U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON :

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2250 Mail: Stop SSOP, Washington, DC 20402–0001

87–792PDF 2003

REAUTHORIZING THE COMPACTS OF FREE

ASSOCIATION WITH MICRONESIA AND THE

MARSHALL ISLANDS

HEARING

BEFORE THE

SUBCOMMITTEE ON ASIA AND THE PACIFIC

OF THE

COMMITTEE ON 

INTERNATIONAL RELATIONS 

HOUSE OF REPRESENTATIVES

ONE HUNDRED EIGHTH CONGRESS

FIRST SESSION

JUNE 18, 2003

Serial No. 108–44

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 

HENRY J. HYDE, Illinois, Chairman

JAMES A. LEACH, Iowa 

DOUG BEREUTER, Nebraska 

CHRISTOPHER H. SMITH, New Jersey, 

Vice Chairman 

DAN BURTON, Indiana 

ELTON GALLEGLY, California 

ILEANA ROS-LEHTINEN, Florida 

CASS BALLENGER, North Carolina 

DANA ROHRABACHER, California 

EDWARD R. ROYCE, California 

PETER T. KING, New York 

STEVE CHABOT, Ohio 

AMO HOUGHTON, New York 

JOHN M. MCHUGH, New York 

THOMAS G. TANCREDO, Colorado 

RON PAUL, Texas 

NICK SMITH, Michigan 

JOSEPH R. PITTS, Pennsylvania 

JEFF FLAKE, Arizona 

JO ANN DAVIS, Virginia 

MARK GREEN, Wisconsin 

JERRY WELLER, Illinois 

MIKE PENCE, Indiana 

THADDEUS MCCOTTER, Michigan 

WILLIAM J. JANKLOW, South Dakota 

KATHERINE HARRIS, Florida 

TOM LANTOS, California 

HOWARD L. BERMAN, California 

GARY L. ACKERMAN, New York 

ENI F.H. FALEOMAVAEGA, American 

Samoa

DONALD M. PAYNE, New Jersey 

ROBERT MENENDEZ, New Jersey 

SHERROD BROWN, Ohio 

BRAD SHERMAN, California 

ROBERT WEXLER, Florida 

ELIOT L. ENGEL, New York 

WILLIAM D. DELAHUNT, Massachusetts 

GREGORY W. MEEKS, New York 

BARBARA LEE, California 

JOSEPH CROWLEY, New York 

JOSEPH M. HOEFFEL, Pennsylvania 

EARL BLUMENAUER, Oregon 

SHELLEY BERKLEY, Nevada 

GRACE F. NAPOLITANO, California 

ADAM B. SCHIFF, California 

DIANE E. WATSON, California 

ADAM SMITH, Washington 

BETTY MCCOLLUM, Minnesota 

CHRIS BELL, Texas 

THOMAS E. MOONEY, SR., Staff Director/General Counsel 

ROBERT R. KING, Democratic Staff Director 

SUBCOMMITTEE ON ASIA AND THE PACIFIC

JAMES A. LEACH, Iowa, Chairman

DAN BURTON, Indiana 

DOUG BEREUTER, Nebraska 

CHRISTOPHER H. SMITH, New Jersey 

DANA ROHRABACHER, California 

EDWARD R. ROYCE, California 

STEVE CHABOT, Ohio 

RON PAUL, Texas 

JEFF FLAKE, Arizona 

JERRY WELLER, Illinois 

THOMAS G. TANCREDO, Colorado 

ENI F. H. FALEOMAVAEGA, American 

Samoa

SHERROD BROWN, Ohio 

EARL BLUMENAUER, Oregon 

DIANE E. WATSON, California 

ADAM SMITH, Washington 

GARY L. ACKERMAN, New York 

BRAD SHERMAN, California 

ROBERT WEXLER, Florida 

GREGORY W. MEEKS, New York 

JAMES W. MCCORMICK, Subcommittee Staff Director 

LISA M. WILLIAMS, Democratic Professional Staff Member 

DOUGLAS ANDERSON, Professional Staff Member & Counsel 

TIERNEN MILLER, Staff Associate 

(III)

C O N T E N T S 

Page

WITNESSES

Albert V. Short, Director, Office of Compact Negotiations, U.S. Department 

of State .................................................................................................................. 10

David B. Cohen, Deputy Assistant Secretary of the Interior for Insular Affairs, U.S. Department of the Interior ................................................................ 18

Susan S. Westin, Managing Director, International Affairs and Trade, General Accounting Office .......................................................................................... 24

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING 

The Honorable James A. Leach, a Representative in Congress from the State 

of Iowa, and Chairman, Subcommittee on Asia and the Pacific: Prepared 

statement .............................................................................................................. 3

Albert V. Short: Prepared statement ..................................................................... 13

David B. Cohen: Prepared statement .................................................................... 21

Susan S. Westin: Prepared statement ................................................................... 26

APPENDIX

The Honorable Nick Smith, a Representative in Congress from the State 

of Michigan: Prepared statement ........................................................................ 55

Letters submitted for the record by the Honorable Nick Smith ...................... 55

Copy of Judgment, Danny P. Barrett v. State of Chuuk, submitted for 

the record by the Honorable Nick Smith ........................................................ 58

The Honorable Madeleine Z. Bordallo, a Representative in Congress from 

Guam: Prepared statement ................................................................................. 59

Richard Lawless, Deputy Assistant Secretary of Defense for Asian and Pacific 

Affairs, Office of the Assistant Secretary of Defense for International Security: Prepared statement ..................................................................................... 59

Questions submitted for the record to Albert V. Short by the Honorable 

James A. Leach, and Mr. Short’s responses ...................................................... 62

Additional material submitted for the record by the Office of Compact Negotiations .................................................................................................................. 65

Questions submitted for the record to David B. Cohen by the Honorable 

James A. Leach, and Mr. Cohen’s responses ..................................................... 66

Questions for the record submitted to Susan S. Westin by the Honorable 

James A. Leach, and Ms. Westin’s responses .................................................... 67

Gerald M. Zackios, Foreign Minister, Republic of the Marshall Islands: Prepared statement submitted for the record by the Honorable Eni F. H. 

Faleomavaega, a Representative in Congress from American Samoa ............. 69

The Honorable Peter Christian, Senator, the Federated States of Micronesia, 

and Chief Negotiator of the Joint Committee on Compact Economic Negotiations of the Federated States of Micronesia: Prepared statement .............. 73

The Honorable Christopher J. Loeak, Senator in the Nitijela representing 

the Atoll of Ailinglaplap, and Chairman, Kwajalein Negotiation Commission 

(KNC), on behalf of Kwajalein Landowners: Prepared statement submitted 

for the record by the Honorable Eni F. H. Faleomavaega ................................ 76

The Nuclear Claims Tribunal of the Republic of the Marshall Islands .............. 79

(1)

REAUTHORIZING THE COMPACTS OF FREE 

ASSOCIATION WITH MICRONESIA AND THE 

MARSHALL ISLANDS 

WEDNESDAY, JUNE 18, 2003

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON ASIA AND THE PACIFIC,

COMMITTEE ON INTERNATIONAL RELATIONS, Washington, DC. 

The Subcommittee met, pursuant to call, at 1:38 p.m. in Room 

2172, Rayburn House Office Building, Hon. James A. Leach (Chairman of the Subcommittee] presiding. 

Mr. LEACH. The Committee will come to order. 

On behalf of the Subcommittee I would like to welcome our distinguished witnesses. We are pleased, in particular, to welcome Mr. 

Albert V. Short, Director of the Office of Compact Negotiations at 

the Department of State; Mr. David B. Cohen, the Deputy Assistant Secretary for Insular Affairs at the Department of the Interior; 

and Ms. Susan B. Westin, Managing Director, International Affairs 

and Trade of the General Accounting Office. 

I should note we are also pleased to welcome to our hearing 

today a number of the Armed Services Resource Committee, Representative Madeleine Bordallo who has the honor of representing 

the great territory of Guam, and you are, of course, most welcome. 

At the outset, I would like to express my appreciation to the Administration for agreeing to the unusual format for today’s hearing. 

Customarily the Executive Branch witnesses testify first, but because of the legislative schedule the Administration has agreed to 

accommodate the Subcommittee in this instance, and I thank you. 

So there is no misunderstanding in terms of precedent, the Administration generally has the discretion of testifying prior to the 

government or private sector witnesses. 

Our hearing today will focus attention on U.S. efforts to renegotiate the Compact of Free Association with the Federated States of 

Micronesia and the Republic of the Marshall Islands. 

The United States has shared a uniquely close and mutually beneficial relationship with the peoples of Micronesia and the Marshall 

Islands for the past half century. For almost 40 years after World 

War II, the U.S. had administered both Micronesia and the Marshall Islands, along with Palau and the Northern Mariana Islands, 

as part of the United Nations Trust Territory of the Pacific Islands. 

In the Marshall Islands, U.S. conducted atmospheric nuclear 

tests during the forties and fifties, and has maintained a U.S. 

Army base and missile test range at Kwajalein atoll since 1964. 

2

In 1986, Micronesia and the Marshall Islands chose to become 

sovereign states and entered into a Compact of Free Association 

with the United States. The Compact was intended to ensure selfgovernment for the new island nations, to assist them in their economic development toward self-sufficiency, and to advance certain 

national security objectives. 

In general, U.S. foreign policy and strategic interests has been 

well served by the Compact of Free Association. The islands have 

been steadfast friends of the United States, and enjoy a special 

place in the hears of the American people. It is impressive, for example, how many Marshallese and Micronesians serve in the 

United States Armed Forces relative to the islands’ populations. 

Unfortunately, the Subcommittee has been greatly concerned to 

discover that at least in some instances the Compact was marred 

by poor planning, mismanagement and certain misuse of funds, 

and to some degree on our part, inadequate oversight. We are 

therefore keenly interested to know how the new Compact purpose 

remedied the circumstance both with respect to the project design 

and implementation. 

Under the current Compact, U.S. financial assistance and U.S. 

defense rights were set to expire in 2001, but could be continued 

for an initial 2 years while the nations renegotiated the expired 

provisions.

U.S. and the two-island nations began renegotiating these provisions in the fall of 1999, and recently finalized revised Compacts 

of Free Association with both the FSM and RMI. 

The Administration is expected to transmit to Congress a package of authorizing legislation for these Compacts within the next 

week or two. 

Here, I would simply underscore the Subcommittee’s concern 

with the timing of the Administration’s submission assuming we 

receive the draft legislation in the next few days. Congress will still 

be left with just a few weeks to act before the current Compact 

lapses at the end of the fiscal year. The short calendar leaves us 

with little margin for error. We intend to move expeditiously to reauthorize the Compact shortly after return from the July 4th recess.

I will leave it to the Administration to describe the new Compact 

in detail. Suffice it to say that these authorizations involve substantial financial commitments by the United States to the FSM 

and RMI through 2023. 

The new Compacts anticipate an end us U.S. annual funding by 

capitalizing a trust fund for each country that eventually will provide an income stream after U.S. grants assistance ends. 

The Subcommittee fully expects not only that the new Compact 

funding will be structured to ensure a more robust oversight and 

planning than occurred under the original Compact, but that the 

U.S. will also be able to fully ensure appropriate use of trust fund 

monies.

We appreciate your appearance today, and look forward to your 

testimony.

Mr. Faleomavaega. 

[The prepared statement of Mr. Leach follows:]

3

PREPARED STATEMENT OF THE HONORABLE JAMES A. LEACH, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF IOWA, AND CHAIRMAN, SUBCOMMITTEE ON ASIA AND

THE PACIFIC

On behalf of the Subcommittee, I would like to welcome our distinguished witnesses. We are pleased to welcome Mr. Albert V. Short, Director, Office of Compact 

Negotiations, U.S. Department of State, Mr. David B. Cohen, Deputy Assistant Secretary for Insular Affairs, U.S. Department of the Interior, and Ms. Susan B. 

Westin, Managing Director, International Affairs and Trade, General Accounting Office. I should also note that we are pleased to welcome to our hearing today a Member of the Armed Services and Resources Committees, Representative Madeleine 

Bordallo, who has the honor of representing the great Territory of Guam. You are 

most welcome. 

At the outset, I would like to express my appreciation to the Administration for 

agreeing to the unusual format for today’s hearing. Customarily Executive Branch 

witnesses testify first, but because of the busy legislative schedule the Administration has agreed to accommodate the Subcommittee in this instance. So there is no 

misunderstanding in terms of precedent, the Administration always has the discretion to insist on testifying prior to other governmental or private sector witnesses. 

Our hearing today will focus attention on U.S. efforts to renegotiate ‘‘the Compacts of Free Association’’ with the Federated States of Micronesia (FSM) and the 

Republic of the Marshall Islands (RMI). 

The United States has shared a uniquely close and mutually beneficial relationship with the peoples of Micronesia and the Marshall Islands for the past half-century. For almost forty years after World War Two, the U.S. administered both Micronesia and the Marshall Islands (along with Palau and the Northern Mariana Islands) as part of the United Nations Trust Territory of the Pacific Islands. In the 

Marshall Islands, the U.S. conducted atmospheric nuclear tests during the 1940s 

and 1950s, and has maintained a U.S. Army base and missile test range at Kwajalein atoll since 1964. 

In 1986, Micronesia and the Marshall Islands chose to become sovereign states 

and entered into a Compact of Free Association with the United States. The Compact was intended to ensure self-government for the new island nations, to assist 

them in their economic development toward self-sufficiency and to advance certain 

national security objectives. 

In general, U.S. foreign policy and strategic interests have been well-served by the 

Compact of Free Association. The islands have been steadfast friends of the United 

States and enjoy a special place in the hearts of the American people. It is impressive, for example, how many Marshallese and Micronesians serve in the U.S. armed 

forces relative to the islands population. 

Unfortunately, this Subcommittee was greatly concerned to discover that the first 

Compact was marred by a combination of poor planning, mismanagement, misuse 

of funds, and inadequate oversight. We are therefore keenly interested to know how 

the new Compacts propose to remedy this circumstance both with respect to project 

design and implementation. 

Under the current Compact, U.S. financial assistance and U.S. defense rights 

were set to expire in 2001, but could be continued for an additional two years while 

the nations renegotiated the expiring provisions. The U.S. and the two island nations began renegotiating those provisions in the fall of 1999, and recently finalized 

revised Compacts of Free Association with both the FSM and the RMI. The Administration is expected to transmit to Congress a package of authorizing legislation for 

those Compacts within the next week or two. 

Here I would underscore the Subcommittee’s concern with the awkward timing 

of the Administration’s legislative submission. Assuming we receive the draft legislation in the next few days, Congress will still be left with just a few weeks to act 

before the current Compact lapses at the end of the fiscal year. The short calendar 

leaves us with little margin for error. Nevertheless, we intend to move expeditiously 

to reauthorize the Compacts shortly after we return from the July 4 recess. 

I will leave it to the Administration to describe the new Compacts in detail. Suffice to say that these authorizations involve substantial financial commitments by 

the United States to the FSM and RMI through 2023. The new Compacts anticipate 

an end to U.S. annual funding by capitalizing a trust fund for each country that 

eventually will provide an income stream after U.S. grant assistance ends. The Subcommittee fully expects not only that the new Compact funding will be structured 

to ensure more robust oversight and planning than occurred under the original 

Compact, but that the U.S. will also be able to fully ensure appropriate use of trust 

fund monies. 

We appreciate your appearance today and look forward to your testimony.

4

Mr. FALEOMAVAEGA. Thank you, Mr. Chairman, and I want to 

commend you for calling this hearing this afternoon in reference to 

the renewal of the Compact of Free Association with the Federated 

States of Micronesia and also the Republic of Marshall Islands. 

But before proceeding, Mr. Chairman, I would like to ask unanimous consent that the full text of the statement by the Honorable 

Gerald Zackios, the Foreign Minister of the Republic of the Marshall Islands, be made a part of the record. 

Mr. LEACH. Without objection. 

Mr. FALEOMAVAEGA. And also unanimous consent of the submission of the text of the statement by Senator Christopher Loeck who 

is the Chairman of the Kwajalein Negotiation Commission, and 

this is on behalf of the Kwajalein land owners, Mr. Chairman. 

Mr. LEACH. Without objection. 

Mr. FALEOMAVAEGA. Okay. Mr. Chairman, thank you, and I want 

to extend my personal welcome to Colonel Short who has been the 

chief negotiator on behalf of our Government with the principals of 

the Federated States of Micronesia and also the Marshalls. I also 

want to welcome Mr. David Cohen who is the Deputy Assistant 

Secretary of the Department of the Interior dealing with insular 

ares; and my good friend, Ms. Westin, of the General Accounting 

Office that we always enjoy deliberating on our differences as to 

how the GAO goes about providing submission of records and data 

to the Congress. I look forward certainly to hearing their testimony 

this afternoon. 

Mr. Chairman, this is a very important, and not necessarily a 

new beginning, but certainly a renewal of our very unique relationship with these entities in Micronesia. I believe it was immediately 

after World War II, in 1946, that we as a nation unilaterally declared Micronesia as a strategic trust, and whether or not the 

United Nations like it, we just simply said we were going to take 

over. We are going to be the administering authority, and that is 

how we ended up being the administrative authority for these islands, at that time know, as the Trust Territory of the Pacific Islands.

I think I need to remind my colleagues, and especially for the 

record, that our friends in Micronesia, I think, have made tremendous sacrifices in the interest of our strategic and security interests 

in this region of the world. Sometimes we tend to forget that, Mr. 

Chairman, and I realize the American public 50 years after World 

War II tend not to remember or even want to remember what happened in those days. 

And I say this, again, Mr. Chairman, with due respect for what 

happened to the inhabitants of the Marshall Islands. Some 66 nuclear devices were exploded on these islands in the South Pacific, 

or North Pacific if I may say, where we exploded the first hydrogen 

bomb in 1954, which was known as the Bravo Shot. It was literally 

over 1,000 times more powerful than the atom bombs that we 

dropped in Nagasaki and Hiroshima. 

It gives you an idea of how expensive our nuclear testing program was at that time in the 1960s. I would like to say that the 

Marshall Islands really took the brunt of our nuclear testing program. Then also establishing a Kwajalein missile testing range 

where we fire our ICBMs from Vandenberg Air Force Base in CaliVerDate Mar 21 2002 10:43 Nov 09, 2003 Jkt 088500 PO 00000 Frm 00008 Fmt 6633 Sfmt 6601 F:\WORK\AP\061803\87792 HINTREL1 PsN: SHIRL
5

fornia. They landed in the largest bikini in the world, and I think 

we have well over some $3 billion in that missile testing facility in 

the Marshall Islands. 

The same thing could also be said, Mr. Chairman, of our strategic interests and our relationship with the Federated States of 

Micronesia. I want to commend Mr. Short for conducting 7 months 

of intense negotiations with the official of both the FSM and the 

Marshalls, and I look forward to hearing the testimonies from our 

witnesses this afternoon. I do have some questions I want to raise 

with them as we proceed. 

Thank you, Mr. Chairman. 

Mr. LEACH. Thank you. 

Mr. FALEOMAVAEGA. I also want to welcome my colleague and 

dear friend, the congresswoman, gentlelady from Guam, who wanted to join us in the hearing this afternoon, Ms. Bordallo. 

Mr. LEACH. Mr. Rohrabacher. 

Mr. ROHRABACHER. Just a few thoughts before we proceed. I appreciate not only calling this hearing, but calling our attention, Mr. 

Chairman, to the time table that we have to deal with. My reading 

of this is that on September 30th of this year, a time which is rapidly approaching, we have got to renew this Compact, and title III, 

in particular, which is security and defense relations, will expire on 

September 30th, and that is coming down on us. And I think we 

owe it to these people who have been with us for so long now in 

the Marshall Islands to make sure that we just do not take things 

for granted like this and wait until the last minute. 

I do not think that that speaks well of the way we are handling 

our affairs with them, and it shows a certain—not lack of respect, 

but I would say a certain taking for granted that we should not be 

doing.

The Marshall Islands, and I was very honored to have visited the 

Marshall Islands a few years ago, and the Marshall Islands play—

in the past have played a pivotal role in our national security, and 

I know that we do not reward people for what they have done in 

the past. I mean, there is a saying in Washington that the fastest 

drain liquid known to man are tears of gratitude. And the fact is 

we are not doing anything based on gratitude. 

What we are doing is, number one, recognizing, yes, we owe a 

debt to the people of the Marshall Islands for everything they have 

done for our national security in the past, but for those of us who 

are involved with America’s space effort and high technology development, we know that the Marshall Islands are pivotal, they are 

absolutely essential to the United States effort to develop a missile 

defense system, and we will not be secure, our country will not 

have the defenses it needs in the future unless we have a good relationship with the people of the Marshall Islands. 

They are going to be providing us the ability to test our anti-missile system. And to put that in perspective, what is going on in 

North Korea right now if we had no prospects of developing an 

anti-missile system, it would be a horrifying prospect to think that 

10 years or 20 years down the road that some nut case in North 

Korea could launch a missile toward the United States, and we 

would be able to do absolutely nothing about it. 

6

Well, if we are going to be able to do something about it and 

have that type of defense, we have to be working with the people 

of the Marshall Islands. They have already sacrificed for us during 

the Cold War. Without their sacrifice we would not have developed 

the weapon systems that we needed to deter war with the Soviet 

Union until the Soviet Union had a chance to fall apart. 

And so, again, we owe that gratitude, but we also look forward 

in saying we owe it to them and we owe it out ourselves to make 

sure that we pay attention to this Compact. 

So as I say, when I visited there, I was very impressed with the 

spirit of those people. I know there has been some problems, and 

what we owe it to the people of the Marshall Islands, what they 

owe to us is for us to work together very seriously to come to an 

accommodation to make sure this Compact works to the benefit of 

the people. Neither they nor we need money disappearing or not 

being wisely spent, so that the agreement that we reach with the 

government there so that it benefits everybody on those islands 

and it benefits the people of the United States, and not just a few. 

So they are willing to work with us. We should be willing to work 

with them. And we need to work out the details because it is important for our national security. 

Thanks for being the point person, Mr. Chairman, on this and let 

us get this project moving. 

Mr. LEACH. Mr. Weller? Ms. Bordallo, would you like to——

Ms. BORDALLO. Thank you, Mr. Chairman, Chairman Leach, and 

thank you for the courtesy of allowing me to participate in this 

hearing.

I would also like to commend my very good friend, the Ranking 

Member, Mr. Faleomavaega, for your leadership on issues affecting 

the Asia Pacific region. 

And as I look out in the crowd, I see many of my friends from 

the Micronesian Islands. I would like to acknowledge Ambassador 

Jesse Marehalau, the Federated States of Micronesia, and Ambassador Banny deBrum, representing the Marshall Islands. And of 

course, our witnesses too who I am very familiar with, Mr. Al 

Short, negotiator; my good friend, the Deputy Secretary of the Interior, Mr. David Cohen; and Ms. Susan Westin. 

Mr. Chairman, as I look out in the room here, it almost appears 

to be a meeting like we would have back home. We have so many 

of our Micronesian friends and representatives here. 

Mr. Chairman, I strongly support the renewal of the Compact 

agreements and the continued economic assistance to the Compact 

states. Guam is the closest neighbor to the Federated States of Micronesia, and the Republic of Palau, and we have seen the progress 

that the Freely Associated States have made under their respective 

Compact agreements. 

As we review the record of accomplishments under the 15-year 

agreement, we should also weigh the issues and the concerns that 

have been raised regarding economic and social development. 

One of the major concerns, Mr. Chairman, for Guam is the reimbursement of costs incurred by Guam due to the Compact. I understand that the agreements that have been negotiated by the State 

Department may address some of the issues regarding passport reVerDate Mar 21 2002 10:43 Nov 09, 2003 Jkt 088500 PO 00000 Frm 00010 Fmt 6633 Sfmt 6601 F:\WORK\AP\061803\87792 HINTREL1 PsN: SHIRL
7

quirements for FAS citizens, but the unrestricted migration provisions may be unchanged. 

The Government of Guam has incurred significant costs over the 

past 17 years due to this migration, and we have been inadequately reimbursed by the Federal Government. The immigration 

policies should go hand in hand with an adequate reimbursement 

policy for Compact-impact costs. And I have other concerns regarding the changes that the Administration may propose, and I would 

seek clarification on how these changes would improve the economic viability of the Freely Associated States. 

I am concerned about proposed changes to participation in disaster relief programs under the Stafford Act, and on changes to 

participation in other federal grant programs. Will these changes 

contribute to the future well being of the Compact states or are 

these changes driven by budgetary constraints? Is there an overall 

policy which defines which Federal programs are appropriate for 

the Compact states, or is this an issue that is defined on a program 

by program basis? 

As the congressional review process goes forward, Mr. Chairman, 

I hope that these concerns would be addressed. 

And finally, I am interested in how Compact assistance will be 

administered and whether new measures intended to increase accountability will work. Guam’s experience with the Compact-impact 

issue is a warning that we have to be on guard against the law of 

unintended consequences because it may be very difficult to foresee 

how policies made in Washington work in the islands. 

If experience is the guide, then Guam’s experience has been that 

Compact issues are nearly impossible to revisit if we do not get this 

right the first time. 

Thank you very much, Mr. Chairman. 

Mr. LEACH. Thank you, ma’am. 

Ms. Watson, did you want to make any opening comments? 

Ms. WATSON. Thank you so much, Mr. Chairman, and I want to 

apologize for my tardiness, but we were in other caucuses, or 

should I call them cauci. 

Thank you for the opportunity to give a statement about the U.S. 

relationship with the Freely Associated States. President Clinton 

gave me the privilege to represent the American people as the Ambassador to the Federated States of Micronesia in the last nineties. 

It is from this intimate perspective that I would like to make a few 

brief comments. 

Six hundred and seven islands in one million square miles of 

ocean define the Federated States of Micronesia, and a group of 

atolls. When squeezed together, that would be roughly the size of 

Washington, DC, and they all comprise the RMI. 

Significance of the region to American World War II history was 

embedded in institutional memory back in 1986. Our congressional 

leaders, many of them World War II veterans, stove to develop the 

United States relationship with this area of the Pacific. Another 

important goal was to recognize the unified islands as sovereign 

nations.

The location of these two countries in the Pacific Ocean is of strategic importance to the United States. therefore, the first Compact 

of Free Association. 

8

Over the last 17 years, the relationship between the FSM, the 

RMI, and the United States has experienced growing pains, but the 

overall result has been positive. 

As we reauthorize the Compact of Free Association in 2003, we 

must regain the perspective of the waning institutional memory. 

Secondly, we should be a good teacher and a friend with financial 

accountability.

Third, we have to assist in the education of the island’s greatest 

commodity, its human capital. 

The institutional memory that I speak of pertains to the intent 

of the United States Government. The larger, what is our current 

foreign policy, is a big debate for another time. On the other hand, 

this question must be answered for a successful Compact. 

I urge my colleagues to include language in the finding section 

of the Compact legislation stating the intent of the United States 

with respect to the FAS. 

Financial accountability is the issue that bureaucrats look at for 

justification to cut or curtail support for the FAS. Many of the official discussions that I have had with the FSM government was 

centered on this subject. The lessons learned over the past Compact do not warrant any financial punishment. The United States 

learned as much about this unique Compact arrangement as the 

FSM and the RMI learned about establishing their respective 

democratic governments. 

I understand that the U.S. proposals sufficiently address GAO’s 

past recommendations regarding increased accountability. Negotiating this Compact has naturally absorbed a lot of time and a lot 

of persuasive skills. These selling skills now must be applied to 

building businesses, not negotiating the accountability systems. 

Intellectual capital is the greatest asset the FAS has to create a 

self-sustaining economy. From now on the most talented people in 

the FAS should be working in the economy. Our new accountability 

system should be clear and uncomplicated, not designed to require 

too much of the government’s time and talent. 

Micronesia cannot earn export income from low-cost labor 

projects. With 20 years’ financing secured, there is enough time to 

build industries based on design and intellectual property, modern 

businesses that are carefully developed to find and use opportunities in the booming Asian economy. The business environment 

must be upgraded so that the best talent can leave government and 

pursue opportunities for growth. 

Although in another Committee, I am deeply concerned by a 

message sent by this Congress to the FAS. The recent elimination 

of the IDEA and Head Start assistance, coupled with threatened 

Pell Grant eligibility next year, could cripple the ability to cultivate 

education, and that indeed will slow the progress of the FAS. 

In conclusion, I am pleased with the overall progress of the new 

Compact of Free Association. With a few minor tweaks, we can 

produce a product that all three governments and the people that 

they serve can be proud of. 

And I want to urge my colleagues to heed the September deadline of the existing Compact. A lapse into an annual appropriations 

would not be beneficial for either party. 

9

And I also urge my colleagues to gain institutional memory and 

study the importance of our relationship with the FAS. This unique 

relationship is entrusted to this Committee, the International Relations Committee, and it is an opportunity to make a significant foreign policy decision that will affect America and the FAS for years 

to come. 

I want to thank the negotiators on both side. I want to thank the 

supporters of the FAS. I want to thank particularly those from Micronesia for coming to my office, coming to our offices, and keeping 

us abreast. And I want to thank your dedication and commitment. 

I think together we can march into a very positive and beneficial 

future for the FAS and the United States of America. 

Mr. Chairman, I yield the balance of my time, and thank you 

very much. 

Mr. LEACH. Well, thank you, Ambassador Watson. 

I would like to proceed, but I want to first ask if Chairman Burton has any comments he wants to make. 

Mr. BURTON. No, Mr. Chairman. I am here to listen and learn, 

which is rare for me, right? [Laughter.] 

Mr. LEACH. But I understand Mr. Smith has an important comment he wants to make. Mr. Smith. 

Mr. SMITH OF MICHIGAN. Mr. Chairman, thank you very much, 

and this is a concern from one of my constituents of not receiving 

money that he feels is owed to him by the Island of Chuuk, the 

State of Chuuk. And I appreciate and I will try to be brief. 

But the issue as related to me by my constituent, Mr. Danny 

Barrett, is that he obtained a judgment from the supreme court of 

the Federated States of Micronesia in the amount of $16,000 for 

contract benefits owed him by the State of Chuuk. 

Do I pronounce that correctly? Chuuk. I am sorry. 

This judgment was issued in 1993, but the state has still refused 

to pay. I have a letter here that I hope somehow we can address, 

from the Acting Officer of Insular Affairs of the Department of Interior to the Governor of the State of Chuuk, urging payment is directed by the supreme court finding. The issue has not been resolved. Sixteen thousand dollars to some is not a lot of money, but 

for my constituent it is a lot of money, and it seems like if these 

payments are not being made after you have a FSM court order, 

then it discourages American investment. 

I note that it raises some fundamental questions about the prospects for economic investment in the future, and furthermore, the 

continued refusal of the State of Chuuk or any state to pay judgements reached in legitimate federal and state FSM courts raises serious questions about the rule of law. 

And I would note that even our appropriators in 2002 indicated 

this problem in their appropriation bill. It says,

‘‘The Committee is aware that for numerous years Chuuk 

State of the Federal States of Micronesia has been seriously 

delinquent in satisfying various judgment debts.’’

And so if it is a problem, somehow maybe we could deal with it. 

As my constituent suggests, maybe a Compact amendment needs 

to be made by the Congress that provides that any American citizen who submits to the Office of Insular Affairs of the Department 

10

of Interior an attested copy that the debt is owed can receive help. 

Maybe there can be some kind of provisions for withholding or assurance that some of these debts be paid, somehow to determine 

the legitimacy of the debt, and then deal with it. It seems to me 

that it has some advantages for long-range investments from 

American or other countries. 

