The major U.S. interests in the Southwest Pacific are preventing the rise of terrorist threats,working with and maintaining the region's U.S. territories, commonwealths, and military bases(American Samoa, Guam, the Northern Mariana Islands, and the Reagan Missile Test Site onKwajalein Atoll in the Marshall Islands), and enhancing U.S.-Australian cooperation in pursuingmutual political, economic, and strategic objectives in the area. (1) In a hearing before theSubcommittee on East Asia and the Pacific of the House Committee on International Relations (July23, 2002), several key issues were raised regarding U.S. interests in the Southwest Pacific. Theseinclude the vulnerability of small Pacific Island nations and "failed states" to transnational crime,including money laundering and drug trafficking; the threat of infiltration by terrorist groups orindividuals; and environmental problems. Many analysts have posited a link between politicalinstability and poverty in many Pacific Island nations and their attraction to organized crime andterrorists. (2) Since the end of World War II, the United States has commanded unimpeded military accessto the Southwest Pacific, although its involvement in the region, with the exception of its militarybases on Guam and Kwajalein Atoll (Marshall Islands), has been low key. The United Statesdiplomatic presence and foreign aid fell during the 1990s, except for its economic assistance to theFreely Associated States of the Marshall Islands, Micronesia, and Palau. The United States hasincreasingly relied upon Australia to promote shared strategic interests as well as political andeconomic stability in the region. Until recently, Australia was careful not to intervene directly indomestic political upheavals. (3) Instead, it pursued a strategy of greater cooperation and regionalassistance through participating in Pacific Island organizations such as the South Pacific Forum,extending bilateral assistance, and promoting public and private sector reforms. (4) The Australian government under Prime Minister John Howard has been a forceful advocateof a more interventionist strategy in a region where political and economic conditions havedeteriorated, especially after the Bali terrorist bombing of September 2002. As part of its effort topromote regional stability and prevent Pacific island nations from becoming havens for transnationalcrime and terrorism, Australia, along with New Zealand and other Pacific Island nations, hasdeployed troops in East Timor, Papua New Guinea, and the Solomon Islands. Other initiativesinclude heading the Pacific Islands Forum Secretariat through an Australian diplomat, Greg Urwin;financing a police training center in Fiji that would train officers from the Pacific Islands fordomestic and regional operations; (5) conditioning bilateral assistance on improved governance; andpromoting the creation of a federation of small Pacific Island nations that would pool nationalresources and share governmental responsibilities and services in order to make them viablestates. (6) For the most part, Pacific Island nations reportedly have accepted Australia's leadership asnecessary and agreed to the focus on security adopted by Australia and the United States. Themutual emphasis on security was reflected in the Nasonini Declaration on Regional Security adoptedby the Pacific Islands Forum in August 2002, in which members agreed that law enforcementcooperation should remain an important focus for the region. (7) In October 2003, leaders from13 Pacific Island nations and Hawaii gathered at the East-West Center in Honolulu to discussregional security issues and meet with President Bush. President Bush told regional leaders that theUnited States would share intelligence to help them meet their security needs. (8) In recent years, Australia has been reorienting its foreign and defense policies, reemphasizingthe importance of the United States to Australia. Australia's external orientation has shifted froman emphasis on Asian engagement, under the leadership of former Labor Prime Minister PaulKeating and his Foreign Minister Gareth Evans, to renewed emphasis on the United States allianceunder current Liberal Prime Minister John Howard who has been in office since 1996. PrimeMinster Howard has taken the position that Australia does not have to choose between its history andits geography, meaning that it can have close ties with Europe and America while also enjoyingproductive relationships with Asian states. This shift in relative emphasis came about for a numberof reasons, including the reluctance of the Australian people to see themselves as Asian; a reluctanceof Asian states, such as Malaysia, to think of Australia as part of Asia; diminished potential rewardsof Asian engagement in the wake of the Asian financial crisis of 1997; and renewed importance toAustralia of the strategic relationship with