three governments, the 
FSM, the RMI and the United States, provided limited 
accountability. Planning and reporting documents of the FSM and 
the RMI intended to identify development goals and progress in 
meeting these goals were incomplete and insufficient. Both 
countries have failed to fully control and account for Compact 
expenditures. For example, both countries have not addressed 
management weaknesses and misuse of funds identified in 
financial and program audits.
    In addition, the U.S. Government did not meet many 
accountability requirements. For example, required annual 
consultations with the FSM and RMI did not take place until 
1994, 7 years after the Compact went into effect. Since that 
time, four additional consultations have been held with the FSM 
and three with the RMI. According to a Department of the 
Interior official, the talks have been cordial diplomatic 
meetings with little serious discussion of economic growth or 
compliance with Compact spending requirements.
    Further, we found numerous disagreements between the 
Departments of State and the Interior regarding oversight 
responsibility of the Congress. These disagreements have led to 
limited monitoring efforts. As one example, disagreements 
between the Departments regarding which agency has authority 
over Interior staff posted in the countries have contributed to 
the fact that there are no Interior staff posted in the RMI to 
monitor U.S. assistance.
    Finally, we have some observations to offer. Throughout the 
course of our work, officials from the RMI, the FSM and the 
United States identified five issues that they feel need to be 
resolved during the course of the negotiations.
    First, the objective of future economic assistance needs to 
be defined. Should economic self-sufficiency continue to be an 
objective? Should funding have more specific objectives and 
only be targeted to specific sectors such as education or 
health?
    Second, the level and duration of assistance need to be 
established. How much U.S. funding will be required to meet the 
objectives established for future economic assistance? Does the 
United States want to enter into another 15-year commitment to 
provide economic assistance?
    Third, the funding mechanism for assistance must be 
determined. What are the costs and benefits of block grants, 
the funding mechanism used in the current Compact versus other 
options such as loan guarantees, project funding or a trust 
fund? Should countries be allowed to use funds as collateral 
for issuing bonds? How does the choice of a funding mechanism 
affect the cost of program administration and the degree of 
accountability?
    Fourth, the degree of accountability over expenditures must 
be established. Should spending of assistance across time be 
more tightly controlled by the United States? Should 
traditional grant conditions be applied, such as the ability to 
withhold funds if performance requirements are not met? Should 
there be more specific controls over the eligible uses of funds 
rather than the broad categories of allowable expenditures 
currently permitted? How could incentives for accountability be 
built into future assistance?
    Fifth, the administrator of future U.S. assistance should 
be determined. Which agency or agencies should be responsible 
for administering assistance? How should staffing issues be 
resolved? How should the costs of administration be budgeted? 
Should all Federal agencies provide assistance independently, 
as they do today, or should there be a central fund?
    Mr. Chairman, this concludes my prepared presentation. I 
will be happy to answer any questions you or other Members of 
the Subcommittee have.
    [The prepared statement of Ms. Westin appears in the 
appendix.]
    Mr. Bereuter. Thank you very much, Dr. Westin. I want to 
thank you and all of the staff who assisted you in the field 
activities and the investigations that were conducted in the 
preparation of your report. As I mentioned to you in a preview 
examination of this, it seems quite apparent to me that we have 
more work to do and that we will be requiring some additional 
assistance from the GAO.
    I am not, a person easily given to overstatement, but I am 
outraged by what I see in terms of the use of the funds that 
have been provided. I am saddened because I have some idea, 
about how these funds could have brought great benefit to the 
people living in the Federated States of Micronesia and the 
Marshall Islands. Of course, we are concerned about what has 
happened to our other two trust territories as well. One is the 
Commonwealth of the Northern Mariana Islands and the other, 
with which we have a Compact which came into effect later, in 
Palau.
    I recall thinking my first visit there--and this is before 
the Compacts were signed, when they were still indeed trust 
territory--about how many foreign firms took advantage of 
trusting people in those areas, provided inappropriate kinds of 
inducements for business contracts and made off with an 
extraordinary amount of money.
    Second, I thought how inappropriate the buildings were that 
were being built with U.S. Government aid, inappropriate kinds 
of constructions for tropical environments. I saw that the 
buildings built many years earlier by the Japanese, appropriate 
for a tropical environment, were, despite their age, much 
better suited to the environment.
    When I looked at the rust already taking place on those 
beams, 2 years before the hospitals opened; when I saw those 
barren classrooms in that junior high school, where we had 
spent the grand sum of some $2,000-plus; and when I saw the 
trucks and cars that were obviously misused--I saw the worst-
case scenario, or examples of it at least.
    It is hard to know where to proceed with questions, and I 
do hope and expect that you, Dr. Westin, will be able to stay 
around as we go to our next panel because I think it could, in 
fact, lead to some dialogue between the two of you under 
questioning from myself or some of the Members.
    I wanted to ask whether or not you have been able to 
investigate whether or not there are other significant donor 
sources to the Federated States and to the Republic of the 
Marshall Islands, such as multilateral institutions, such as 
nonprofit organizations or any other foreign aid, other 
countries providing foreign assistance?
    The second question: would you indicate to me, based upon 
that examination of debt structure, and I think the example you 
gave us was from the Marshall Islands, with debt servicing 
leaving only 15 percent of this Compact expenditure available 
to support new capital investments, general government 
operations and so on, when would the RMI have paid off its 
indebtedness?
    Ms.Westin. To answer your first question first, yes, of 
course, I will be willing to stay around after the other panel.
    To answer the question on foreign assistance, there are a 
few other donors to these countries such as Japan, Australia, 
China and Taiwan. But we are not able to identify any figures 
in the financial statements that would let us know what these 
amounts of assistance are. We do know that some countries 
provide assistance for particular projects; for example, Japan 
might be asked, and it will be agreed that they will plan and 
build and help with the operations of a particular project. 
Officials have told us that some of these are quite successful.
    Mr. Bereuter. Is it tied aid then, in effect, in some 
cases?
    Ms. Westin. Yes, that is correct, because they do take into 
account the planning all the way through, but it is not aid in 
the sense of giving the money to the government. The whole 
project is done, so the money never shows up in the financial 
statement. With regard to the multilaterals, the Asian 
Development Bank has provided technical assistance to both 
countries. We haven't looked specifically at the nongovernment 
organizations that are there, but we did meet people who worked 
for them; but we haven't looked specifically at how much money 
they have spent there.
    Your other question was on looking at the debt structure of 
the RMI, giving that example. The bonds that they issued 
earlier in the life of the Compact, I believe, are structured 
to be paid off by the year 2003. So given that the Compact has 
room in it for a 2-year extension, those bonds will be paid off 
at the end of the time of the current Compact, plus the 2-year 
extension.
    Mr. Bereuter. Dr. Westin, have you looked at it enough to 
know whether this is a normal pay-down process or if this has 
balloon retirement at the end?
    Ms. Westin. I think that it is a normal pay-down process. 
One of the things we did try to get after though is how were 
the proceeds of the bond issue spent.
    Mr. Bereuter. That is my next question.
    Ms. Westin. The idea was to get the money earlier in the 
life of the Compact and make good investments. We are actually 
not able to answer that question in any great detail because 
the bond proceeds would, in general, be transferred into the 
general government fund and then not tracked any further as 
expenditures coming from the specific bond proceeds.
    Mr. Bereuter. Dr. Westin, what are the specific, 
``interagency disagreements in the United States on levels of 
and responsibilities for oversight'' which have, ``limited the 
U.S. Government's ability to meet its accountability 
requirements''? Can you at least give some examples of those 
kind of interagency disagreements?
    Ms. Westin. I am sure you will want to pose that question 
to the next panel, as well, but it is our understanding that 
there is not complete agreement between the Departments of 
State and the Interior, for example, who had the responsibility 
to actually call the annual consultations every year; and as we 
noted, we think that this lack of having these annual 
consultations for the first 7 years of the Compact really had 
an impact on these countries. In our view, that is the time 
that these annual consultations could have provided the most 
help to the countries in terms of discussing what the money was 
going to be used for, and in terms of discussing progress and 
economic development.
    Another disagreement, as I mentioned, seems to be about who 
is going to have authority over the person posted in-country; 
and so there is no Interior staff person posted right now to 
the RMI, and as you mentioned, the one Interior person who has 
responsibility, has responsibility for overseeing the program 
assistance, not the direct Compact assistance that we have been 
talking about.
    Mr. Bereuter. That is for the Marshall Islands and Palau?
    Ms. Westin. Exactly.
    Mr. Bereuter. Finally, and then I will move to my 
colleagues for some questions you mentioned that there are 
perhaps 17 or 19 other agencies that are providing direct 
assistance in accordance with the Compact. That is a 
significant amount of money, but it is, overall, a minor 
percentage of the money.
    To what extent are they more or less effective in 
overseeing expenditures? Do they have the same kind of 
accounting and documentation requirements or difficulties that 
you seem to demonstrate in the Department of Interior or have 
you had adequate amount of time to investigate their 
stewardship?
    Ms. Westin. We didn't focus on the program expenditures. If 
you will allow me, let me check with my colleagues on this to 
see if we have a more specific answer.
    Mr. Bereuter. If they are speaking directly, just have them 
identify themselves.
    Ms. Westin. I will have Leslie Holen address this. She was 
the project manager on the job.
    Ms. Holen. The one comment that might be made is that by 
the end of fiscal year 1998 these two countries wrote off over 
50 million in questioned costs. We were not able to determine 
precisely which of those costs were direct Compact funding 
versus program funds. But we were told that a significant 
amount of it is program funding from other agencies, and they 
took no action to try to resolve the questioned costs.