And with that, Mr. Chairman, could the Committee consider including in the record some of these, and we will furnish them to 

the witnesses? Or if they have any comments now of the problem, 

maybe they could relate to it. 

Mr. LEACH. Well, if the gentleman would withhold, I would rather have the panel give their presentations and then the gentleman 

could ask questions. 

Mr. SMITH OF MICHIGAN. Okay, thank you. 

Mr. LEACH. Without objection, if he has a judgment that he 

thinks would be appropriate to put in the hearing record, it will be 

placed in it. 

Mr. SMITH OF MICHIGAN. The letter from my constituent. 

Mr. LEACH. Yes. 

Mr. SMITH OF MICHIGAN. Thank you, Mr. Chairman. 

Mr. LEACH. Without objection. 

At this point I would like to turn to Mr. Short, and let me also 

thank Mr. Short and assert that you have the full confidence of the 

Committee in your professional negotiations on this issue, and we 

are appreciative of your efforts. 

Mr. Short. 

Excuse me. If I could ask that you pull the microphone quite 

close.

STATEMENT OF ALBERT V. SHORT, DIRECTOR, OFFICE OF 

COMPACT NEGOTIATIONS, U.S. DEPARTMENT OF STATE 

Mr. SHORT. Mr. Chairman, Members of the Committee. 

Thank you for this opportunity to testify on the Compact of Free 

Association with the Federated States of Micronesia and the Republic of the Marshall Islands. I note that I appeared before this 

Subcommittee last year and updated you on the status of the negotiations.

The Compact Act, including the RMI and FSM signed Compacts 

is approved by the Administration and being transmitted to the 

Congress.

The original Compact: The Compact of Free Association with the 

FSM and RMI established a political relationship that is open 

ended. The original 15-year Compact funding authorization for the 

FSM and the RMI, however, ended in fiscal 2001 with a 2-year extension, as you have noted. 

The original Compact successfully met its main goal of providing 

for a stable transition from United National trusteeship to sovereign self-government for the FSM and the Marshall Islands, at 

the same time the Compact protected U.S. security, maritime and 

commercial interest in the Pacific by our assumption of defense responsibilities for this vast sea and air space, including Palau, and 

by ensuring access to important Department of Defense sites at 

Kwajalein Atoll and the Marshall Islands. 

11

The original Compact was successful in transforming the relationship between these islands and the United States to one of our 

closest bilateral relationships; and for example, we now number the 

FSM and RMI among our staunchest friends in the United Nations.

The current Compact assistance: The U.S. currently provides assistance in three ways—financial assistance under the Compact, 

that is title II of the Compact; Federal programs and services 

under the Compact; and also Federal programs that are apart from 

the Compact. 

The U.S. provides about $160 million annually in financial assistance to the FSM and the RMI, 80 percent from the Compact, 

and 20 percent from other Federal agencies, such as the Department of Education, Health and Human Services, Labor, Agriculture, and others. 

The past 17 years have witnessed reoccurring problems stemming from the lack of accountability and sometimes ineffective use 

of U.S. economic assistance. Therefore, our principal task in the negotiations has been to improve the effectiveness of accountability of 

this U.S. assistance. 

The reasons to continue Compact assistance: The United States 

has strong interests in these countries that justify continued assistance, including: 

First of all, advancing economic self-reliance. In this regard, the 

United States will continue its commitment to the economic strategies that the RMI and FSM have developed, including consultations with the Asian Development Bank, the International Monetary Fund, and especially our partners in the ADB Consultive 

Group, including Japan and Australia. 

Second, improving health, education and social conditions of the 

people in the RMI and the FS. 

Thirdly, sustaining the political stability and close ties which we 

have developed with these two emerging democracies. 

Last objective, assuring that our strategic interests continue to 

be secured, including access to our important defense facilities at 

Kwajalein Atoll. 

The economic assistance: The Administration recognizes that too 

sharp a reduction in U.S. assistance at this stage of economic development in the RMI and the FSM could result in economic instability and other disruptions, and could encourage an increase in the 

level of migration under the Compact to the United States. 

We continue to believe that providing substantial financial and 

other assistance will help to assure economic stability while the 

RMI and FSM continue to develop. 

The Compact, as amended, will continue economic assistance 

from fiscal year 2004 through fiscal year 2023; that is, 20 years of 

grant funding. 

Furthermore, the economic package includes annual contributions to a trust fund that will provide an ongoing source of revenue 

to be used for the same purposes as the previous grants after they 

expire in 2023. 

Federal service and program assistance also continues unless 

otherwise provided by the Congress. 

12

Compact funding will ensure economic and social stability in a 

smooth transition to annual payments from the trust fund in 2024. 

These amounts are partially adjusted for inflation at two-thirds 

of the implicit price deflator, which is the same factor that was applied in the original Compact. 

The U.S. contributions to the trust fund are conditioned on the 

FSM and RMI each contributing at least $30 million to the trust 

fund. Misuse of Compact resources can lead to withholding of 

funds, and the FSM and RMI have agreed to cooperate with the 

United States on criminal investigations regarding misuse of funds, 

if necessary. 

The fiscal year 2004 Administration budget includes the funding, 

$165.4 million, for the first year of the amended Compact, but we 

also need the authorization for these funds, which is the Compact 

Act, and that has to be enacted by 1 October 2003, as was indicated.

The Administration is putting in place an effective accountability 

mechanism with respect to future U.S. economic assistance, the details of which will be addressed by Mr. Cohen from the Department 

of the Interior. 

As part of the amended Compact, the United States and the 

Marshall Islands agreed to a long-term extension of the Military 

Use and Operating Rights Agreement, or MUORA, for the Ronald 

Reagan Ballistic Missile Defense Test Site at Kwajalein Atoll. 

And let me note that we have reached agreement with the RMI 

on the extension that will provide for use to 2066, with an option 

for an additional 20 years, but with provisions whereby the U.S. 

could opt for early termination. 

Mr. Lawless, from the Department of Defense, has submitted 

written testimony on our use of Kwajalein and the security and defense aspects of the amended compact. 

Immigration: Based on our experience since the Compact entered 

into effect, as well as in the wake of the September 11th attacks, 

we have reexamined the immigration provisions of the existing 

Compact. These provisions provide that citizens of the RMI and 

FSM may enter into the United States, lawfully engage in occupations, and establish residency as non-immigrants in the United 

States.

The amended Compact will, first, require FAS citizens to have 

machine-readable passports; second, institute child adoption visa 

procedures; third, implement visa entry procedures for naturalized 

FAS citizens. It will preclude passport sales and other similar programs. It will make explicit the inherent U.S. authority to regulate 

terms and conditions for FSM and RMI citizens’ admission and 

stay in the United States. Lastly, it removes the annual requirement to obtain an employment authorization document, or EAD, 

and substitute some multi-year authorization. 

Impact: The subject of impact, that is, the impact of migration 

of Micronesian movement on Guam, the Northern Mariana Islands 

and Hawaii, will be addressed by Mr. Cohen. 

Palau: The Compact of Free Association between the United 

States and Palau is not up for review at this time. We believe, however, that it makes sense for us to bring the immigration and trade 

13

provisions of the Palau Compact into line with those agreed with 

the RMI and the FSM. 

In addition, Palau has sought to modify some communications 

provisions to allow it to participate in the National Exchange Carriers Association. 

These negotiations are underway by another office within the Department of State on these issues. If we reach agreement, the Administration will submit these amendments to the Congress, but 

action is not linked to consideration of the FSM and RMI Compacts.

In conclusion, Mr. Chairman, thank you for this opportunity to 

present the Administration’s views on the Compacts we have 

signed with the FSM and the Marshalls, and let me assure you 

that we welcome any and every opportunity to keep the Committee 

informed as your deliberations proceed on the Compacts. 

Thank you. 

[The prepared statement of Mr. Short follows:]

PREPARED STATEMENT OF ALBERT V. SHORT, DIRECTOR, OFFICE OF COMPACT

NEGOTIATIONS, U.S. DEPARTMENT OF STATE

Mr. Chairmen and Members of the Committees, 

Thank you for this opportunity to testify on the status of the amended Compacts 

of Free Association with the Federated States of Micronesia (FSM) and with the Republic of the Marshall Islands (RMI). 

THE ORIGINAL COMPACT

The original 15 years of Compact funding authorization for the FSM and RMI 

ended in Fiscal Year 2001. The Compact provisions provided an extension for up to 

two years through September 30, 2003, as long as Compact negotiations progressed. 

The original Compact successfully met its main goal of providing for a stable transition from United Nations Trusteeship to sovereign self-government for the FSM and 

RMI. At the same time, the Compact protected U.S. security, maritime, and commercial interests in the Pacific by assuming defense responsibilities for the vast sea 

and air space of the Freely Associated States (FAS) including Palau—and by ensuring access to important defense sites operated by the Department of Defense on 

Kwajalein Atoll in the Marshall Islands. 

The original Compact was also successful in transforming the relationship between these islands and the United States into one of our closest bilateral relationships. We now number the FSM and RMI among our staunchest friends in the 

United Nations. These achievements are solid and lasting, and the American and 

FAS peoples can be justly proud of them. 

CURRENT COMPACT ASSISTANCE

The U.S. currently provides assistance to the FSM and RMI in three ways: 

through financial assistance under the Compact; through programs and services 

that are included in the Compact, such as the services and related programs of the 

U.S. Weather Service, the Postal Service, and the Federal Aviation Administration; 

and through programs apart from the Compact that are funded, as Congress sees 

fit, by other federal agencies. The U.S. currently provides about $160 million annually in financial assistance to the FSM and RMI, 80 percent from the Compact and 

20 percent from other federal agencies outside of the Compact, such as the Departments of Education, Health and Human Services, Labor, and Agriculture. 

The past seventeen years have witnessed recurring problems stemming from the 

lack of accountability and the sometimes ineffective use of Compact Funds. Therefore, a principal task of the recently signed agreements to amend the Compact is 

to improve the effectiveness and accountability of these funds. Moreover, we have 

agreed to put an increasing percentage of the annual U.S. Compact assistance into 

a trust fund that will provide an ongoing source of revenue to the two countries 

when annual payments by the United States end in 2023. 

14

REASONS TO CONTINUE COMPACT ASSISTANCE

The United States has strong interests in these countries that justify continued 

economic assistance under the Compact through FY 2023 and the contributions to 

the trust fund, provided this assistance is structured and managed as proposed. 

These interests include:

• Advancing economic self-reliance. (In this regard, the United States will continue its commitment to the economic strategies that the RMI and FSM have 

developed with the support of the United States, the Asian Development 

Bank (ADB), the International Monetary Fund, and our partners in the ADB 

Consultative Group, including Japan and Australia);

• Improving the health, education, and social conditions of the people of the 

RMI and FSM;

• Sustaining the political stability and close ties which we have developed with 

these two emerging democracies;

• Ensuring that our strategic interests continue to be secured, including access 

to our important defense sites on the Kwajalein Atoll;

• Putting in place and contributing to a trust fund that will provide an ongoing 

source of revenue when annual payments by the United States end in 2023;

• Strengthening immigration provisions in the wake of the September 11th attacks and addressing various problems that have arisen since the Compact 

was first approved by the U.S. Congress; and

• Mitigating the impact of immigration under the Compact on Hawaii, Guam, 

the Commonwealth of the Northern Mariana Islands, and American Samoa. 

ECONOMIC ASSISTANCE

The Administration recognizes that too sharp a reduction in U.S. assistance at 

this stage of economic development of the RMI and the FSM could result in economic instability and other disruptions, and could encourage an increase in the level 

of immigration under the Compact to the United States by citizens of those countries. We continue to believe that providing substantial financial and other assistance under the Compact will help to ensure economic stability while the RMI and 

FSM continue to implement economic development and reform strategies. 

The Compact, as amended, provides for continued economic assistance from Fiscal 

Year 2004 through Fiscal Year 2023. Furthermore, the economic package provides 

for annual contributions to a trust fund that will provide an ongoing source of revenue, to be used for the same purposes as the previous grant assistance when the 

annual grant assistance ends in Fiscal Year 2023. Federal services and program assistance also continues, if provided by Congress. 

COMPACT FUNDING

Compact funding will ensure economic and social stability and a smooth transition 

to Fiscal Year 2024 when annual payments from the U.S. will have terminated and 

the trust fund becomes a source of revenue.

• The FSM will receive $76.7 million in sectoral grants and $16 million for its 

trust fund annually beginning in Fiscal Year 2004.

• Beginning in Fiscal Year 2007, the FSM sector grants decrease by $800,000 

per year through Fiscal Year 2023, with this decrease added to the trust fund.

• The RMI will receive $30.5 million in sectoral grants, $5.2 million for Kwajalein impact, and $7 million for its trust fund annually beginning in Fiscal 

Year 2004.

• Beginning in Fiscal Year 2005, the RMI sectoral grants decrease by $500,000 

per year through Fiscal Year 2023, with this decrement added to the trust 

fund.

• These amounts are partially adjusted for inflation: two-thirds of the implicit 

price deflator will be applied as in the original Compact period.

• Under the Compact, as amended, the U.S. contributions to the trust funds are 

conditioned on the FSM contributing at least $30 million to the FSM trust 

fund prior to September 30, 2004 and the RMI contributing at least $25 million to the RMI trust fund on the effective date of the Trust Fund Agreement 

or October 1, 2003, whichever is later, and $2.5 million prior to October 1, 

2004 and another $2.5 million prior to October 1, 2005.

15

• Under the Compact, grant assistance will be used for six sectors, with priorities in the education and health sectors and tied to specific outcomes and 

purposes and monitored by the Department of the Interior.

• Misuse of Compact funds can lead to withholding of funds until the problem 

is resolved. The FSM and the RMI have agreed to cooperate with the United 

States on criminal investigations regarding misuse of funds, if necessary.

The Administration is putting in place an effective accountability mechanism with 

respect to future U.S. economic assistance to the FSM and the RMI under the Compact. Economic assistance will no longer be made available through transfers that 

co-mingle U.S. funds with local funds, thereby rendering it difficult to track and 

monitor their use. Instead, future funds under the Compact will be provided 

through targeted, sectoral assistance, each with a clearly defined scope and objectives.

In the amended Compacts, the FSM, RMI, and U.S. have agreed that any future 

grant assistance will be used in six sectors:

• health,

• education,

• infrastructure,

• private sector development,

• public sector capacity building, and

• the environment.

Built into each sectoral grant will be regular planning, monitoring, and reporting 

requirements. The amended Compacts also provide the necessary authority and resources to ensure effective oversight and reasonable progress toward the agreed objectives.

TRUST FUND

A major element of the new Compact provisions is the termination of annual mandatory payments to the FSM and the RMI at the end of Fiscal Year 2023—and the 

establishment of a trust fund to provide an ongoing source of revenue starting in 

Fiscal Year 2024. In its earlier proposals to the U.S., both the FSM and RMI anticipated the U.S. interest in the termination of mandatory annual financial assistance 

by proposing that the U.S. capitalize a trust fund over the next term of Compact 

assistance. Under the amended Compact, the Administration has agreed that annual U.S. financial assistance will terminate at the end of Fiscal Year 2024, and 

thereafter the trust fund will provide an ongoing source of revenue. Congress has 

previously authorized and funded the use of similar trust funds, including one established under the Compact with the Republic of Palau, and several established 

in the Marshall Islands as compensation for the U.S. nuclear weapons testing program.

FEDERAL SERVICES AND PROGRAM ASSISTANCE

With a few notable exceptions, Federal program coordination and oversight of 

Compact Funds has been ineffective. We are committed to putting in place a more 

effective system of coordinating and monitoring that assistance during the amended 

Compact period. 

KWAJALEIN MUORA EXTENSION

As part of the amended Compact, the United States and the Republic of the Marshall Islands have agreed to a long-term extension of the Military Use and Operating Rights Agreement (MUORA) for the Ronald Reagan Ballistic Missile Defense 

Test Site on Kwajalein Atoll. The Reagan Test Site (RTS) serves a key role in research, development, test and evaluation for the Administration’s high-priority missile defense and space programs. 

Although the current Military Use and Operating Rights Agreement covering U.S. 

use of these defense sites runs through 2016, in November 2001, RMI President 

Note reaffirmed the RMI’s willingness to consider a long-term extension of U.S. use 

of Kwajalein Atoll for our defense needs. Subsequently, the RMI Government proposed that the ongoing negotiations to amend the Compact of Free Association provided a convenient forum to consider amendments extending the Military Use and 

Operating Rights Agreement. Following consultations with the Department of Defense, the Administration decided to pursue such an extension, if agreement could 

be concluded on acceptable terms, and negotiations on this issue would not delay 

our efforts to obtain agreement on amendments to the Compact. 

16

Sections 211 and 212 of Title Two of the Compact, as amended, and the MUORA, 

as amended, provide for the following:

• The parties agree to extend the MUORA for a period of fifty years from 2016 

(the current expiration date) to 2066, with a U.S. option to extend it for an 

additional twenty years to Fiscal Year 2086.

• To achieve the flexibility necessary to permit the long-term extension of the 

agreement, the two sides agreed to a schedule of early termination payments 

if the United States chooses to leave Kwajalein before the end of the agreement. This outcome could be exercised anytime after 2023, on advance notice 

of at least seven years.

• As Compensation:

— These agreements establish a new series of Kwajalein payments beginning in Fiscal Year 2004 (October 1, 2003) at a level of $15 million per 

year (increased from the current $11.3 million) with a further increase 

to a new base of $18 million in 2014. The United States Government is 

obligated in any case to make payments through Fiscal Year 2023, and 

thereafter, depending on whether it chooses to continue its use of Kwajalein Atoll. The RMI has assured us that it will endeavor to ensure that 

payments to landowners are distributed more equitably than they have 

been in the past in a manner consistent with Marshallese custom and 

tradition.

— The U.S. will continue paying the $1.9 million per year in Kwajalein impact money established in the current agreement. However, beginning 

in Fiscal Year 2004, this payment, which has not previously been adjusted for inflation, will be subject to the provisions of the new Compact 

Fiscal Procedures Agreement, will be indexed for inflation based on the 

formula established in the amended Compact, and emphasis will be on 

addressing the special needs of the Kwajalein landowners most affected 

by the United States presence on Kwajalein.

• Pursuant to the Compact, U.S. Army Kwajalein Atoll (USAKA) has developed, 

in cooperation with the RMI Environmental Protection Authority, a strong set 

of environmental standards and a formal process to review these standards 

annually and report to both governments. To promote a greater RMI capability for independent analysis of the Survey’s findings and conclusions, the 

U.S. will provide an annual grant of $200,000 to support increased participation of the GRMI EPA in the Survey.

For some years now, overcrowding on the Kwajalein island of Ebeye, where most 

of the Marshallese work force supporting the defense sites lives, has created an 

unmet series of special infrastructure needs for the Marshallese Communities on 

Ebeye and some other islands of the Kwajalein Atoll. This agreement will address 

these needs in the following way:

• First, the U.S. and the RMI have agreed that $3.1 million per year of the 

RMI grant funding will go towards meeting the special infrastructure and development needs of the Marshallese communities on Kwajalein Atoll. In 2014, 

this funding will increase to $5.1 million per year. These funds are indexed 

according to the Compact Title Two formula.

• Second, considering the $1.9 million impact funding mentioned above, which 

is specified by the Compact to offset the impact of U.S. defense activities on 

Kwajalein Atoll, together with the Ebeye special needs funding, $5 million per 

year (increasing to $7 million in 2014), all of which will be focused on improving the quality of life of the Marshallese communities on Kwajalein, starting 

October 1, 2004.

In sum, the Administration feels that extending the MUORA, in concert with the 

provisions of the amended Compact, will promote the economic stability and opportunity of the RMI for the indefinite future. 

IMMIGRATION

Based on our mixed experience since the Compact took effect, as well as in the 

wake of the September 11th attack, we have reexamined the immigration provisions 

of the existing Compact. Section 141(a) provides that citizens of the RMI and FSM 

‘‘may enter into, lawfully engage in occupations, and establish residence as a nonimmigrant in the United States’’ without regard to certain grounds of inadmissibility under the Immigration and Nationality Act (INA). Our examination and the 

17

subsequent negotiations concluded that the immigration provisions should be 

amended to:

• Require FAS citizens seeking admission under the Compact to use passports.

• Clarify that immigrant visa procedures, rather than Compact nonimmigrant 

admission, are necessary and appropriate for child adoption cases.

• Limit Compact entry privileges of naturalized FAS citizens to a greater degree.

• Preclude use of passport sales and similar programs from serving as a means 

for persons from countries other than the FSM and the RMI to obtain visafree admission privileges under the Compact.

• Make more explicit the authority of the Government of the United States to 

regulate the terms and conditions of FSM or RMI citizens’ admission and stay 

in the United States, including its territories and possessions.

• Make explicit that the INA applies in full to persons seeking admission to, 

or the right to remain in, the United States pursuant to the Compact.

• Provide Compact admission privileges to the immediate relatives of FAS citizens in U.S. military service, whether or not the relatives are FAS citizens.

• Streamline the documentation that FAS citizens may use as evidence of work 

authorization in the United States.

Under the Compact, as amended, the United States will now require passports 

for FSM and RMI citizens seeking admission as nonimmigrants to the United 

States. Further, naturalized citizens of the FSM and RMI will, with certain limited 

exceptions, now be ineligible for visa-free admission to the United States. In addition, the Compact, as amended, provides other safeguards to prevent the admission 

under the Compact of persons from other countries who might seek to exploit the 

visa-free immigration privileges intended for the citizen population of the FAS. It 

addresses explicitly the problem of passport sales and other naturalization schemes 

designed to provide visa-free admission privileges to persons from countries other 

than the FSM and the RMI under the Compact. The Compact, as amended, also provides express safeguards for FSM and RMI children who are coming to the United 

States permanently pursuant to an adoption, or for the purpose of adoption, by requiring that those children possess an immigrant visa. This clarifies the existing 

U.S. interpretation of the Compact, and brings the provisions relating to the Freely 

Associated States into harmony with that pertaining to children from other countries concerning child adoptions and protections available to adopted children. 

IMPACT

Section 104(e)(2) of the existing and amended Compact statutes requires the 

President to report annually to Congress on the impact of the Compact. A recent 

GAO study documents the substantial impact of FAS migration to the State of Hawaii, Guam, and the Commonwealth of the Northern Mariana Islands (CNMI). The 

amended Compact and other proposed amendments to the Compact Act address the 

migratory impact issue in three ways:

• First, we will provide $15 million per year of direct compensation to Hawaii, 

Guam, American Samoa, and the CNMI for the negative impacts of migration.

• Second, the amended Compacts strengthen immigration provisions to improve 

our ability to regulate RMI and FSM migrants who are eligible for admission.

• Third, the amended Compacts focus on areas such as improving the health 

and education of, and private sector jobs for, potential migrants, thereby reducing the impact of migration under the Compact.

The annual impact funding of $15 million will be:

• a mandatory appropriation for twenty years.

• allocated based on a pro rata formula reflecting a periodic census of Micronesians living in Hawaii, Guam, American Samoa, and the CNMI. 

PALAU

The Compact of Free Association between the United States and Palau is not up 

for review at this time. We believe, however, that it makes sense for us to bring 

the immigration and trade provisions of the Palau Compact into line with those 

agreed with the RMI and FSM. In addition, Palau has sought a change to the communications provision to make its telecommunications carrier eligible to participate 

18

in the National Exchange Carriers Association and the Universal Services Support 

Fund. Negotiations are underway on these issues. If we reach agreement, the Administration will submit these amendments to the Congress. 

CONCLUSION

Thank you for this opportunity to present the Administration’s views on the Compact Act, including the Compacts we signed with the FSM and RMI. Let me assure 

you that we welcome any and every opportunity to keep the Committee informed 

as your deliberations proceed on the Compact Act.

Mr. LEACH. Well, thank you, Mr. Short, and let me just briefly 

say, without objection, the statement of the DoD witness will be 

placed in the record, that is a written statement. 

Secondly, let me just stress how much we support your efforts 

and appreciate your careful briefings to the Subcommittee on an informal basis. 

With that, let me turn to Mr. Cohen, and welcome you, sir. 

STATEMENT OF DAVID B. COHEN, DEPUTY ASSISTANT SECRETARY OF THE INTERIOR FOR INSULAR AFFAIRS, U.S. DEPARTMENT OF THE INTERIOR 

Mr. COHEN. Thank you. 

Mr. LEACH. And also without objection, all three statements, if 

they are fuller than otherwise presented, will be placed in the 

record.

Mr. Cohen. 

Mr. COHEN. Thank you. Mr. Chairman and Members of the Committee, it is with pleasure that I appear before you today to discuss 

the Administration’s proposed legislation to approve amendments 

to the Compact of Free Association with the Republic of the Marshall Islands and the Federated States of Micronesia. 

I will focus on the fiscal and economic provisions of the Compacts 

and the subsidiary agreements. In particular, I will discuss how 

the proposed amendments address the concerns that the GAO and 

Interior, among others, have raised regarding accountability for 

Compact funds. 

Over the 17-year life of the Compact, the U.S. will have paid a 

total of $1.04 billion in direct financial assistance to the RMI and 

$1.54 billion to the FSM. There have been few restrictions on this 

aid.

The GAO has issued a number of reports that have raised concerns about the effectiveness of Federal assistance that has been 

provided under the Compact. We at Interior have had similar concerns for quite some time. Our desire for better accountability has 

been frustrated by the fact that the current Compact provides for 

large, loosely defined grants with no express enforcement mechanisms to ensure the effective expenditure of funds. 

I am pleased that the U.S., the RMI and the FSM have sought 

to address the concerns raised by the GAO, Interior, our FAS partners, and others. We have designed a completely new system to ensure that Compact funds are used productively. 

First, we will target our funding. Compact funds will be available 

for the following six high priority sectors only: Health, education, 

public infrastructure, environmental protection, private sector development, and public sector capacity building. 

19

Second, the U.S. and its FAS partners will work together to ensure that the objectives of the Compact are being properly pursued. 

FAS Compact budget proposals will be approved by bilateral joint 

committees; a U.S.–RMI committee and a U.S.–FSM committee. 

Each committee will include three members from the U.S. and two 

from the applicable freely associated state. 

Third, we will require planning to ensure that Compact budgets 

further long-term goals and objectives. 

Fourth, we will give oversight personnel at Interior the tools to 

protect against waste, fraud and abuse. The sector grants will be 

subject to terms and conditions similar to those applicable to Federal grants provided to state and local governments in the U.S., including appropriate remedies for the misuse of funds or other 

breaches.

Fifth, we will apply performance standards and measures to each 

Compact grant. 

Sixth, we will provide for strong minimum standards for each 

FAS’s financial management systems, and we will help them to 

meet these standards with technical assistance provided by my office and with public sector capacity development grants. 

Seventh, we will provide for detailed reporting so the U.S. and 

its FAS partners can track progress and identify areas of concern. 

Finally, we are assembling a Compact oversight team based in 

the Pacific. We are hiring eight additional full-time employees who 

will focus exclusively on monitoring and oversight of Compact 

grants and other Federal program assistance to the Freely Associated States. 

I would also like to address the impact that migration from the 

RMI, FSM and Palau has had on Hawaii, Guam and our other Pacific jurisdiction as was raised by Congresswoman Bordallo. 

Migrants have made important contributions to Hawaii, Guam 

and the territories, but have placed additional burdens on local 

government services. The Administration is requesting $15 million 

in annual mandatory funding as a contribution to these U.S. jurisdictions to mitigate the impact of migration. 

The first line of defense against this impact is the financial assistance that we will provide to the FAS under this Compact. The 

Compact is designed to address the problems that, according to a 

GAO report, drive people to migrate: Inadequate health care, education, and economic opportunity. 

We do not pretend that the amended Compact will bring migration to a halt, but we sincerely hope that the people of the FAS, 

including those who choose to migrate, will, as a result of our new 

targeted assistance program, be healthier and better educated, and 

hence more likely to be net contributors to whatever community in 

which they choose to live. 

I offer a few observations. 

My first point is that when we talk about accountability, we are 

not talking about making sovereign states accountable to the U.S. 

Accountability refers to the collective accountability that all three 

governments share both to the people of the islands and to the 

American taxpayer. All three governments have a collective responsibility to ensure that the American taxpayers’ money will not be 

wasted, and just as importantly, a collective responsibility to enVerDate Mar 21 2002 10:43 Nov 09, 2003 Jkt 088500 PO 00000 Frm 00023 Fmt 6633 Sfmt 6601 F:\WORK\AP\061803\87792 HINTREL1 PsN: SHIRL
20

sure that we deliver on our promise to help the people of the islands to improve their quality of life. 

All three governments want to ensure that the people of the RMI 

and the FSM receive the full benefit of Compact aid. We can only 

achieve this with a strong accountability program. The U.S. cannot 

do it alone. We could not place sufficient personnel on the ground 

to properly do this job by ourselves without interfering with the 

sovereign government operations of our FAS partners, conjuring 

unfortunate images of a return to the old trust territory days. 

The FAS cannot do it alone. They are still developing the capacity to fully protect against the possibility of waste, fraud and abuse, 

and to properly measure the effectiveness of Compact-funded activities.

We all recognize that we need to work together to achieve the objectives that we all share. 

Some might interpret our new accountability program as an admission that the original Compact has been a failure. Nothing 

could be further from the truth. The Compact has been a tremendous success. America’s former trust territory wards have emerged 

as free, vibrant, sovereign democracies. The U.S. has achieved a 

strategic objective of denying other powers control over vast areas 

of the Pacific. The Freely Associated States have benefitted from 

the U.S. defense umbrella, and their people enjoy the right to live, 

work and study here. 

These nations have become America’s most loyal allies in the 

world. Cynics say that this loyalty has been purchased with Compact aid, but no amount of money could buy the type of loyalty that 

lead so many of these islands finest sons and daughter to serve 

proudly and honorably in the U.S. military, risking their lives to 

protect the freedom of all Americans. 

Mr. Chairman, as we sit here today U.S. Army Specialist Elerio 

Bermanis II lies in critical condition in Walter Reed Army Medical 

Center. Specialist Bermanis lost both legs and an arm, and again 

is in critical condition, serving in Baghdad. He hales from Kono 

Pei. We all pray for his recovery, and we are so grateful for his 

service to our country as we are grateful for the service to our 

country for so many of the soldiers who hale from the RMI and the 

FSM.

Mr. Chairman, there is clearly a heartfelt bond between Americans and the people of these islands, and the Compact has only 

made it stronger. We Americans value this bond. 

As for criticism of the original Compact, it is important to remember that that document invented a comprehensive new kind of 

international relationship that was completely untested at the 

time. It should surprise no one and shame no one that with the 

wisdom of 17 years of experience the parties can think of ways to 

improve the Compact. 

The financial assistance and accountability provisions of the 

original Compact provide some opportunities for improvement. The 

U.S. and the Freely Associated States are committed to embracing 

those opportunities, working together as partners to ensure that 

the promise of these Compacts is fully realized for all the people 

of the islands. 

Thank you, Mr. Chairman. 

21

[The prepared statement of Mr. Cohen follows:]

PREPARED STATEMENT OF DAVID B. COHEN, DEPUTY ASSISTANT SECRETARY OF THE

INTERIOR FOR INSULAR AFFAIRS, U.S. DEPARTMENT OF THE INTERIOR

Mr. Chairman and members of the House Committee on International Relations, 

I am David B. Cohen, Deputy Assistant Secretary of the Interior for Insular Affairs. 