the United States as a result of the war against terror. The Howard Government's support of the United States in the war against terror has broughtthe United States and Australia closer together as Australia invoked the ANZUS alliance in the wakeof the 9/11 attacks to help the United States. Australia maintained its tradition of fighting alongsidethe United States, as it did in WWI, WWII, Korea, Vietnam and the first Gulf War, by committingtroops to recent United States operations in Afghanistan and Iraq. By doing so, in an internationalenvironment that was largely unwilling to supply combat troops in support of the United States inIraq, Australia, along with Britain, drew attention to itself as a loyal ally. This policy of support forthe United States was continued by the Howard Government despite significant opposition to the warin Australia. The Bush Administration recognized Australia's value to the United States and the AsiaPacific region in the following statement: Australia has long been a steadfast ally and partner, andrecent events have only magnified the value of our alliance with it. The key role that Australia'sbrave forces played in Iraq and Afghanistan, and its commitment to a leading role in regionalsecurity, only demonstrate Australia's growing importance. (9) To complement its strong political and strategic ties with the United States, Australia is seeking afree trade agreement (FTA) with the United States. (10) A fifth round of FTA negotiations were held in December of2003. While Australia has hosted joint early warning, communications and intelligence facilitiesfor decades, it may play an increasingly important strategic role as the United States seeks toredeploy its Asia-Pacific force structure. This would be part of the Department of Defense plansreportedly to effect "the greatest change in the U.S. overseas military posture in 50 years." (11) Positioning of Americanforces in Australia has been discussed in the past. In 1996, then Commandant of the United StatesMarine Corp, General Krulak advocated expanding joint training and the pre-positioning of militarysupplies in Australia. (12) More recently, Australia has been discussed as a potential site for an expanded American militarypresence to be better situated to fight the war on terror. (13) The Department of Defense is reportedly developing a new"overseas basing strategy to support current and future U.S. defense requirements." (14) Australian Prime MinisterHoward reportedly has stated that he would consider allowing an additional American militarypresence in Australia. In June 2003, Australian Defense Minister Hill stated that Australia was readyto expand joint exercises, allow the United States unilaterally to conduct training in Australia, andenhance facilities for United States naval crews to rotate through Australia. (15) The opposition LaborParty views these measures as unnecessary. (16) The United States and Australia conduct many joint military exercises and Australiapurchases much of its military equipment from the United States. U.S. Pacific Commander Adm.Fargo has pointed to the importance of maintaining interoperability with Australia across "the fullspectrum of contingency operations" while describing Australia as the "southern anchor of oursecurity architecture in the region." (17) The Australian government has also supported American plansto develop a missile defense system though this view is not necessarily shared by the Labor Partyopposition. (18) To meetits expanding military commitments, which are in part driven by alliance considerations, Australiaannounced in May 2003 that defense spending would increase over the next several years. Government officials projected defense spending to rise from AS$13.3 billion in 2001/2002 toAS$15 billion in 2003/2004. (19) Furthermore, the recent appreciation of the Australian dollarrelative to the United States dollar will increase the buying capacity of the government budget forprocurement. Australia took the lead in addressing the humanitarian crisis in East Timor that followed the1999 referendum for independence from Indonesia. After the referendum, local militias, whichfavored continued association with Indonesia, attacked pro-independence East Timorese. By leadingan international peacekeeping coalition to East Timor, Australia lessened pressure on the UnitedStates to become more extensively involved. Australia's subsequent involvement in East Timor has helped East Timor develop into an independent, viable state, though negotiations continue for a fullagreement on how to divide the oil and gas resources that lie beneath the Timor Sea. ConoccoPhillips, an American corporation, stated in June 2003 that it was moving forward with a $1.5 billionliquefied-natural-gas development in the Bayu-Undan area of the Timor Sea that separates EastTimor from Australia. (20) Australia, along with New