    Mr. Bereuter. I will turn now to Mr. Royce for questions he 
may have, and then go to Mr. Underwood.
    Mr. Royce. Thank you, Mr. Chairman. I guess I would start 
by just noting that you stated that the country spent $1.6 
billion in Compact funds, and the earlier GAO report identified 
$2.6 billion in Compact assistance. So there is a billion 
dollar difference there. What makes up that figure?
    Ms. Westin. What makes up that figure is in our work we 
just looked at the $1.6 billion in direct Compact funding. We 
didn't look at the part that goes for the nuclear compensation, 
and we didn't look at the funding from the 19 U.S. agencies. 
Nor did we include Fiscal Year 1999 in our analysis.
    Mr. Royce. I see.
    Ms. Westin. So these three things make up the other 
billion.
    Mr. Royce. One of the questions I would have is, to your 
knowledge, has the U.S. Government done anything at this point 
to try to recover any of the funding in these cases? Is there a 
provision in the Compact to accomplish collection from the 
government in some way where governments--where these 
governments in the Marshall Islands and Micronesia have 
misspent the money?
    Ms. Westin. We do know that within the U.S. Government 
these cases of misuse or misspending were certainly known. We 
are not aware of any organized effort on the part of the 
Departments to address this problem, and it can be difficult to 
track and verify the money. Even in cases where the annual 
audits conducted by an independent auditor identified possible 
misuse, we didn't see evidence that the U.S. Government was 
taking action.
    But it is unclear whether the U.S. Government can recover 
funds that are misspent. Most direct funding is guaranteed 
under the Compact and it appears that the Compact itself, the 
way it is written, makes it difficult, if not impossible, for 
the U.S. Government to withhold funding in cases of misuse.
    Mr. Royce. Might make it impossible to withhold funding in 
cases of misuse?
    Ms. Westin. Yes.
    Mr. Royce. The State Department--in the testimony that they 
are going to give later today, they will announce that they are 
exploring a policy that no new Federal program would be 
extended to the Marshall Islands or to Micronesia unless, in 
their words, ``it directly advances the goal of economic self-
sufficiency.''
    Now, I am not sure exactly how you define ``economic self-
sufficiency.'' I mean, self-sufficiency in this case might be a 
somewhat meaningless term. Is the United States, for instance, 
self-sufficient? Were these islands self-sufficient previously?
    So there is an ambiguous term that the State Department is 
using there in terms of setting its own goal; I wanted to make 
that point. My real question is, are there Federal programs 
that we are extending today that we should terminate today 
regardless of the State Department's view of this economic 
self-sufficiency argument in your view?
    Ms. Westin. Mr. Royce, I think that is probably a question 
that you should put to State Department and Interior. We looked 
at the way that the funds have been used.
    Your point on self-sufficiency, I think is well taken. When 
we were asked to look at the progress made in achieving self-
sufficiency, we looked at the Compact; and in the Compact 
itself, self-sufficiency is not defined, and that is why we had 
to choose an indicator to use. As I said, we chose the 
indicator of reliance on the U.S. as compared to the percentage 
of government revenues they raised. They have made some 
progress in that area. For example, FSM, I think in 1986, 83 
percent of its government revenues were from U.S. assistance. 
It is down to something like 53 or 54 percent now.
    Mr. Royce. I see. Dr. Westin, what is the share of the 
economy there locally that is expanding or where do those 
revenues--where are those revenues that displace in the private 
sector? Where are those revenues?
    Ms. Westin. They are raising revenues from local taxes and 
also from fishing licenses.
    Mr. Royce. I see. Dr. Westin, I thank you for a very 
thorough report; and again, I thank the Chairman for this 
hearing.
    Mr. Bereuter. Thank you very much.
    Mr. Underwood, you are recognized for 5 minutes.
    Mr. Underwood. Thank you, Mr. Chairman; and again I want to 
thank you for the courtesy you have extended to me.
    Dr. Westin, I was not here for your entire testimony, but 
as I understand it, you did give some graphics on the nature of 
rusting in the tropics. I just want to point out a little--just 
to give some balance to the picture, a little ditty that I used 
to hear as young man in Guam, that people in Navy used to say, 
and that is, ``In God we trust, in Guam we rust,'' and by that, 
meaning that the tropical environment is a very punishing 
environment.
    I just last year bore witness to a Seabee project, and this 
is--represents some of our best engineering that we can think 
of, a Seabee project for a recreational facility that had to be 
redone in Guam because the rebarbs were not done appropriately 
and they were not taken care of. So it is a punishing 
environment and at times it is true that maybe sometimes the 
best thinking and the best engineering does not go into it.
    In the nature of, I wanted to ask a question, I guess that 
is developmental in nature. These nations are relatively young 
nations. We are talking about a timeframe in which, if we made 
comparisons to the United States' growth from 1776 to 1789 we 
barely had a Constitution out 13 years after independence. So 
now we have these countries that are in a period of rapid 
change and rapid development and, in a sense, trying to find 
their sea legs as they deal with the issue of whether there is 
such a thing as economic self-sufficiency, the question asked 
by Mr. Royce, or perhaps more appropriately, the notion that 
there is some kind of at least economic stability, some kind of 
stable economic structure, some kind of rule of law, some kind 
of process whereby we can actually begin to think of serious 
economic development in the future. So I have two questions 
that are kind of predicated on that.
    First of all, let us say for the sake of argument that 
every dollar was spent appropriately and every dollar was 
accountable--we could track where every dollar went. Would 
there be--would we be closer to, ``economic self-sufficiency,'' 
or is the challenge so daunting in these areas that we would 
still have a ways to go? That is the first question.
    The second question is that, as you examine--perhaps the 
question was, when you do a GAO study, sometimes these 
questions are not asked in the developmental way, ``Is it 
better in 1980 than it was in 1990,'' as opposed to saying, 
``Well, where are we in 1999?''.
    So would you venture any commentary on whether things have 
actually been on the upswing, that things are getting better; 
that perhaps they are not where we would like them to be, but 
would you venture any commentary on the developmental nature of 
where we are going with this economic assistance?
    Ms. Westin. You have certainly posed some very weighty 
questions, and the first one is the challenge, I think as you 
put it, if every dollar had been spent appropriately and 
accounted for, would it still be a ways to economic self-
sufficiency?
    I don't think that I can answer that definitively based on 
GAO's work, but it seems to me that, yes, we probably would not 
see these island countries at self-sufficiency.
    What we focused on, though, was really to look and see 
whether we thought the dollars had been spent appropriately; 
and I think what I would like people to take out of our work as 
the next Compact is restructured is to think about what 
accountability measures need to be built in, so the dollars are 
spend more appropriately and accounted for.
    With regard to the second one, has there been improvement, 
yes; and in the photographs that I provided, I did show 
examples of the power plants, there have been infrastructure 
improvements, including telecommunications.
    The difficulty, though, is--from what we have heard is that 
although these companies are not losing money, if the United 
States' assistance didn't supply incomes to many of the 
citizens of these countries, there wouldn't be people to pay 
for the electricity; and it is not clear that they could be 
self-sustaining companies in that sense.
    But, yes, there have been infrastructure improvements that 
have taken place.
    Mr. Bereuter. Would the gentleman yield?
    Mr. Underwood. Yes.
    Mr. Bereuter. Talking about the power plants and seeing 
some of the equipment, I want to remind you of what you and 
your staff told me about the almost total lack of maintenance 
and how the infrastructure there and equipment is going to have 
a very short life unless there is an allocation for 
maintenance.
    I hope I am not misstating what you said, but that is my 
recollection.
    Ms. Westin. Yes, sir. But also that we did visit power 
plants where they do understand the problem of maintenance, and 
in some examples are really paying attention to this.
    Mr. Bereuter. Thank you for yielding. If you have----
    Mr. Underwood. No, I think that takes care of it.
    Mr. Bereuter. Mr. Rohrabacher, the gentleman from 
California, is recognized.
    Mr. Rohrabacher. Thank you very much.
    I am a little disturbed by a mind-set that I am reading 
into some of the things that are happening here, Mr. Chairman. 
It just seems to me it is like we are not talking about people 
who are free and independent and have their own country, but 
about people who have some relationship with the United States, 
and that we have some responsibility to tell them how to run 
their lives.
    When you treat people like Indians on a reservation, they 
are going to end up like a lot of Indians ended up in the 
United States on reservations. Our reservations were a national 
disgrace, where the American Indian tribes were dependent on 
our government running their lives for them. It seems to me 
what we have got here is the same thing.
    By the way, people treated Indians as if they couldn't run 
their own affairs and, thus, they ended up being unable to run 
their own affairs. I am very proud now that the American 
Indians are emerging from that dependence and declaring their 
independence from these Federal programs. They want to be 
independent now in the United States, and they are making great 
progress in our country, in California especially. I know the 
Pechanga Indians are making substantial progress, and just 50 
years ago they were living in squalor.
    Micronesia and the Marshall Islands are located halfway in 
the Pacific between Asia and the United States, and I would say 
they are a very important piece of territory for the world. 
Especially the Kwajalein missile range, which was developed, 
Mr. Chairman, at a cost of $4 billion to the United States, is 
even more important now than perhaps it was a few years ago. We 
have to recognize that. We know how many lives it took to free 
these islands--not just these but the others in the Pacific 
during World War II--and we also know that these islands have 
been used for weapons testing.
    There have been 67 nuclear weapons tests on these islands 
in which a large number of islanders were irradiated and many 
were displaced. So there have been major problems to overcome, 
and it just seems to me--from what you are telling us, it looks 
like a mess out there right now.