It is with pleasure that I make my first appearance before you today to discuss the 

Administration’s proposal for legislation that would approve amendments to the 

Compact of Free Association with the Republic of the Marshall Islands (RMI) and 

the Federated States of Micronesia (FSM), which I will collectively refer to as the 

freely associated states or FAS. These amendments will, among other things, split 

the current Compact, which is a single, tri-lateral agreement among the United 

States, the RMI and the FSM, into two bi-lateral Compacts between the United 

States and the RMI and between the United States and the FSM, respectively. 

I will focus my comments on the fiscal and economic provisions of the Compacts 

and the Fiscal Procedures Agreements, which are subsidiary agreements to the respective Compacts. In particular, I will discuss how proposed amendments to these 

provisions are designed to address the very legitimate concerns that the General Accounting Office (GAO), the Department of the Interior and others have raised with 

respect to the lack of accountability for Federal funds provided under the current 

Compact.

BACKGROUND

Over the 17-year life of the Compact, it is expected that the United States will ultimately have paid a total of $1.04 billion in direct financial assistance to the RMI 

and $1.54 billion to the FSM. There have been few restrictions on this financial assistance.

Over the last several years, the GAO has issued a number of reports that have 

raised concerns about the effectiveness of Federal assistance that has been provided 

under the Compact. We at the Department of the Interior, particularly in the Office 

of Insular Affairs, have had similar concerns for quite some time and have been 

greatly frustrated with the lack of tools properly to administer or track Federal assistance in a manner that could reasonably ensure that such assistance is having 

its intended effect. Most importantly, we have been hampered by the fact that the 

current Compact provides for large, loosely defined grants with no express enforcement mechanisms to ensure the efficient and effective expenditure of funds. 

I am pleased that, in negotiating the provisions of the amended Compacts, the 

United States and its negotiating partners, the RMI and FSM, have sought to address the concerns raised by the GAO, the Department of the Interior and others. 

ACCOUNTABILITY PROVISIONS

We have designed a completely new system to ensure that Compact funds are 

used productively. First, we will target our funding. Compact funds will be available 

for the following six high-priority sectors only:

• Health

• Education

• Public Infrastructure

• Environmental Protection

• Private Sector Development

• Public Sector Capacity Building

Special emphasis will be given to health and education. The respective Compacts 

and the related Fiscal Procedures Agreements describe the types of activities that 

are eligible for funding under each of these sectors. This will enable us to ensure 

that Compact funds are used exclusively for what the U.S. and our FAS partners 

have jointly identified as high-priority activities. 

Second, the U.S. and its FAS partners will work together to control Compact 

budgets, including the allocation of funds among the six sectors, to ensure that the 

objectives of the Compact are being properly pursued. The process will work as follows: Each year, the RMI and FSM will propose their respective Compact budgets. 

Those proposals must be approved by bilateral joint committees—a U.S.-RMI joint 

committee for the RMI Compact and a U.S.-FSM joint committee for the FSM Compact. Each joint committee will include three members from the U.S. and two from 

the applicable freely associated state. The joint committees will ensure that the 

Compact budgets conform to the letter and spirit of the respective Compacts. 

22

Third, we will require planning to ensure that Compact budgets further mediumand long-term goals and objectives. Each FAS will be required to prepare and periodically update various plans, which will be subject to the approval of the applicable 

joint committee. The Compact budgets will be expected to be consistent with these 

plans.

Fourth, we will give oversight personnel at the Department of the Interior the 

tools to protect against waste, fraud and abuse. The sector grants will be subject 

to terms and conditions similar to those applicable to Federal grants provided to 

state and local governments in the United States. The provisions designed to protect 

Compact funds include:

• The right of the U.S. to unilaterally impose certain special conditions, including additional reports, monitoring and prior approvals, in the event that a 

grantee has a history of unsatisfactory performance or is not financially stable.

• The right of the U.S. to withhold payments or suspend or terminate grants 

under certain conditions.

• The requirement that the FAS be subject to annual audits, and the right of 

the U.S. to conduct specific audits as it deems necessary.

• The right of the U.S. to have full access to all relevant FAS records.

• The requirement that the FAS follow procurement provisions designed to ensure competition, transparency and the avoidance of conflicts.

• The obligation of the FAS to fully cooperate with any U.S. investigation into 

the misuse of Compact funds.

We do not intend to make these tools the focus of our accountability program. We 

understand that the key to a successful accountability program is a continued 

strong relationship with our FAS partners, so that we can work together to ensure 

that the Compact funds benefit the people that they are intended to benefit. We also 

understand, however, that it is difficult to predict what will happen over a 20-year 

period, and it would be imprudent for us to not have the tools necessary to protect 

the American taxpayers’ investment to improve life in the FAS. 

The provisions described above will help us to ensure that the Compact funds 

reach their intended destination. But it will be of little good if the Compact funds 

reach their intended destination but do not have the intended effect. That is why, 

as the fifth prong of our new accountability program, we will apply performance 

standards and measures to each Compact grant. The joint committees will be responsible for applying appropriate performance standards and measures and evaluating performance on the basis thereof. 

Sixth, we will provide for strong minimum standards for each FAS’s financial 

management systems, and we will help them to meet these standards with technical 

assistance provided by my office and with the public sector capacity development 

grant.

Seventh, we will provide for detailed reporting, so that the U.S. and its FAS partners can track progress and identify any areas of concern. 

Finally, the Department of the Interior is in the process of assembling a Compact 

oversight team based in the Pacific. We are hiring eight additional full-time employees who will focus exclusively on monitoring and oversight of Compact financial assistance and coordination with other Federal agencies providing program assistance 

to the FAS. 

Additionally, Mr. Chairman, I would like to address the very important question 

of the impact that migration from the RMI, FSM and Palau, as authorized by the 

current Compacts, has had on Hawaii, Guam, the Northern Mariana Islands and 

American Samoa. Migrants have made important contributions to Hawaii and the 

territories, but have placed additional burdens on the local governments because of 

their utilization of services. The GAO reported significant outlays by these United 

States jurisdictions in aid of migrants and their families. With this history in mind, 

the legislation before you today includes $15 million in annual mandatory funding 

as a contribution to these United States jurisdictions to mitigate the impact of migration. While this $15 million will be applied directly to address the impact of migration 

on United States jurisdictions, the financial assistance that we will provide to the 

FAS under the amended Compact is really the first line of defense against this impact. The GAO found that migration from the FAS is motivated mainly by the lack 

of proper education, health care and economic opportunity. The amended Compact 

is designed to address the problems that drive people to migrate: The targeted funding gives priority to health and education and also supports activities that are designed to promote economic development. We do not pretend that the amended ComVerDate Mar 21 2002 10:43 Nov 09, 2003 Jkt 088500 PO 00000 Frm 00026 Fmt 6633 Sfmt 6621 F:\WORK\AP\061803\87792 HINTREL1 PsN: SHIRL
23

pact will bring migration to a halt, but we sincerely hope that the people of the 

FAS, including those who choose to migrate, will, as a result of our new targeted 

assistance program, be healthier and better educated and hence more likely to be 

net contributors to whatever community in which they choose to live. Thus, the legislation seeks to improve the conditions that lead to migration from the FAS and 

ameliorate the effects of migration to the United States when it occurs. 

OBSERVATIONS

Now that I have described our new program, Mr. Chairman, I would appreciate 

the opportunity to offer a few observations. 

My first point is that when we talk about accountability, we are not talking about 

making the sovereign freely associated states accountable to the U.S. ‘‘Accountability’’ refers to the collective accountability that all three governments share both 

to the people of the islands and to the American taxpayer. All three governments 

have a collective responsibility to ensure that the American taxpayer’s money will 

not be wasted, and, just as importantly, a collective responsibility to ensure that we 

deliver on our promise to help the people of the islands to improve their quality of 

life.

Although there will always be some who are initially resistant to change, there 

is widespread support in all three governments for the new accountability provisions. In fact, some of the most enthusiastic supporters are government ‘‘line managers’’ in the RMI and the FSM—those with the day-to-day responsibility for delivering public services to the people. These managers have endured years of frustration, struggling to keep essential programs going while knowing that a more productive allocation of Compact funds could have made their jobs easier. 

A few have expressed concern that the new accountability provisions are harsh, 

and that the FAS are not equipped to comply with them. We disagree. The new provisions include standard remedies for waste, fraud and abuse. These remedies are 

the same ones to which state and local governments in the United States are subject 

when they receive grants from the Federal government. The RMI and FSM have 

had considerable experience with numerous United States Federal programs and 

these same remedies. I stress again, however, that the key to our accountability program is not the remedies that could conceivably be exercised in the worst case scenario, but the strong, cooperative relationship that we have with our partners in the 

islands.

In order to strengthen their ability to comply with the new requirements, the FAS 

may use Compact funds for appropriate training, software, equipment and guidance. 

For example, Compact funds could be used to purchase financial management systems, to provide training and hands-on guidance for local personnel or to supplement local personnel with outside experts. 

The bottom line, Mr. Chairman, is that all three governments want to ensure that 

the people of the RMI and FSM receive the full benefit of the Compact assistance 

program. We can only achieve this with a strong accountability program. The U.S. 

cannot do it alone: We could not place sufficient personnel on the ground to properly 

do this job all by ourselves without seriously interfering with the sovereign governmental operations of our FAS partners, conjuring unfortunate images of a return 

to the old Trust Territory days. The FAS cannot do it alone: They are still in the 

process of developing the capacity to fully protect against the possibility of waste, 

fraud and abuse, and to properly measure the effectiveness of Compact-funded activities. All parties recognize that we need to work together to achieve the objectives 

that we all share. 

BUILDING ON SUCCESS

Some might interpret our new accountability program as an admission that the 

original Compact has been a failure. Nothing could be further from the truth. The 

Compact has been a tremendous success. America’s former Trust Territory wards 

have emerged as free, vibrant, sovereign democracies. The United States has 

achieved its strategic objective of denying other powers control over vast areas of 

the Pacific. The freely associated states have benefited from the United States defense umbrella, and their people enjoy the right to live, work and study in the 

United States. Significantly, these nations have become America’s most loyal allies 

in the world. Cynics say that this loyalty has been purchased with Compact aid. No 

amount of money, however, could purchase the type of loyalty that leads so many 

of these islands’ finest sons and daughters to serve proudly and honorably in the 

United States military, risking their lives to protect the freedom of all Americans. 

There is clearly a heartfelt bond between Americans and the people of these islands, 

and the Compact has only made it stronger. We Americans value this bond. 

24

As for criticism of the original Compact, it is important to remember that that 

document invented a comprehensive new kind of international relationship that was 

completely untested at the time. It should surprise no one, and shame no one, that 

with the wisdom of 17 years of experience, the parties can think of ways to improve 

the Compact. The financial assistance and accountability provisions of the original 

Compact provide some opportunities for improvement. The United States and the 

freely associated states are committed to embracing those opportunities—working 

together, as partners, to ensure that the promise of these Compacts is fully realized 

for all of the people of the islands.

Mr. LEACH. Thank you, Mr. Cohen. 

Ms. Westin. 

STATEMENT OF SUSAN S. WESTIN, MANAGING DIRECTOR, 

INTERNATIONAL AFFAIRS AND TRADE, GENERAL ACCOUNTING OFFICE 

Ms. WESTIN. Mr. Chairman and Members of the Subcommittee. 

I am pleased to be here today to testify on the Compact of Free 

Association between the United States and the Pacific Island nations of the Federated States of Micronesia and the Republic of the 

Marshall Islands. Today I will discuss our review of the amended 

Compacts and related agreements that the United States signed 

with the FSM and the RMI in May and April of this year, respectively.

Specifically, I want to focus on three main topics: First, the potential cost to the U.S. Government; second, changes to both the 

structure and levels of future assistance; and finally, changes in accountability addressed in the amended Compacts and related 

agreements.

Turning to the first topic, the potential cost of the amended Compacts.

The amended Compacts of Free Association with the FSM and 

the RMI to renew expiring assistance would require about $3.5 billion in funding over the next 20 years with a total possible authorization through 2086 of $6.6 billion from the U.S. Congress. These 

dollar amounts include estimated inflation. 

I direct your attention to Table 1, and you can also find Table 

1 within my written statement. The share of new authorizations to 

the FMS would be about $2.3 billion and would end after fiscal 

year 2023. The share of new authorizations to the RMI would be 

about $1.2 billion for the next 20 years. Further funding of $3.1 billion for the remainder of the period corresponds to extended grants 

to Kwajalein and payments related to U.S. military use of land at 

Kwajalein Atoll. 

This new authorized funding would be provided to each country 

in the form of: Annual grant funds targeted to priority areas—such 

as health, education, and infrastructure—audit assistance, and disaster assistance; contributions to a trust fund for each country such 

that the trust fund earnings would become available to the FSM 

and the RMI in fiscal year 2024 to replace expiring annual grants; 

payments the U.S. Government makes to the RMI government that 

the RMI transfers to Kwajalein landowners to compensate for them 

for the U.S. use of their lands for defense sites; and an extension 

of Federal services that have been provided under the original 

Compact but are due to expire in fiscal year 2003. 

25

In addition to the new authorized funding, the U.S. Government 

has further expenditures related to the FSM and RMI. These total 

about $1.2 billion previously authorized and they include: The cost 

of U.S. program assistance; payments previously authorized for the 

U.S. military access to Kwajalein Atoll through 2016; and an estimated cost of about $42 million for oversight and administration by 

the Department of the Interior. 

Combining these sources of previously authorized funding with 

new authorizations of about $6.6 billion, the total U.S. cost for all 

Compact-related payments related to the FSM and RMI could 

amount to about $7.8 billion. 

Further, the Administration is proposing to provide $15 million 

annually for Hawaii, Guam and the Mariana Islands for the costs 

associated with the FSM and RMI citizens who migrate to those 

areas. This would add an additional $300 million over the 20-year 

period.

Turning to my second topic, changes in the structure and levels 

of funding. 

Under the U.S. proposals, annual grant amounts to each country 

would be reduced each year in order to encourage budgetary selfreliance and transition the countries from receiving annual U.S. 

grant funding to receiving annual trust fund earnings beginning in 

2024.

Thus, the amended Compacts increase annual U.S. contributions 

to the trust funds each year by the grant reduction amount, and 

you can see that in Figures 1 and 2 on pages 10 and 11 of my written statement. 

Annual grant assistance to the FSM would fall from a starting point of a real value of $76 million next year to a real value of $55 

million in fiscal year 2023, and annual grant assistance to the RMI 

would fall over the same period to a real value of $24 million at 

the end of the period. 

This decrease in grant funding, combined with FSM and RMI 

population growth, would also result in falling per capita grant assistance over the funding period, particularly for the RMI. And I 

direct your attention to Figure 3 which is on page 12 of my written 

statement.

Using U.S. Census population growth rate projections for the two 

countries, the real value of grants per capita to the FSM would 

begin at an estimated $687 in fiscal year 2004, and then would decrease over the length of the Compact to $476 in fiscal year 2023. 

The real value of grants per capita to the RMI would also decrease 

to an estimated $303 per capital in fiscal year 2023. 

The reduction in real per capita funding over the next 20 years 

is a continuation of the decreasing amount of available grant funds 

that the FSM and the RMI had during the 17 years of prior Compact assistance. 

The decline in annual grant assistance could impact FSM and 

RMI government budget and service provision, employment prospects, migration, and the overall GDP outlook. Challenges to 

achieving economic self-sustainability in the long run remains significant for both countries. 

For example, private sector growth, which would rely on expand 

exports and a growing tourism industry, is limited by constraining 

26

1The FSM had a population of about 107,000 in 2000, while the RMI had a population of 

50,840 in 1999, according to each country’s most recent census. 2Other Compact provisions are also due to expire in late 2003 if not renegotiated and approved. These include (1) certain defense provisions, such as the requirement that the FSM and 

factors common to small island economies such as limited domestic 

markets, a narrow resource base, and a lack of infrastructure. 

Given the challenges for achieving economic self-sustainability, 

the amended Compacts were designed to build trust funds that beginning in fiscal year 2024, yield annual earnings to replace grant 

assistance that ends in 2023. Our analysis shows that the trust 

funds may be insufficient to replace expiring grants, depending on 

assumptions about the rate of return on the trust funds. 

Finally, I will discuss provisions in the amended Compacts designed to provide improved accountability over U.S. assistance. 

This is an area were GAO has offered several recommendations in 

past years, as we have found accountability over past assistance to 

be lacking. 

In sum, most of our recommendations regarding future Compact 

assistance have been addressed with the introduction of strength 

and accountability measures in the signed amended Compacts and 

related agreements. 

Let me just reiterate four examples, as Secretary Cohen went 

through them quite carefully. 

The first I would note is the amended Compacts would require 

that the grants be targeted to priority areas, such as health, education, the environment, public infrastructure, including funding 

for maintenance. 

Secondly, grant conditions normally applicable to U.S. state and 

local governments would apply to each grant. 

Third, the United States could withhold payments if either country fails to comply with grant terms and conditions. 

And fourth, joint economic management committees with each 

country would be established. 

I must emphasize, however, that the successful implementation 

of the many new accountability provisions will require a sustained 

commitment, including resources, by all three governments to fulfill their new roles and responsibilities. 

Mr. Chairman, this completes my statement. I, of course, will be 

happy to respond to any questions. 

[The prepared statement of Ms. Westin follows:]

PREPARED STATEMENT OF SUSAN S. WESTIN, MANAGING DIRECTOR, INTERNATIONAL

AFFAIRS AND TRADE, GENERAL ACCOUNTING OFFICE

Mr. Chairman and Members of the Subcommittee: 

I am pleased to be here today to testify on the Compact of Free Association between the United States and the Pacific Island nations of the Federated States of 

Micronesia, or the FSM, and the Republic of the Marshall Islands, or the RMI.1 In

1986, the United States entered into this compact with the two countries after almost 40 years of administering the islands under the United Nations Trust Territory of the Pacific Islands. The Compact has provided U.S. assistance to the FSM 

and the RMI in the form of direct funding as well as federal services and programs 

for almost 17 years. Further, the Compact establishes U.S. defense rights and obligations in the region and allows for migration from both countries to the United 

States. Provisions of the Compact that address economic assistance were scheduled 

to expire in 2001; however, they can remain and have remained in effect while the 

United States and each nation renegotiated the affected provisions.2

27

the RMI refrain from actions that the United States determines are incompatible with U.S. defense obligations (the defense veto), and (2) federal services listed in the Compact. 3 Although the amended Compacts have been signed by the U.S., FSM, and RMI governments, 

they have not been approved by the legislature of any country. Therefore, in our testimony we 

describe the amended Compacts’ requirements and potential impact in a conditional manner in 

recognition that the Compacts have not yet been enacted. The total possible cost to renew expiring assistance in fiscal year 2004 U.S. dollars would be $3.8 billion on the basis of the Congressional Budget Office forecasted inflation rate (see appendix). 

Today I will discuss our review of the amended Compacts and related agreements 

that the United States signed with the FSM and the RMI in April and May of 2003, 

respectively. (According to a Department of State official, while the original Compact was one document that applied to both the FSM and the RMI, the Compact 

that has been amended is now a separate Compact with each nation.) Specifically, 

I will discuss changes to levels and structure of future assistance, including the potential cost to the U.S. government. Further, I will comment on changes in accountability and other key issues addressed in the amended Compacts and related agreements. Our testimony is based on our reports on the Compact published over the 

past several years as well as our assessment of the amended Compacts that was 

requested by Chairman Leach and Ranking Minority Member Faleomavaega, Subcommittee on Asia and the Pacific, House Committee on International Relations; 

Ranking Minority Member Lantos, House Committee on International Relations; 

Ranking Minority Member Rahall, House Committee on Resources; and Congressman Bereuter. 

SUMMARY

The amended Compacts of Free Association with the FSM and the RMI to renew 

expiring assistance would require about $3.5 billion in funding over the next 20 

years with a total possible authorization through 2086 of $6.6 billion from the U.S. 

Congress.3 The amended Compacts would provide decreasing levels of annual assistance over a 20-year term (2004–2023) in order to encourage budgetary self-reliance. 

Simultaneously, the Compacts would require building up a trust fund (with contributions that would increase annually) for each country to generate annual earnings that would replace the grants that end in 2023. Per capita grant assistance 

would fall over the 20-year period, particularly for the RMI. At an assumed trust 

fund rate of return (6 percent), in 2024 the RMI trust fund would cover expiring 

grant assistance, while the FSM trust fund would be insufficient to replace grants. 

By the year 2040, however, RMI trust fund returns also would be unable to replace 

grant funding. 

The amended Compacts include many strengthened reporting and monitoring 

measures that could improve accountability if diligently implemented. The amended 

Compacts and related agreements have addressed most of the recommendations 

that we have made in past reports regarding assistance accountability. For example, 

assistance would be provided through grants targeted to priority areas, such as 

health and education, and with specific terms and conditions attached. Annual reporting and consultation requirements would be expanded, and funds could be withheld for noncompliance with Compact terms and conditions. The successful implementation of the many new accountability provisions will require a sustained commitment and appropriate resources from the United States, the FSM, and the RMI. 

The amended Compacts address other key issues. One key change to Compact defense provisions would occur—U.S. military access to Kwajalein Atoll in the RMI 

could be extended from 2016 to 2086. This extension would cost $3.4 billion of the 

total possible authorization of $6.6 billion. Amended Compact provisions addressing 

one additional key area—immigration—have been strengthened by adding new restrictions and expressly applying the provisions of the Immigration and Nationality 

Act of 1952 (INA), as amended (P.L. 82–414), to Compact migrants. FSM and RMI 

citizens entering the United States would need to carry a passport, and regulations 

could be promulgated that would impose time limits and other conditions on a Compact migrant’s admission to the United States. 

BACKGROUND

In 1986, the United States and the FSM and the RMI entered into the Compact 

of Free Association. This Compact represented a new phase of the unique and special relationship that has existed between the United States and these island areas 

since World War II. It also represented a continuation of U.S. rights and obligations 

first embodied in a U.N. trusteeship agreement that made the United States the AdVerDate Mar 21 2002 10:43 Nov 09, 2003 Jkt 088500 PO 00000 Frm 00031 Fmt 6633 Sfmt 6621 F:\WORK\AP\061803\87792 HINTREL1 PsN: SHIRL
28

4From 1947 to 1986, the United States administered this region under a trusteeship agreement that obligated it to foster the development of political institutions and move the Trust Territory toward self-government and promote economic, social, and educational advancement. In 

addition, the agreement allowed the United States to establish military bases and station forces 

in the Trust Territory and close off areas for security reasons as part of its rights. In addition 

to the islands of the FSM and the RMI, the Trust Territory included Palau and the Northern 

Mariana Islands. 5The FSM received additional U.S. grant assistance of about $17.5 million in fiscal year 2002 and about $18 million in fiscal year 2003. The RMI received additional U.S. grant assistance 

of about $3.1 million in fiscal year 2002 and $3.3 million in fiscal year 2003 (excluding increased 

payments related to Kwajalein land use). 6The cost of prior assistance in fiscal year 2004 U.S. dollars was $2.6 billion. This estimate 

does not include payments for Compact authorized federal services or U.S. military use of Kwajalein Atoll land, nor does it include investment development funds provided under section 111 

of Public Law 99–239. Additionally, the Compact served as the vehicle to reach a full settlement 

of all compensation claims related to U.S. nuclear tests conducted on Marshallese atolls between 

1946 and 1958. In a Compact-related agreement, the U.S. government agreed to provide $150 

million to create a trust fund. While the Compact and its related agreements represented the 

full settlement of all nuclear claims, it provided the RMI with the right to submit a petition 

of ‘‘changed circumstance’’ to the U.S. Congress requesting additional compensation. The RMI 

government submitted such a petition in September 2000, which the U.S. executive branch is 

still reviewing. 7For more information on U.S. programs and services provided to the FSM and the RMI, see 

U.S. General Accounting Office, Foreign Assistance: Effectiveness and Accountability Problems 

Common in U.S. Programs to Assist Two Micronesian Nations, GAO–02–70 (Washington, D.C.: 

Jan. 22, 2002). 

ministering Authority of the Trust Territory of the Pacific Islands.4 The Compact 

provided a framework for the United States to work toward achieving its three main 

goals: (1) to secure self-government for the FSM and the RMI, (2) to assist the FSM 

and the RMI in their efforts to advance economic development and self-sufficiency, 

and (3) to ensure certain national security rights for all of the parties. The first goal 

has been met. The FSM and the RMI are independent nations and are members 

of international organizations such as the United Nations. 

The second goal of the Compact—advancing economic development and self-sufficiency for both countries—was to be accomplished primarily through U.S. direct financial payments (to be disbursed and monitored by the U.S. Department of the Interior) to the FSM and the RMI. For the 15-year period covering 1987 through 2001, 

funding was provided at levels that decreased every 5 years. For 2002 and 2003, 

while negotiations to renew expiring Compact provisions were ongoing, funding levels increased to equal an average of the funding provided during the previous 15 

years. Thus, funds available to the two governments were ‘‘bumped-up’’ during the 

last 2 years of assistance.5 For 1987 through 2003, U.S. assistance to the FSM and 

the RMI to support economic development is estimated on the basis of Interior data, 

to be about $2.1 billion.6 We have found that many Compact-funded projects in the 

FSM and the RMI experienced problems because of poor planning and management, 

inadequate construction and maintenance, or misuse of funds. Further the U.S., 

FSM, and RMI governments provided little accountability over Compact expenditures and have not ensured that funds were spent effectively or efficiently. 

Economic self-sufficiency has not been achieved. Although total U.S. assistance 

(Compact direct funding as well as U.S. programs and services) as a percentage of 

total government revenue has fallen in both countries (particularly in the FSM), the 

two nations remain highly dependent on U.S. funds. U.S. direct assistance has 

maintained standards of living that are higher than could be achieved in the absence of U.S. support. In addition, U.S. programs have been extended to the FSM 

and the RMI to provide a wide range of critical services, such as health care, education, telecommunications, and job training, but in most cases local conditions have 

impaired the programs’ effectiveness.7

The third goal of the Compact—securing national security rights for all parties—

has been achieved. At the time that the Compact was negotiated, the United States 

was concerned about the use of the islands of the FSM and the RMI as ‘‘springboards for aggression’’ against the United States, as they had been used in World 

War II, and the Cold War incarnation of this threat—the Soviet Union. The Compact and its related agreements established several key defense rights for all three 

countries. The Compact obligates the United States to defend the FSM and the RMI 

against an attack or the threat of attack in the same way it would defend its own 

citizens. The Compact also provides the United States with the right of ‘‘strategic 

denial,’’ the ability to prevent access to the islands and their territorial waters by 

the military personnel of other countries or the use of the islands for military purposes. In addition, the Compact grants the United States a ‘‘defense veto’’ over actions by the FSM or the RMI governments that the United States determines are 

29

8 U.S. access to Kwajalein Atoll is established through the U.S.–RMI Military Use and Operating Rights Agreement (MUORA). Funding provided for U.S. military access to Kwajalein for 

the years 1987 to 2003 is estimated, on the basis of Interior data, to be $64 million for development assistance and $144 million for the RMI government to compensate landowners for U.S. 

use of their lands. 9See U.S. General Accounting Office, Foreign Relations: Kwajalein Atoll Is the Key U.S. Defense Interest in Two Micronesian Nations, GAO–02–119 (Washington, D.C.: Jan. 22, 2002). 10Typically, nonimmigrants include those individuals who are in the United States temporarily as visitors, students, or workers. 11Payments were also authorized for American Samoa, but impact compensation has not been 

sought. 12See U.S. General Accounting Office, Foreign Relations: Migration From Micronesian Nations 

Has Had Significant Impact on Guam, Hawaii, and the Commonwealth of the Northern Mariana 

Islands, GAO–02–40 (Washington, D.C.: Oct. 5, 2001). 

incompatible with its authority and responsibility for security and defense matters 

in these countries. Finally, through a Compact-related agreement, the United States 

secured continued access to military facilities on Kwajalein Atoll in the RMI 

through 2016.8 In a previous report, we identified Kwajalein Atoll as the key U.S. 

defense interest in the two countries.9 Of these rights, only the defense veto is due 

to expire in 2003 if not renegotiated. 

Another aspect of the special relationship between the FSM and the RMI and the 

United States involves the unique immigration rights that the Compact grants. 

Through the original Compact, citizens of both nations are allowed to live and work 

in the United States as ‘‘nonimmigrants’’ and can stay for long periods of time, with 

few restrictions.10 Further, the Compact exempted FSM and RMI citizens from 

meeting U.S. passport, visa, and labor certification requirements when entering the 

United States. In recognition of the potential adverse impacts that Hawaii and nearby U.S. commonwealths and territories could face as a result of an influx of FSM 

and RMI citizens, the Congress authorized Compact impact payments to address the 

financial impact of these nonimmigrants on Guam, Hawaii, and the Commonwealth 

of the Northern Mariana Islands (CNMI).11 By 1998, more than 13,000 FSM and 

RMI citizens had made use of the Compact immigration provisions and were living 

in the three areas. The governments of the three locations have provided the U.S. 

government with annual Compact nonimmigrant impact estimates; for example, in 

2000 the total estimated impact for the three areas was $58.2 million. In that year, 

Guam received $7.58 million in impact funding, while the other two areas received 

no funding.12

In the fall of 1999, the United States and the two Pacific Island nations began 

negotiating economic assistance and defense provisions of the Compact that were 

due to expire. Immigration issues were also addressed. According to the State Department, the aims of the amended Compacts are to (1) continue economic assistance to advance self-reliance, while improving accountability and effectiveness; (2) 

continue the defense relationship, including a 50-year lease extension (beyond 2016) 

of U.S. military access to Kwajalein Atoll in the RMI; (3) strengthen immigration 

provisions; and (4) provide assistance to lessen the impact of Micronesian migration 

on Hawaii, Guam, and the CNMI. 

AMENDED COMPACTS WOULD ALTER ASSISTANCE LEVELS AND STRUCTURE

Under the amended Compacts with the FSM and the RMI, new congressional authorizations of approximately $3.5 billion in funding would be required over the next 

20 years, with a total possible authorization through 2086 of $6.6 billion. Economic 

assistance would be provided to the two countries for 20 years—from 2004 through 

2023—with all subsequent funding directed to the RMI for continued U.S. access to 

military facilities in that country. Under the U.S. proposals, annual grant amounts 

to each country would be reduced each year in order to encourage budgetary selfreliance and transition the countries from receiving annual U.S. grant funding to 

receiving annual trust fund earnings. Annual grant assistance to the FSM would 

fall from a real value of $76 million in fiscal year 2004 to a real value of $55 million 

in fiscal year 2023. Annual grant assistance to the RMI would fall from a real value 

of $35 million to a real value of $24 million over the same period. This decrease 

in grant funding, combined with FSM and RMI population growth, would also result 

in falling per capita grant assistance over the funding period—particularly for the 

RMI. If the trust funds established in the amended Compacts earn a 6 percent rate 

of return, the FSM trust fund would be insufficient to replace expiring annual 

grants. The RMI trust fund would replace grants in fiscal year 2024 but would become insufficient for this purpose by fiscal year 2040. 

30

13 U.S. access to Kwajalein Atoll in the RMI has already been secured through 2016 through 

a Compact-related agreement. The U.S. proposal to the RMI extends this funding to 2066, with 

an additional 20-year optional lease at that point. 

