U.S. GOVERNMENT PRINTING OFFICE

66–709 CC WASHINGTON : 2000

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

(II)

COMMITTEE ON INTERNATIONAL RELATIONS

BENJAMIN A. GILMAN, New York, Chairman

WILLIAM F. GOODLING, Pennsylvania

JAMES A. LEACH, Iowa

HENRY J. HYDE, Illinois

DOUG BEREUTER, Nebraska

CHRISTOPHER H. SMITH, New Jersey

DAN BURTON, Indiana

ELTON GALLEGLY, California

ILEANA ROS-LEHTINEN, Florida

CASS BALLENGER, North Carolina

DANA ROHRABACHER, California

DONALD A. MANZULLO, Illinois

EDWARD R. ROYCE, California

PETER T. KING, New York

STEVE CHABOT, Ohio

MARSHALL ‘‘MARK’’ SANFORD, South

Carolina

MATT SALMON, Arizona

AMO HOUGHTON, New York

TOM CAMPBELL, California

JOHN M. MCHUGH, New York

KEVIN BRADY, Texas

RICHARD BURR, North Carolina

PAUL E. GILLMOR, Ohio

GEORGE P. RADANOVICH, California

JOHN COOKSEY, Louisiana

THOMAS G. TANCREDO, Colorado

SAM GEJDENSON, Connecticut

TOM LANTOS, California

HOWARD L. BERMAN, California

GARY L. ACKERMAN, New York

ENI F.H. FALEOMAVAEGA, American

Samoa

MATTHEW G. MARTINEZ, California

DONALD M. PAYNE, New Jersey

ROBERT MENENDEZ, New Jersey

SHERROD BROWN, Ohio

CYNTHIA A. MCKINNEY, Georgia

ALCEE L. HASTINGS, Florida

PAT DANNER, Missouri

EARL F. HILLIARD, Alabama

BRAD SHERMAN, California

ROBERT WEXLER, Florida

STEVEN R. ROTHMAN, New Jersey

JIM DAVIS, Florida

EARL POMEROY, North Dakota

WILLIAM D. DELAHUNT, Massachusetts

GREGORY W. MEEKS, New York

BARBARA LEE, California

JOSEPH CROWLEY, New York

JOSEPH M. HOEFFEL, Pennsylvania

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

DANA ROHRABACHER, California

PETER T. KING, New York

MARSHALL ‘‘MARK’’ SANFORD, South

Carolina

MATT SALMON, Arizona

JOHN MCHUGH, New York

RICHARD BURR, North Carolina

PAUL GILLMOR, Ohio

DONALD A. MANZULLO, Illinois

EDWARD R. ROYCE, California

JOHN COOKSEY, Louisiana

TOM LANTOS, California

HOWARD L. BERMAN, California

ENI F.H. FALEOMAVAEGA, American

Samoa

MATTHEW G. MARTINEZ, California

SHERROD BROWN, Ohio

ROBERT WEXLER, Florida

JIM DAVIS, Florida

EARL POMEROY, North Dakota

GARY L. ACKERMAN, New York

ALCEE L. HASTINGS, Florida

MICHAEL P. ENNIS, Subcommittee Staff Director

ROBERT KING, Democratic Professional Staff Member

MATT REYNOLDS, Counsel

ALICIA A. O’DONNELL, Staff Associate

(III)

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

(1)

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

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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.

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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

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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 independVerDate 11-MAY-2000 08:39 Oct 13, 2000 Jkt 000000 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 66709.TXT HINTREL1 PsN: HINTREL1
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ence 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

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$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 utiVerDate 11-MAY-2000 08:39 Oct 13, 2000 Jkt 000000 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 66709.TXT HINTREL1 PsN: HINTREL1
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lization 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 RepubVerDate 11-MAY-2000 08:39 Oct 13, 2000 Jkt 000000 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 66709.TXT HINTREL1 PsN: HINTREL1
8

lic 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 Compactfunded 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 posVerDate 11-MAY-2000 08:39 Oct 13, 2000 Jkt 000000 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 66709.TXT HINTREL1 PsN: HINTREL1
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sible 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.

10

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 MarshalleseVerDate 11-MAY-2000 08:39 Oct 13, 2000 Jkt 000000 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 66709.TXT HINTREL1 PsN: HINTREL1
11

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 gov- ernment, 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 inadVerDate 11-MAY-2000 08:39 Oct 13, 2000 Jkt 000000 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 66709.TXT HINTREL1 PsN: HINTREL1
12

equate 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.

13

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?

14

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

15

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.

16

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.

17

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

18

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, selfsufficiency 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 selfsufficiency, 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

19

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.

20

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

21

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

22

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

23

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 selfsufficiency, 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

24

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

25

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

26

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 interestbearing 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 apVerDate 11-MAY-2000 08:39 Oct 13, 2000 Jkt 000000 PO 00000 Frm 00030 Fmt 6633 Sfmt 6633 66709.TXT HINTREL1 PsN: HINTREL1
27

plication 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.

28

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 socalled 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 InterVerDate 11-MAY-2000 08:39 Oct 13, 2000 Jkt 000000 PO 00000 Frm 00032 Fmt 6633 Sfmt 6633 66709.TXT HINTREL1 PsN: HINTREL1
29

national 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.

30

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

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31

verse 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

32

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

33

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

34

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 responsiVerDate 11-MAY-2000 08:39 Oct 13, 2000 Jkt 000000 PO 00000 Frm 00038 Fmt 6633 Sfmt 6633 66709.TXT HINTREL1 PsN: HINTREL1
35

bility 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 SepVerDate 11-MAY-2000 08:39 Oct 13, 2000 Jkt 000000 PO 00000 Frm 00039 Fmt 6633 Sfmt 6633 66709.TXT HINTREL1 PsN: HINTREL1
36

tember 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.

37

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.

38

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

39

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——

40

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.

41

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 comVerDate 11-MAY-2000 08:39 Oct 13, 2000 Jkt 000000 PO 00000 Frm 00045 Fmt 6633 Sfmt 6633 66709.TXT HINTREL1 PsN: HINTREL1
42

ment, 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.]

(43)

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JUNE 28, 2000

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