    I am especially alarmed because I have always been ringing 
the alarm bell about what the Communist Chinese are doing. The 
Communist Chinese are involved in the Pacific. The largest 
Chinese land satellite tracking system, electronic spy station, 
in the Pacific, built by the Chinese army, is located on 
Tarawa, which is 500 miles south of this missile testing range 
in Kwajalein. So there are other Chinese activities going on in 
other islands throughout the Pacific, and we have to be 
concerned about this. If the Communist Chinese are acting the 
way the Japanese acted before World War II, they could pose a 
strategic threat to us.
    Furthermore, we need to develop an antimissile system which 
means we will need the Kwajalein range. So these things we are 
discussing today are not things that we should just shrug our 
shoulders and say, so what.
    Apparently, what you said, we have grants of over $1.5 
billion to these islands, and there are only 130,000 people on 
the islands; and take a look at--for what we got, it is clear 
that that money was pretty much wasted, at least a large hunk 
of it was wasted.
    So let me just state my gut reaction to this, and then get 
your reaction: When you treat people like children, they are 
going to act like children. If you are going to treat people 
like they are not responsible, they are not going to be 
responsible.
    The Marshall Islands now have a new government that is 
committed to honest government--at least they say they are--and 
I will put in the record, a letter that Chairman Bereuter 
received from the new head of the government there, who is the 
Minister of Foreign Affairs and Trade for the Marshall Islands, 
making his commitment to reform; I will put that in the record 
with your permission, Mr. Chairman.
    Mr. Bereuter. It is already in.
    Mr. Rohrabacher. Thank you.
    It seems to me that we have got to reexamine the 
fundamental relationship that we have and have had with these 
islands for the last 10 to 15 years.
    They say that insanity is doing more of the same and 
expecting different results. Well, perhaps it is time for us to 
do just this, and that is, figure out how much Kwajalein is 
worth, really worth, because they--we have been--it sounds to 
me like we have been giving them these grants. We haven't just 
been paying them the rent which they are due and giving them 
tremendous responsibility of handling their own affairs.
    What about a system of just giving them the money that 
would be a fair rent for Kwajalein and the use of their islands 
and letting them run their own affairs, rather than having such 
oversight and such involvement of the U.S. Government and the 
rest of their affairs?
    Ms. Westin. As I had previously mentioned, we look at the 
payments to Kwajalein as part of this $1.6 billion. The option 
to renew the lease on Kwajalein has already been extended for 
15 years, and I think some of your questions will probably be 
better directed to the next panel, to the representative from 
DOD.
    With regards to just letting these people run their own 
affairs, I think that is something that needs to be determined 
in the next negotiations. There are different strategies; do 
you just decide that you are going to set up a trust fund and 
not have accountability? The last point----
    Mr. Rohrabacher. I don't understand what we have to decide. 
Aren't we talking about sovereign entities, yes?
    Ms. Westin. Yes.
    Mr. Rohrabacher. What are we deciding this for?
    Mr. Bereuter. Will the gentleman yield?
    The Compact under which we were providing financial 
assistance will basically be completed in most respects, as I 
understand it, next year--and there is already pressure to 
extend these Compacts, and so the question--indeed, we need to 
basically reexamine this relationship and financial 
accountability here. You are absolutely right; I think we have 
a task ahead of us.
    Mr. Rohrabacher. I am no expert on this. I stopped in the 
Marshall Islands once several years ago, so I am no expert. But 
my gut instinct tells me that, give people their due, treat 
them like adults, and give them a fair price for Kwajalein, and 
they will have to look and find out exactly what agreement was 
made.
    I hope we are giving them market value, because we need 
that facility; and if we need it, we should give them a fair 
price for it and then let them run their own affairs. People 
will always surprise you if you expect them to be responsible 
and treat them as adults.
    So thank you very much, Mr. Chairman.
    Mr. Bereuter. I agree with a lot of what the gentleman 
said, but I wanted to mention this--of the $2.6 billion that 
has been provided to the two Freely Associated States that are 
the subject of the hearing today, approximately $2 billion of 
the $2.6 billion has gone in direct quarterly cash payments, so 
basically they have been treated like adults.
    I guess we did, like others that had a colonial 
relationship with African countries, do a good job of putting 
in place managerial skills ahead of time. We did protect them 
from the international scalawags that are out there that took 
advantage them in a whole lot of ways. I know if the gentleman 
had visited Ebeye with me, which is a small island right near 
Kwajalein where I stayed for 2 days, he would be very upset 
with the conditions that these people were living under and 
under an American flag.
    Mr. Bereuter. I do remember how money that was going to 
help the nuclear affected people in the Marshall Islands was 
being diverted and not going to the people that deserved it at 
that time. Now this is before the Compacts were concluded.
    We have got a task ahead of us. In fact, I think there 
needs to be something of a special task force just to focus on 
this issue and work with every kind of expertise we can find to 
get the right kind of arrangements for an extension, if we have 
an extension, and I am counting on the gentleman. I think there 
is nothing better than to visit the place, though; and 
certainly my knowledge is obsolete but, having some background 
in design and construction, there is no excuse for what I saw 
of that new hospital. I would prefer a Japanese-built building 
of 40 years ago to what we are putting up there today.
    Thank you, Dr. Westin. We are going to be in touch. If you 
can stay as suggested, I would appreciate it.
    Ms. Westin. Certainly, Mr. Chairman, thank you.
    Mr. Bereuter. Now we would like to call our second 
distinguished panel.
    Representing the Department of State is Mr. Allen Stayman, 
who has served since June 1999, as the U.S. Special Negotiator 
for the Compact of Free Association. Prior to this posting, Mr. 
Stayman was Director of the Office of Insular Affairs and 
Deputy Assistant Secretary for Territorial and International 
Affairs at the Department of the Interior. It was in these 
capacities that he has testified before this Subcommittee in 
previous years. From 1984 to 1993, Mr. Stayman was a 
professional staff member with the Senate Committee on Energy 
and Natural Resources.
    Representing the Department of the Interior is the current 
Director of the Office of Insular Affairs, Mr. Ferdinand Danny 
Aranza. A native of Guam, he previously served as legal counsel 
to the former delegate from Guam, Congressman Ben Blaz, who 
served on this Subcommittee during his tenure in office.
    We are also honored to have Mr. Frederick C. Smith, a 
Special Assistant to the Under Secretary of Defense for Asia-
Pacific issues. For over 25 years, Mr. Smith has been actively 
involved in studying, formulating and implementing U.S. defense 
policy, first as a naval officer and now in a civilian 
capacity. Before his current posting, he served as a visiting 
professor at the U.S. Naval Academy and as Principal Deputy 
Assistant Secretary of Defense for International Security 
Affairs.
    Gentlemen, thank you very much for making yourself 
available to us today to help us understand this current 
situation, then to begin, after today, to look for a proper 
course for the Congress. I understand you are going to testify 
in the order of your introductions. So any kind of statements--
and I know--I think you all have written statements--they will 
be made a part of the record in their entirety, and if you 
would try to keep your oral comments to, say, 5 to 8 minutes 
each, then we will have time for questions.
    Mr. Bereuter. Mr. Stayman, we turn to you.

 STATEMENT OF ALLEN STAYMAN, SPECIAL NEGOTIATOR FOR COMPACT OF 
  FREE ASSOCIATION, BUREAU OF EAST ASIAN AND PACIFIC AFFAIRS, 
                    U.S. DEPARTMENT OF STATE

    Mr. Stayman. Mr. Chairman and Members of the Subcommittee, 
let me begin by thanking you for requesting these two GAO 
reports. It is my intention as the special negotiator to 
consider them carefully in order to ensure the effective use of 
future U.S. assistance.
    Let me summarize by touching on five topics.
    First, in response to GAO, the Department concurs with the 
recommendations of the May GAO report that future Compact 
provisions, require that reliable data be maintained to ensure 
better accountability. We also generally agree with the second 
report regarding problems with the use of Compact funds in 
advancing self-sufficiency, and in accountability. My colleague 
from the Department of the Interior will speak in more detail 
to our understanding regarding these problems.
    Second, the Department shares the assessment of the GAO 
that, notwithstanding these problems with the existing economic 
program, the Compact has successfully met two of its three 
primary goals, providing for a transition from trusteeship 
status and meeting U.S. security interests. The Compact was 
negotiated and implemented during the Cold War when political 
and security objectives were a more immediate priority for the 
United States than was advancing economic self-sufficiency. It 
was not until 1993 that a high priority was accorded to 
economic development.
    Third, the United States has a continuing interest in these 
countries, which justifies some level of continued economic 
assistance. These interests include maintaining economic 
stability and our support for their economic reform strategies; 
second, sustaining the political stability and close ties we 
have developed; third, assuring that our strategic interests 
continue to be met; and, fourth, developing a strategy for 
ending mandatory annual payments by the United States by a date 
certain. While we recognize the need to continue some level of 
financial assistance, I want to emphasize our belief in 
appropriate reductions in future assistance and to greater 
accountability.
    My fourth topic is an update on our talks. We are 
negotiating with the FSM and RMI separately. The talks with the 
FSM are progressing smoothly. We have had two negotiating 
sessions, and our next round is scheduled for September. Formal 
talks with the RMI government have been delayed by a relatively 
recent change in government. We are pleased by the democratic 
transition to a new government and with their commitment to 
reform and accountability. The new government is currently 
updating its economic development strategy, and we plan formal 
talks after the update is completed.