Amended Compacts Could Cost the U.S. Government $6.6 Billion 

Under the amended Compacts with the FSM and the RMI, new congressional au- thorizations of approximately $6.6 billion could be required for U.S. payments from 

fiscal years 2004 to 2086, of which $3.5 billion would be required for the first 20 

years of the Compacts (see table 1). The share of new authorizations to the FSM 

would be about $2.3 billion and would end after fiscal year 2023. The share of new 

authorizations to the RMI would be about $1.2 billion for the first 20 years, with 

about $300 million related to extending U.S. military access to Kwajalein Atoll 

through 2023. Further funding of $3.1 billion for the remainder of the period corresponds to extended grants to Kwajalein and payments related to U.S. military use 

of land at Kwajalein Atoll.13 The cost of this $6.6 billion new authorization, expressed in fiscal year 2004 U.S. dollars, would be $3.8 billion (see the appendix for 

a breakout of estimated new U.S. authorizations to the FSM and the RMI in fiscal 

year 2004 U.S. dollars). 

This new authorized funding would be provided to each country in the form of

• annual grant funds targeted to priority areas (such as health, education, and 

infrastructure), audit assistance, and disaster assistance;

• contributions to a trust fund for each country such that trust fund earnings 

would become available to the FSM and the RMI in fiscal year 2024 to replace expiring annual grants;

• payments the U.S. government makes to the RMI government that the RMI 

transfers to Kwajalein landowners to compensate them for the U.S. use of 

their lands for defense sites; and

• an extension of federal services that have been provided under the original 

Compact but are due to expire in fiscal year 2003.

Table 1: Estimated New U.S. Authorizations for the FSM and the RMI, Fiscal Years 2004–2086

(U.S. dollars in millions) 

FSM RMI Total 

Fiscal years 2004–2023

Grants for priority areas $1,612 $701* $2,313

Trust fund contributions 517 276 793

Payments for U.S. military use of Kwajalein Atoll land** Not applicable 191 191

Compact-authorized federal services*** 167 37 204

New U.S. authorization for 2004–2023 $2,296 $1,204 $3,500

Fiscal years 2024–2086

Grants to Kwajalein Not applicable $948* $948

Payments for U.S. military use of Kwajalein Atoll land Not applicable 2,133 2,133

Possible New U.S. authorization for 2024–2086 Not applicable $3,081 $3,081

Fiscal years 2004–2086, total new U.S. authorizations for the FSM and the RMI $2,296 $4,285 $6,581

Source: GAO estimate based on the amended Compacts. Under the amended Compacts, U.S. payments are adjusted for inflation at twothirds of the percentage change in the U.S. gross domestic product implicit price deflator. 

Note: Numbers may not sum due to rounding. 

*The 1986 U.S.–RMI Military Use and Operating Rights Agreement (MUORA) grants the United States access to certain portions of Kwajalein Atoll and provides $24.7 million of funding for development and impact on Kwajalein from 2004 to 2016. Approximately $112 million of 

the new proposed U.S. grant assistance of $701 million is for increasing this funding to Kwajalein from 2004 to 2016 and for continuation of 

the increased level of funding through 2066 and possibly to 2086 if the agreement is extended. 

**As part of the 1986 MUORA, the RMI government has also allocated $162 million of U.S. funding from 2004 to 2016 under this agree- ment to landowners via a traditional distribution system to compensate them for the U.S. use of their lands for defense sites. The U.S. proposal increases these payments from 2004 to 2016 and continues the increased level of payments through 2066 and possibly to 2086 if the 

agreement is extended. 

***Federal services authorized in the Compact include weather, aviation, and postal services. Services associated with the Federal Emergency Management Agency have been excluded. An estimate of assistance from the U.S. Agency for International Development’s Office of Dis- aster Assistance has not been included. 

31

14 In addition to Compact authorized federal services, numerous U.S. federal agencies extend 

specific programs offered in the United States, such as Pell grants and Head Start, to the FSM 

and the RMI in areas such as education and health. The level of this program assistance has 

varied over time as certain programs have been eliminated and other programs have been introduced. Currently, the U.S. Congress is reviewing a number of education programs to the FSM 

and the RMI, and the level of continued program assistance is uncertain. 15 Although new authorization figures are provided in current dollars so that total costs to the 

U.S. government can be identified, this display of economic assistance is provided in fiscal year 

2004 constant dollars for comparative purposes to show the impact of changes in government 

funding on the economy and population.

In addition to the new authorized funding, the U.S. government has further expenditures related to the FSM and the RMI. These include (1) the cost of U.S. program assistance, estimated at around $1 billion 14 to the two countries for the next 

20 years; (2) payments previously authorized of about $187 million for U.S. military 

access to Kwajalein Atoll in the RMI through 2016; and (3) oversight and administration by the Department of the Interior, estimated at a cost of around $42 million 

over the 20-year period. Combining these three sources of U.S. funding ($1.2 billion) 

with new authorizations ($6.6 billion), the total U.S. cost for all Compact-related 

payments related to the FSM and the RMI would amount to about $7.8 billion, including estimated inflation. 

Amended Compacts Would Reduce U.S. Grant Support Annually 

Under the U.S. proposals, annual grant amounts to each country would be reduced each year in order to encourage budgetary self-reliance and transition the 

countries from receiving annual U.S. grant funding to receiving annual trust fund 

earnings. Thus, the amended Compacts increase annual U.S. contributions to the 

trust funds each year by the grant reduction amount (see figs. 1 and 2). Annual 

grant assistance to the FSM would fall from a real value of $76 million in fiscal 

year 2004 to a real value of $55 million in fiscal year 2023.15 Annual grant assistance to the RMI would fall from a real value of $35 million to a real value of $24 

million over the same period. 

Source: GAO analyses of amended Compacts. 

Note: This analysis excludes program assistance.


87792a.eps
32

16The migration impact of the amended Compacts is difficult to determine, but if migration 

slows as a result of the amended Compacts or other economic and demographic influences, then 

our per capita estimates would be overstated.

Source: GAO analyses of amended Compacts. 

Note: This analysis excludes program assistance and payments for U.S. military use of Kwajalein Atoll land.

This decrease in grant funding, combined with FSM and RMI population growth, 

would also result in falling per capita grant assistance over the funding period—

particularly for the RMI (see fig. 3).16 Using U.S. Census population growth rate 

projections for the two countries, the real value of grants per capita to the FSM 

would begin at an estimated $687 in fiscal year 2004 and would further decrease 

over the course of the compact to $476 in fiscal year 2023. The real value of grants 

per capita to the RMI would begin at an estimated $627 in fiscal year 2004 and 

would further decrease to an estimated $303 in fiscal year 2023. The reduction in 

real per capita funding over the next 20 years is a continuation of the decreasing 

amount of available grant funds (in real terms) that the FSM and the RMI had during the 17 years of prior Compact assistance. 


87792b.eps
33

17The level of grant assistance in 2001 was converted into fiscal year 2004 dollars for comparison purposes. 18Potential sources of private sector growth include export earnings from three sectors: commercial agriculture, fisheries, and tourism. 19The Intergovernmental Panel on Climate Change predicts that rising sea levels over the 

next 50 years will result in land loss for areas in the RMI and the FSM that will disrupt virtually all economic and social sectors. The sea level rises could trigger significant migration because resettlement within national boundaries, or abandonment of some atolls altogether, may 

be the only viable option, with substantial costs for resettlement. For example, in the RMI the 

average elevation on Majuro is 2.2 meters. In Kwajalein Atoll, Ebeye’s average elevation is 2.2 

meters, and the maximum elevation is 2.5 meters. 

Source: GAO analyses of amended Compacts. 

Note: This analysis includes only Compact funds available to governments. Therefore, the 

analysis excludes investment development funds provided under section 111 of Public Law 99–

239, trust fund contributions, federal programs and services, audit assistance, and MUORA-related lease payments that the RMI government transfers to Kwajalein landowners. U.S. Census 

population historical and projected population growth rates are used in conjunction with the 

most recent country Census data. U.S. Census projections are subject to revision.

The decline in annual grant assistance could impact FSM and RMI government 

budget and service provision, employment prospects, migration, and the overall 

gross domestic product (GDP) outlook, though the effect is likely to differ between 

the two countries. For example, the FSM is likely to experience fiscal pressures in 

2004, when the value of Compact grant assistance drops in real terms by 8 percent 

relative to the 2001 level (a reduction equal to 3 percent of GDP).17 For the RMI, 

however, the proposed level of Compact grant assistance in 2004 would actually be 

8 percent higher in real terms than the 2001 level (an increase equal to 3 percent 

of GDP). According to the RMI, this increase would likely be allocated largely to the 

infrastructure investment budget and would provide a substantial stimulus to the 

economy in the first years of the new Compact. 

Challenges to achieving economic self-sustainability in the long run remain significant for both countries. First, education and health indicators show the need to 

improve basic services in these areas, as the nations face challenges with regard to 

literacy rates, high birth rates, and access to safe water. Second, private sector employment is largely made up of services and distribution activities that support the 

public sector such that employment prospects are uncertain, given declining U.S. assistance. Third, private sector growth, which would rely on expanded exports and 

a growing tourism industry, is limited by constraining factors common to small island economies, such as limited domestic markets, a narrow resource base, and a 

lack of infrastructure.18 Fourth, socioeconomic activities, infrastructure, and population may be vulnerable to the impacts of climate change because the two countries 

could experience coastal inundation, more frequent droughts and floods, and increases in tropical cyclone intensities that could damage transport infrastructure.19


87792c.eps
34

20The State Department chose a 6 percent return in order to reflect a conservative investment 

strategy. This rate of return can be compared with the current average forecasted return for 

long-term U.S. government bonds of 5.8 percent by the Congressional Budget Office. 21This analysis does not take into account volatile or negative returns. The sufficiency of either the FSM or the RMI trust fund to replace grants has not been tested under conditions of 

market volatility.

Trust Funds May Be Insufficient to Replace Expiring Grants 

Given the challenges for achieving economic self-sustainability, the amended Compacts were designed to build trust funds that, beginning in fiscal year 2024, yield 

annual earnings to replace grant assistance that ends in 2023. Both the FSM and 

the RMI are required to provide an initial contribution to their respective trust 

funds of $30 million. In designing the trust funds, the State Department assumed 

that the trust fund would earn a 6 percent rate of return.20 The amended Compacts 

do not address whether trust fund earnings should be sufficient to cover expiring 

federal services, but they do create a structure that sets aside earnings above 6 percent, should they occur, that could act as a buffer against years with low or negative 

trust fund returns. Importantly, whether the estimated value of the proposed trust 

funds would be sufficient to replace grants or create a buffer account would depend 

on the rate of return that is realized (see table 2).21

• If the trust funds earn a 6 percent rate of return, then the FSM trust fund 

would yield a return of $57 million in fiscal year 2023, an amount insufficient 

to replace expiring grants by an estimated value of $27 million. The RMI 

trust fund would yield a return of $33 million in fiscal year 2023, an estimated $5 million above the amount required to replace grants in fiscal year 

2024. Nevertheless, the RMI trust fund would become insufficient for replacing grant funding by fiscal year 2040.

• If the trust funds are comprised of both stocks (60 percent of the portfolio) 

and long-term government bonds (40 percent of the portfolio) such that the 

forecasted average return is around 7.9 percent, then both trust funds would 

yield returns sufficient to replace expiring grants and to create a buffer account. However, while the RMI trust fund should continue to grow in perpetuity, the FSM trust fund would eventually deplete the buffer account and 

fail to replace grant funding by fiscal year 2048.

Table 2: Estimated Performance for the FSM and the RMI Trust Funds under Alternative Rates of Return 

(U.S. dollars in millions) 

Fund earns State Dept. 

assumed return (6%) 

Fund earns return from 

60% stocks and 40% 

long-term government 

bonds (7.9%) 

FSM RMI FSM RMI 

Projected value of trust fund at the end of FY 2023 $1,013 $575 $1,255 $717

Projected value of FY 2023 trust fund return 57 33 92 53

Surplus of FY 2023 trust fund return over FY 2024 required 

grant funding –27 5 8 25

Year when trust fund return is unable to replace grant 

funding FY 2024 FY 2040 FY 2048 *

Source: GAO estimate based on amended Compacts adjusted for expected inflation. 

Note: The historic average real rate of return from the U.S. stock market has been 7 percent. Assuming a trust fund based on 60 percent 

stocks, which at a forecasted inflation rate of 2.2 percent would earn a 9.2 percent return, and 40 percent long-term U.S. government bonds, 

which would earn the forecasted nominal rate of return of 5.8 percent, a nominal rate of return of 7.9 percent could be achieved for the 

trust fund. The estimated value of the trust funds includes monies accrued in the buffer accounts and reflect the initial contribution made by 

the FSM and the RMI to their respective trust funds. 

*The RMI trust fund under this scenario continues to grow in perpetuity. However, this analysis assumes a steady real rate of return and 

does not account for volatility in returns. 

AMENDED COMPACTS HAVE STRENGTHENED ACCOUNTABILITY OVER U.S. ASSISTANCE

I will now discuss provisions in the amended Compacts designed to provide improved accountability over, and effectiveness of, U.S. assistance. This is an area 

where we have offered several recommendations in past years, as we have found accountability over past assistance to be lacking. As I discuss key proposed accountability measures, I will note where appropriate whether our previous recommendaVerDate Mar 21 2002 10:43 Nov 09, 2003 Jkt 088500 PO 00000 Frm 00038 Fmt 6633 Sfmt 6621 F:\WORK\AP\061803\87792 HINTREL1 PsN: SHIRL
35

22Public infrastructure projects would be focused in the areas of education, health, and safety. 

Progress reports for each project would be required, and funding would be provided on a reimbursable basis. For the RMI, not less than 30 percent or more than 50 percent of the annual 

grant assistance would be available for public infrastructure projects. 23See U.S. General Accounting Office, Foreign Assistance: U.S. Funds to Two Micronesian Nations Had Little Impact on Economic Development, GAO/NSIAD–00–216 (Washington, D.C.: 

Sept. 22, 2000) for a review of the first 12 years of direct Compact assistance.

tions have been addressed. In sum, most of our recommendations regarding future 

Compact assistance have been addressed with the introduction of strengthened accountability measures in the signed amended Compacts and related agreements. I 

must emphasize, however, that the extent to which these provisions will ultimately 

provide increased accountability over, and effectiveness of, future U.S. assistance 

will depend upon how diligently the provisions are implemented and monitored by 

all governments. 

The following summary describes key accountability measures included in the 

amended Compacts and related agreements:

• The amended Compacts would require that grants be targeted to priority 

areas such as health, education, the environment, and public infrastructure.22

In both countries, 5 percent of the amount dedicated to infrastructure, combined with a matching amount from the island governments, would be placed 

in an infrastructure maintenance fund. We recommended in a September 

2000 report that the U.S. government should negotiate provisions that would 

provide future Compact funding through grants targeted to priority areas and 

that funding should be set aside for infrastructure maintenance.23

• Compact-related agreements with both countries (the so-called ‘‘fiscal procedures agreements’’) would establish a joint economic management committee 

for the FSM and the RMI that would meet at least once annually. The duties 

of the committees would include (1) reviewing planning documents and evaluating island government progress to foster economic advancement and budgetary self-reliance; (2) consulting with program and service providers and 

other bilateral and multilateral partners to coordinate or monitor the use of 

development assistance; (3) reviewing audits; (4) reviewing performance outcomes in relation to the previous year’s grant funding level, terms, and conditions; and (5) reviewing and approving grant allocations (which would be 

binding) and performance objectives for the upcoming year. In our previously 

cited 2000 report, we recommended that the U.S. government negotiate an expanded agenda for future annual consultations. Further, the fiscal procedures 

agreements would give the United States control over the annual review process: The United States would appoint three government members to each 

committee, including the chairman, while the FSM or the RMI would appoint 

two government members.

• Grant conditions normally applicable to U.S. state and local governments 

would apply to each grant. General terms and conditions for the grants would 

include conformance to plans, strategies, budgets, project specifications, architectural and engineering specifications, and performance standards. Other 

special conditions or restrictions could be attached to grants as necessary. 

Specific post-award requirements address financial administration by establishing, for example, (1) improved financial reporting, accounting records, internal controls, and budget controls; (2) appropriate use of real property and 

equipment; and (3) competitive and well-documented procurement. In our 

2000 report, we recommended that future assistance be provided with grants 

that had specific requirements.

• The United States could withhold payments if either country fails to comply 

with grant terms and conditions. The withholding amount would be proportional to the breach of the term or condition. In addition, funds could be withheld if the FSM or RMI governments do not cooperate in U.S. investigations 

regarding whether Compact funds have been used for purposes other than 

those set forth in the amended Compacts. In our 2000 report, we recommended that withholding of funds be allowed.

• The fiscal procedures agreements would require numerous reporting requirements for the two countries. For example, each country must prepare strategic planning documents that are updated regularly, annual budgets that 

propose sector expenditures and performance measures, annual reports to the 

U.S. President regarding the use of assistance, quarterly and annual financial 

reports, and quarterly grant performance reports. In our 2000 report, we recommended that expanded reporting requirements be negotiated.

36

24See U.S. General Accounting Office, Foreign Assistance: Lessons Learned From Donors’ Experiences in the Pacific Region, GAO–01–808 (Washington, D.C.: Aug. 17, 2001). 25This recommendation was included in GAO–02–70. 26Our figure of $3.4 billion is adjusted for inflation. 

• The amended Compacts’ trust fund management agreements would grant the 

U.S. government control over trust fund management: The United States 

would appoint three members, including the chairman, to a committee to administer the trust funds, while the FSM or the RMI would appoint two members. After the initial 20 years, the trust fund committee would remain the 

same, unless otherwise agreed by the original parties. We have reported that 

well-designed trust funds can provide a sustainable source of assistance and 

reduce long-term aid dependence.24

The fiscal procedures agreements would require the joint economic management 

committees to consult with program providers in order to coordinate future U.S. assistance. However, we have seen no evidence demonstrating that an overall assessment of the appropriateness, effectiveness, and oversight of U.S. programs, as we 

recommended, has been conducted.25

The successful implementation of the many new accountability provisions will require a sustained commitment by the three governments to fulfill their new roles 

and responsibility. Appropriate resources from the United States, the FSM, and the 

RMI represent one form of this commitment. While the amended Compacts do not 

address staffing issues, officials from Interior’s Office of Insular Affairs have informed us that their office intends to post six staff in a new Honolulu office. According to an Interior official, these staff will consist of a health grant specialist, an education grant specialist, an accountant, an economist, an auditor, and an office assistant. Interior can also contract with the Army Corps of Engineers for engineering 

assistance when necessary. Honolulu-based staff may spend about half of their time 

in the FSM and the RMI. Further, an Interior official noted that his office has 

brought one new staff on board in Washington, D.C., and intends to post one person 

to work in the RMI (one staff is already resident in the FSM). We have not conducted an assessment of Interior’s staffing plan and rationale and cannot comment 

on the adequacy of the plan or whether it represents sufficient resources in the right 

location.

AMENDED COMPACTS ADDRESS OTHER KEY AREAS

U.S. Military Access to Kwajalein Atoll Could Be Extended Until 2086

The most significant defense-related change in the amended Compacts is the extension of U.S. military access to Kwajalein Atoll in the RMI. While the U.S. government had already secured access to Kwajalein until 2016 through the 1986 

MUORA, the newly revised MUORA would grant the United States access until 

2066, with an option to extend for an additional 20 years to 2086. According to a 

Department of Defense (DOD) official, recent DOD assessments have envisioned 

that access to Kwajalein would be needed well beyond 2016. He stated that DOD 

has not undertaken any further review of the topic, and none is currently planned. 

This official also stated that, given the high priority accorded to missile defense programs and to enhancing space operations and capabilities by the current administration, and the inability to project the likely improvement in key technologies beyond 2023, the need to extend the MUORA beyond 2016 is persuasive. He also emphasized that the U.S. government has flexibility in that it can end its use of Kwajalein Atoll any time after 2023 by giving advance notice of 7 years and making a 

termination payment. 

We have estimated that the total cost of this extension would be $3.4 billion (to 

cover years 2017 through 2086).26 The majority of this funding ($2.3 billion) would 

be provided by the RMI government to Kwajalein Atoll landowners, while the remainder ($1.1 billion) would be used for development and impact on Kwajalein 

Atoll. According to a State Department official, there are approximately 80 landowners. Four landowners receive one-third of the annual payment, which is based 

on acreage owned. This landowner funding (along with all other Kwajalein-related 

funds) through 2023 would not be provided by DOD but would instead continue as 

an Interior appropriation. Departmental responsibility for authorization and appropriation for Kwajalein-related funding beyond 2023 has not been determined according to the State Department. The Kwajalein Atoll landowners have not yet agreed 

to sign an amended land-use agreement with the RMI government to extend U.S. 

access to Kwajalein beyond 2016 at the funding levels established in the amended 

Compact.

37

27 In the amended Compacts, DOD’s civic action teams have been eliminated. Both countries 

would now have access to humanitarian assistance programs that would emphasize health, education, and infrastructure projects that DOD would carry out. 28 As noted in the Background section, FSM and RMI citizens who enter the United States 

are legally classified as ‘‘nonimmigrants’’—that is, individuals who are in the United States temporarily as visitors, students, or workers.

A few expiring provisions would be extended indefinitely in the amended Compacts. The ‘‘defense veto’’—the ability of the United States to veto actions by the 

FSM or the RMI governments that the United States determines are incompatible 

with U.S. authority and responsibility for security and defense matters in the two 

countries—has been extended. In addition, the ability of FSM and RMI citizens to 

volunteer to serve in the U.S. military would be extended. According to a DOD official, this is a beneficial provision since it, for example, gives the United States access to persons with specialized knowledge and understanding of Pacific cultures 

while also providing career opportunities for FSM and RMI citizens.27

AMENDED COMPACTS WOULD STRENGTHEN IMMIGRATION PROVISIONS

While the original Compact’s immigration provisions are not expiring, the State 

Department targeted them as requiring changes. The amended Compacts would 

strengthen the immigration provisions of the Compact by adding new restrictions 

and expressly applying the provisions of the INA to Compact nonimmigrants.28

There are several new immigration provisions in the amended Compacts that differ 

from those contained in the original Compact (see table 3). 

Table 3: Key Immigration Issues: A Comparison of the Original and Amended Compacts 

Issue Original Compact Amended Compacts 

Passports Compact nonimmigrants do not need a passport to be admitted to the United States..Compact nonimmigrants would need a valid 

passport in order to be admitted into the 

United States.

Entry into the United 

States for naturalized FSM and RMI 

citizens

Naturalized FSM and RMI citizens are eligible 

to apply for admission to the United States 

5 years after they are naturalized, so long 

as they were a resident of the FSM or the 

RMI during that time..

Naturalized citizens would only be admissible if 

they are immediate relatives of a citizen of 

the FSM or the RMI or if they were naturalized before April 30, 2003.*

Entry into the United 

States for the purpose of adoption 

A child who came to the United States for the 

purpose of adoption is not expressly prohibited from seeking admission into the United 

States under the Compact. However, the 

United States government has maintained 

that such children are not admissible under 

the Compact, but, rather, that they had to 

seek admission under general immigration 

requirements for adopted children..

A child who is coming to the United States for 

the purpose of adoption would not be admissible under the amended Compacts. Instead, these children would have to apply 

for admission to the United States under the 

general immigration requirements for adopted children. This provision would apply to 

any child who applied for admission to the 

United States on or after March 1, 2003.

Conditions on admission to the United 

States and its territories or possessions 

for Compact nonimmigrants

The United States has the authority to establish limitations, either in statutes or regulations, on a Compact nonimmigrant’s right to 

establish habitual residence in a territory or 

possession of the United States.**.

The Attorney General would have the authority 

to issue regulations that specify the time 

and conditions of a Compact nonimmigrant’s admission into the United 

States.***

Source: GAO legal analysis of the original and amended Compacts. 

Note: In addition, any of the authorities in the amended Compacts that the United States may exercise could also be exercised by the governments of the U.S. territories or possessions where the INA does not apply (i.e., the CNMI and American Samoa), so long as the exercise of 

such authority is lawful under the laws of that territory or possession. 

*Such naturalized citizens would also have to meet additional requirements, including residency requirements, unless they are an immediate relative of a citizen of the FSM or the RMI who is serving in the U.S. military. 

**The United States promulgated regulations in September 2000 regarding the rights and limitations of habitual residents in the territories 

and possessions of the United States. These regulations applied to Compact nonimmigrants in Guam, the Commonwealth of Puerto Rico, and 

the U.S. Virgin Islands. They did not apply to Compact nonimmigrants residing in the 50 states, the District of Columbia, American Samoa, or 

the CNMI. 

***The INA would now expressly apply to any Compact migrant who seeks admission or is admitted to the United States. As such, in addition to the Attorney General’s authority to promulgate regulations, any grounds of inadmissibility or deportability under the INA would now 

apply to Compact migrants except where the amended Compacts specify otherwise. Some modifications, however, were made to the INA provision, section 237(a)(5), allowing for deportation on the basis of an alien becoming a public charge. 

38

In addition, the implementing legislation for the amended Compacts would provide $15 million annually for U.S. locations that experience costs associated with 

Compact nonimmigrants. This amount would not be adjusted for inflation, would be 

in effect for fiscal years 2004 through 2023, and would total $300 million. Allocation 

of these funds between locations such as Hawaii, Guam, and the CNMI would be 

based on the number of nonimmigrants in each location. 

Mr. Chairman and Members of the Subcommittee, this completes my prepared 

statement. I would be happy to respond to any questions you or other Members of 

the Subcommittee may have at this time. 

APPENDIX: ESTIMATED NEW U.S. AUTHORIZATIONS TO THE FSM AND THE RMI IN FISCAL

YEAR 2004 U.S. DOLLARS

The estimated value of new congressional authorizations to the FSM and the RMI 

would be approximately $3.8 billion from fiscal years 2004 to 2086 measured in fiscal year 2004 dollars (see table 4).

Table 4: Estimated New U.S. Authorizations for the FSM and the RMI, Fiscal Years 2004–2086

(Fiscal Year 2004 U.S. Dollars in Millions) 

FSM RMI Total 

Fiscal years 2004–2023

Grants for priority areas $1,323 $572 $1,895

Trust fund contributions 411 218 628

Payments for U.S. military use of Kwajalein Atoll land Not applicable 144 144

Compact-authorized federal services 135 30 165

New U.S. authorization for 2004–2023 $1,868 $963 $2,832

Fiscal years 2024–2086

Grants to Kwajalein Not applicable $306 $306

Payments for U.S. military use of Kwajalein Atoll land Not applicable 688 688

New U.S. authorization for 2024–2086 Not applicable $993 $993

Fiscal years 2004–2086, total new U.S. authorizations for the FSM and the RMI $1,868 $1,956 $3,825

Source: GAO estimate based on the amended Compacts. 

Note: Numbers may not sum due to rounding. 

Mr. LEACH. Well, thank you very much, Ms. Westin, and let me 

stress that the oversight role of the GAO has been very impressive 

over the years on this subject. Let me also stress that the purpose 

of this oversight is to further the best interests of the people of the 

Compact countries, and that is the goal. 

Secondly, let me say, Secretary Cohen, I thought your testimony 

was outstanding, and the emphasis is that the details are of minor 

significance compared to the underlying ties between the people of 

the Compact states and the United States, and this is a very appreciative and a very individual basis and in a general basis, and I 

think you captured the spirit of our relationship. 

Mr. COHEN. Thank you. 

Mr. LEACH. Mr. Short, I think you have done an outstanding job, 

and it would be my hope to move as propitiously as possible on all 

aspects of this Compact, and I think the country is in your debt. 

I do have one query. You began your testimony with the observation that the Compact is now approved by the Administration and 

is being sent to the Congress, or is there any hesitation on that description?

39

Mr. SHORT. No hesitation, sir. The Compact Act has been approved by OMB and the Administration. It awaits signature of a 

transmittal letter to submit it to the Hill. 

Mr. LEACH. And that is entirely. 

Mr. SHORT. Yes, sir. 

Mr. LEACH. That is very good news, and we are appreciative that 

that is the case prior to the committee meeting, and that is excellent.

Let me also say I just want to make everyone go on record regarding my impression that there is an assumption from both the 

departments, and from the GAO, that the GAO’s recommendations 

on increased accountability are sufficient to meet the realistic concerns of all parties with regard to the integrity kinds of issues; is 

that correct, Mr. Short? 

Mr. SHORT. Yes, sir. 

Mr. LEACH. Secretary Cohen? 

Mr. COHEN. Yes, I agree. 

Mr. LEACH. And would you agree with that, Ms. Westin? 

Ms. WESTIN. Yes, Mr. Chairman. 

Mr. LEACH. Well, I think that is excellent news. Thank you. 

Mr. Faleomavaega. 

Mr. FALEOMAVAEGA. Thank you, Mr. Chairman. 

I have a different take on the situation with the renewal of the 

Compact, and I would like to direct this to Ms. Westin; I am curious, in terms of the GAO’s calculations, why are we talking about 

2086 when we have not even implemented the period of 2004 to 

2023?

By throwing out such figures as $6 billion here and $7 billion 

there, it makes it sound as if these people are getting too much, 

or almost to imply that these people do not deserve such a tremendous amount. If this is the way that GAO makes these calculations, 

looking also in terms of the GAO statement here from 2024 to 

2086, there are some estimates of about $3 billion. 

I am just trying to figure in terms of looking at monetary value 

versus human costs. Can you help me? Why we are talking about 

2086 when we have not even gone through 2023? 

Ms. WESTIN. Mr. Faleomavaega, it was not my intent at all to 

imply that this is too much money or too little money or exactly 

the right amount of money. 

What we undertook was to do an analysis of the Compact that 

had been initialed by both countries, and we try to be careful to 

divide the amounts first through the first 20 years of the Compact, 

which is what you are talking about authorizing today to 2023, but 

also to give the Subcommittee some sense of what the rest of the 

negotiations had dealt with in extending use of Kwajalein to 2086, 

and that was our best estimate of what it would cost into the future.

Mr. FALEOMAVAEGA. Oh, I see. So the substance of your remarks 

about 2086 is in reference to the Kwajalein missile range facility? 

Ms. WESTIN. Yes, because the grant assistance and the trust 

fund contributions for both countries end in 2023, so it was just the 

extension of the agreement for us to have use of Kwajalein that 

goes in stages as far as 2086. 

40

Mr. FALEOMAVAEGA. We have a little complication with this, and 

maybe Mr. Short can help me. 

I have a letter here from the Kwajalein Landowners Association, 

having some very, very serious concerns about how we are going 

about not only renewing the Compact, but what impact this will 

have on the landowners and how much they are supposed to be 

properly compensated for the use of their lands by the Federal Government, by our government at Kwajalein missile range. 

Does this seem to imply that there is an entirely separate set of 

negotiations to deal with the Kwajalein landowners, separate and 

apart from what RMI is doing with this? 

Mr. SHORT. Sir, let me outline the manner in which we deal with 

basically foreign military use anywhere in the world. And that is, 

first of all, we deal government to government, whether that is in 

Japan, Greece, Turkey or the Marshall Islands. 

In this case, partly because of the unique history of Kwajalein, 

the Kwajalein landowners actually sat at the negotiating table with 

their government representatives through the whole process. 

Mr. FALEOMAVAEGA. My time is going, Mr. Short, so what you 

are saying is that if there are any problems dealing with the landowners, they have to deal with the RMI government? 

Mr. SHORT. Yes. We deal government to government, and we expect the government to work the issues with the landowners. 

Mr. FALEOMAVAEGA. So whatever compensation that they get for 

the use of their lands, that’s between the government of the Marshall Islands and the landowners? 

Mr. SHORT. There is an earmarked amount of monies that is 

passed to the government of the Marshall Islands. There is a land 

use agreement in place which will have to be renegotiated between 

the landowners and the government that passes that money 

through.

Mr. FALEOMAVAEGA. One of the things that was brought to my 

attention by the Marshall Island leaders is that they are very, very 

concerned about the educational programs. As I understand from 

your statement, it is not part of the Compact renewal implementation.

Am I to get the impression that the Administration is not fully 

supporting the continuation of these educational Federal programs? 

I notice that, for example, reference to the Pell Grants, RMI gets approximately $2.7 million a year. Very, very important for the 

educational needs of the students from RMI attending universities 

in Hawaii and other parts of the country, and the funding ends in 

fiscal year 2004. 

Do I get a commitment from the Administration that they will 

pursue with the Congress to support, continue supporting these 

programs?

Mr. SHORT. Sir, I would like to address the Federal programs. 

As I pointed out in my testimony, there are certain activities and 

programs that are encompassed in the Compact. The education programs that you mentioned here and also the Congresswoman mentioned are outside the context of the Compact. 

They are Federal programs that from time to time the U.S. Congress has granted authority to operate in the freely associated 

states. They are up for periodic renewal, and as you correctly point 

41

out, some of the education programs recently have been eliminated 

or FAS access has been eliminated. 

Mr. FALEOMAVAEGA. But what I am seeking, Mr. Short, and my 

time is running short, I know that, will the Administration be committed to continue supporting these programs as the Congress will 

go through the process of reauthorization, especially the educational programs? 

Mr. SHORT. Two points, sir. I cannot speak for the Administration with regard to individual programs. What I would ask is that 

a statement on policy regarding the relationship between certain 

Federal programs in the Compact be submitted for the record. 

I provided this recently in response to a request by Senator 

Dominici, and I think that would help to clarify that issue. 

Mr. FALEOMAVAEGA. I am sorry. My time is up, Mr. Chairman. 

I will wait for the second round. 

Mr. LEACH. Thank you very much. 

Let me make two brief announcements. One, without objection, 

the statement of Mr. Gerald Zackios, the Prime Minister of the Republic of Marshall Islands will be placed in the record on this subject.

Secondly, we are going to have votes in the very near future on 

the Floor that are going to be very complicated, and this means 

that the time constraints are going to be greater. 

Thirdly, I am going to have to step outside for just a minute. I 

have asked Mr. Weller to take the Chair while I step out, and it 

is Mr. Weller’s turn to ask questions. 

Mr. Weller. 

Mr. WELLER [presiding]. Thank you, Mr. Chairman, and first 

thank the panel for the opportunity to talk with you today, and like 

my colleagues, I appreciate the special relationship we have with 

the Federated States of Micronesia and the Republic of the Marshall Islands, and I am hopeful we can move in a timely way to 

move this Compact agreement through the Congress, and complete 

this process to continue our commitment. 

We have a long history with Micronesia and the Marshall Islands, and one of great friendship and long-time relationship going 

well back over a century for certainly in recent member. And although back in the forties and fifties the atmospheric testing of nuclear weapons, Mr. Faleomavaega, he and I have discussed this, 

and certainly while it seemed appropriate at the time, I am one of 

those who regrets that particular episode in our history. 

I would like to ask those on our panel of the impact of the Compact, particularly on the economic opportunities for the people of 

these two countries. And you know, can you just share with us 

today what the primary sources of economic opportunity are for the 

people of Micronesia and the Marshall Islands today, and what you 

see as the future opportunities as we reduce the financial support 

from the United States to these two countries? 

Mr. SHORT. I can address this. In the case of the Marshall Islands and the FSM, first of all, one area is tourism. While it is a 

bit remote from some of the other tourist destinations, there are 

opportunities to develop tourism, in some cases niche tourism. 

Fisheries, the Marshalls and the FSM both license foreign fisheries to operate in their EEZ, and in the Marshall Islands there is 

42

a fish plant, a tuna plant that processes landed tuna actually for 

further processing in American Samoa at the canneries. 

There are other opportunities, limited agriculture. Black pearls, 

for example, are being developed in the Marshall Islands. There is 

no one industry or activity that I can see that will leap them toward self-sufficiency, but a lot of small activities that are appropriate to their remote location, and many revolve around tourism. 

Mr. WELLER. And what level of private investment by American 

interest is occurring in these two countries? 

Mr. SHORT. It is quite limited. I do not have the actual dollar figures, but we could provide them for the record. 

Mr. WELLER. Would you, please? And what are the incentives? 

Are there any incentives in place as part of this Compact or provided by the two governments to attract American investors? 

Mr. SHORT. The Compact itself does not provide incentives except 

for the trade and tax provisions. The individual governments have 

different programs for offshore investment. 

Mr. WELLER. I certainly know one of the goals of this Compact 

is to advance fuller the opportunity for economic self-reliance. That 

information would be helpful. 

Can you tell me what the impact on the standard of living in the 

FSM and RMI under the amended Compacts will have? Do you see 

any impact on the standard of living for citizens of these two countries?

Mr. SHORT. Well, as Ms. Westin indicated, over the 20-year period of grant assistance, the per capita will decrease from the 

present levels of about $600 per capita to about $300. This is in 

line with the trend, if you go back to the beginning of the Compact 

in 1987, where there has been decreased U.S. assistance as the 

economy develops, and as they develop local sources of revenue. 

Mr. WELLER. And do you believe that economic growth will make 

up for this loss of contribution under the Compact? 

Mr. SHORT. Yes, sir. 

Mr. WELLER. Okay. 

Ms. WATSON. Would you yield for a second, please? 

Mr. WELLER. Actually, it is going to be your turn next. 

Ms. WATSON. Oh, okay. 

Mr. WELLER. I will recognize you if you will just give me another 

minute to finish my turn, then I will give you yours, Ms. Watson. 

Ms. WATSON. Yes, I was just going to try to address some of your 

questions.

Mr. WELLER. Sure. As part of the new Compact you establish 

joint economic management committees which will oversee development planning, and Compact implementation. 

How will we choose who sits on these panels? Mr. Cohen? 

Mr. COHEN. Sure. We are in the process now of—we are engaging 

in interagency process to determine exactly how that will be accomplished. We are going to draft an Executive order which we hope 

the President will sign shortly after the legislation passes that will 

determine the composition of the U.S. delegation to these joint committees.

It is anticipated that the Departments of Interior and State, 

which have the strongest equities in this process, will be repVerDate Mar 21 2002 10:43 Nov 09, 2003 Jkt 088500 PO 00000 Frm 00046 Fmt 6633 Sfmt 6601 F:\WORK\AP\061803\87792 HINTREL1 PsN: SHIRL
43

resented, and with a third member from elsewhere in the Federal 

Government.

Mr. WELLER. Okay, thank you, Mr. Cohen. That concludes my 

questions.

Ms. Watson. 

Ms. WATSON. Thank you so much, Mr. Chairman, and to address 

some of your concerns, I think that you have put your finger on 

some of the questions that we need to probe. 

I want to thank in particular, Mr. Short, for the work that you 

have done, and the fact that you have kept us updated. We certainly are appreciative. 

And, Ms. Westin, it is good to see you again and to hear your 

report.

One of our concerns, and let me just kind of go down my mental 

list, was raised by Congressman Faleomavaega as to what we do 

in terms of the educational programs. Those of us who have been 

involved with Micronesia know that Pell Grants are the main support of the College of the Micronesia, and we do hope, Congressman, that we can continue those Pell Grants and the funding support for them. 

And also Head Start is another one that is a cadillac of a program there in the FAS, and we do hope that we can negotiate here 

in Congress to keep those going. 

In terms of economic development, that becomes a major concern 

because in the 15 years of the original Compact the growth economically was only 2.5 percent. I intend to take a codal down, and 

Congressman Faleomavaega and I have been talking about it for 

some time, we have to do it again, and Congressman Wexler, I 

hope that you can go with us as we look at the OPEC program that 

tends to go down and may help to train for entrepreneurship and 

small businesses, and we would like to encourage them to get involved with those programs so that they can have the kind of technical assistance to build their own capacity for developing their 

own economy. That has been very slow, and they are going to need 

the technical assistance. 

I want to address the area of compliance monitors, if there is any 

need, and we have discussed this, Al, before, is there was any tremendous need in the U.S. Embassy is to have compliance monitors 

on the ground so they can do training as the Micronesian and the 

people in the RMI try to build more swift development of their 

economy.

We need to have people who are there, who are dedicated, and 

committed to providing the technical assistance as they move 

along.

I, too, was interested in accountability and who will comprise the 

management committee, and I did suggest to the GAO yesterday 

in my office that I think the American Ambassador located in the 

various Compact countries needs to sit on that management team, 

because that is the person in closest contact with the Compact negotiations and arrangements, and I think could offer greatly the 

input that is necessary. 

So when we talk about state and interior and treasury, I would 

say you need to bring the Ambassador into that fold. 

44

I had a question on increased staffing, and I think the compliance monitors are the number one required, essential persons to be 

on the ground. I understand that we are going to have six or seven 

in Hawaii, and they will kind of rid the circuit, but I do think the 

more we have stationed at the post the smoother this will go. 

Mr. Chairman, I think we have a vote so I will just curtail my 

remarks for now. 

Mr. LEACH. Thank you. 

Ms. WATSON. Will we have an opportunity to come back? 

Mr. LEACH. Yes. 

Ms. WATSON. Okay. 

Mr. LEACH. I expect we will recess and reconvene in a few minutes.

Ms. WATSON. Thank you. 

Mr. LEACH. I have time for one more. Mr. Rohrabacher. 

Ms. WATSON. Okay, thank you. 

Mr. LEACH. Thank you, Ms. Watson. 

Mr. ROHRABACHER. I would just like to ask a quick question. I 

am sorry that I had to leave. You know, when you are a Member 

of Congress you have got two or three things that you are supposed 

to do every minute of the day, and I was called out. 

I would like to just ask about—I think that you can work the 

fundamental problems out in terms of the people problems and the 

organization structure to make sure that things are operating the 

way they should. And people who are working in good faith can 

work these things out, and I think that the people of the Marshall 

Islands are working with us, and the other island groups are working with us in good faith. And I think that we certainly are trying 

to operate with them in good faith. 

But two things that go beyond that border are energy and water, 

and what are the prospects down there for energy and water? Do 

we have a—I am certain these must be costs that would be prohibitive to prosperity. 

Mr. SHORT. Sir, with regard to energy, electrical energy is generated from imported oil almost entirely. There are some solar facilities, especially used in outer islands for phones and that sort of 

thing, but by and large it is imported oil. 

Water is an issue especially in the low lying islands, such as 

Majuro and Kwajalein, where they are dependent on rainfall in 

many cases run off from runways or other catchments, and believe 

it or not, even though this is the tropics, droughts are a frequent 

occurrence.

Mr. ROHRABACHER. Maybe just a thought that maybe it would be 

good for us to look at a long-term vision and go to these basic needs 

and put capital investment in that would then permit the people 

of these islands to be somewhat independent and run their own affairs whereas they now have from an agreement with us these 

basic fundamentals in place. 

Mr. COHEN. Congressman Rohrabacher, we do address that in 

our new funding mechanisms in the Compact. As I had mentioned, 

it is targeted into six high priority sectors. One of those sectors is 

public infrastructure. And in the case of the Marshall Islands, we 

require that 35 to 50 percent of the aggregate amount of the sector 

45

grants go to public infrastructure, and that a certain percentage of 

that be set aside for maintenance. 

Additionally, we require long-term and medium-term infrastructure plans so that we have a long-term vision that we use the annual Compact funding to support that. So we have addressed that. 

We have recognized that the lack of adequate infrastructure is 

one of the barriers to economic development in these islands, and 

we are attempting to address that. 

Mr. ROHRABACHER. Well, we have technology now. America has 

technology that can help in these areas, both energy and water, 

and it seems to me that is something we can do for the world and 

certainly do for our friends, and try to make these arrangements. 

So thank you very much. 

Mr. LEACH. Ms. Sherman, let me say I think we should break for 

a vote at this time. What we will do at this point, I apologize, we 

have at least two votes, and so we will have to break for those 

votes. And if you are able to stay, and I hope you are, we will resume in approximately 20 minutes, but we will resume as immediately after the votes as we can. 

The Committee is in recess. 

[Recess.]

Mr. LEACH. Well, thank you. The Committee will come back to 

order. It is formally the turn of several Members who are not back, 

but pending their return I am going to recognize Mr. 

Faleomavaega. Eni. 

Mr. FALEOMAVAEGA. Thank you, Mr. Chairman. 

Maybe I did not properly phrase my question, and I will try it 

again, but this time not with Mr. Short but with Mr. Cohen. 

I realize that these programs are subject to renewal by the Congress, and the Congress does have that discretion to provide funding or make proper amendments to the law so the FSM and RMI 

continue to receive these funds, especially for educational programs.

I would like to ask Mr. Cohen, will we get the support of the Administration before the Congress to continue the funding of programs like Pell Grants, Head Start, Bilingual? That is what I am 

trying to get at. 

Mr. COHEN. Sure, Congressman, I appreciate the question, and 

I am not able to say at this time, or I am not authorized at this 

time to speak on behalf of the Administration on that issue. I could 

make two observations that are relevant. 

The first is that the State Department just issued a letter which 

Mr. Short referred to, which perhaps I can maybe describe some of 

the contents of. That, among other things, made it clear that when 

Mr. Short negotiated the Compact, including the new financial assistance provisions, in accordance with the authority that was approved across the Administration, that the grants were not sized 

so as to replace the Federal programs. 

So, in other words, if any impression is out there that because 

the Compact will hopefully be passed soon, that it obviates the Federal programs, we have made it clear that one is not designed to 

replace the other. It is still, of course, the prerogative of Congress 

to decide which programs will continue, which will be terminated, 

46

and which new ones might be added, but that is not the intention 

to replace. 

Mr. FALEOMAVAEGA. Yes, and I think this is where my concern 

lies, Mr. Secretary, knowing that the Department of the Interior is 

the administering agency. It would really help tremendously if we 

do get the support of the Administration for myself and Congresswoman Watson and others, those of us on the Hill who do support 

the continuation of these programs. I think if we get the support 

and endorsement of the Administration that these programs should 

be continued, that is half of the battle, if we get help from the Administration, in principle, to support them. That is where my concern lies. 

But if we do not have the support of the Administration, then it 

is going to be even more difficult for us to justify these programs. 

And I can say with some certainty that this first 15-year period, 

to say the least, has been most challenging for both the RMI and 

FSM. There have been a lot of problems, and I think we have to 

appreciate the fact that, as I may have mentioned in times before, 

Mr. Secretary, these people had no infrastructure. They had nothing to begin with. 

And I know Ms. Westin knows where I am coming from, and my 

next concern is that we have to be careful in applying standards 

that are so high in terms of our expectations as a country given the 

fact that these people are 50 years behind in infrastructure development, health, education, anything of the sort, which is the reason 

why I think that my mentor, the late Congressman Phil Burton, 

was so insistent in doing the 10-year period of the Compact negotiations, that he insisted that these social, educational programs be 

part of the Compact, because we all knew that FSM and RMI simply did not have the resources nor even a nucleus of professional 

people, as we mentioned. 

I know we have been floating this word accountability for the 

last 3 hours now, and I am to the point where it implies as if these 

people are not proficient. Or do I get the impression that these people have stolen money from Uncle Sam? Is this the reason of the 

lack of accountability? I mean, has anybody gone to jail for not 

properly using the funds? 

There may have been misuse in terms of using it for the wrong 

programs, but were there any known embezzlements or somebody 

knowingly taking money for personal use? I am curious. 

Mr. COHEN. Mr. Congressman, there have been a couple of examples, which I think Ambassador Watson is familiar with, but I 

would like to stress that by and large, as I read the GAO reports, 

the primary problems were not people stealing money; the primary 

problems were the ones that you identify, which is, you know, the 

continued development of the necessary capacity, and that is why 

one of our primary target areas under the new Compact is capacity 

development.

Your point is very well taken that, you know, we started really 

from ground zero——

Mr. FALEOMAVAEGA. Yes. 

Mr. COHEN [continuing]. In our history with these islands, and 

we are only starting from 1986, trying to develop all of the infrastructure and the public sector capacity, the economic development 

47

that, you know, is necessary for these islands to become self-sufficient eventually. You know, we are not very far along in that process.

So we are trying to accelerate development, but we recognize 

that it is to nobody’s shame that we are at the point where we are 

now.

Mr. FALEOMAVAEGA. What is the per capita income right now in 

Marshalls?

Mr. COHEN. You probably have more up-to-date figures. 

Mr. SHORT. I believe the per capita in the FSM is about $2,000 

per year; in the Marshalls, about $1,600. 

Mr. FALEOMAVAEGA. Sixteen hundred? 

Can you submit that for the record because I am curious? That 

is interesting. 

I want to go back to Secretary Cohen’s statement about these 

joint committees that are going to be established. I guess there is 

going to be proposed legislation to that effect after the Compact is 

signed and approved? 

Mr. COHEN. Actually, Congressman, the establishment of the 

joint committees is provided for in the fiscal procedures agreements 

that are subsidiary to the Compact, so that is part of the package 

that you will be getting——

Mr. FALEOMAVAEGA. Okay. 

Mr. COHEN [continuing]. Hopefully in the——

Mr. FALEOMAVAEGA. And I understand that the joint committee 

is going to be composed of three Americans and two Marshallese 

or three Americans and two FSM? 

Mr. COHEN. That is correct, sir. 

Mr. FALEOMAVAEGA. And this is going to be kind of like the super 

committee that is going to oversee all of the funding and usage, 

this committee will have the authority to cut funding if they feel 

that it is not being utilized? 

Mr. COHEN. Yes. The accountability provisions assign different 

entities with different responsibilities. This is the overall committee that, number one, approves the allocations of the sector 

budgets.

Now, when I say approves the allocations, it is the prerogative 

of the Freely Associated States to propose their budgets, and the 

job of the committee is essentially to ensure that these budgets 

comply with the letter and the spirit of the Compact. 

Mr. FALEOMAVAEGA. My time is up. I just want to say, Mr. Secretary, that this scares me. Maybe I am being simplistic in my outlook about the whole idea of accountability, but why can we not 

just have the inspector general’s office of the Department of the Interior to do annual audits? They do it now? 

Mr. COHEN. Yes. 

Mr. FALEOMAVAEGA. And so what more accountability do we 

need? Take them to jail if they break the law or what? I am a little 

puzzled about this concept of administrative oversight or financial 

oversight. It touches on the question of sovereignty. It touches on 

the question of while you may be running a government you have 

got this super committee behind my back that is going to be telling 

me what to do and how to do things. Maybe I am getting the wrong 

message here, but I definitely will work with you on this issue. 

48

Mr. COHEN. Thank you, sir. Can I respond to that? 

Mr. FALEOMAVAEGA. Yes. 

Mr. COHEN. The purpose of the joint committee is not to add an 

additional punitive element to the accountability process. In fact, 

this is a unique structure in that, well, number one, we are controlling only the Compact funds. We are not in any way controlling the 

local funds, and local funds have over the course of the original 

Compact gone from about a third of their national budget up to 

about a half, so you know, there is progress, and the progress will 

continue.

But the joint committee is a way for the U.S. to have a certain 

degree of control over its own funding, but we are bringing the 

Freely Associated States into that process as well. 

And again, the job of the joint committee is not to usurp the prerogative of the Freely Associated States to set their priorities even 

with respect to Compact funds, but just to make sure that the letter and the spirit of the Compact is complied with. So we say 

health and education, for example, have to receive top priority. 

If, for example, the proposed budgets for health and education 

were 1 percent and 1 percent, and then everything was in public 

sector capacity development, then it would be appropriate for the 

joint committee to step in and say that is not a proper allocation 

of funds. We have performance standards and measures. So you 

know, we need a joint committee like this to track progress and 

make suer that we are proceeding on target to achieve the objectives that we are trying to achieve. 

So the joint committee is not intended in any way to infringe on 

the sovereignty of the Freely Associated States. It is a process 

where we can jointly work together to make sure that the Compact 

program is working. 

Mr. LEACH. Well, thank you very much. 

Ms. Watson, Ambassador. 

Ms. WATSON. Thank you, Mr. Chairman. 

If I am further maybe justify this management committee, I 

think it is very, very necessary because in the past the Department 

of Interior would just shunt the money out to the President of the 

FSM. That money could sit there. We have programs and we have 

programmatic provisions that needed to be addressed, and I found 

that money was sitting in a pot, and it was not going out to the 

educational facilities. 

The GAO will come in and do an audit, but you have got a whole 

year that has gone by. The money has not been disbursed. We did 

not have textbooks in the schools. 

And so I think with this management team it is not intended to 

be a block but intended to facilitate, at least that is my understanding, and that is what I would hope it would be, conformance 

to the specified provisions, particularly under the title II programs. 

And I would like to have seen the islands further ahead. What 

happened was they did not have the technical capacity in many 

cases to move ahead, and you have to consider the framework in 

which these programs were implemented, and it is a tradition, customary framework. So somewhere in between there we have to use 

technical experience and capacity to assist the people there in the 

FSM to be able to address the requirements. 

49

I was fearful that Pell Grants would be pulled back because 

there was lack of compliance. You have to have so many days, so 

many hours at school, and of course, under the juditional requirements if somebody dies, that is an automatic 4 days. Teachers just 

close down the schools and the colleges. 

So I think with this team in place they could also assist in moving toward the goals of all these program. I think it will work out 

well, and I, too, may interested in who actually ends up as part of 

that team, and I am strongly suggesting that you allow the posted 

Ambassador to sit there too, because there is a lot of information 

day to day that he or she has that would be very effective in making decisions. 

You know, one of the problems is is that when they veer so far 

off course they are not complying at all, and it is the responsibility 

of the Ambassador to close the programs down. We had to do that. 

And you know, money was expended. And I think with this management team there can be an intervention, and I had to say I am 

going to hold the keys to this program until you send somebody 

from the office, you know. And when you send somebody from the 

office, I will open the program back up, but we have got to stop it. 

It was bleeding to death our program. Money was being expended 

the wrong way. 

So I think this management team can be very, very helpful to the 

people there, and to compliance with the provisions of our different 

programs. And we will follow it, and hope that we will know just 

how you are going to comprise it, who will sit there, and hope we 

can be helpful. 

Mr. COHEN. Sure. And may I make a point on that, Mr. Chairman?

Regardless of who actually sits on the U.S. delegation to these 

joint committees, we are going to have a larger team that is going 

to include the Ambassador. The Ambassador is clearly an essential 

figure in this whole process, unavoidably. 

Ms. WATSON. Yes. 

Mr. COHEN. I mean, the Ambassador, for example, as you know 

has control over the people that come and go from the U.S. side, 

so our monitoring teams are going to have to work with the Ambassador.

The Executive order is going to create an interagency group that 

will be very representative of the important agencies in the Federal 

Government.

We are currently operating with an interagency group that is established under the authority of, I believe, the National Security 

Council through the State Department, and we are going to replace 

that with one hopefully established by Executive order. 

So, you know, the U.S. input and the U.S. team is going to be 

very represented and broadly based, and that is really going to be 

more important than the three people who are actually sitting on 

the committee. 

Ms. WATSON. Just one more question. I understand that we 

might lose FEMA. In fact, I think FEMA is pulling out of Micronesia. Is FEMA pulling out of the RMI and Palau as well? 

Mr. SHORT. Yes, ma’am. The disaster response capability that is 

provided in the amended Compact will provide the Office of Foreign 

50

Disaster Assistance of USAID as the instrument of the U.S. Government that responds to disasters. 

Ms. WATSON. Let me query that a bit. Are they set up to move 

like FEMA does now? 

I know FEMA will move on an emergency immediately. They are 

like the Red Cross. And they will come in, they will set up posts, 

and they will bring in provisions, and there are loans and so on. 

I am not sure the working of USAID emergency response, if they 

can move—you know, they have this bulky overhead, and not only 

out here in the Pacific but in Africa and every place, and lots of 

money goes to that overhead cost whereas FEMA deals with direct 

aid and assistance. 

So I am just wondering if they have the capacity to have that extensive response that FEMA does. 

Mr. FALEOMAVAEGA. Will the gentlelady yield? I can address 

that.

Mr. SHORT. The Office of Foreign Disaster Assistance is the normal mechanism that the United States Government uses in overseas areas to respond. It has been operating in Palau since their 

Compact was implemented. It provides all of the features of FEMA 

with one exception, and that is, as you pointed out, with regard not 

only to response but to recovery, and that is with regard to capital 

infrastructure replacement. They do not have a program as does 

FEMA, for a matching program in that area. 

Mr. FALEOMAVAEGA. I was just asking the lady——

Ms. WATSON. Yes, I will yield. 

Mr. FALEOMAVAEGA. Is this one of the initiatives of the Administration not to have FEMA as part of the program to assist RMI and 

FSM?

Mr. SHORT. Well, it is to substitute the Office for Foreign Disaster Assistance in USAID for FEMA. 

Mr. FALEOMAVAEGA. My impression is that the disaster foreign 

assistance is other than just giving monetary compensation, but 

not to the extent of FEMA. When something happens, and in a way 

that is declared by the President as a national disaster, FEMA, in 

its operative and the Red Cross and everybody do come and help. 

But through the program of the State Department, they do not 

help at all. All they give us is some monetary compensation that 

could be given as a gift to those countries, and that is where my 

concern lies. 

I just feel that FEMA is in a better position to give assistance, 

especially where they are subject so often to typhoons and cyclones. 

I just feel that these people deserve that kind of assistance. 

Thank you. I thank the gentlelady. 

Ms. WATSON. I just want to say that is a big concern of mine too. 

I do not think that USAID, Office of Emergency Assistance, can 

take the place of FEMA because these islands at sea level are 

prone to rainstorms, floods, you know, homes slipping into the 

ocean, and all kinds of other natural disasters. I just think that the 

competition with other areas of the world under that program 

might just squeeze these little, tiny islands out. So this is something that we are going to want to follow up on too, and maybe a 

letter from Disaster Assistance, and Members of the House that 

51

are concerned about this issue might help in restoring that program.

Is this written into the Compact, Mr. Short, that FEMA would 

be replaced? Is that part of the Compact? 

Mr. SHORT. We have a subsidiary agreement on disaster response, and the Office of Foreign Disaster Assistance is in that 

agreement.

Ms. WATSON. Well, why do we not do this, and this is directed 

to the Chair, that we state our concerns, and see if we can negotiate this area of it. It is going to be a budgetary item, I am sure, 

and we might see if we can intervene on it because leaving these 

islands without FEMA is a disaster waiting to happen. 

Mr. LEACH. Well, I appreciate your concerns. I am not sure that 

we have the capacity to negotiate with the Executive Branch, but 

I think these are very real concerns to express to the Executive 

Branch.

Ms. WATSON. Yes, we can send a letter anyway. 

Mr. LEACH. Mrs. Bordallo. 

Ms. BORDALLO. Thank you very much, Mr. Chairman, and again, 

thank you for the courtesies extended to me today to sit on this 

Committee and listen to the testimony. 

My first question is to Secretary Cohen. According to the GAO 

Compact impact in Guam, Hawaii and the CNMI in 2000 totaled 

$58.2 million, with Guam’s share being $31.5 million. 

Why has Interior limited base Compact-impact payments to 15 

million?

And I might add, Mr. Chairman, and to those present, that this 

15 million is divided three ways, between CNMI, Hawaii and 

Guam.

And the second part of the question is, how costly can we expect 

the migrant census required under Interior’s proposal? And how 

often will these censuses have to be conducted? Why does Interior 

not use available data such as the number of enrolled school children as the basis for allocating funds? 

The reason I am asking about this, Mr. Cohen, is because this 

again, this cost for this census will come out of the 15 million, leaving us short again, and so I just wondered if you could answer 

those two questions. 

Mr. COHEN. Certainly, Congresswoman. Maybe if I can answer 

the second question first. 

We estimate that the censusing cost would be about 1 percent of 

the total amount on average. Actually, it might be less than that 

now because the version of the legislation that is going to be before 

you shortly requires censusing at least every 5 years, so that 

should cut down on the cost of performing these censuses, and the 

intention, of course, is to get an accurate count of, you know, how 

many migrants are in each jurisdiction impacting not only public 

schools, but also, you know, medical services, and law enforcement, 

and other public services. So that is the intention. 

Our hope is that the census dollar amounts are not excessive and 

do not significantly impact on the amount available for the jurisdictions.

With regard to the adequacy of the impact payments, I would 

first point out that the Administration proposal is significantly in 

52

excess of any amounts that Congress has ever authorized for Compact impact. The original Compact Act authorized impact payments 

in such amounts as Congress would determine from time to time. 

So what the Administration is proposing as a mandatory permanent appropriation for the entire life of this program is significantly in excess of anything that has ever been appropriated before. It is an amount below which the—you know, if the legislation 

is passed as presented, it is an amount below which we will not decrease over the life of the program. 

I would also point out that no attempt has ever been made, in 

our view, to give a balanced account of the effect of migration to 

the Pacific jurisdictions. In fact, the methodologies that we have 

used before created, in our view, a perverse incentive to focus only 

on the negative. 

In Guam, Guam, I know full well, is suffering a very severe fiscal 

crisis, and the impact of migrants in Guam is considerable, but, 

you know, I have been through this debate before as a resident of 

California, the effect of illegal immigration and all of that. We 

know that the migrants have a positive impact as well as a negative impact, and we are aware of no study that has been done to 

date that has tried to present a balanced view. 

We think, for example, that in addition to the positive impact 

that migrants have had not only in the Pacific territories but also 

in flourishing communities like the Marshallese community in Arkansas and also in Oklahoma. They make positive impacts such as 

providing a ready supply of labor often for jobs that locals are not 

willing to take. You know, they provide tax revenue. They create 

economic activity. So the story overall is not completely negative. 

We wanted to get out of the business of giving the territories an 

incentive to focus only on the negative in their estimates every 

year.

Also, I would point out that by sending approximately $3.5 billion out to the region over a 20-year period, we are hoping to have 

a positive economic impact on places like Guam and Hawaii. You 

know, we are going to need contractors to do the work. A lot of that 

work by virtue of location should go to Guam-based businesses, Hawaii-based businesses, so we are hoping that there are positive impacts as well. 

The Federal Government, you know, fortunately or unfortunately, does not always fully compensate all of its states and territories for the full impact of policies that it undertakes. For example, you know, my home state of California does not fully—is not 

fully compensated for immigration that occurs over the border, 

which is arguably, you know, a Federal responsibility. 

So it is something that, you know, Guam has been asked to 

shoulder in a very difficult time, but this is the proposal that we 

have had, and we think the $3 million over 20 years is the best 

proposal that the Executive Branch has ever made, and we look 

forward to working with Congress on the issue. 

Ms. BORDALLO. Thank you. Thank you, Mr. Secretary. And certainly I share your views. 

You know, we are all one family out in the Pacific there, and certainly Guam wants to provide all the services just like they would 

53

to anyone else. However, it has been a real burden on our government.

Now, we have come up with some solutions. I recently have a 

proposal here, and I have a letter that has been addressed to you, 

and I was wondering when can we anticipate a response to the 

joint letter? 

This letter is signed by the governor of Guam, myself and the 

speaker of the Guam legislature, and it has to do with Compactimpact, and other ways that we may be able to obtain funding in 

the areas where we are impacted, such as education, health, justice 

department. So I am sure you have that letter. 

Can we anticipate a response soon to that? 

Mr. COHEN. Yes, ma’am. In fact, I signed the response yesterday, 

so it should be——

Ms. BORDALLO. Oh, very good. 

Mr. COHEN. So it should be going out any time, and I am happy 

to share with you the contents. 