    Finally, I would like to share our general approach to the 
negotiations which has four elements:
    First, financial assistance. We share GAO's view that there 
must be effective accountability in any future assistance. 
Accordingly, we believe that future funds should be provided 
through a limited number of grants, each with clearly defined 
scope and objectives. We also believe that the Administration 
must have the necessary authority and resources to ensure that 
reasonable progress is made toward these objectives.
    Second, the Department is interested in the concept of the 
trust fund as a means to terminate mandatory annual financial 
assistance by a date certain. We are still analyzing what the 
appropriate trust fund design and the level of funding might be 
and what contributions should be expected from non-U.S. donors.
    Third, regarding program and services assistance, for the 
same reasons that we believe some level of financial assistance 
should continue, we believe some program and services 
assistance should continue. Generally, these programs and 
services are targeted to priorities, social and economic 
objectives such as small business loans, supporting the postal 
system and assuring safe air transportation.
    The fourth element in our approach deals with migration. 
The Compact currently provides that citizens of the Freely 
Associated States may freely enter the United States as 
nonimmigrants. Annual reports to Congress have documented the 
substantial impact of this migration to Hawaii, Guam and the 
Northern Mariana Islands. Of particular concern are migrants 
who have communicable diseases and criminal records. These 
conditions are currently grounds for inadmissibility to the 
U.S. under the Immigration and Nationality Act.
    We are considering three responses to the migration issue. 
First, we believe our approach of committing substantial future 
assistance to improve health and education of potential 
migrants can significantly reduce Compact impact. Second, we 
are exploring several options for determining admissibility of 
FAS migrants prior to entry into the United States. Third, we 
intend to increase compensation to Hawaii, Guam and the 
Northern Mariana Islands.
    Thank you for this opportunity to present the Department of 
State's views today. Let me assure you that we will continue to 
take every opportunity to keep the Committee informed as 
negotiations proceed.
    Mr. Bereuter. Mr. Stayman, thank you very much for that 
succinct statement.
    [The prepared statement of Mr. Stayman appears in the 
appendix.]
    Mr. Bereuter. Next, we would like to hear from Mr. Aranza. 
Mr. Aranza, you may proceed as you wish.

  STATEMENT OF FERDINAND ARANZA, DIRECTOR, OFFICE OF INSULAR 
            AFFAIRS, U.S. DEPARTMENT OF THE INTERIOR

    Mr. Aranza. Thank you, Mr. Chairman, Members of the 
Subcommittee. Thank you for having this hearing, and I am very 
pleased to represent the Department of Interior's view on the 
U.S. Compact with the Marshall Islands and Micronesia.
    We concur with what has previously been stated by GAO and 
by my colleague at State Department. We concur that the primary 
U.S. political and strategic interests were achieved 
successfully by the Compacts. The Marshall Islands and 
Micronesia made a successful transition from trust territory 
wardship under U.S. supervision to fully functioning sovereign 
democratic governments, and also the U.S. obtained defense 
access rights and the right to deny access to other countries 
in those strategically located regions in the Pacific.
    But with respect to accountability and economic objectives, 
we also concur that results thus far have, at best, been mixed. 
I would like to use my time this afternoon to summarize why we 
believe the current Compact is having limited impact in 
achieving FAS economic development and ensuring proper 
accountability in the use of Federal funds.
    Despite 15 years of Compact financial support for the 
general operations of the FAS governments and a program of 
capital investment, the FAS are not yet self-sufficient. Part 
of the reason is that the Compact did not require a system of 
goal setting and accountability for results tied to receipt of 
funding. The Compact and its related agreements instead created 
a system that allowed financial assistance to flow 
uninterruptedly to these nations while limiting the United 
States' ability to affect the results of that spending.
    The Federal assistance management regime described in the 
Compact of Free Association is unique and a Federal grant 
management practice. The negotiators created a system that 
bears little resemblance to established accountability measures 
that characterize the use of Federal funds. The result is a 
system of payments largely bereft of performance standards, 
cost principles and procurement rules found in OMB circular A-
102, the ``Common Rule'' for grant management.
    Mr. Chairman, I believe this is a critical point to 
understand a little more thoroughly. The Compact's current 
structure of direct flow-through financial assistance that is 
guaranteed by the full faith and credit of the United States 
has a profound impact on the U.S. ability to effectively 
monitor and control these funds.
    Compact financial assistance cannot be considered grants in 
the normal sense defined by the Federal Government. This 
distinction was first drawn by the Interior's solicitor, who 
opined that the only rules that could apply to Compact funds 
were those found in the Fiscal Procedures Agreement, the 
Compact Act and the laws of the Freely Associated States. This 
conclusion precluded application of normal Federal 
accountability rules.
    For example, normal grant funds under normal Federal 
regulations are transferred only when needed for immediate 
payments. In addition, grant funds normally may not be 
invested. Grant funds normally are also subject to clear 
conditions and performance expectations. Allowable costs are 
also well-defined. Finally, normal grant funds can be withheld 
at any time for nonperformance by the U.S., and we also have 
the clear authority to recoup funds that were not used 
appropriately.
    In contrast, the payment structure of direct financial 
assistance under the Compact is much more of a flow-through 
concept.
    First, under the Compact, the Fiscal Procedures Agreement 
required the quarterly transfer of money to the Marshall 
Islands and Micronesia at predetermined dates rather than when 
funds are actually needed.
    Second, Compact financial assistance is transferred to 
interest-bearing accounts, as opposed to the normal rule that 
Federal grant funds cannot be invested.
    Third, the Fiscal Procedures Agreement is silent on most 
performance measures, and the Compacts themselves have no clear 
standards for what constitutes economic self-sufficiency or, 
for that matter, no clear goals or objectives for economic 
development in the Marshall Islands or Micronesia.
    Fourth, the definitions of what constitute appropriate uses 
of Compact financial assistance for current account or capital 
expenditure uses are vague, broad and overlapping.
    Finally and most importantly, Compact financial assistance 
payments are further guaranteed by a pledge of full faith and 
credit in a court of claims. This pledge of full faith and 
credit, in our opinion, removed one of the most important 
management accountability tools, the ability of the Federal 
Government to withhold funds for noncompliance.
    However, even though we lack traditional grant management 
tools, at Interior we tried to address the roots of inadequate 
local management performance through our technical assistance 
program. We have a program with the USDA graduate school to 
provide a curriculum of management and accounting classes to 
meet the needs of individual government. We have also recently 
joined forces with the Asian Development Bank to provide in-
country advisory teams to bolster the analytic capacities of 
the Freely Associated States. We have also consistently 
provided special attention and technical assistance to 
bolstering local audit capabilities.
    It is the view of the Department of Interior that the 
economic goals of the Freely Associated States can be better 
met if future U.S. assistance is provided with clear 
expectations about results and with clear standards of 
performance. We would support the application of the Common 
Rule and the Code of Federal Regulations to Compact grants. 
These rules, which are familiar to both the Marshall Islands 
and Micronesia as they administer domestic Federal programs, 
call for basic common-sense practices in government management. 
The rules require effective accounting and reporting, free and 
open competition in procurement, and define criteria for 
acceptable expenditures. Grants developed under these rules 
will require performance goals and standards and the approval 
of scopes of work and budget projects.
    We have current examples of how normal grant procedures can 
work to protect the integrity of U.S. taxpayer dollars in the 
Marshall Islands and Micronesia. In 1994, for example, section 
221-B health and education funding was withheld from the FSM 
until the State of Chuuk settled medical debts with Guam 
Memorial Hospital. Unlike the other provisions of the Compact, 
this was not a full faith and credit provision and therefore we 
felt we had the ability to withhold funds.
    Furthermore, separate from Compact financial assistance, 
the Department of Interior has discretionary technical 
assistance grants to help them with capital infrastructure and 
operations and maintenance; and with respect to these funds, we 
have suspended these grants until certain performance standards 
were adhered to. For example, there was some mention about the 
hospitals and the utilities. We had some operations maintenance 
grants where we did force the local governments to adhere to 
hiring trained professionals to help them maintain their 
utility companies. We cite this as an example of where, if you 
have regular grant conditions, we can enforce better 
accountability. When effective enforcement tools are available, 
we believe we can ensure that Federal funds are used as 
intended.
    Mr. Chairman, just one more minute, sir.
    In addition to imposing more normal grant conditions to 
financial assistance under the Compact, we also often speculate 
how much more accountability would have been achieved if 
additional and more appropriate administrative and financial 
resources were devoted to the Department of Interior.
    For example, in the waning years of the trust territory 
there were at least 43 FTE's, or full time equivalents, at 
Interior involved in monitoring and in controlling a $93 
million a year program. Today, in contrast, we only have four 
full time equivalents devoted to Freely Associated States 
matters, including Palau, for a $145 million a year program. So 
we would suggest that one of the things that could be 
considered is also increasing our administrative resources to 
deal with monitoring and accountability.
    Mr. Chairman, that concludes my oral statement. I would be 
glad to answer any questions you might have.
    Mr. Bereuter. Thank you. Your last point prompts questions, 
but we will wait on that.
    [The prepared statement of Mr. Aranza appears in the 
appendix.]
    Mr. Bereuter. Next, we would like to hear from Mr. 
Frederick C. Smith. Mr. Smith, you may proceed as you wish.

   STATEMENT OF FREDERICK C. SMITH, SPECIAL ASSISTANT TO THE 
  UNDERSECRETARY FOR ASIA-PACIFIC ISSUES, U.S. DEPARTMENT OF 
                            DEFENSE

    Mr. Smith. Thank you, Mr. Chairman, Members of the 
Subcommittee. I appreciate this opportunity to appear today to 
talk about the significance of our security relationship with 
the Freely Associated States.
    The Department of Defense has four basic interests in the 
Freely Associated States: access by U.S. military forces to 
utilize the territories of the FAS for transit, overflight and 
occasional emergency use; continued unimpeded operation of the 
Kwajalein missile range in the Republic of the Marshall 
Islands; the ability to deny military use of Freely Associated 
States territory to foreign nations, the so-called strategic 
denial clause of the Compact; and possible contingency use of 
land areas, air fields and harbors.
    In return for these rights of military uses and access, we 
are committed to provide security to these nations and their 
peoples, ``as the United States and its citizens are defended. 
This is an obligation greater than the United States has 
assumed under any of its mutual defense treaties. We seek peace 
in this area of the world. In time of peace, the Department of 
Defense seeks to shape a strategic environment that will 
sustain the peace and prevent unrest and conflict. We wish to 
dampen the sources of instability by maintaining a policy of 
forward engagement and military presence.''
    The Department of Defense has an extremely important 
interest in continuing the use of the Kwajalein missile range 
and the facilities of the Kwajalein Atoll. The requirements of 
our missile and space surveillance programs, together with our 
strong interests to maintain full range of military access and 
security engagement options provided by the Compact, make 
renewal of the Compact a high priority for the Department of 
Defense. Renewal of the Compact will help the United States 
achieve its security objective of maintaining peace and 
stability in this region.
    Thank you very much, Mr. Chairman.
    Mr. Bereuter. Thank you very much, Mr. Smith.
    [The prepared statement of Mr. Smith appears in the 
appendix.]
    Mr. Bereuter. We will move to the 5-minute rule, but we 
will proceed until we are interrupted by votes or we exhaust 
our questions, and I would like to begin with you, Mr. Aranza.
    In your very last statement, you talked about the number of 
full time employees (FTE) you had. When we were still dealing 
with these areas as trust territories, 43 FTE were involved in 
monitoring and controlling only a $93 million program and two 
predecessor subagencies of the Department of the Interior. Now 
you are indicating you are unable to dedicate more for the 
Office of Insular Affairs and Interior than four FTE's to the 
Freely Associated States, including Palau, for a $145 million 
program. Do you have a reduction in administrative budget? You 
are suggesting an administrative budget increase, and why isn't 
this is a sufficient priority of Secretary Babbitt that 
additional resources, if needed, are devoted for this function?
    Mr. Aranza. Mr. Chairman, a few years ago, I believe in 
1995, the predecessor of my office, the Office of Territorial 
and International Affairs, was headed by an assistant 
secretary; and we had 45 FTE's. But at that time there were 
calls on the Hill for the dissolution of that particular 
office, and there were also reorganization efforts within the 
administration that resulted in a significant downsizing of the 
office from 45 to something like 25, and that downsizing has 
significantly impacted our ability to effectively oversee 
Compact funding.
    Mr. Bereuter. It sounds like a downgraded interest or sense 
of responsibility, and that is a judgment on priorities within 
the Department of Interior, isn't it?
    Mr. Aranza. Mr. Chairman, we are currently undertaking a 
very serious look at how we are organized as an office and how 
we should beef up our staffing to more adequately handle 
Compact funding, especially if the future Compact funding is 
restructured to be less of a pass-through and more of a grant 
type system.
    Mr. Bereuter. I will come back to you in a minute. I am 
sure you are happy to know.
    Mr. Smith, I just wanted to know if you still have civil 
action (CAP) teams in the Freely Associated States or Federated 
States of Micronesia or any other former trust territories?
    Mr. Smith. Yes, I believe we do.
    Mr. Bereuter. I think they have played, for the amount of 
money, a significant role and that they are a good use of 
resources of the Department of Defense. As a matter of fact, 
they have saved a number of lives of people diving in the 
harbor. I can tell you one of my constituents was saved by a 
group there, and it has happened on several occasions.
    Mr. Aranza, why is it that the Department of Interior 
didn't ensure the annual consultations with the FSM and the RMI 
were held during the first 7 years of the Compact? What was the 
impact of not holding those meetings?
    Mr. Aranza. Mr. Chairman, we would agree with GAO that not 
having those hearings did have a significant impact on the 
Federal Government's ability to track and monitor the 
developments in both the Marshall Islands and Micronesia. 
However, at the beginning of the Compacts my understanding is 
that the administration's policy was a lot more hands-off, and 
there was a lot less priority given to accountability and 
financial management issues than there is right now. In fact, 
it was under this administration that we initiated these annual 
consultations.
    Mr. Bereuter. Do you feel that the Department of Interior 
is now, even since 1987, adequately monitoring the Compact 
expenditures for the RMI and the FSM?
    Mr. Aranza. Mr. Chairman, I do not believe that we are 
adequately staffed and have the resources to monitor the sheer 
amount of money that is going out to these islands. So adequacy 
of resource is one issue.
    The other issue, as I stated in my statement, is the flow-
through nature of these funds and the lack of normal grant 
conditions and performance standards and other protections that 
we normally have in our normal programs.
    Mr. Bereuter. Am I to take that as a yes, we believe we 
have not adequately monitored the grant programs? You are 
giving me reasons.
    Mr. Aranza. Given the constraints that we have, Mr. 
Chairman, I wish we had had a more ideal situation, but I think 
the Department did the best it could under less than ideal 
conditions.
    Mr. Bereuter. My time has expired. Mr. Underwood.
    Mr. Underwood. Thank you, Mr. Chairman.
    I would certainly like to advise our good friend here, Mr. 
Aranza, that sometimes it is just better to take the lumps. On 
this particular issue it is rather obvious that Interior hasn't 
done the job that it could have done.
    Just so that you know--and I would take a little bit of 
time to explain perhaps a little bit of perspective on the 
issue of the Compacts. It was a trust territory--a single trust 
territory of the United States given to the United States by 
the United Nations at the conclusion of World War II. But 
unlike all the other trust territories around the world, in the 
United Nations this was designated a strategic trust. As a 
result of that strategic trust, the United States was able to 
perform nuclear testing, wall off a significant part of Saipan, 
bring in troops from Nationalist China and train them there. 
They did a number of other things which, by any other 
definition of trust territory, would have been seen as 
inappropriate; and that relationship--I guess that relationship 
which--for a long time, the people in Micronesia would say, 
well, we have the trust and the United States has the 
territory.
    That trust territory relationship has morphed into these 
Compacts, and there is a series of kind of tradeoffs, if you 
will. One is that it is not a, strictly speaking, relationship 
of one foreign country to another. There is strategic denial. 
The United States can deny that element of sovereignty to these 
Freely Associated States. The United States, in turn, allows 
migration as nonimmigrants into U.S. territory. Of course it 
would go without saying that Guam is disproportionately 
affected by that far beyond the State of Hawaii and far beyond 
the CNI which had a significant population to begin with of 
people from these areas.
    So we have--and, in addition to that, you have these 
financial arrangements. Some are straight-up cash payments. 
Some are treated as domestic programs. I think it is incumbent 
on us here to make clear I think, you know--and, obviously, we 
are all going to have different points of view--to make clear 
what we expect at a minimum out of this next round or this 
ongoing round of negotiations.
    It is clear to me that Kwajalein, it is indispensable. You 
can't replicate it. The people will say openly that they can 
replicate it, but you can't really replicate it. Would you 
agree with that, Mr. Smith? I mean, people can say we can move 
to Wake, but, in reality, you can't replicate what you do in 
Kwajalein in Wake.
    Mr. Smith. It is unique.
    Mr. Underwood. Certainly we have to deal with the problems 
that are associated with accounting for the funds, and the 
Department of Interior may need a little assistance on that. 
But they certainly deserve a few lumps in this process.
    But, most importantly, I just want to ask, and from my 
perspective I just want to make clear, that when these Compacts 
were negotiated there was a commitment made to the areas that 
were nearest to it--and Guam is the nearest to it--that if 
there were adverse consequences that there would be what is 
referred to as Compact impact assistance. Since the beginning 
of these Compacts it has been--the total we think is over $70 
million; and, to date, we have received probably about between 
15 and $20 million from the Federal Government. What I 
certainly would like to see is that issue rolled into because 
the right to freely migrate as nonimmigrants into U.S. 
territory is a feature of these Compacts.
    I think, because all of these things fit together in some 
way, I certainly am interested, Mr. Stayman, in your proposal. 
Maybe you could explain a little bit about what admissibility 
means in your proposal in discussions with the Freely 
Associated States and what is your impression as what would 
happen if we didn't deal with the issue of admissibility and 
Compact impact assistance and we severely restricted any kind 
of economic assistance in the future. What would happen in the 
region? What would happen in the State of Hawaii? What would 
happen in general?
    Mr. Stayman. It is pretty clear, Congressman, that if there 
were to be a serious disruption to the economies out there, 
there would be an increase in migration. That is one of my 
concerns, is that while we develop a new program the temptation 
is to drastically reduce our level of assistance. I think we 
have to be cognizant of the social, economic and political 
consequences of a sharp reduction and also the migratory 
consequences. We have to get the FAS to develop their economies 
so there will be an incentive to stay at home. People come to 
Guam because there are better schools and better hospitals and 
better paying jobs.
    The first part of your question was about admissibility. 