As you know, and as a representative of the Administration, I 

cannot take a personal position on any piece of legislation that goes 

through. As you know, the interagency process is controlled by 

OMB. So I cannot say that, you know, my office supports that idea 

or does not. 

But I do appreciate the opportunity that you have given me to 

discuss this, and of course, we discussed it with the Secretary of 

the Interior herself if you recall a couple of months ago, and I think 

it is a very creative approach to the problem, and it addresses the 

specific issues that are raised by migration in a way that I thought 

was very creative, and I guess that is as far as I can go at this 

point.

Ms. BORDALLO. Well, thank you. That is good enough, Mr. Secretary.

And Mr. Chairman, I would like to have this letter entered into 

the record if I could. 

Mr. LEACH. Without objection. 

Ms. BORDALLO. Yes, and I have one more short question, and this 

is for Mr. Short. 

Is there any change in the Compact amendments to the use of 

DoD medical facilities? If FAS citizens cannot use DoD facilities in 

Hawaii and Guam, how will these costs be recovered in the Compact-impact formula? 

Mr. SHORT. There are no provisions in the Compact Act for direct 

DoD use without referrals. There are provisions, as there are now, 

where the government of the Marshalls or the government of the 

FSM can refer personnel to U.S. medical facilities to include the 

one at Kwajalein on a referral basis, and then they are obliged to 

make payment. 

Ms. BORDALLO. I see. Because my experience in serving as Lieutenant Governor of Guam, our military hospital there absolutely 

will not take citizens from Micronesia regardless of referrals as far 

as I know. 

However, I do know that in Hawaii they do accept the patients, 

and I think I have brought this up with Mr. Cohen as well. 

So I just wondered why the regulation requirements are different.

54

Mr. SHORT. I think the important point here is that they have 

to be referred, and also the military facility has to have the capacity to treat those individuals. 

Ms. BORDALLO. Thank you very much. Thank you, Mr. Chairman.

Mr. LEACH. Well, I thank you all, and let me thank the panel. 

Yes, excuse me. Mr. Faleomavaega. 

Mr. FALEOMAVAEGA. One short. 

Mr. LEACH. One short question, yes, sir. 

Mr. FALEOMAVAEGA. I just want, Mr. Short, for the record, about 

the tuna issue. For purposes of clarification if we have got the percentage properly in place so that there is no misunderstanding. So 

that my industry does not go kaput as a result of this oversight, 

can I ask Mr. Short to clarify exactly what is in the provision now 

in the proposed Compact? 

Mr. SHORT. Yes, sir. You are referring here to the tax and trade 

provision, specifically the tuna allocation. That allocation is unchanged from the previous Compact, i.e., 10 percent. 

We are in receipt of your letter and we will be responding to that 

letter promptly. 

Mr. FALEOMAVAEGA. A combined 10 percent for both FSM——

Mr. SHORT. Yes, sir. 

Mr. FALEOMAVAEGA [continuing]. And RMI? 

Mr. SHORT. That is correct. 

Mr. FALEOMAVAEGA. That is how the Compact is going to be written.

Mr. SHORT. No change in the previous Compact arrangement. 

Mr. FALEOMAVAEGA. I thank the gentleman. Thank you, Mr. 

Chairman.

Mr. LEACH. Thank you, Mr. Faleomavaega. 

Thank you all, and I would only stress that the Committee wants 

to work forthrightly to get this approved. We seek to bring as much 

certainty and stability as possible to a situation where the United 

States feels very strongly about this region, and the American people feel very close to the peoples of this region, and we have a 

warm and wonderful relationship, and we want it deepened and 

strengthened.

Thank you all very much. 

[Whereupon, at 3:58 p.m., the Subcommittee was adjourned.] 

(55)

A P P E N D I X 

MATERIAL SUBMITTED FOR THE HEARING RECORD

PREPARED STATEMENT OF THE HONORABLE NICK SMITH, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF MICHIGAN

Chairman Leach, thank you for this opportunity today to visit the Subcommittee 

on Asia and the Pacific with an issue that affects not only a constituent of mine 

from Whitmore Lake, Michigan, but more importantly the rule of law in the Federated States of Micronesia and investor confidence in FSM institutions. Mr. Short, 

Mr. Cohen, Ms. Westin, thank you for coming today to brief us and answer questions on the Compacts of Free Association recently renegotiated between the United 

States and the Micronesian and Marshall Islands. 

The issue as relayed to me by my constituent, Mr. Danny Barrett, is that he obtained a judgment from the Supreme Court of the Federated States of Micronesia 

in the amount of $16,000+ for contract benefits owed him by the State of Chuuk. 

This judgment was issued in 1993, but the State has still refused to pay. I have 

a letter here from 2001 as well, from the Acting Director of the Office of Insular 

Affairs in the Department of the Interior to the Governor of the State of Chuuk urging payment as dictated by the Supreme Court Finding. But this issue has still not 

been addressed. 

Sixteen thousand dollars is a lot of money to my constituent, but even more importantly, its loss discourages American citizens from doing business with member 

states of the FSM and raises some fundamental questions about prospects for economic investment. Furthermore, if these are judgments determined in legitimate 

federal and state FSM courts, the continued refusal of the State of Chuuk or any 

other state to comply raises serious questions about the rule of law. 

It should be noted that in the Senate report accompanying the FY2000 Department of the Interior Appropriations bill, the committee notes ‘‘that for numerous 

years Chuuk State of the Federated States of Micronesia has been seriously delinquent in satisfying various judgment debts against Chuuk.’’

It states further, ‘‘To ensure compliance with payment plans entered into between 

Chuuk and its creditors, the Committee directs the Department to withhold all appropriated funds that would otherwise be available for FSM, unless the Department 

certifies that Chuuk is in full compliance with any known payment plans. This restriction is not limited to pass through funding to Chuuk.’’

Obviously, this has been an ongoing problem. 

I’d like to submit these documents for inclusion in the record. 

I thank you for your assistance and I appreciate your insight. Thank you, Mr. 

Chairman, and I yield back the balance of my time. 

LETTER SUBMITTED FOR THE RECORD BY THE HONORABLE NICK SMITH, A

REPRESENTATIVE IN CONGRESS FROM THE STATE OF MICHIGAN

DANNY P. BARRETT,

WHITMORE LAKE, MI, 

April 30, 2003. 

Hon. NICK SMITH,

Committee on International Relations, 

House of Representatives, Washington, DC. 

DEAR CONGRESSMAN SMITH: I would like to take this opportunity to mention a 

matter that will soon be brought to your attention: the proposed Compact of Free 

56

Association between the United States and the Federated States of Micronesia. The 

Compact will be voted on by Congress. 

A deficiency in the proposed Compact impacts me directly, and will victimize 

other Americans in the future, unless corrected by Congress. 

The United States has been in negotiations with the Federated States of Micronesia to renew the Compact. Of interest to me is the fact that the US is planning 

to continue to give the FSM millions of dollars a year, when that same country will 

not honor a judgment owed me that was issued by its own courts. 

I am a veteran of both the Vietnam War and the Gulf War. I left the military 

after the 

Gulf War, and soon thereafter accepted a position with the State of Chuuk. To 

cut to the end of the story, I obtained a judgment in the FSM Supreme Court, (stipulated to the state government), in the amount of $16, 185 for contract benefits due 

but unpaid. However, in the State of Chuuk only judgment creditors with local political sway are paid. This means that I (as well as most other Americans) do not get 

paid.

Efforts have been made to collect this judgment through court hearings, but obviously to no avail. The FSM courts have been made toothless in this regard. 

The degree to which the State of Chuuk ignores debts owed to Americans is so 

great a problem that the Senate Report (Report 106–99) accompanying Bill S. 1292 

for the Department of the Interior and Related Agencies Bill, 2000 stated on page 

57 that ‘‘the Committee directs the Department to withhold all appropriated funds 

that would otherwise be available for FSM, unless the Department certifies that 

Chuuk is in full compliance with any known payment plans. This restriction is not 

limited to pass through funding to Chuuk. It shall apply to any fiscal year 2000 appropriations for the FSM and to funds available to the Department through previously approved standing or permanent appropriations for the FSM with the exception that this restriction does 

not apply to obligations that are entitled to the full faith and credit of the United 

States under the Compact of Free Association.’’

Such a restriction is consistent with the spirit of 22 U.S.C. § 2370, which prevents 

foreign countries from receiving foreign aid pursuant to Chapter 32 of Title 22 if 

such countries ‘‘are indebted to any United States citizen or person for goods or 

services furnished or ordered’’ where such ‘‘person has exhausted all legal remedies.’’

These congressional directives are of no apparent concern to the politicians in the 

FSM. On February 21, 2001, Acting Director Pula of the Office of Insular Affairs 

wrote Governor Walter of Chuuk regarding this specific judgment. As far as I know, 

the Governor did not even give the letter the dignity of a response, which is the 

same non-response that my lawyer has received to letters to successive Chuuk State 

Directors of Finance. This matter has also been brought to the personal attention 

of FSM Ambassador Marehalau. Again, no response. 

The state of Chuuk remains smug enough about the non-collectability of these 

American debts that they do nothing even during the negotiations for a renewal of 

the Compact, and American negotiators did not press them on it. Since those negotiations were not concluded by the end of the fifteenth year of the Compact—that 

is, November 3, 2001—the Compact allows for an additional period of negotiations. 

The Compact stipulates that the US ‘‘shall continue its assistance . . . at a level 

which is the average of the amounts granted.’’ In other words, the FSM as a whole, 

which was receiving $80 million in US assistance this past year, can expect to receive $97 million annually during the next two years. This means an increase of 

over $34 million over the two-year extension period. 

This money will be in addition to the $2 billion the U.S. has given to FSM over 

the past fifteen years which has been largely wasted by the politicians, while thousands of Micronesians are leaving for Guam and Hawaii, thereby overloading the 

school and medical systems there. 

Apparently the politicians of the State of Chuuk are going to continue to be supported by U.S. tax dollars while Americans have uncollectable judgments issued by 

FSM courts. This cannot be right, and I and other American citizens and companies 

need your Intervention to assist Director Pula of the Office of Insular Affairs and 

others who are concerned about this issue. 

As earlier noted, the problem is not just mine. It is critical for future investment 

by American firms in that country. If judgments of the courts are worthless, how 

can American investment be expected? 

The solution is a simple one. A Compact amendment needs to be made by Congress that provides that any American citizen who submits to the Office of Insular 

Affairs, United States Department of the Interior, an attested copy of a judgment 

of a state or national court of the Federated States of Micronesia that is at least 

two years old, and by affidavit states that (a) the affiant is an American citizen and 

57

is the judgment creditor of that judgment; (b) that the defendant is a state of the 

Federated States of Micronesia, or the national government of the Federated States 

of Micronesia, or an agency of one or both governments; and (c) that the judgment 

remains unpaid in whole or part. Upon receipt of such documentation, the Office 

of Insular Affairs shall notify the identified defendant of the judgment and related 

documents submitted, and allow the defendant a period of 90 days to prove that the 

judgment has been submitted, the Department of Interior shall withhold funding for 

the government involved in sufficient amounts to pay both principal and interest of 

the specified judgment, and shall pay that sum as directed by the judgment holder. 

Unless such an enforcement mechanism is in place, judgments held by American 

citizens will continue to be ignored. 

My judgment was only for $16,000+. That is a lot of money to me, but not to the 

Chuuk government. Right now, Jack Fritz, the longtime Speaker of the National 

Congress and one of the Chuuk representatives, recently pled not guilty for allegedly stealing more than that. His trial will be set for later this year. 

Please support passage of such an amendment, which is in the interests of American trying to do business in the FSM, as well as an encouragement for needed 

American investment in those islands to stem the flow of islanders leaving to look 

for jobs in the United States. 

Sincerely,

DANNY P. BARRETT.

LETTER TO GOVERNOR ANSITO WALTER, STATE OF CHUUK, CHUUK, FM, FROM THE

UNITED STATES DEPARTMENT OF THE INTERIOR, OFFICE OF THE SECRETARY, DATED

FEBRUARY 27, 2001 SUBMITTED FOR THE RECORD BY THE HONORABLE NICK SMITH,

A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MICHIGAN

UNITED STATES DEPARTMENT OF THE INTERIOR,

OFFICE OF THE SECRETARY,

Washington, DC, February 27, 2001. 

Hon. ANSITO WALTER, Governor,

State of Chuuk, 

Chuuk, FM. 

DEAR GOVERNOR WALKER: My office has received letters from Palau Supreme 

Court Associate .Justice Barrie Michelsen, formally a private attorney in the FSM, 

regarding collection of a judgement owed an American citizen. A copy of the judgment is attached. For many years Attorney Michelsen and his client have unsuccessfully attempted to collect on this judgement. 

Your administration has taken a number of steps to restore Chuuk State’s credibility by paying its accumulated debts. Because of your efforts, this office to date 

has assured the United States Senate Committee on Appropriations, which addressed the issue in a committee report, that creditors have been satisfied. The Senate remains concerned with this issue, and the subject will clearly have currency 

as new compact funding is considered in Congress. 

.Justicc Michelsen’s complaints must be taken seriously. I will appreciate it if you 

would investigate this outstanding judgement and direct that appropriate actions 

are taken to satisfy it. 

Sincerely,

NIKOLAO PULA, Acting Director, 

Office of Insular Affairs.

Cc: Associate Justice Barrie Michelsen 

Ambassador Jesse Marehalau 

Allen Stayman, Director OCN 

58

COPY OF JUDGMENT, DANNY P. BARRETT V. STATE OF CHUUK, SUBMITTED FOR THE

RECORD BY THE HONORABLE NICK SMITH, A REPRESENTATIVE IN CONGRESS FROM

THE STATE OF MICHIGAN


87792d.eps
59

PREPARED STATEMENT OF THE HONORABLE MADELEINE Z. BORDALLO, A

REPRESENTATIVE IN CONGRESS FROM GUAM

Mr. Chairman: Thank you for allowing me to participate in this hearing. I would 

like to commend you and Ranking Member Faleomavaega for your leadership on 

issues affecting the Asia Pacific region, and for your interest in the Compacts of 

Free Association between the United States and the Federated States of Micronesia 

and the Republic of the Marshall Islands. 

I strongly support the renewal of the Compact agreements and the continued economic assistance to the Compact States. Guam is the closest neighbor to the Federated States of Micronesia and the Republic of Palau, and we have seen the 

progress that the Freely Associated States (FAS) have made under their respective 

Compact agreements. As we review the record of accomplishments under the fifteen 

year agreement, we should also weigh the issues and concerns that have been raised 

regarding economic and social development. 

One of the major concerns for Guam is the reimbursement of costs incurred by 

Guam due to the Compact. I understand that the agreements that have been negotiated by the State Department may address some of the issues regarding passport 

requirements for FAS citizens, but the unrestricted migration provisions may be unchanged. The Government of Guam has incurred significant costs over the past seventeen years due to this migration, and we have been inadequately reimbursed by 

the federal government. The immigration policy should go hand in hand with an 

adequate reimbursement policy for Compact-impact costs. 

I have other concerns regarding the changes that the Administration may propose 

and I would seek clarification on how these changes would improve the economic 

viability of the Freely Associated States. I am concerned about proposed changes to 

participation is disaster relief programs under the Stafford Act, and on changes to 

participation in other federal grant programs. Will these changes contribute to the 

future well being of the Compact States, or are these changes driven by budget constraints? Is there an overall policy which defines which federal programs are appropriate for the Compact States, or is this an issue that is defined on a program by 

program basis? As the Congressional review process goes forward, I hope these concerns would be addressed. 

Finally, I am interested in how Compact assistance will be administered and 

whether new measures intended to increase accountability will work. Guam’s experience with the Compact-impact issue is a warning that we have to be on guard 

against the law of unintended consequences because it may be very difficult to foresee how policies made in Washington work in the islands. If experience is the guide, 

then Guam’s experience has been that Compact issues are nearly impossible to revisit if we do not get this right the first time. 

PREPARED STATEMENT OF RICHARD LAWLESS, DEPUTY ASSISTANT SECRETARY OF DEFENSE FOR ASIAN AND PACIFIC AFFAIRS, OFFICE OF THE ASSISTANT SECRETARY OF

DEFENSE FOR INTERNATIONAL SECURITY

Mr. Chairman, the Department of Defense has a deep appreciation of the significance of our relationship with the Freely Associated States (FAS)—the Republic of 

the Marshall Islands, the Federated States of Micronesia, and Palau. This appreciation has deep roots, as we remember those brave American servicemen who gave 

their lives to liberate these islands during World War II. During the Cold War, 

these islands and peoples also played a critical role in the development of crucial 

US defense programs in the 1950s and 1960s. Even now, FAS citizens are playing 

an important role in the development of U.S. missile defenses which will guard the 

U.S. and its friends and allies in the decades to come. Moreover, FAS citizens are 

also involved in the war on terrorism and in the liberation of Iraq, serving alongside 

American servicemen and women in the U.S. armed forces. 

DEFENSE RELATIONSHIP WITH THE FAS

Let me briefly describe our relationship with the FAS and the unique U.S. defense 

responsibilities to these sovereign nations under the terms of the Compact of Free 

Association. The Compact, and its subsidiary agreements, obliges the United States 

to provide for the defense of the Freely Associated States in perpetuity, unless there 

is mutual agreement to terminate the arrangement. We are committed to defending 

and providing for the security of 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. In return, the United 

60

States has the right for certain military uses and access, as well as the right to deny 

access to third countries. 

In the absence of the Compact or, more specifically, the Security and Defense Relations Title of the Compact, the Mutual Security Agreement (MSA) still provides 

for the U.S. defense obligations, U.S. military access, and the denial of military access by third countries. The MSA is indefinite in duration and remains in force until 

terminated or amended by mutual agreement. The so-called ‘‘defense veto’’ and provisions regarding future base rights, however, are scheduled to terminate with the 

expiration of the Security and Defense Relations Title of the Compact no later than 

30 September 2003 unless this Title is extended. It is in the best interests of the 

United States to maintain the full range of military access and security engagement 

options that the Compact provides. 

In addition, U.S. rights for access and operations on Kwajalein Atoll were negotiated under the Military Use and Operating Rights Agreement (MUORA) pursuant 

to, but separate from, the Compact. The MUORA had an original term of 15 years 

that was due to expire in 2001. Given the importance of the agreement, the U.S. 

opted in 1999 to extend the MUORA for an additional term of 15 years to 2016. 

When it became clear in 2002 that the Government of the Marshall Islands was 

interested in concluding a long-term extension to the MUORA, the U.S. decided to 

take the opportunity to secure needed access beyond 2016. The U.S. and the Marshall Islands have since negotiated an extended MUORA which will provide us with 

continued access to the Kwajalein Atoll defense sites until at least 2066, and possibly to 2086at the U.S.’ option. It is important to note that, because the Department of Defense was unable to project our specific requirements for Kwajalein Atoll 

beyond the mid-2020’s, this long-term extension to the MUORA was negotiated with 

a flexible early termination clause. Under this clause, the DoD can terminate the 

MUORA as early as 2024 with seven years advance notice. The DoD believes that 

this clause is a prudent measure that provides us with the necessary flexibility to 

enter into an 70-year extended term agreement when the specific longer-term uses 

are not clearly known. 

While the Kwajalein lease could have been extended under the MUORA separate 

from Compact negotiations, the two are nevertheless inextricably linked. The daily 

routine at the Kwajalein Missile Range and the facilities on Kwajalein Atoll depends upon a favorable working relationship with the people of the Marshall Islands. Provisions of the Compact help provide the basis for U.S. support to the 

Marshallese people who also provide much of the labor force at Kwajalein. The Compact therefore contributes to a positive local attitude towards Kwajalein. 

The primary goal of the Compact and the assistance provided under it is to maintain a unique relationship with the Freely Associated States while helping them to 

become economically self-sufficient. Continued Compact assistance will nevertheless 

help to preserve key defense interests while denying access to potentially hostile 

forces. Continuing the Compact is in the best interest of the United States and the 

Freely Associated States. It will help the Freely Associated States continue to work 

toward their national goals, while serving our national security interests. 

STUDY OF DEFENSE INTERESTS IN THE FAS

In 1999, in preparation for the Compact of Free Association renewal, the Department of Defense conducted a study to determine our defense interests in the Freely 

Associated States for the post-2001 era. The study looked at issues such as the need 

for continued access, current and future threats, and roles that the Freely Associated States might play in future scenarios. The study found an important defense 

interest in continuing the use of the Kwajalein Missile Range and the facilities on 

Kwajalein Atoll. The requirements of our missile defense and space surveillance programs, combined with the uniqueness of Kwajalein’s location, and infrastructure investment make renewal of the Compact in the best interest of the Department of 

Defense.

The strategic environment that surrounded the study has changed greatly over 

the past four years, but these changes only reinforce the importance of U.S. access 

to and use of the Kwajalein Missile Range. 

QUADRENNIAL DEFENSE REVIEW

The 2001 Department of Defense Quadrennial Defense Review (QDR) recognized 

that the world has changed and that America must prepare for a wide array of 

threats to our security at home and abroad. As witnessed by the terrorist attacks 

of September 11th, the future security environment will be marked by uncertainty. 

The QDR’s assessment of the global security environment acknowledges a great deal 

of uncertainty about the potential sources of military threats, the conduct of war 

61

in the future, and the form that the threats and attacks against the U.S. will take. 

While contending with such uncertainty is a key challenge for U.S. defense planning, certain features and trends of the security environment define not only today’s 

geopolitical and military-technical challenges but also highlight critical operational 

challenges that the nation’s armed forces will need to master in the future. Maintaining the Compact will support our efforts to confront these future challenges by 

providing us with the right for military use and access and with the right of strategic denial. 

The QDR identifies Asia as a region that is gradually emerging as an area susceptible to large-scale military competition. It also identifies an ‘‘arc of instability’’ 

stretching from the Middle East to Northeast Asia containing a volatile mix of rising 

and declining regional powers where the governments may be vulnerable to overthrow by radical or extremist internal forces or movements. Many of these states 

also field large militaries and possess the potential to develop or acquire weapons 

of mass destruction. The QDR sees a possibility that a military competitor to the 

U.S. with a formidable resource base may emerge in the region. 

Distances in the Asian theater are vast, and the density of U.S. basing and en 

route infrastructure is lower than in other critical regions. The U.S. has less assurance of access to facilities in the Asia-Pacific region than in other critical regions 

of the world. The QDR therefore identifies the necessity of securing additional access and infrastructure agreements and developing military systems capable of sustained operations at great distances with minimal theater-based support. 

When Secretary Rumsfeld came into office, the President charged him with evaluating U.S. military posture in the world, and the QDR calls for a reorientation of 

our posture in Asia. The U.S will continue to meet its commitments around the 

world, including in Southwest and Northeast Asia, by maintaining the ability to defeat aggression in two critical areas in overlapping timeframes. As this strategy and 

force planning approach is implemented, the U.S. will strengthen its forward deterrent posture. Over time, U.S. forces will be tailored to maintain favorable regional 

balances in concert with U.S. allies and friends with the aim of swiftly defeating 

attacks with only modest reinforcement. A key objective of U.S. transformation efforts will be to increase the capability of its forward forces, thereby improving their 

deterrent effect and possibly allowing for reallocation of forces now dedicated to reinforcement of other missions. 

Inevitably, our ability and flexibility with regard to deploying forces forward will 

depend on access, which the Compact provides. While it is too soon to say whether 

the FAS will be considered as candidates for increased U.S. access or basing in the 

region that the QDR calls for, the fact remains that our rights under the Compact 

provides for this possibility. In this region of instability and potential conflict, the 

U.S. right of strategic denial under the Compact, whereby the U.S. can deny third 

countries access to the FAS, is also significant. Strategic denial effectively creates 

a stable and secure zone across a broad swath of the Western Pacific. It is reassuring to the Department of Defense in this period of uncertainty to have this stable 

region in the mid-Pacific in which we can deny access rights to any potentially hostile third country. 

MISSILE DEFENSE

Another important change since the 1999 study was the December 2001 announcement by President Bush that the United States would withdraw from the 

Anti-Ballistic Missile (ABM) Treaty. The President took this step as part of a broader change in our defense policy to reflect new threats that we face. As a result of 

the withdrawal we are now free to develop, test, and deploy effective defenses 

against missile attacks from rogue states like North Korea and Iran—states that 

are investing a large percentage of their resources to develop weapons of mass destruction and offensive ballistic missiles at the expense of the basic needs of their 

people. The scope of this growing threat to the U.S. and our allies and friends is 

compounded by the fact that the states that are developing these terror weapons 

have close links to a variety of terrorist organizations. States or even non-state actors could use container ships to launch shorter-range missiles against our territory. 

As the President said in his State of the Union Address, we must not allow the 

world’s most dangerous regimes to threaten us with the world’s most dangerous 

weapons.

The missile defense program is now executing an aggressive research, development, test, and evaluation (RDT&E) program focusing on a single integrated ballistic missile defense system designed to defend the territories and deployed forces 

of the U.S., allies and friends against ballistic missiles of all ranges and in all 

phases of flight. As previously noted, the Kwajalein Atoll, home to the Ronald 

62

Reagan Ballistic Missile Defense Test Site, provides a unique venue for live testing 

of missiles of all ranges because of its location and specialized, state-of-the art datagathering devices. Access to the Kwajalein Atoll is currently set to expire in 2016. 

However, our missile defense and space programs, and including those on Kwajalein, are programs with a long-lead time, we forecasted that we would need Kwajalein well beyond the 2016 date. As we continue to test and develop our missile defense system and capabilities, the Kwajalein Atoll will remain a significant test resource for future missile defense testing. 

After considering these changes in the strategic environment since the 1999 

study, DoD’s reassessment in 2002 determined that the study was still valid. I 

would argue that the results of the reassessment are somewhat understated. If it 

is at all possible, I believe that the changes in the strategic environment have only 

made our defense interests in the FAS even more important. 

CONCLUSION

It would be unwise to assume that the end of the Cold War or events since then 

have lessened the strategic importance of the FAS to U.S. national security interests, for as the QDR notes uncertainty will mark the future security environment. 

Further unrest and points of potential military conflict continue to dot the Asia-Pacific landscape. North Korea’s current hostile posture is an unfortunate illustration 

of the dangerous uncertainty in the region, particularly since North Korea retains 

the offensive capability of inflicting massive damage on the South in short order. 

Territorial disputes in the South China Sea and Northeast Asia remain unresolved 

and provide potential flashpoints. Indonesia’s road toward democracy faces challenges as calls for separatism have led to fierce fighting in Aceh and other provinces, and communal violence continues throughout the archipelago. In recent years, 

we have seen the violent abandonment of the constitutional process in Fiji and in 

the Solomon Islands, which is currently teetering on the brink of becoming a failed 

state. Terrorist forces are present in many countries in Southeast Asia: the Philippines, Indonesia, and even in Singapore. September 11th has taught us that there 

is no unimportant place on the globe. Our inability to see into the future with perfect clarity, therefore, makes the continuation of our defense rights in the FAS essential. Our right to prevent the basing of third country military forces must also 

be maintained. 

We must strive to move this region toward peace and stability. Our task is to 

dampen the sources of instability by maintaining a policy of robust forward deterrence and military presence, while searching for new opportunities to increase confidence and a spirit of common security. In time of peace, our responsibility also extends to taking actions that develop a strategic environment that will sustain this 

peace and prevent conflict over time. This is both the challenge and the opportunity 

we face. 

QUESTIONS SUBMITTED FOR THE RECORD TO ALBERT V. SHORT, DIRECTOR, OFFICE OF

COMPACT NEGOTIATIONS, U.S. DEPARTMENT OF STATE, BY THE HONORABLE JAMES

A. LEACH, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF IOWA, AND CHAIR- MAN, SUBCOMMITTEE ON ASIA AND THE PACIFIC, AND MR. SHORT’S RESPONSES

Mr. Leach’s Question: 

What would be the impact on the two countries of losing eligibility for Federal education programs, particularly Pell Grants? How might this impact the broader Compact goals of economic self-sufficiency? Do you know if such a program cut-off is currently being contemplated? 

Mr. Short’s Response: 

It is difficult to determine the precise impact on the Republic of the Marshall Islands (RMI) and the Federated States of Micronesia (FSM), and on the Compact 

goals of economic self-sufficiency, if these entities are no longer eligible for programs 

funded by the Department of Education, because we do not know how the RMI or 

FSM will choose to use the funds they receive under the new Compacts for educational purposes. Under Section 211(c) of the new Compacts, each country would 

submit an overall development plan to its respective U.S./RMI or U.S./FSM oversight committee explaining how it would spend Compact funds in the education sector, a priority area under the Compacts. Article II, paragraph 1(a) of the Fiscal 

Services Agreement sets forth a broad range of allowable activities that may be supported with the education sector grant, including improving the educational system 

at all levels of education, providing secondary education or vocational training to 

qualified students, and teacher training. 

63

1 January 2002 GAO report, Foreign Assistance, Effectiveness and Accountability Problems 

Common in U.S. Programs to Assist Two Micronesian Nations, pp. 13–14. 

Based on the Department of Education’s experience and reports from the General 

Accounting Office (GAO), the RMI and FSM have used Compact funds to pay expenses such as school construction, maintenance and repairs of schools, and teacher 

salaries, although Compact funds have also been used for other activities such as 

special education.1 Activities supported by Department of Education grants across 

program areas have included curriculum development, school supplies, educational 

materials, teacher training, and special education expenses. Thus, the loss of eligibility of Department of Education funds may mean that the RMI and FSM will have 

to focus more Compact funds or local resources on direct services to children. 

Pell Grants, which also provide grant assistance for RMI and FSM residents to 

attend U.S. colleges and universities, provide significant support to the College of 

the Marshall Islands and the College of Micronesia. Residents of the RMI and FSM 

will remain eligible for Pell Grants after the Compacts take effect (presumably 10/

1/03), under the current provisions of title IV, Part A, Subpart I of the Higher Education Act of 1965 (HEA). These provisions will expire on September 30, 2004. At 

this time, the Department of Education has not developed a reauthorization proposal for the HEA, including title IV. 

Mr. Leach’s Question: 

The Department of State has indicated its intent to increase staffing dedicated to 

administering and overseeing future Compact assistance. What is the Department’s 

potential, contemplated staff increase, and how was the determination made that this 

was the appropriate level of staff? Where will the additional staff be located, and on 

what basis was that location chosen? How much are those plans expected to cost? 

Mr. Short’s Response: 

As part of Compact implementation, the Bureau for East Asian and Pacific Affairs 

will create a Freely Associated States (FAS) unit within the Office of Australia, New 

Zealand and Pacific Island Affairs (ANP). We will draw from current ANP staff, 

with a devoted deputy director and a country officer assigned to the unit. The bureau is seeking a full time economist position for the unit as well. Salary and benefits for the proposed economist position would be approximately $100,000 per year, 

plus approximately $15,000 in start-up costs. 

Mr. Leach’s Question: 

How is Congress’ authority changed under the new Compact? For example, under 

the new Compact and the anticipated implementing legislation, can any of the agreements (such as the military use, fiscal procedures, or trust fund agreements) be 

amended without Congressional approval? How does that compare with the Congressional role under the old Compact? 

Mr. Short’s Response: 

Under both P.L. 99–239 and the proposed amended legislation, no change to the 

FSM and RMI Compact(s) may enter into force until after Congress has incorporated it into an Act of Congress (see section 101(d)(1) and (2)(a) of P.L. 99–239 

and the proposed legislation). The same rule applies to changes to the Mutual Security agreements with the FSM and RMI (see section 101(d)(2)(B)) and to changes 

to the section 177 Agreement with the RMI resolving claims arising from nuclear 

testing in the RMI (section 101(d)(2)(C)). 