One of the problems we are trying to address is the fact that 
the Compact Act not only provided for free entry into the 
United States as a nonimmigrant, but it waived the passport and 
visa requirements. By waiving those requirements, the Compact 
Act made it very difficult for the Federal Government to make 
determinations on admissibility. What I mean by that is, under 
the current law, the U.S. has the right to not admit people 
into the United States for a number of reasons. The ones that 
are most obvious, as I stated in my statement, if they are 
criminals or they have a communicable disease.
    Because there is no mechanism to enforce that law, one of 
the principles of my approach is to try to come up with a 
mechanism to do that. As I understand from the report which the 
Governor of Guam has filed with the Department of the Interior, 
the relative impact of these migrants on the communities of 
Guam and Hawaii is disproportionately large. One statistic that 
I remember is that nursing home care in Guam, 90 percent of it 
is for servicing this migrant population; and you have that 
occurring in many social programs.
    So we think if we are able to establish effectively--I will 
call it screening, although that is probably not the right 
technical team. We hope we can determine admissibility and make 
sure that those people who have communicable diseases or who 
are likely to become a public charge as a result of chronic 
diseases, will be screened and we will be able to deal with 
this problem while preserving the general underlying intent of 
the Compact, which is to allow the people of FAS to come to the 
United States, in order to strengthen our ties, and to provide 
education opportunities and employment opportunities.
    Mr. Bereuter. The time of the gentleman is expired on this 
round. The gentleman from California, Mr. Rohrabacher, is 
recognized.
    Mr. Rohrabacher. We certainly shouldn't be permitting 
people with communicable diseases to come into the U.S. and 
into our territory from anywhere.
    Let me ask the panel. We have renewed the contract for 
Kwajalein for 15 years, is that right?
    Mr. Stayman. This is correct.
    Mr. Rohrabacher. How much is being given and who is it 
going to?
    Mr. Smith. Mr. Congressman, I have a figure, that for the 
Kwajalein-related payments, there are currently $13 million per 
year.
    Mr. Rohrabacher. $13 million, and that is going to continue 
for 15 years?
    Mr. Smith. Yes, sir.
    Mr. Rohrabacher. Thirteen million a year for 15 years, and 
who is the money going to? I understand that is not going to 
the government of the Marshall Islands.
    Mr. Smith. Yes.
    Mr. Stayman. I believe the breakout is roughly that about 
$7 million of that goes to the landowners. The rest goes to the 
local government.
    Mr. Rohrabacher. Local government meaning the government of 
the Marshall Islands.
    Mr. Stayman. I believe it goes to the Kwajalein Atoll 
government.
    Mr. Rohrabacher. Nothing goes to the Marshall Islands 
government at all.
    Mr. Stayman. In fact, all of this money is paid to the 
Marshall Islands government. The U.S. does not pay this money 
directly to any landowners. It is the responsibility for the 
RMI government to make distribution.
    Mr. Rohrabacher. $13 million for the Kwajalein--for our 
Kwajalein base and that operation there and $7 million goes to 
the local people who used to own the land.
    Mr. Stayman. The landowners.
    Mr. Rohrabacher. Six million goes to the local government. 
That is not the Marshall Islands government. What is left for 
the Marshall Islands?
    Mr. Stayman. Of this $13 million, I don't believe any goes 
to the Marshall Islands government, the Federal Government. It 
would go to the equivalent of their state government, their 
Kwajalein government.
    Mr. Rohrabacher. I don't quite understand that. I mean, it 
seems to me when we are dealing with another country or trying 
to respect these people as another country we shouldn't be able 
to have a base there especially an important military base like 
this----
    Mr. Stayman. Let me try to clarify, if I might. The 13 is 
not the total payment. There is a payment under section 211 
which is paid to the government of the Marshall Islands. Out of 
that amount they then have internal agreements to make 
payments.
    Mr. Rohrabacher. How much--the $13 million is being paid in 
one account or something from an account. How much is being 
paid altogether to these people for us to use this $4 billion 
missile testing range?
    Mr. Stayman. The 2001 projected payment for 211 is $19.1 
million.
    Mr. Rohrabacher. So $19.1 million; and of that I take it 
that $6 million is going--the Marshall Islands government is 
able to keep for themselves, is that right?
    Mr. Stayman. I am sorry, it is a little more complicated. 
Of that $19 million, $11 million would be passed through for 
Kwajalein. The other two million we talked about is, in fact, 
in another account, section 213.
    Mr. Stayman. It is very complicated.
    Mr. Rohrabacher. There is only 130,000 people on these 
islands, and it doesn't seem it would have to be complicated 
with that small a number of people.
    Mr. Stayman. All I can say is that is what was negotiated.
    Mr. Rohrabacher. Tell me about it.
    Mr. Bereuter. Would the gentleman yield?
    Mr. Rohrabacher. Yes.
    Mr. Bereuter. I will give you more time.
    It would be helpful to the gentleman, to me, and to all of 
us if we could have an identification of the money coming for 
the lease for Kwajalein, where it goes; and then, separate and 
apart from that, the Compact money that has gone to the 
Republic of the Marshall Islands. Would be what you would like 
to have?
    I thank the gentleman for yielding. Go ahead.
    Mr. Stayman. We will make that available, Mr. Chairman.
    Mr. Rohrabacher. You don't have that now?
    Mr. Stayman. I have it in front of me.
    Mr. Rohrabacher. Tell me about it.
    Mr. Stayman. Right now, the Marshall Islands receives a 
total of $40.2 million. There are----
    Mr. Rohrabacher. Before that, that is Compact money, right? 
Or whatever you want to call it.
    Mr. Stayman. Right. Out of that, $13 million basically goes 
for Kwajalein.
    Mr. Rohrabacher. Thirteen million goes for Kwajalein. But 
of that $13 million, you are saying that $7 million goes to the 
local owners and $6 million goes to the local government. How 
much goes to the Marshall Islands, for Kwajalein? All of that 
$42 million has to be considered for the use of Kwajalein, is 
that what you are saying?
    Mr. Stayman. No. That is our total Compact assistance. I 
think part of the difficulty may be here is that the United 
States does not generally associate a payment directly with 
military use.
    Mr. Rohrabacher. We have a $4 billion facility there. We 
are dealing with 130,000 people and, in their country, that is 
their only real asset, their only big asset, except maybe fish 
around the islands or something like that. I just want to know 
how much we are paying those 130,000 people to use that $4 
billion facility that is so important to our national security.
    Mr. Stayman. We are paying $11.1 million under section 211 
and $1.9 million under section 213.
    Mr. Rohrabacher. Say it again.
    Mr. Stayman. Eleven point one million plus $1.9, so that is 
$13 million.
    Mr. Rohrabacher. Thirteen million. That is going to the 
landowners and the local government. You have 130,000 people 
who consider themselves a nation. How much are we paying that 
nation? The $13 million, nothing is going to the entity of the 
corporatized 130,000 people.
    Mr. Stayman. It is question of whether or not you consider 
Kwajalein to be part of that country. It is the second largest 
city. It is where, I don't know, 30 percent of the population 
lives.
    Mr. Rohrabacher. Right. Kwajalein is definitely part of the 
Marshall Islands. All right, and you are saying----
    Mr. Stayman. I am just describing the structure.
    Mr. Rohrabacher. How many landowners are there? Let me ask 
you that.
    Mr. Stayman. I am afraid I don't know.
    Mr. Rohrabacher. Are we talking about a dozen?
    Mr. Stayman. Dozens.
    Mr. Rohrabacher. So is it $7 or $6 million a year that we 
give to the dozens of landowners.
    Mr. Stayman. The $7 million.
    Mr. Rohrabacher. $7 million. We are giving $7 million a 
year to dozens of landowners. We are giving $6 million a year 
to some local Kwajalein government, which I will have to learn 
about that. But we aren't giving anything to the rest of the 
Marshall Islanders specifically to rent this facility.
    Mr. Stayman. That is my understanding.
    Mr. Rohrabacher. All right. Does that seem reasonable to 
you?
    Mr. Smith. If I may interject----
    Mr.Rohrabacher. Sure.
    Mr. Smith. Around the world with many different countries 
where we have military access and operating rights we give aid 
and assistance to that country, but it is never called rent per 
se for the facility, but we give--as part of the access 
agreement we agree to give a certain amount of level of aid or 
assistance.
    Mr. Rohrabacher. So you would assume that the rest of that 
$42 million--that is, basically what we are giving them, in 
order to have Kwajalein, otherwise, we wouldn't give them 
anything.
    Mr. Smith. I don't know if that is true. Because I am 
assuming that the rest of the $40 some million goes the other 
projects.
    Mr. Rohrabacher. Let me put it this way to you. If we 
consider $13 million as the basic payment there, and the price 
of constructing the facility was $4 billion, so that is $4 
billion. I am not sure if that is the value is more than $4 
billion. That is pretty low rent for $4 billion facility, OK.
    Anyway, I just think that when we are trying to deal with 
what is going on in the Marshall Islands, we have to deal with 
people fairly. Yes, we have been the biggest guy in the block 
in the whole Pacific for a long time; and, if we are going to 
demand responsibility we better make sure everything is based 
on fairness and equity.
    I am not sure. I have not studied this. I don't know it. I 
can only go from gut instincts. It just seems like there is 
some incongruity in these numbers somewhere.
    So, with that said, I am sure that Chairman Bereuter and I 
will eventually come to the bottom of this. But thank you very 
much.
    Mr. Bereuter. Thanks for your valiant effort, Mr. 
Rohrabacher.
    I would like to start on a second round of questions here. 
I am back to Mr. Aranza, you will be happy to know.
    In cases where the FSM and the RMI have outstanding debt to 
U.S. institutions such as hospitals, what action does the 
Department of Interior take to help resolve those problems? Do 
you feel you have a responsibility? If so, is it being 
discharged?
    Mr. Aranza. We have the authority, and we have, in at least 
one instance, actually, withheld funds under the Compact that 
were not full faith and credit until such time as one of the 
Chuuk States repaid one of the hospital debts. That was the 
Guam Memorial Hospital debt that I mentioned earlier.
    Mr. Bereuter. Guam Memorial.
    Mr. Aranza. Right.
    With respect to other hospital debts, it would kind of 
depend on the source of the money or the debt. I think that if 
it is full faith and credit, direct cash payments, there is 
very little that the Department of the Interior or any other 
Federal agency could do in terms of using that money to 
leverage repayment of medical debt.
    Mr. Bereuter. Mr. Aranza, I remember how much difficulty 
the trust territories were having in getting professional 
medical care people at that time and how, in many cases, they 
relied on what you might call as medical missionaries who were 
doing works, church subsidized medical personnel. Is that a 
significant problem yet today? Is it one of the reasons why 
there may yet be so many people going away apparently to Guam 
for medical services?
    Mr. Aranza. Yes, that is true.
    Mr. Bereuter. Does program assistance expire in 2001?
    Mr. Aranza. Federal program assistance? Mr. Chairman, I 
believe that the different Federal agencies' programs have 
their own independent authority, and they are reauthorized at 
different times by Congress. They don't find their origins in 
the actual Compact.
    Mr. Bereuter. I am sure that would be true of some or most. 
Can you investigate this matter for us to see if there is any 
programs that will end automatically in 2001 at the end of the 
Compact or if all of the programs providing direct assistance 
in humanitarian housing and so on have their direct 
authorization?
    Mr. Aranza. Be glad to look into that.
    [The following answer was submitted by Mr. Aranza.]
    If any of the direct Federal programs, that is, grant 
expenditures authorized under the Compact Act, sections 105(h), 
111, and 226, will end on September 20, 2000/2003, it will be a 
coincidence of their authorizing legislation. None of them is 
tied statutorily to the Compact or the Compact Act. Of course, 
the guaranteed Federal services provided for in Compact section 
112 (foreign Service Institute training) and Compact section 
221 (a) (Weather Service, audits, Postal Service, and FAA) 
will, if not renewed, end on September 30, 2001/2003. However, 
these are not programs from other Federal agencies, but rather 
reimbursements by the Office of Insular Affairs to other 
Federal agencies.
    Mr. Bereuter. Thank you.
    Now the system of land tenure in both the FSM and RMI 
appear to be one of the greatest impediments to the development 
of private enterprise. That was a problem in Northern Marianas, 
too, but in some cases they took a better solution in the 
commonwealth. What kinds of specific assistance has the 
Interior Department provided to assist land title registration 
and reform of the land tenure system? Mr. Stayman, is it 
possible that State Department ought to be providing that 
assistance since you do that, I hope, very well in other parts 
of the world?
    Mr. Aranza, first, do you want to tell me what you know 
about that problem and whether or not there is any effort to 
try to provide assistance?
    Mr. Aranza. In terms of land tenure, Mr. Chairman, I am not 
specifically aware of any technical assistance that my office 
provides specifically for that issue.
    Mr. Bereuter. We have land title registration problems 
which apparently are an impediment to development in these 
islands I am told. I know that has been the case elsewhere. Mr. 
Stayman, has the State Department ever thought about providing 
direct assistance to the Freely Associated States?
    Mr. Stayman. Generally, Mr. Chairman, the State Department 
does not provide assistance to these two countries largely 
because of the amount of assistance they are getting from the 
Department of the Interior.
    Mr. Bereuter. I know you don't, but have you ever 
considered it?
    Mr. Stayman. We have in some limited areas, particularly 
the public diplomacy area. We do have some spending there, 
although it is not a State department program.
    Of course the Peace Corps is there, and that is important 
to their education system. So there are some other programs 
associated with State which are extended. We haven't looked at 
the specific example you are referring to, but we would be 
happy to do that.
    Mr. Bereuter. Apparently, staff asked a question of how 
much of the Kwajalein lease payment does the Kwajalein Atoll 
development authority receive. The question was asked about 
what has Kauta done with the resources? I understand they 
walked out of the room and refused to answer.
    Given that 20 percent of the RMI population lives in 
Ebeye--and I tried to describe to you the squalor that existed 
with the highest concentration of population in the Pacific on 
that one island--what percentage of the RMI government 
resources are allocated to services and development? Got any 
rough idea, Mr. Aranza?
    Mr. Aranza. Not at this specific time, Mr. Chairman. I will 
be sure to get back to you on that one.
    Mr. Bereuter. You know why all those people are living in 
Ebeye, don't you? You want to tell us about that?
    Mr. Aranza. Because of Kwajalein.
    Mr. Bereuter. Because of Kwajalein and the extended family, 
10, 12, or 15 people come to be supported by the one person who 
has the job across on Kwajalein.
    Mr. Stayman. If I could just add, Mr. Chairman, I think 
that this goes to the heart of finding that the GAO made, that 
much of our assistance was used ineffectively because of bad 
planning and bad management. As I understand it, the RMI 
government provides very little money to Kwajalein because 
Kwajalein is, in effect paid through sections 211 and 213. 
There are a substantial amount of resources going into 
Kwajalein, but it is the poor planning and poor management on 
the island which results in many of these problems.
    It is important to note the trend in Ebeye. In the early 
1990's, when the Ebeye government had first been organized, 
they went out and hired professional city manager--they went 
out and hired professional managers for their utilities; and 
around the 1993-1994 timeframe the situation there had improved 
dramatically.
    However, there were some political crises there. There was 
change in management; and we saw the use of resources revert to 
the old pattern, which was funds were generally put almost 
exclusively into payroll. So money was taken out of hiring 
professionals to run the services and the utilities. It was 
taken out of maintenance. It was taken out of supplies. I think 
we have to be cognizant of what GAO has said that many of the 
problems here were not due the a lack of resources but to a 
lack of planning and a lack of management. That is my view of 
what the problem is in Ebeye.
    Mr.Bereuter. Now in Enewetak, of course, these people are 
greatly affected by fallout from nuclear hydrogen bombs. 
Therefore, we moved them off the island, we scraped the entire 
surface of the island off and buried it or took it away, and we 
allowed them to move back. When I was there, it was like a 
large sand dune with foot-high palm trees and absolutely 
nothing for the people to do.
    Then they decided that the levels of radiation were too 
high again, and they moved all of these people off again. When 
I saw them they were living in, for example, flimsy packing 
crates on other islands with no discernible way to make a 
living; and they had to depend upon the food coming in provided 
by the United States irregularly, sporadically, during that 
period of time, with absolutely nothing to do, with no way to 
make a living. Then they moved back again, and then they were 
taken off again. They decided it wasn't adequately safe for 
them to be there. So what has happened to the people of 
Enewetak?
    Mr. Stayman. The people of Enewetak are now living on their 
atoll. I was not aware that that particular group had been 
moved off. The Bikinians had been moved off and moved back, and 
the Rongelaps had been moved off and have not moved back. As 
far as I recall, the Enewetak community was relocated after the 
cleanup.
    But you are absolutely correct, Mr. Chairman. The 
conditions on the island were such that it was virtually 
impossible to grow foodstuffs.
    Mr. Bereuter. Like a sand pile. Absolutely sand pile.
    Mr. Stayman. Yes, a concrete pile is better. Congress 
provided, in fact, just a couple of years ago, machinery to 
break up the surface. It is basically like concrete.
    Mr. Bereuter. It is Rongelap.
    Mr. Stayman. Rongelap is one of the other four affected 
atolls.
    Mr. Aranza. Mr. Chairman, if I could just note, from the 
Department of the Interior, separate from the compact pact, we 
provide about $1.1 million a year for Enewetak support.
    Mr. Bereuter. Do you think it gets to the people?
    Mr. Aranza. Yes, I do.
    Mr. Bereuter. I hope that is right.
    Mr. Underwood.
    Mr. Underwood. Thank you, Mr. Chairman.
    On the issue of Ebeye--and I am--actually, I did get a 
chance to visit Ebeye. It was early last year, and the 
conditions are appalling. It is very difficult to describe to 
people who have never been there.
    I think it is about 10,000 people on one square mile. They 
have some community showers in some instances and, only a few 
palm trees, hardly any trees at all, nothing. It is kind of 
wall-to-wall people who take the water taxis to work in 
Kwajalein.
    But that also presupposes a difficult question on what we 
propose to do in terms of whether we should monitor that more 
carefully or we should welcome at this as a sovereign to 
sovereign relationship and say, well, you get the money and 
this is basically what it is for and you decide how you want to 
handle that. That is a very difficult call.
    So yet I feel as a person who has--certainly has traveled 
throughout the region continually over the past couple of 
decades that at times the situations are used to kind of create 
a lot of emotional support, but then sometimes you don't see 
the kind of infrastructure support which would go toward 
ameliorating it.
    I do want to point out to Mr. Rohrabacher, I don't know, do 
you represent Costa Mesa? You should be proud to know that the 
largest community of Marshallese outside of Hawaii and the 
Marshalls live in Costa Mesa.
    Mr. Rohrabacher. We are trying to make sure they are all 
Republicans.
    Mr. Underwood. Well, the interesting thing is they are 
nonimmigrants, so they don't become citizens. They just live 
there. But----
    Mr. Bereuter. Would the gentleman yield? Just a little bit 
of staff input back here. He contends that the largest group 
outside of Hawaii and Guam is employed by Tysons food in Iowa.