Under the proposed legislation, this rule would no longer apply to the FSM and 

RMI Law Enforcement subsidiary agreements but would apply to the new agreements regarding the trust funds with the two countries (section 101(d)(2)(C)). Similarly, under the proposed legislation, the rule would continue to apply to specified 

sections of the Military Use and Status of Forces agreements with the two countries 

but would no longer apply to portions of the telecommunications or federal programs 

agreements or to the section 234 agreement (see section 101(d)(2)(D)). 

For portions of the subsidiary agreements that were not covered by the rule in 

section 101(d)(2), P.L. 99–239 provided that some specified provisions could not be 

amended without providing Congress 30 days in which to pass a joint resolution of 

disapproval. Any agreement to change any other provisions in the subsidiary agreements could not take effect until transmitted to Congress with an explanation. The 

proposed legislation would provide that any portion of the subsidiary agreements 

not identified in section 101(d)(2) may not take effect until transmitted to Congress 

with an explanation.

64

Compact of Free Association 

Federates States of Micronesia (FSM) and Republic of the Marshall Islands (RMI) 

Congressional Involvement in Agreement Change/Amendment 

Requires Congr. 

Action

Requires Congr. 

Notification

Compact as Amended X

Federal Programs and Services Agreement including X 

• Postal Services and Related Programs 

• Weather Service and Related Programs 

• Civil Aviation Safety Service and Related Programs 

• Civil Aviation Economic Services and Related Programs 

• United States Disaster Preparedness and Response Services 

and Related Programs 

• Telecommunications Services and Related Programs 

• Federal Deposit Insurance Corporation (FSM Only)

Law Enforcement Agreement (Section 175(a)) X

Labor Agreement (Section 175(b)) X

Fiscal Procedures Agreement X

Trust Fund Agreement X

Military Use and Operating Rights Agreement X

Status of Forces Agreement (certain 

sections)

X

Section 462(a) list : 

• 177 (RMI only) X 

• Persons Displaced as a result of U.S. Nuclear Testing 

Programs (RMI) 

X

• Resettlement of Enjebi Island (RMI) X 

• 234 Agreement X 

• Mutual Security Pursuant to Sections 321 and 323 X 

• Marine Sovereignty and Jurisdiction (FSM) X 

Notes:

1. Agreements apply to both FSM and RMI except as noted. 

2. Chart based on Compact Act as submitted to U.S. Congress. 

July 10, 2003

Mr. Leach’s Question: 

In your view, do the FSM and the RMI have the technical capabilities necessary 

to meet the terms of future assistance by this fall? For example, will they be able to 

establish appropriate performance measures and implement grant conditions in 

areas such as financial management standards or procurement? 

Mr. Short’s Response: 

We expect that the FSM and RMI will have the technical capability to fulfill the 

requirements of future assistance. The new provisions include standard requirements for managing Federal financial assistance, the same requirements to which 

state and local governments in the United States are subject when they receive 

grants from the federal government. These requirements include the authority of 

the U.S. Government to enforce compliance, and thus protect against waste, fraud 

and abuse. This key element was missing in the first negotiated Compact financial 

assistance arrangement. 

65

The RMI and FSM have had considerable experience with several U.S. federal 

programs and these same requirements and remedies; hence little is new to them 

at a professional level. A new element that should help ensure improved performance is the creation of joint management boards that will make determinations on 

the annual allocation of Compact funds among six sectors and will ensure both program and economic performance goals are being addressed and closely monitored. 

One of the six sectors is capacity building, allowing the United States and the freely 

associated states to identify deficiencies in technical and management capabilities 

and direct resources toward specific problems areas. This funding will be further 

augmented by technical assistance in a variety of areas provided by the Department 

of the Interior, including but not limited to financial management (including procurement), economic and statistical collection and analysis, operations and maintenance of infrastructure, planning and budgeting, and economic development. Interior has already provided technical assistance funding this past year. 

Mr. Leach’s Question: 

I understand that the U.S. and the Marshall Islands took the Compact renegotiation as an opportunity to extend the U.S. lease of the missile testing site at Kwajalein for an additional 50 years, with an option for 20 beyond that. What agency will 

be responsible for seeking authorization and appropriations to pay for access to 

Kwajalein after 2023 as established in the amended Compact? 

Mr. Short’s Response: 

The Administration’s amendments to the Compact which include the Military Use 

and Operating Rights Agreement, now before the Congress, do not change the method of funding or the Department of the Interior’s responsibility for the oversight and 

control of all Compact funding from what is currently provided. The Administration’s proposed amendments cover the full term of Compact financial assistance, 

which includes the 50/20 year lease option extensions of the Kwajalein Missile 

Range. Enactment of the Administration’s amendments will not require a new authorization after 2023 to extend the Kwajalein lease terms; the extension is included 

in the Administration’s amendments. 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD BY THE OFFICE OF COMPACT

NEGOTIATIONS

POLICY REGARDING THE RELATIONSHIP BETWEEN CERTAIN U.S. FEDERAL PROGRAMS

AND THE COMPACT OF FREE ASSOCIATION, AS AMENDED, WITH THE FEDERATED

STATES OF MICRONESIA (FSM) AND THE REPUBLIC OF THE MARSHALL ISLANDS (RMI)

Under section 221(b) of Title Two of the amended Compact we have recently 

signed with the FSM and RMI, to the extent authorized by the Congress of the 

United States, the Government of the United States would make available to the 

FSM/RMI the services and programs that were available on the effective date of the 

Compact, as amended. 

This provision keeps the door open for the continuing eligibility of the FSM/RMI 

for U.S. federal programs, to the extent provided by the Congress. It does not assume that particular federal programs are to be continued nor does it operate to 

reinstate any programs that terminated prior to the effective date of the Compact, 

as amended. It does acknowledge the role of Congress in determining the appropriateness, continuing applicability, and funding for such programs in the future. 

The amended Compact, to be submitted by the Administration to Congress for 

passage, would provide continued economic support to the FSM/RMI. While the Administration was aware of the level, type, and status of existing federal programs 

when formulating the Title Two assistance, the amount of the assistance was not 

specifically structured to substitute for or replace existing programs, nor intended 

to express a view with respect to continuation or reauthorization of any federal program.

The Administration, including agencies administering federal program funds to 

the FSM/RMI, will continue to update Congress on the appropriateness and effectiveness of federal programs and U.S. funding to the FSM/RMI. 

66

QUESTIONS SUBMITTED FOR THE RECORD TO DAVID B. COHEN, DEPUTY ASSISTANT

SECRETARY OF THE INTERIOR FOR INSULAR AFFAIRS, U.S. DEPARTMENT OF THE IN- TERIOR, BY THE HONORABLE JAMES A. LEACH, A REPRESENTATIVE IN CONGRESS

FROM THE STATE OF IOWA, AND CHAIRMAN, SUBCOMMITTEE ON ASIA AND THE PA- CIFIC, AND MR. COHEN’S RESPONSES

Mr. Leach’s Question: 

The Department of the Interior has indicated its intent to increase staffing dedicated to administering and overseeing future Compact assistance. What is the Department’s potential, contemplated staff increase, and how was the determination 

made that this was the appropriate level of staff? 

Mr. Cohen’s Answer: 

The Compact implementation team will be composed of nine staff members. A program specialist was hired prior to fiscal year 2003 and is located in the United 

States Embassy in Pohnpei, FSM. One position was recently filled in Washington 

by a senior grants manager, who will serve as the overall program coordinator. Five 

positions are currently being recruited for an office in Honolulu and should be filled 

before the end of August. These include two financial positions with accounting/auditing backgrounds and one program specialist with an economics background. We 

are also recruiting two program specialists for the Honolulu office, one with a background in health care and one with a background in education. We are also currently recruiting a program specialist to be placed in the United States Embassy 

in Majuro, Republic of the Marshall Islands. Finally, we expect to fill a sixth position in Honolulu early next year, which will be for an engineer to help monitor and 

oversee infrastructure development. In summary, the total increase in permanent 

staff will be nine positions, of which six will be located in Honolulu, one in Pohnpei, 

one in Majuro, and one in Washington, D.C. If we need additional help, particularly 

in the early stages of Compact implementation, we can obtain it through temporary 

positions, reimbursable arrangements with other Federal agencies, or contractual 

arrangements.

The determination of the appropriate level of staffing was made after considerable 

input from external sources and internal discussion within the Department, including comparisons of the staff to dollars ratios in similar financial assistance programs. OIA also evaluated and sought input regarding the mix of personnel; thus 

there will be specialists in the three major sector areas under the Compact: health, 

education and infrastructure as well as personnel with strong financial backgrounds. Feedback from several sources indicated a strong need for some permanent 

on-site personnel. This resulted in a decision to place generalists in each of the embassies, who will constantly receive and evaluate information on the ground and either take necessary action to correct problems or pass information to the appropriate specialists. The single position in Washington will serve an overall coordinating role. OIA’s staffing proposal was reviewed and approved by the Department, 

by the Office of Management and Budget and by the Congress in the appropriations 

process.

Mr. Leach’s Question: 

Where will the additional staff be located, and on what basis was that location 

chosen?

Mr. Cohen’s Answer: 

The nine positions will be located as follows: one in Washington, D.C. (program 

coordinator), six in Honolulu (two auditor/accountants, three program specialists 

and one engineer), one in Majuro (program specialist) and one in Pohnpei (program 

specialist). A position in Washington is necessary because (1) the budget process occurs in Washington, (2) all disbursements are made from Washington, (3) interagency group coordination take place in Washington and (4) day-to-day liaison with 

the Department of State is facilitated in Washington. 

There were a number of reasons for the decision to place the majority of positions 

in Honolulu. One reason is to avoid duplication by not having to replicate staff in 

both freely associated states. The Honolulu location is the one place in the United 

States with business day overlap with the freely associated states, Washington, D.C. 

and the West Coast with its Region Nine offices. Region Nine plays a coordination 

role for Federal programs, and Honolulu is where programs are based that serve 

the freely associated states. In-depth institutional knowledge regarding the freely 

associated states can be found in Honolulu at the East West Center, the University 

of Hawaii, the U. S. Army Corps of Engineers and in hospitals experienced in medical referrals. Another very important reason is the ability to recruit and retain high 

quality professional staff on a permanent basis. The Honolulu team will be able to 

67

travel frequently to the freely associated states. While travel costs are high from 

Honolulu, additional travel costs are offset by not having to supply permanent housing, post differential, home leave, and education for dependents that come with foreign posts. The placement of personnel in Honolulu avoids additional costs such as 

permanent changes of station associated with a much higher anticipated turnover 

rate for personnel in remote locations. We decided, however, to maintain a Department of the Interior official in each of the embassies to ensure a continuous on-site 

presence and close coordination at all times with the United States ambassadors 

and their staffs. 

Mr. Leach’s Question: 

How much are those plans expected to cost? 

Mr. Cohen’s Answer: 

We budgeted $800,000 to establish the offices in fiscal year 2003 and an addi- tional $900,000 to fully fund all positions in fiscal year 2004. Thus we estimate the 

total cost for full operations of the Compact implementation team will be approximately $1.7 million annually. 

Mr. Leach’s Question: 

In your view, do the FSM and the RMI have the technical capabilities necessary 

to meet the terms of future assistance by this fall? For example, will they be able to 

establish appropriate performance measures and implement grant conditions in 

areas such as financial management standards or procurement? 

Mr. Cohen’s Answer: 

We believe that the FSM and RMI have the technical capability to fulfill the requirements of future assistance. The new provisions include standard requirements 

for managing Federal financial assistance, the same requirements to which state 

and local governments in the United States are subject when they receive grants 

from the Federal government. These requirements include the authority of the Department of the Interior to enforce compliance, and thus protect against waste, 

fraud and abuse. This is an element that was missing in the first negotiated Compact financial assistance arrangement. The RMI and FSM have had considerable experience with numerous United States Federal programs and these same requirements and remedies, so there is very little that will be new to them at a professional 

level. One new element that should help ensure improved performance is the creation of joint management boards that will make determinations on the annual allocation of Compact funds among six sectors and will ensure both program and economic performance goals are being addressed and closely monitored. One of the six 

sectors is capacity building; this will allow the United States and the freely associated states to identify deficiencies in technical and management capabilities and direct resources toward specific problems areas. This funding will be further augmented by technical assistance in a variety of areas provided by the Department 

of the Interior, including but not limited to financial management (including procurement), economic and statistical collection and analysis, operations and maintenance of infrastructure, planning and budgeting, and economic development. Interior has already provided technical assistance funding this past year that will aid 

the freely associated states in complying with new Compact fiscal and reporting requirements. In meetings in Honolulu subsequent to the hearing, the FSM Secretary 

of Finance stated that the Federated States of Micronesia will be ready to comply 

with the requirements by October 1, 2003. 

In summary, the Department of the Interior has a great deal of confidence in the 

abilities and the dedication of the governments of the freely associated states and 

believes that the new Compact provisions and oversight personnel will deliver the 

more stringent accountability we all desire. 

QUESTIONS FOR THE RECORD SUBMITTED TO SUSAN S. WESTIN, MANAGING DIRECTOR,

INTERNATIONAL AFFAIRS AND TRADE, GENERAL ACCOUNTING OFFICE, BY THE HONORABLE JAMES A. LEACH, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF

IOWA, AND CHAIRMAN, SUBCOMMITTEE ON ASIA AND THE PACIFIC, AND MS.

WESTIN’S RESPONSES

Mr. Leach’s Question: 

What would be the impact on the two countries of losing eligibility for Federal education programs, particularly Pell Grants? How might this impact the broader Compact goals of economic self-sufficiency? Do you know if such a program cutoff is currently being contemplated? 

68

Ms. Westin’s Response: 

We have reported that the U.S. Department of Education provided grant funding 

to the FSM and the RMI through a variety of programs, including adult education, 

honors scholarships, client assistance, special education, vocational education, federal work study, and Pell Grants. Pell Grants have been the largest U.S. education 

program. Pell Grants provided 13,704 students with grant assistance to attend the 

College of Micronesia (a 2-year, U.S. accredited college) in the FSM between 1988 

and 2000. About 85 percent of the College’s students received Pell Grants. In the 

RMI, Pell Grants provided 4,375 students with grant assistance to attend the College of the Marshall Islands (a 2-year, U.S. accredited college) between 1993 and 

2000, where more than 90 percent of the students received Pell Grants. In both 

countries, Pell Grants were the major source of funding for their college and loss 

of Pell Grants would bankrupt the colleges and eliminate the sole opportunity for 

most citizens to obtain a local, U.S. accredited college education. Further, Pell 

Grants also provided grant assistance for FSM and RMI students attending U.S. colleges. U.S. embassy, FSM, and RMI officials told us that U.S. educations programs 

were critical and the countries were dependent on the U.S. program assistance. For 

example, according to FSM and RMI officials, the loss of U.S. programs would end 

special education assistance, the poorly supplied school systems might stop functioning entirely, an the sole U.S.-accredited colleges in the FSM and the RMI might 

collapse.

Mr. Leach’s Question: 

How is Congress’s authority changed under the new Compact? For example, under 

the new Compact and the anticipated implementing legislation, can any of the agreements (such as the military use, fiscal procedures, or trust fund agreements) be 

amended without Congressional approval? How does that compare with the Congressional role under the old Compact? 

Ms. Westin’s Response: 

Under the amended Compacts’ proposed enabling legislation, the Compact itself 

and certain select agreements, or portion of such agreements, would require an Act 

of Congress to be amended, changed or terminated. All other agreements could be 

amended, changed or terminated after the President transmits the agreement to the 

President of the Senate and the Speaker of the House of Representatives with an 

explanation of, and reason for the agreement. 

This differs somewhat from the current compacts’ enabling legislation. Under this 

legislation, the Compact and subsidiary agreements are divided into three groups. 

The first group requires an Act of Congress to amend, change or terminate any 

agreement in that group. The group includes the Compact and certain select subsidiary agreements, or portions thereof. For the second group of agreements, any 

amendment change or termination has to be sent to Congress for a thirty-day period. During this time, if Congress passes a joint resolution of disapproval, then the 

change or termination will not take effect. Again, this group consists of select subsidiary agreements or portion thereof. The third group, which consists of all the remaining agreements, can be amended, changed or terminated after the President 

transmits the agreement to the President of the Senate and the Speaker of the 

House of Representatives with an explanation of, and reason for the agreement. 

There are some changes between the current and proposed enabling legislation as 

to the list of agreements that require an Act of Congress to be changed, amended 

or terminated. For example, the agreement regarding Mutual Assistance in Law Enforcement matters requires, under the current enabling legislation, an Act of Congress to be amended, changed or terminated. Under the proposed enabling legislation only Congressional notification would be required. However, for the most part, 

the list of agreements requiring an Act of Congress are very similar in the two 

pieces of legislation. Thus, the most notable change in the proposed enabling legislation is the absence of the second category of agreements—those agreements that are 

sent to Congress for a thirty-day period and possibly subject to a joint resolution 

of Congressional disapproval. Under the proposed enabling legislation, those agreements, or portion of agreements, that are in the second category under the current 

legislation, and are included as part of the amended Compact, would then be in the 

category of congressional notification. 

Mr. Leach’s Question: 

Under the new Compacts, the FSM and RMI will no longer be eligible for FEMA 

(Federal Emergency Management Agency) assistance. How does the ‘‘replacement’’ eligibility for USAID Office of Foreign Disaster Assistance coverage compare to the previous FEMA coverage? Is it of comparable value or automaticity? 

69

Ms. Westin’s Response: 

FEMA assistance was intended to help states and localities respond to, plan for, 

recover from, and mitigate against disasters. Disaster assistance services were made 

available to the FSM and the RMI in the same manner as assistance was made 

available to U.S. states. FEMA was to make disaster preparedness improvement 

grants on an annual basis and to provide hazard mitigation grants and disaster assistance as determined by the President. A request for a declaration by the President that a major disaster or emergency exists is made by the Governor of the affected state, or in the case of the FSM and the RMI, the nation’s President. A damage assessment is conducted and included with the request. FEMA provides a range 

of assistance: for example, individuals can receive temporary housing assistance 

(home repairs, rental assistance), individual and family grants, and unemployment 

benefits and FEMA can fund the repair or replacement of public facilities and infrastructure. For the period 1986 through 2000, FEMA has provided the FSM with 

$36.3 million in direct assistance and through other U.S. agencies provided an additional $6.3 million for seven typhoons and two droughts. For the same period, 

FEMA has provided the RMI $18.5 million in direct assistance and through other 

U.S. agencies provided an additional $7.5 million for seven disasters including typhoons, droughts, and high wave actions. Since 2002, the President has declared 

three major disasters in the FSM related to two typhoons and one tropical storm. 

FEMA officials have reported that conditions in the FSM and the RMI have significantly reduced program accomplishments and increased costs. 

USAID Office of Foreign Disaster Assistance provides short-term emergency nonfood humanitarian assistance in response to a declaration of a foreign disaster made 

by the U.S. Ambassador or the U.S. Department of State. The office can immediately provide up to $50,000 to the U.S. Embassy or USAID Mission to purchase 

relief supplies locally or give a contribution to a relief organization. The office can 

also send its own relief supplies, such as plastic sheeting, tents, blankets, and water 

purification units from its four stockpiles, one of which is located in Guam. Historically, long-term reconstruction and rehabilitation has been provided by USAID 

through normal programming procedures. Congress has provided special authorization for relief, rehabilitation, and reconstruction following disasters. For example, 

after Hurricanes Mitch and Georges struck Central America and the Caribbean in 

the fall 1998, Congress, in May 1999 passed emergency supplemental legislation 

that, among other things, provided $621 million for a disaster recovery and reconstruction fund for the affected countries as well as reimbursement funds to U.S. 

agencies for costs incurred during the immediate relief phase. USAID is the lead 

agency for this effort that includes repairing or rebuilding economic infrastructure 

(for example, roads and bridges), public health infrastructure, housing, and schools. 

In addition funds are allocated as loans, credits and technical assistance for small 

and medium-sized firms farms and businesses. 

PREPARED STATEMENT OF GERALD M. ZACKIOS, FOREIGN MINISTER, REPUBLIC OF THE

MARSHALL ISLANDS, SUBMITTED FOR THE RECORD BY THE HONORABLE ENI F. H. 

FALEOMAVAEGA, A REPRESENTATIVE IN CONGRESS FROM AMERICAN SAMOA

RENEWAL OF THE COMPACT OF FREE ASSOCIATION BETWEEN THE UNITED STATES OF

AMERICA AND THE REPUBLIC OF THE MARSHALL ISLANDS

Summary

On behalf of the people of the Republic of the Marshall Islands and their government, I want to express the gratitude of my nation to this Committee for initiating 

review by the U.S. Congress of agreements to sustain the success of free association 

between our governments. The agreements that have been signed by our governments to renew expiring provisions of the Compact, and to adapt some of its provisions to our evolving alliance amid new realities, were negotiated in a spirit of 

friendship and respect. Consistent with the unique history and features of our bilateral alliance as discussed below, both the U.S. and the RMI negotiators have consulted regularly with the Members and staff of this and other Committees of the 

U.S. Congress regarding the progress of our consultations. 

The Government of the Marshall Islands fully supports and respectfully requests 

that Congress approve the agreements that have been reached. My government is 

also seeking early approval of the agreements by the Nitijela, our national parliament. President Note and his Cabinet believe the agreements will provide continuity and stability that is imperative in our bilateral relationship with the United 

States, thereby also enabling the RMI to continue, domestically and internationally, 

to support the political, social and economic development of our people. 

70

As must be expected in such comprehensive agreements concerning an unprecedented alliance, there remain issues that must be the subject of further consultations and negotiations as we move forward with approval of these agreements, and 

as we implement them in the years ahead. While no treaty governing so many complex bilateral issues approaches perfection, the agreements signed by our governments either address or preserve for further consultations the central and critical 

concerns that both our governments brought to the negotiating table. 

In addition to renewal of expiring economic assistance as well as mutual security 

and defense provisions, we have constructively and affirmatively addressed issues 

of fiscal administration, accountability and migration in a manner that preserves 

the principles of free association in a fair and balanced way. Although our negotiators sometimes had to consider but reject preliminary proposals to address these 

issues, the RMI was not a reluctant party to reforms that serve the mutual interests 

of both our governments and peoples. 

My government hopes and expects that all issues pending between our nations 

can and will be addressed in the same spirit of trust, justice and partnership that 

produced the Compact renewal agreements. We believe outstanding issues can be 

resolved positively in a way that preserves the allocation of benefits and burdens 

in this closest of alliances that has served our separate and mutual national interest 

so well for so long. 

These pending issues include: 1) a full inflation adjustment for Compact funds so 

that the grant assistance and compensation provided by the Compact does not lose 

real value and fully compensates the RMI and its citizens for its continued support 

and commitments of the Compact’s provisions; 2) the continuation of Federal education programs and services that are an integral part of the RMI’s education system and, if removed, would severely injure the delivery of education in the RMI as 

well as injure education opportunities for Marshallese youth; 3) Congressional support to assist the repaving of the Majuro International Airport so U.S. commercial 

air service and military access is maintained for the sole international air link for 

the RMI and a crucial link for the Micronesian region; 4) continued eligibility for 

FEMA disaster and rehabilitation assistance especially since most of our infrastructure has been and will continue to be built using Compact funding and since our 

low-lying atoll environment is highly susceptible to natural disasters; 5) Congressional support for a Kwajalein Landowner Trust Fund; and 6) Congressional consideration of nuclear claims issues arising from the U.S. Nuclear Weapons Testing Program.

In reference to these issues, I am submitting with this statement several issue 

papers that summarize where continued agreement is required. We look forward to 

working with the Committee and its staff on these pending matters. 

Background

The Compact of Free Association is a significant foreign policy success for the 

United States and the Republic the Marshall Islands. It has roots in the Atlantic 

Charter’s repudiation of territorial aggrandizement through armed conflict. It also 

represents the successful realization of decolonization principles embodied in the 

United Nations Charter, redeeming America’s values with respect to individual liberty, democratic self-determination, and the rule of law. 

The Compact of Free Association is an international agreement between the 

United States and the Republic of the Marshall Islands. It defines an alliance between two countries with separate sovereignty, nationality and citizenship. Under 

applicable U.N. resolutions, free association could have been structured legally and 

politically to be more like a territorial possession or dependency. Instead, our governments forged an agreement based on terms that reflect the unique features of 

our respective national constitutions. 

Thus, the Compact of free Association allows delegations of government functions 

that respect the boundaries between our constitutional systems. The constitution 

and laws of the U.S. do not apply directly or of their own force in the RMI, and 

vice versa. Under the Compact, there are special arrangements for government economic assistance, government programs and services, legal and political undertakings that are unique in U.S. international relations, as well as special provisions 

for cultural, educational, economic and other people-to-people relationships. 

However, the government-to-government relationship is based on the principle 

that the U.S. Constitution applies only to U.S. citizens and to the United States, 

and the Constitution of the Republic of the Marshall Islands applies only to RMI 

citizens and in the RMI. There is no co-mingling, overlapping or duality of sovereignty, nationality or citizenship in a manner that blurs the separate nationhood 

of our two countries. This ensures that free association is not colonialism by another 

name, or a territorial dependency in disguise. 

71

The foundation of this association, the feature that legitimizes it as non-colonial, 

is that the Compact of Free Association is terminable at will by either party. This 

is compatible with international law and with the principle that free association 

must respect and be consistent with the right of both our countries to national independence. Because this free association formula is legally structured as an alliance 

and not a territorial dependency, the Republic of the Marshall Islands is a member 

of the United Nations in its own name and right. The right of each party to terminate without the mutual consent of the other party is the feature that makes U.N. 

membership possible, notwithstanding the delegations of government powers under 

the Compact. This arrangement includes the so-called U.S. defense veto, which, by 

the way, has never unduly interfered with the exercise by the RMI of its foreign 

affairs powers as some predicted. Even if some provisions survive termination, the 

termination provisions give each government the power to end the association and 

conduct relations as totally independent nations with specific treaty rights subject 

to international law, but without a treaty of association. 

Historical Experience 

The specific features of the alliance reflect four decades when the U.S. government was the only government we had in the Marshall Islands. Under the 1947 

Trusteeship Agreement between the United Nations Security Council and the 

United States, for forty years the U.S. exercised plenary and supreme powers in all 

legislative, executive and judicial functions of government in our islands. After the 

U.S. military occupation that began in 1946 ended in 1951, civilian administration 

began. From 1951 to 1986 the U.S. Department of the Interior was the source of 

all legal and political authority, as well as the source of all funding and budget policy, in accordance with U.S. federal law and Congressional oversight. 

Under Article 3 of the Trusteeship Agreement, the U.S. had ‘‘. . . full power of 

administration, legislation and jurisdiction . . .’’ in the Marshall Islands and the 

rest of the Trust Territory of the Pacific Islands. That degree of authority is indistinguishable from conventional absolute and supreme sovereignty, but unlike in the 

U.S. and its territories federal powers in the trust territory were not limited by any 

of the constitutional checks and balances, reservations of sovereignty to the people, 

due process or guaranteed individual rights found under the U.S. Constitution. 

Rather, the Trusteeship Agreement committed the U.S. as administering power 

to promote democratic local self-government, but only as deemed appropriate at the 

discretion of the United States. While the U.S. promoted a political and legal system 

based on U.S. standards of due process and individual rights, those standards were 

implemented permissively rather than as a matter of constitutional rights. As might 

be expected even under the most benevolent administration, the trusteeship governing practices fell well short of a system with legally enforceable individual rights 

and political equality. 

While local self-government was eventually established, for four decades the U.S. 

had as much or more authority in the Marshall Islands and over our people as it 

did over U.S. citizens in the states, but the local population had no voting rights, 

representation or other political rights in the political system of the supreme administering authority. This resulted in anomalies such as place of origin and race based 

wage and salary systems, as well as takings of land for public purposes, including 

nuclear testing, without due process or measures to make dislocated people whole 

for their losses. 

The U.S. carried out extensive education, health care and public works infrastructure programs in the islands during the trusteeship. Through open immigration for 

education and introduction of federal programs and policies in the trust territory 

very similar in many ways to federal administration of Guam and other U.S. territories, the close people-to-people relationships that have flourished from 1946 to the 

present formed bonds that are critical to the continued social, economic and political 

development of the RMI. 

In addition, under the trusteeship the U.S. implemented policies insulating and 

even isolating the islands from the governments, commercial enterprises, travelers 

and even scholars of nations other than the United States. The Marshall Islands 

were closed to the outside world for decades in the name of international security 

during the nuclear testing program. This contributed to the formation of interdependency under the trusteeship in which the U.S. benefited strategically and the 

islands benefited in terms of social and economic development. There were costs as 

well on both sides, but this interdependence is at the heart of the alliance that continues to this day. That alliance has grown into a mutual security partnership that 

is literally a closer alliance than NATO. 

The free association alliance also involves RMI reliance of U.S. social and economic support, including financial aid and migration rights defined in the Compact. 

72

While those at the Department of the Interior and the State Department familiar 

with the history of the RMI and U.S. relationship understand that this is not some 

kind of economic windfall for the RMI, others who do not understand often ask simplistic questions like, ‘‘Why does the U.S. provide more economic assistance per capita to the RMI than it does to country X or Y?’’

The best answer to the flawed premise of that question might be another question: ‘‘Did the U.S. prevent country X or Y from entering into social, economic, commercial and political relations with any other country during the four decades after 

WWII in which the modern world economic and political order was established?’’ Or, 

‘‘Did the U.S. relocate populations within country X or Y and conduct 67 atmospheric nuclear tests in the homelands of those populations?’’ Another good question 

might be, ‘‘How could the U.S. abandon the social, economic and political partnership it promoted for four decades under the trusteeship without ensuring that it 

keeps all its legal, political, economic and moral commitments to its friends and allies?’’

Fortunately, those in the U.S. government who know and understand the history 

of this alliance have prevailed over those who do not, and we have negotiated agreements that positively advance both U.S. and RMI national interests. At the same 

time, the new agreements demand that reforms be implemented to enhance the association and advance progress toward greater economic, social and political development for the RMI. 

Unfinished Business of Nuclear Claims Legacy 

At the same time, it must be noted that it was not until the Marshall Islands 

became a self-governing republic and entered into the Compact of Free Association 

in 1986 that the people of the RMI were enfranchised in the political system 

through which the supreme law of their homeland is promulgated. Ironically, it was 

at that very moment that the U.S. terminated access for RMI citizens to the courts 

of the United States for claims arising from the U.S. nuclear testing program. 

While all other categories of claims arising from U.S. administration were allowed 

to proceed through the local court system into the U.S. Court of Appeals for the Federal Circuit for review and certification, the nuclear testing claims were diverted 

into a special claims settlement process based on the historical legal precedent of 

government-to-government espousal and assignment of claims arising from the Russian and Iranian revolutions. For the U.S. to adopt a claims settlement procedure 

for transition from trusteeship to free association modeled after the claims settlements employed to deal with the turmoil of two of the most violent revolutions in 

the last century, revolutions hostile to U.S. interests, was surprising to the RMI. 

This was especially so since the U.S. had undertaken trusteeship obligations to protect the natural resources and environment in the islands, and the settlement was 

intended to release the U.S. from those obligations, not as in the earlier cases of 

claims assignment to release a hostile foreign government from its obligations to the 

United States. 