    Mr. Underwood. There are a few hundred of them working at 
Tysons. That makes the chicken taste better, I guess.
    Just going back to the issue of strategic denial--maybe Mr. 
Smith would like to answer the question. Strategic denial in 
the height of the Cold War seemed very critical and very 
crucial to the relationship of the United States to the region. 
How important is strategic denial as a concept today and what 
are we denying and to whom and potentially to whom and how 
important is it in the constellation of our strategic thinking?
    Mr. Smith. It is important. I would say that certainly the 
future is uncertain, and I am not aware right now, today, that 
we are denying any access to other countries, but it is 
something that we feel we--it is good to have for the future. 
There is probably any number of scenarios you might develop, 
and I think Mr. Rohrabacher mentioned about the Chinese 
possibly being active in this region, and maybe for some reason 
we may want to exercise it in the future.
    Mr. Underwood. I guess the strategic denials--we are not 
denying anybody. It is Micronesians that are denying it in 
response to this provision. But how critical is it to our 
thinking? I mean, what could conceivably happen? What about the 
issue of recognition of diplomatic recognition of different 
countries, as apparently happened in the case of the Marshalls 
where we switched between Taiwan and the PRC and kind of flip-
flopped?
    Mr. Smith. As I understand, the strategic denial applies to 
military user access; and I don't believe it extends to the 
diplomatic.
    Mr. Underwood. Maybe Mr. Stayman would have--is there any 
thinking about that in the State Department, any source of 
concern to that? Because I know that the Marshall Islands 
switched their recognition in the past year.
    Mr. Stayman. The Compact doesn't provide for, I would say, 
nondefense. The U.S. does not have the right to object to 
actions by these governments that are not connected with 
defense.
    Mr. Underwood. I understand that. I am just wondering 
whether there is any concern in the State Department. Has there 
been any discussion on this particular issue? It is rather 
obvious that, in this instance, it appears that the Marshall 
Islands switched from the People'S Republic of China, from 
recognizing the PRC to Taiwan in order to secure some financial 
advantage. So is that a source of concern? Is it an item for 
discussion? Or are you simply saying, well--I mean in the 
nature of State Department activities, trying to move people in 
a certain direction is part of it, isn't it?
    Mr.Stayman. We recognize their right to exercise their 
sovereignty in this area.
    Mr.Underwood. Thank you.
    Mr.Bereuter. Gentleman from California is recognized.
    Mr.Rohrabacher. You have to remember up until recently 
Communist China has been our strategic partner, according to 
this administration. I mean, how can you expect any answer 
except for the one you just received? In fact, the Marshall 
Islands and these other islands in the Pacific, in fact, their 
friendship and good relations with the United States and 
America's ability to be the dominant power in this arena is of 
incredible strategic importance to the United States of 
America. Otherwise, we have a potential enemy right on our 
doorstep. Instead, we can hold at bay any potential enemy 
because we have friends that are there in this vast Pacific 
area. Of course, when you have an Administration that bends 
over backward not to see a threat from Communist China, you are 
going to have that type of answer.
    Let us talk about the Chinese in the Pacific. What about 
the listening post in Tarawa? Was that built by the Chinese 
military?
    Mr.Smith. I am not sure if it was built by the military or 
some other arm or agency of the Chinese.
    Mr.Rohrabacher. Is that aimed specifically at overseeing 
what we are doing in Kwajalein? Is that what they do in this 
big dish out there?
    Mr.Smith. I am not really familiar with this facility, but 
I assume that it is a space tracking station and----
    Mr.Rohrabacher. You are not familiar with the facility? Who 
is?
    Mr.Smith. Not that facility.
    Mr.Rohrabacher. Who is familiar with that facility if you 
are not familiar with it? It seems to me that would be 
something of interest to us. Of course, they are our strategic 
partner, so we don't have to worry about that. Who would be 
knowledgeable about that facility?
    Mr.Smith. I can find somebody who knows.
    Mr.Rohrabacher. All right. I would suggest that the fact 
that there is an ultramodern piece of technology sitting on an 
island 500 miles from our missile testing range, that that 
would be of some interest to the United States of America and 
what its capabilities are, what the purpose of it is and what 
type of visitation that it has from what branches of the 
Chinese Government. Is there some indication of more Chinese 
activity in these Pacific islands?
    Mr.Smith. Mr. Rohrabacher, with the Freely Associated 
States I specifically asked several people that question about 
possible Chinese military activity in this particular region, 
and I was not able--nobody knew of any specifically. There is 
certainly economic and trade activities there.
    Mr.Rohrabacher. Of course, we have a problem with Communist 
China in that they have taken all of their military people--not 
all of them, but a huge chunk of their military apparatus, and 
they have given them civilian clothing and started calling them 
businessmen. Like COSCO is really the merchant marine of the 
People's Republic of China, but they just took the merchant 
marine uniforms off, and now it is supposedly a private 
shipping company.
    Li Ka-Shing, who is one part of the inner leadership in 
Beijing, is not just a billionaire whose people are conducting 
other types of businesses throughout Panama and elsewhere. So 
you don't see any threat, Chinese threat?
    I guess we might as well not even proceed with that line.
    Let me just say this, that I do perceive a threat from 
Communist China. That is where--and that is clear from what has 
been going on in this Congress and for the last 2 years. That 
is something that----
    I believe the Communist Chinese have to be viewed in the 
same way that the Japanese were viewed in the 1930's. The 
Japanese viewed themselves as the dominant force in Asia, and 
they had a right to, the Japanese had a right to dominate all 
of Asia or at least their co-prosperity sphere, and the United 
States was the only thing that stood in their way. Thus, we 
were their enemy in their mind, long before we officially 
admitted that.
    I think the same is true with the Chinese now. The Chinese 
believe they have a right to dominate all of Asia, or at least 
a huge hunk of Asia; and, just like the Japanese, the Pacific 
plays a major part in this strategic game. The Marshall Islands 
play an even greater part because they are not only part of a 
strategic positioning but the Kwajalein missile range will 
permit the United States to develop an antimissile system that 
will eventually save us and perhaps could deter aggression from 
the Communist Chinese in the future. Something of enormous 
value to our country because now we understand, after years of 
foot dragging, that a missile defense system is actually 
important.
    Finally, let me just say this for the record and that is, 
Mr. Chairman, we should never underestimate the importance that 
the Pacific Ocean. The ocean itself is going to play to the 
nature of humankind. I am the Chairman of the Space and 
Aeronautics Subcommittee so I spend a lot of time studying 
about the future of space and America's position in space. I 
happen to believe that, as important as space is to us, we also 
have overlooked the fact that the ocean will be at least that 
important to the future of the human race.
    The Marshall Islands and others, while they are going 
through a period now where they seem less significant than they 
did 50 years ago during World War II, there will be a time when 
these islands and mankind's commitment to the ocean will find 
these people in the forefront of developments that will affect 
life on this planet and will push their lives forward so that 
they don't live in squalor and they aren't taken for granted 
and that they are treated fairly.
    So thank you very much, Mr. Chairman, for this hearing.
    Mr. Bereuter. Thank you very much, Mr. Rohrabacher.
    Gentlemen, I want to thank you for your testimony, for your 
responses to our questions. We will need your input, your 
assistance for some time to come as we look at this subject.
    We share jurisdiction with the Resources Committee. In 
fact, we offered an opportunity to have a joint hearing with 
them. It was not convenient at this time, so we embarked on 
study and investigation.
    I would, in thanking you once more for your time and asking 
for your future assistance, ask Dr. Westin if she could come 
back to the witness table very briefly. I have one area to 
investigate with her, and I think it should be informative for 
everyone here. Thank you, gentlemen.
    Dr. Westin, I would simply like to ask you to clarify for 
everybody's interest, for me, and for the Subcommittee what 
will happen now. What are the timeframes for reaction from the 
agencies with respect to the second part of your study, which I 
understand you hope to print--to release to the public in 
September? Can you lay out just what will happen at that point. 
How much time they will have to respond to some of the 
information that you presented today and for their input to be 
considered?
    Ms. Westin. Yes, Mr. Chairman. Thanks for the opportunity 
to clarify that. Because I had mentioned that we do have a 
report based on our work coming out in September, a written 
report. In this report, we expect to have recommendations to 
the agencies. I know that we will have recommendation on 
accountability. There may be other recommendations as well. We 
are still working through those based on our findings. We also 
may have in the report matters for Congress to consider.
    GAO procedures are that when we do a report involving 
agencies we give the report to the agencies and they have a 
chance to comment. We will print their written comments as part 
of our report with our responses. Or if they disagree with our 
findings we will also talk about that, and they will have about 
30 days to answer.
    Also, the Compact provides for 45 days for both the 
Republic of the Marshall Islands and Federated States of 
Micronesia to comment, so we will provide that report to them 
as well. Once we have back their comments, we consider their 
comments and pull it all together, answer what needs to be 
answered. We expect the printed report to be available to the 
public about the end of September.
    Mr. Bereuter. Thank you very much. I think that is 
important to lay that out. So the two Freely Associated States 
will have 45 days, and those comments will be a part of the 
report, along with the 30-day notice comments.
    Ms. Westin. For the agencies, yes.
    Mr. Bereuter. Very good. Thank you very much, Dr. Westin; 
and thanks to your staff for all of your work on this to this 
point.
    The Subcommittee is adjourned.
    [Whereupon, at 4:55 p.m., the Subcommittee was adjourned.]
      
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                            A P P E N D I X

                             June 28, 2000

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