However, the U.S. negotiators assured the RMI that the end result would be adequate compensation by U.S. standards. The settlement is ‘‘full and final’’ only if it 

is supported by adequate compensation. That is obvious, and that is what the settlement agreement reached under Section 177 of the Compact requires as a matter of 

U.S. law. In dismissing the nuclear test cases after the settlement was approved by 

Congress, federal courts recognized that the citizens of the trust territory had stated 

claims against the U.S. that were dismissed only because an alternative forum had 

been provided, and that the adequacy of compensation would be determined after 

the political process under the settlement had been substantially complete. 

The problem that has arisen, as the attached issue paper regarding the nuclear 

test legacy explains, is that the U.S. Congress has not responded to the RMI’s petition for additional compensation to be provided through the political process contemplated by the settlement agreement. The RMI understands that responding to 

the RMI’s petition for additional compensation in the political process may be difficult, which is why the RMI is proposing that the awards of the RMI Nuclear 

Clams Tribunal (NCT) be returned to the legal process on the basis of a limited 

grant of jurisdiction to review, and reject or certify the awards of the NCT, based 

on U.S. standards of adequate compensation. 

This would return the nuclear claims back to the same procedure employed for 

all other claims. Now that the NCT has determined the extent of damages with far 

greater precision than was possible in 1985, and changed circumstances exists due 

to improved scientific knowledge of radiation injuries and contamination, there is 

not reason not to allow the U.S. courts to review and certify nuclear test claims just 

as it has other categories of claims. The Section 177 claims settlement served its 

purpose well by not allowing these claims to delay trusteeship termination. This alVerDate Mar 21 2002 10:43 Nov 09, 2003 Jkt 088500 PO 00000 Frm 00076 Fmt 6601 Sfmt 6621 F:\WORK\AP\061803\87792 HINTREL1 PsN: SHIRL
73

lowed President Reagan’s Strategic Defense Initiative to move forward based at 

Kwajalein in the RMI without Soviet interference in the U.S. Trusteeship Council. 

But that is now history, and there is no reason to delay much less deny justice for 

the RMI nuclear test claimants any longer. 

During the course of our negotiations on amendments to the Compact, my Government raised unresolved issues related to the Nuclear Testing Program. However, 

the U.S. Negotiator informed me that the nuclear issues identified in the RMI’s 

changed circumstances petition were on a separate track and that he was not authorized to deal with those issues in the context of our negotiations. In response to 

a March 2003 request from Congress, the U.S. Department of State did, however, 

begin to coordinate a U.S. Administration review process of the RMI’s petition. It 

has been over a year since Congress requested a review of the changed circumstances petition and, in repeated queries regarding the progress of that review, 

the RMI has been informed that there is no definite date for its completion. Communities affected by the testing should not be made to wait any longer. 

Congress authorized establishment of the NCT under RMI law, and former U.S. 

Attorney General Dick Thornburgh has issued an independent report concluding 

that the NCT has operated in accordance with U.S. judicial standards. A copy of 

the executive summary of that report is attached to my testimony. Because of this 

Committee’s jurisdiction in treaty aspects of international claims matters, the preceding discussion of the Section 177 nuclear claims issue is an important part of 

the record of this hearing. 

Amendments to the Compact 

There are several areas where the Compact has been amended which the RMI 

Government wishes to highlight. One of the most important areas is accountability 

based on the new Section 211 grant assistance provisions and the new Fiscal Procedures Agreement. The RMI Government is committed to allocating grant assistance 

to the sectors described in the new Title Two, particularly in the sectors of education and health. The new fiscal procedures agreement will usher in a new era of 

accountability for the use of Compact funding which we believe will benefit the government and people of the RMI in the years to come. The RMI Government is committed to making our new agreements work and we have already started to undertake the changes necessary in our finance, accounting and budget systems to implement these new provisions. Nonetheless, we will need additional assistance in our 

efforts in order to make these agreements to work. Both governments need to work 

closely together, particularly in the early years of the new Compact grant funding 

to ensure realization and the full implementation of the new accountability provisions.

Finally, the RMI Government supports the entire package of amendments to the 

Compact noting the issues listed above. We are also hopeful for a timely approval 

of the Compact, as amended, since current Compact assistance will expire on September 30, 2003. Both the RMI and U.S. negotiators have worked very hard in 

crafting amendments to the Compact in light of the history of our relationship during the past seventeen years. The RMI Government looks forward to continuing its 

special relationship of free association with the United States in the future to the 

benefit of both nations. 

Conclusion

On behalf of the Government and People of the Republic of the Marshall Islands, 

please allow me to express my sincere appreciation to this Committee for the opportunity to submit testimony at this hearing. The RMI Government looks forward to 

working with you in the months ahead. 

PREPARED STATEMENT OF THE HONORABLE PETER CHRISTIAN, SENATOR, THE FED- ERATED STATES OF MICRONESIA, AND CHIEF NEGOTIATOR OF THE JOINT COMMITTEE

ON COMPACT ECONOMIC NEGOTIATIONS OF THE FEDERATED STATES OF MICRONESIA

Mr. Chairman, 

I have the honor to provide written testimony on behalf of the Federated States 

of Micronesia, and wish to thank you and the Members of the Committee for holding 

this important and timely hearing on a matter of utmost importance to my nation. 

Further, Mr. Chairman, I wish to thank you and the Members for your understanding in affording me the opportunity to review the Administration’s proposed 

Compact legislation prior to submitting testimony. 

Mr. Chairman, the negotiations have evolved considerably since your Committee 

last considered the matter in 2002. We have now reached agreement with the US 

on all elements of an amended Compact package. We joined the US in signing these 

74

agreements in May of this year, and look forward to working with Members and 

staff toward approval of the documents now before you. 

We stand at an important juncture in relations between our nations. The amended Compact furthers our mutual commitment to preserve the peace and stability of 

the central Pacific, and promotes the continued development of the FSM on a sustainable basis. Mr. Chairman, these documents will largely determine the fate of the 

Micronesian people and the security and stability of the region for the next twenty 

years and beyond. 

The sectoral approach to grant assistance in the new agreement is a marked 

change from past practice and will require implementation adjustments by both 

sides. Nonetheless, it provides the best mechanism for reaching our mutual goals 

in the next twenty years and beyond, and will direct assistance to where it is needed the most. 

Similarly, we welcome and are committed to implementing new accountability and 

oversight requirements. It is no secret that there have been mistakes on both sides 

under the original Compact. While we were not always in agreement with the tone 

and findings of the GAO’s reports during the past several years, we are thankful 

to them for undertaking this important initiative and shedding light on deficiencies. 

This has assisted both the US and FSM negotiators as they worked proactively to 

address these issues in the amended documents. 

At the outset of the talks, the FSM proposed the notion of a joint committee to 

oversee implementation of the Compact. This proposal was welcomed by the US, 

and ultimately took the form of the proposed Joint Economic and Management Committee (JEMCO). The JEMCO will consist of representatives from the US and FSM, 

with a US majority, and will meet regularly to identify any problems in Compact 

implementation and develop prompt and cooperative responses. This is a positive 

change from the reactive management policies of the past. 

We appreciate the generous nature of the US proposal. However, there remain 

certain provisions of the Administration’s proposal that cause the FSM serious concern. Unless addressed by the US Congress during the approval process, these problems hold the potential to unravel the carefully-constructed fabric of the Compact 

package we have jointly woven. 

First and foremost, our concerns center on the level of economic assistance over 

the next twenty years. Beginning in 1997, the FSM began work on constructing a 

comprehensive economic analysis of its needs over the next twenty years. This analysis was at the core of our original economic proposal made in 1999, which called 

for economic assistance at levels of $84 million annually over the next twenty years. 

Six months later, the US responded with an initial offer of $61 million annually. 

After further analysis of ongoing macroeconomic trends, the FSM was able to lower 

its minimum required figure to $79 million annually. Still, we obviously had a significant difference of opinion. 

The FSM demonstrated, unequivocally, that such a marked reduction in current 

assistance would threaten the very viability of the nation from the outset. On numerous occasions we presented our economic analyses to the US negotiators, and 

at no time were they met with countering analyses or were fundamental elements 

disputed. Instead, we were told that the US assistance proposal was the maximum 

that the US could offer—in essence the result of a political decision rather than 

sound and responsible economic analysis. 

Fortunately, and through the hard work of negotiators on both sides, we were able 

to bridge the gap to the point were we could agree on submitting the document for 

Congressional consideration. While the annual grant figure of $72 million currently 

proposed by the US is much closer to the minimum level we initially identified, it 

still falls $7 million short of what we have identified as the absolute minimum required for the economy to experience any degree of economic growth during the next 

twenty years. 

Further, it should be recognized that the funding under the amended Compact is 

subject to many more restrictions than the original Compact. For example, the Department of Interior has stated their understanding that no Compact assistance 

should be used to fund ongoing operations, except under very limited circumstances, 

and only with their approval. This leaves it up to the FSM Government to fund its 

current services through local revenues, whereas under the original Compact the 

majority of these were funded by the Compact. While the FSM has reached the objective set out in the original Compact of increasing the share of local revenues in 

the total budget, these are hardly adequate to fund all ongoing operations. 

Add to this the effects of the initial reduction in grant funding in 2004, the pressures placed on the economy by raising the necessary $30 million trust fund contribution, and the reduction in government capacity due to new restrictions on the 

funds, and one can see that the potential for huge economic instability exists. The 

75

$7 million in additional annual funding requested by the FSM may not seem like 

much in the overall scheme of the Compact and the US foreign assistance budget, 

but it is critical to the health of the FSM’s economy, the well-being of our people, 

and to the future of our nation. 

There are several other aspects of the Compact which are troublesome from our 

point of view. First, there is the inadequacy of the inflation adjustment. This involves two separate issues—the formula to calculate adjustment and the base year 

for adjustment. The FSM seeks the assistance of the Congress in restoring full inflation adjustment and adjusting the base year to 2002, which is far more reasonable 

than the proposed date of 2004. This, of course, is closely linked to the issue of the 

adequacy of grant funding, and it is possible that shortcomings in one area could 

be met through adjustment of the other. 

Similarly, we note that the GAO’s testimony before your Committee in 2002 stated that the levels of funding proposed for the FSM’s trust fund were not adequate 

to ensure the viability of the fund. We concur with this finding, and are also concerned about some of the structural and organizational weaknesses of the fund that 

we highlighted during the course of the negotiations. We hope that these can be sufficiently corrected in the next few years, as provided for in the final Compact text. 

Another alarming change in the amended Compact is the loss of FEMA disaster 

relief assistance. Without reinstatement of this important benefit by the US Congress, the substantial investment made by the US, and pledged for the next twenty 

years, is placed in jeopardy. As the proposed amendments now stand, storms or 

other natural disasters—a statistical certainty, hold the potential to derail the economic engine of the nation. 

Similar to the FEMA issue, we are very concerned over continuation of federal 

programs under the amended Compact. Throughout the negotiations, the US has 

stated that it was not their desire to force the hand of Congress on this important 

issue. At the same time, Congress has at times (such as in the ‘‘No Child Left Behind Act’’) called upon the negotiators to decide the matter. In many areas this has 

resulted in essential federal programs extended to the FSM possibly falling through 

the cracks. 

The US negotiator has since clarified the Administration’s position on the matter, 

stating that calculations of the US assistance offer were made based upon the assumption that federal programs would continue at their current levels. We hope 

that Congress, in its wisdom, will take note of this important statement and act to 

ensure the continuation of invaluable programs to the FSM, such as those under 

NCLBA, IDEA, Head Start, Pell Grants, and others. 

Mr. Chairman, allow me to turn briefly to elements of the legislation that are not 

part of the negotiated amendments. We wish the Committee to be aware that the 

FSM had no part in the drafting of these proposals by the Administration. In fact, 

we were not consulted on any aspect of the drafting and were assured that any 

changes from the existing language in PL 99–239 would be solely to update existing 

language. When we finally had the opportunity to review the draft, which we received well after your hearing, we found that the changes went far beyond a simple 

‘‘updating.’’ We identified at least three major problems that will require adjustment 

by the Congress. 

First, there is the issue of transition to a machine-readable passport scheme. This 

is a concept to which the FSM has repeatedly pledged its support. However, we find 

it quite alarming that the Administration has unilaterally seen fit, at this late hour, 

to set aside $250,000 or more from the Compact’s capacity-building assistance for 

this purpose. It is alarming for many reasons—the fact that budgets are in the process of being developed on the negotiated package, the fact that the sector is currently under funded even before these changes, and for the precedent it sets for future US action without consultation. 

Second, and similar to the first, is that the US insists on mandating the FSM’s 

development of a more effective immigrant screening system. We are given one year 

to do this, without specifying how such measures would be funded. Again, the FSM 

has repeatedly agreed to undertake steps to implement such systems. However, and 

by all reasonable estimates, it is an extremely expensive undertaking that likely 

could not be could be concluded in one year. Under the US proposal, FSM failure 

to meet this arbitrary deadline would result in withholding of Compact assistance. 

Finally, there is the matter of changes to the language concerning provision of 

compensatory federal programs. In 1986 Congress passed this language during its 

consideration in order to mandate these programs, and funding, to the FSM as partial compensation for loss of tax and trade benefits that were made by Congress 

prior to passage. While the tax and trade provisions of the original Compact are 

largely unchanged, the Administration has seen fit to alter the language of the comVerDate Mar 21 2002 10:43 Nov 09, 2003 Jkt 088500 PO 00000 Frm 00079 Fmt 6601 Sfmt 6621 F:\WORK\AP\061803\87792 HINTREL1 PsN: SHIRL
76

pensatory provisions so as to make them optional for the US. Clearly, it is not be 

the Administration’s role to redraft agreed Congressional language. 

In conclusion, Mr. Chairman, the US and the FSM acting together have drawn 

upon the lessons of the original Compact in developing a document that will further 

the mutual interests of both nations. With the help of the US Congress in addressing the few shortcomings in the proposed agreement before you, we can arrive at 

a document that ensures the continued viability of a nation and her people, and 

thus maintains the peace and security of this critical region of the world. 

Both the US and FSM can be rightly proud of the unique bonds we have forged 

in the Compact period, and in the innovative roadmap we have constructed for the 

next 20 years and beyond. We urge Congress to act favorably on the Compact legislation, and to make the corrections necessary to ensure a solid foundation for the 

future.

I thank you, Mr. Chairman. 

PREPARED STATEMENT OF THE HONORABLE CHRISTOPHER J. LOEAK, SENATOR IN THE

NITIJELA REPRESENTING THE ATOLL OF AILINGLAPLAP, AND CHAIRMAN, KWAJALEIN

NEGOTIATION COMMISSION (KNC), ON BEHALF OF KWAJALEIN LANDOWNERS, SUBMITTED FOR THE RECORD BY THE HONORABLE ENI F. H. FALEOMAVAEGA, A REPRESENTATIVE IN CONGRESS FROM AMERICAN SAMOA

My name is Christopher J. Loeak, Chairman of the Kwajalein Negotiation Commission. I appreciate the opportunity to present the views of the KNC today. 

Besides being Chairman of the KNC, I have been a Senator in the Nitijela representing the Atoll of Ailinglaplap since 1985. 

I am also a major landowner on Kwajalein Atoll. 

Mr. Chairman, I am honored to present the following statement on behalf of the 

people of Kwajalein and I would like to express my appreciation and sincere thanks 

to you and the members of this House International Relations Committee for giving 

me the opportunity to do so. 

ABOUT THE KWAJALEIN NEGOTIATION COMMISSION.

I represent the Kwajalein Negotiation Commission (KNC), an organization established in October 2001 by the people of Kwajalein to represent them in the Compact 

renegotiations. The KNC is an unprecedented alliance of the traditional leaders of 

Kwajalein whose purpose is to provide an opportunity for the U.S. to enter into a 

long-term relationship guaranteeing secure and uninterrupted use of Kwajalein. The 

divisions within the local traditional leadership that marred the entry into the first 

Compact have been put aside in the interest of this relationship. As you know, compact renegotiation discussions between the U.S. Government and the Government 

of the Republic of the Marshall Islands (RMI) were finalized in January of this year. 

The first Compact was negotiated when RMI was still a territory. Many provisions 

were accepted by RMI in the interest of achieving self-government as early as possible and sometimes to the detriment of its regional or individual island atoll interests. The Kwajalein people in this context accepted agreements pertaining to Kwajalein, even though the agreements were not completely satisfactory to the people. Indeed, in the plebiscite on the Compact in 1982, the people of Kwajalein overwhelmingly voted to reject adoption of the Compact (the Compact was nonetheless approved by the RMI by a close margin). 

The KNC was formed in large part in order to adequately represent the interests 

of the people in this regard to ensure that any agreement reached would be equitable and in the interests of the people at large. 

Part of the Compact agreement reached in January of this year between the RMI 

and the U.S. Government included a new agreement on the Military Use and Operating Rights Agreement, otherwise known as the MUORA. The KNC opposes the 

new agreement as presently structured and we are asking Congress to either change 

the agreement to include additional compensation for landowners or postpone approval of the MUORA until a satisfactory agreement can be reached between all the 

parties.

THE MILITARY USE AND OPERATING RIGHTS AGREEMENT.

The current Military Use and Operating Rights Agreement (MUORA) governing 

Kwajalein expires in 2016. Some argue that the U.S. already has rights to Kwajalein until 2016 and therefore no new agreement should be negotiated before expiration of that agreement. The people of Kwajalein honor the right of the U.S. to Kwajalein until 2016. However, as other matters in the Compact are brought up for disVerDate Mar 21 2002 10:43 Nov 09, 2003 Jkt 088500 PO 00000 Frm 00080 Fmt 6601 Sfmt 6621 F:\WORK\AP\061803\87792 HINTREL1 PsN: SHIRL
77

cussion or modification, it is only fitting that the most important component of that 

agreement, namely U.S. defense rights in the Marshall Islands, be revisited. We believe this exercise to be of mutual interest and benefit because it can eliminate 

those aspects of the first Compact that are unfair to the landowners while at the 

same time guarantee the long term access that the U.S. seeks. A mere extension 

would perpetuate the existing hardships and inequities and would ignore the lessons learned in the first fifteen years of the Compact. 

Any extension of the MUORA beyond 2016 requires the approval of the people of 

Kwajalein as stipulated by our Constitution. Moreover, any change to the MUORA 

that would extend the use of Kwajalein by the United States beyond 2016 requires 

that a new Land Use Agreement (‘‘LUA’’) be implemented between the RMI and 

Kwajalein Landowners. Accordingly, the new MUORA agreement cannot be implemented without a new LUA. 

The KNC rejects the notion that the execution of a new LUA is exclusively an 

internal matter between the national government of the RMI and the landowners 

of Kwajalein. Although we understand that it is the position of the United States 

that the U.S. negotiates ‘‘sovereign to sovereign’’ and that it must respect the nationally recognized and duly chosen representatives of the people of the RMI, the 

United States always takes into account the practical considerations that exist in 

a country when implementing new agreements. For example, in 1982 the U.S. required that the original LUA be implemented before the U.S. Government agreed 

to the present MUORA in force between our governments. 

The point has been made that if the people of Kwajalein have an issue with the 

MUORA we should take it up with our own government in the RMI and that we 

do not have standing to petition the Congress for changes to the agreement. This 

type of thinking is not credible and belies the reality of the process in which we 

are all now engaged. The RMI in fact is petitioning the Congress for changes to the 

new Compact in the areas of infrastructure, inflation, FEMA and other areas. In 

1982, Congress legislated changes to the negotiated Compact that increased coverage for the RMI on programs related to FEMA, Education, and other items. The 

issue of increased compensation to Kwajalein is but one in a number of issues to 

be addressed by the Congress. 

The United States and the RMI recognized the importance of securing the participation of the KNC in the negotiations when we were invited to participate in several 

negotiating sessions between the U.S. and the RMI. However, when the meaningful 

bargaining began between the parties, the KNC was excluded from negotiations. 

The reasons for this exclusion are unclear to us. We were left with the proposition 

of ‘‘take it or leave it’’. Accordingly, we have made it absolutely clear that we will 

not support execution of a new LUA until such time as the new MUORA reflects 

a fair and equitable deal for the people of Kwajalein. 

THE INADEQUACIES OF THE RECENTLY ANNOUNCED MUORA.

The term. 

The KNC opposes the recently announced MUORA proposal because it does not 

adequately provide for the long-term needs of the people of Kwajalein. When these 

negotiations started, the KNC proposed a 50-year long-term lease of Kwajalein. We 

believe that a 50-year commitment on behalf of both of our governments is in our 

mutual self-interests. However, the new MUORA falls short of this commitment. 

While the new MUORA purports to be a 50-year extension from 2017 until 2066, 

with a possible 20-year extension beyond that, in reality the new MUORA is a 7-

year extension, since the U.S. can exercise a termination notice in 2016 that could 

terminate the MUORA by 2023. After 2023, the agreement is essentially a year-toyear lease, since the termination notice right can be exercised in any year after 

2016. We would far prefer an option period that would obligate the U.S. to a period 

of time beyond 2024, like the 15-year option present in the existing MUORA, to a 

one-year option period that renews itself annually. Accordingly, the KNC, on behalf 

of the people of Kwajalein, must consider the social and financial implications of a 

termination of the MUORA at a date as soon as 2023, notwithstanding that the U.S. 

has falsely described this lease as long-term. 

The people of Kwajalein have consistently expressed their commitment to providing the U.S. full access to Kwajalein and they hereby reaffirm this commitment. 

However, it is also their position that a piecemeal approach is not a satisfactory arrangement to either side. Our proposal for a 50-year lease would give the U.S. advantage of long-term security enabling substantial investments in its missile defense program while the people of Kwajalein will have the advantage of economic 

security. Short-term options do not provide either and in fact will leave our people 

78

in a state of suspended animation, severely limiting the ability of determining an 

appropriate development program for Kwajalein. 

The compensation amounts. 

When the KNC joined negotiations with the RMI and the U.S. in the early fall 

of 2002, the RMI and the KNC proposed a joint package based upon an 8-point comprehensive formula that addressed the totality of programs that affect the use of 

Kwajalein by the U.S. Included in the proposal were provisions dealing with the 

MUORA Term, Kwajalein Landowners Compensation, Taxation, a Kwajalein Landowners Trust Fund, Kwajalein Impact funding, Ebeye Special Needs, Early Termination, and the SOFA. These items were linked together and the adequacy of funding for one of the provisions affected the adequacy of funding for the other. 

With respect to the Kwajalein Landowner Compensation amount, the Kwajalein 

Landowners proposed a funding index supported by economic and population indexes that were intended to reflect the inflation indexed value of the compensation 

amounts in the original MUORA supplemented by population growth. This amount, 

$19.1 million in 2004, was economically supported and justified by data. 

In the negotiations, one-by-one the United States whittled away at the 8-point 

proposal and isolated each part of the package so that the negotiations appeared 

to be progressing towards agreement upon items of the package without respecting 

the interplay between the provisions themselves. For instance, the proposal to allow 

the RMI to tax expatriate workers at Kwajalein at the prevailing national rate of 

taxation (an increase from 5% to 12%) was intended to ameliorate a tax subsidy to 

the U.S., while at the same time, providing a means of providing a growth-oriented 

revenue source to the RMI for landowner funding. Notwithstanding this basic right 

of national sovereignty, the U.S. rejected any increase in taxation amounts, even to 

the national rate, depriving the RMI government of its most effective means of raising revenue to pay for the welfare of its people. We no of no other example where 

the United States enjoys such a tax subsidy to the disparity and detriment of another country. And this agreement locks in this subsidy for the entirety of the term 

of the MUORA! 

At the same time, the U.S. offered amounts for landowner compensation that were 

below inflation adjusted amounts and were offered without economic rational or justification other than that they were above what is presently offered in the present 

MUORA. In the final offer by the U.S., a $15 million base was offered beginning 

in 2004 as landowner compensation. On an inflation basis, this amount represents 

a degradation of 60% of the value that the landowner’s compensation amount 

achieved in 1979. Accordingly, it was no surprise that the KNC rejected the U.S. 

offer on Landowner funding as inadequate, particularly since the U.S. would not 

offer an alternative means of achieving landowner compensation through taxation. 

The lack of a Landowner’s Trust Fund. 

A basic tenet of the philosophy of the landowners in formulating their proposal 

for a long-term lease of Kwajalein was that the term and the amount of funding 

for landowner’s compensation be sufficient to provide for the long-term needs of the 

people of Kwajalein. The U.S. government states that the new MUORA is a billionplus deal that will last until 2086. But as I have already described, the agreement 

is actually a short-term extension until 2023 with the possibility that the U.S. may 

decide to stay longer. In effect it is an agreement until 2023 with a series of rolling 

annual 1-year options to terminate if and when the U.S. chooses to leave after 2023. 

Under these circumstances, the landowners are concerned that the compensation 

amounts provided in the new MUORA be sufficient that a corpus of funds be retained that would provide annual income to landowners sufficient to replace the 

compensation payment if and when the U.S. departs. At the $19.1 million level (in 

2004), the landowners offered to voluntarily contribute 10% of the annual compensation amount into a trust fund for this purpose. This amount was to be matched by 

a contribution from the RMI through tax receipts. 

The present MUORA offer does not meet the objectives of the people of Kwajalein 

in this regard and must be rejected as insufficient to pay for our long-term needs. 

HOW THE NEW MUORA CAN BE IMPROVED TO ACHIEVE OUR SUPPORT

The new MUORA can be substantially improved in a manner that would be sufficient to gain the support of the KNC if the compensation to landowners is improved 

sufficiently to provide for our long-term needs. This could be achieved in a number 

of ways. First, the annual payment could be raised to $19.1 million annually from 

the $15 million floor. If this is too difficult for the U.S. to meet because of funding 

constraints or other budgetary considerations, we have put forward as an option 

that the Congress provide $20 million in 2004, to be provided in addition to the $15 

79

million base payment in 2004, for the purposes of establishing a Landowner’s Trust 

Fund to provide for the long-term welfare of the people of Kwajalein. 

Still other formulations of increased funding may be acceptable to the KNC 

should Congress think of additional ways to provide for our long-term welfare. 

ALTERNATIVELY, POSTPONEMENT OF A NEW MUORA AND CONSIDERATION OF A

TRANSITION TO REPATRIATION AND RE-ADAPTATION.

As we have stated time and again, the people of Kwajalein are committed to longterm access to Kwajalein on the basis of an equitable arrangement between both 

parties. If the U.S. and the people of Kwajalein cannot reach an acceptable arrangement at this time, however, we would prefer to postpone our discussion related to 

extension of the lease beyond 2016 to another time. It is far preferable to us to delay 

our talks to the alternative of having to debate a deal that we consider is unfair 

and inequitable and which cannot be implemented. Put another way, the present 

circumstances will breed division and opposition in our country. 

If on the other hand the U.S. prefers to close out the Kwajalein Reagan Test Site 

in 2016, then it should be prepared to discuss now the terms of that closure including resettlement, restoration, re-adaptation, and rehabilitation. Environmental clean 

up and the planting of crops will take at least 7 years and therefore planning and 

agreements cannot wait until 2016. It is the preference of the landowners that the 

U.S. remains in Kwajalein, keeping with our mutual defense agreement. However, 

should the U.S. plans demand otherwise, then we should all face up to that possibility by carefully and adequately planning for it. 

SUMMARY

In conclusion, the leadership and people of Kwajalein wish to reaffirm their full 

support for the U.S. military activities in Kwajalein atoll and hope to continue their 

friendship and cooperation with the United States. At the same time, we are hopeful 

that through changes to the new MUORA we will achieve a fair and just arrangement for the continued use of Kwajalein. We have formulated several alternatives 

as a basis for changing the new MUORA that can lead to implementation of a new 

LUA. We thank the Committee for this opportunity and look forward to working 

with our negotiators to reach an agreement that will gain early approval by both 

the U.S. and the RMI in accordance with their Constitutional processes. 

THE NUCLEAR CLAIMS TRIBUNAL OF THE REPUBLIC OF THE MARSHALL ISLANDS

AN INDEPENDENT EXAMINATION AND ASSESSMENT OF ITS DECISION-MAKING PROCESSES

1. Executive Summary 

In June 2002 the Republic of the Marshall Islands (the ‘‘RMI’’0 retained Kirkpatrick & Lockhart LLP to undertake an independent examination and assessment 

of the processes used by the Marshall Islands Nuclear Claims Tribunal to adjudicate 

claims that had been filed with the Tribunal seeking compensation for personal injuries and property damage suffered as a consequence of the U.S. nuclear tests that 

took place in the Marshall Islands during the middle of the twentieth century. This 

report represents the results of that examination and assessment. 

In brief, we have concluded that:

1. The Nuclear claims tribunal has fulfilled the basic functions contemplated by 

the U.S. Congress and the Marshall Islands legislature, the Nitijela, when 

the United States and the RMI entered into their Compact of Free Association in 1686 and the Nitijela passed the Nuclear Claims Tribunal Act in 

1987.

2. In general, the Members and Officers of the Tribunal appear to have been 

qualified to perform their respective functions and have had access to the resources they needed to do so.

3. The Tribunal has conducted its business in an orderly manner, following 

rules and procedures that closely resemble those used by legal systems in the 

United States.

4. The Tribunal’s processes for resolving personal injury claims were modeled 

after similar processes used in the United States and elsewhere in the world 

to compensate people who have been adversely affected by nuclear tests and 

mass torts. Indeed, the compensation standards that the Tribunal used to resolve personal injury claims are similar to those that the U.S. Congress esVerDate Mar 21 2002 10:43 Nov 09, 2003 Jkt 088500 PO 00000 Frm 00083 Fmt 6601 Sfmt 6621 F:\WORK\AP\061803\87792 HINTREL1 PsN: SHIRL
80

tablished when in enacted the Radiation Exposure Compensation Act (the socalled ‘‘Downwinders’ Act’’) in 1990.

5. The Tribunal has employed more traditional adversary processes to adjudicate the property damage claims that have been presented to it. These 

property damage claims have been asserted through class action vehicles 

similar in format to those used in the United States. The litigation of these 

class actions has been characterized by the kind of legal briefing, expert reports, and motion practice that would be found in many U.S. court proceedings. Although the dollar amounts of these class action awards in the aggregate seem large, the processes that led to those awards seem fair and reasonable.

6. There is some evidence that the Nitijela occasionally sought to influence the 

Tirbunal’s work, particularly in successfully expanding the range of persons 

eligible to receive personal injury awards. In the end, however, it appears 

that any such interference had no more than a modest impact on the total 

dollar amount of the Tribunal’s awards.

7. Although early Members of the Tribunal may have had a different view, the 

Tribunal never felt that its ability to render awards should be limited by the 

initial amount of the trust fund established in 1986 by section 177 of the 

Compact of Free Association. We understand that both the Tribunal and the 

claimants before it regarded the initial $150 million trust fund as an arbitrary figure established through the political process that we never intended 

to approximate either the total damages suffered by the people of the Marshall Islands as a result of the U.S. nuclear testing program or the compensation to which they should ultimately be entitled. Whether Congress intended otherwise is a political issue upon which we express no opinion. We 

note, however, that the U.S. Government has already approved compensation 

claims of more that $562 million under the Downwinder’s Act by persons injured as a result of nuclear tests in Nevada that were much smaller in number and magnitude than the tests conducted in the Marshall Islands. Based 

on our examination and analysis of the Tribunal’s processes, and our understanding of the dollar magnitude of the awards that resulted from those 

processes, it is our judgment that the $150 million trust fund initially established in 1986 is manifestly inadequate to fairly compensate the inhabitants 

of the Marshall Islands for the damages they suffered as a result to the dozens of U.S. nuclear tests that took place in their homeland.

Dick Thornburgh 

Glenn Reichardt 

Jon Stanley 

Kirkpatrick & Lockhart LLP 

Washington, DC 

January 2003

Æ