Zealand, continues to play a constructive role in the cease fire andpeace process on Bougainville, where the two nations have helped restore order and improve theprospects for a lasting agreement between the people of Bougainville and Papua New Guinea. Australia became involved in the Peace Monitoring Group in 1997, that was intended to support theimplementation of the Burnham Peace process negotiated in New Zealand by the Bougainvilleindependence movement and the Papua New Guinea government. (21) Recent events in the Solomon Islands point to a renewed commitment by Australia topromote stability in its region that is inspired by the need to prevent failed states in the age ofterrorism. Inter-communal strife in the Solomon Islands reduced it to a virtual failed state by 2003. In response, Australia, along with New Zealand, Fiji, Papua New Guinea and Tonga, dispatched aforce of 2,300 troops to reinstate the rule of law and good governance as part of the RegionalAssistance Mission. This was done largely to reduce the prospect that the Solomons would becomean ungoverned area from which transnational crime, and potentially terrorists, could operate or drawsupport. (22) Australiahas also proposed the establishment of a region-wide police force to more effectively police theregion. Australia's renewed activism in the Pacific is not universally accepted. Some in Australiaand the region are concerned that it could mark a return to neo-colonial activity by Australia in thearea. (23) China has become increasingly active -- diplomatically and economically -- in the SouthwestPacific. Some analysts suggest that its current involvement could result in strategic benefits forChina in the long term. While the United States does not maintain an embassy in several PacificIsland countries, the People's Republic of China (PRC) has opened embassies in all countries withwhich it has diplomatic relations and has provided bilateral assistance and high-profile visits -- withlittle criticism of their internal policies. The PRC has provided funding, materials, labor, andtechnical assistance for infrastructure projects (roads, airports, sports stadiums, governmentcomplexes, hotels, mining operations) and financed the Pacific Trade Office in Beijing to promotetrade and investment between China and Pacific Island states. Over 3,000 Chinese state and privatecompanies reportedly have invested $800 million in the Southwest Pacific. (24) Although China is stillnot a major bilateral aid donor in the region, it has become the second largest aid donor to PapuaNew Guinea, the most populous Pacific Island nation. According to some foreign affairs analysts, China's aims have been two-fold. First, Chinahas attempted to thwart Taiwanese diplomatic efforts in the region. Taiwan has actively courted theregion, establishing diplomatic relations with four Pacific Island states at China's expense -- Palau,the Solomon Islands, Tuvalu, and the Marshall Islands. Taiwan has offered these and other PacificIsland countries economic and development assistance -- helping to build or provide hospitals,airports, copra processing equipment, ships, grants and loans. So eager are some states for assistancethat they often switch allegiances without warning or threaten to change sides. Nauru, for example,which recognized China over Taiwan in July 2002, reportedly threatened to renew ties with Taiwana year later -- until China agreed to extend more loans to the island nation. (25) In November 2003,Kiribati established ties with Taiwan, despite having diplomatic relations with China since 1980 andrenting land to the PRC for a space tracking station. (26) Second, some experts argue, China has hoped to raise its diplomatic and, ultimately, strategicinfluence in the region and its shipping lanes. The PRC reportedly has occasionally applieddiplomatic or economic pressure on Pacific Island countries to oppose actions of Taiwan or Australiain the region or to influence voting in the United Nations. According to one account, for example,the Vanuatu government publicly expressed reservations about the Australian-led peacekeepingmission in the Solomon Islands following a visit by its prime minister to Beijing. (27) Although China does notpossess a "blue water" navy capable of challenging the U.S. in the region, some experts assert thatit plans to develop one. China reportedly has provided "modest" military support -- training andnon-combat defense supplies rather than weapons -- to Pacific Island countries that possess militaryforces -- Fiji, Papua New Guinea, Vanuatu, and Tonga. Since 1997, China has operated a satellitespace-tracking station on Tarawa Atoll in the Republic of Kiribati. Some analysts argue that the basecould be used for monitoring U.S. missile defense tests at Kwajalein Atoll in the Marshall Islands. While not opposing the U.S. and Australian presence in the region, many Pacific Islandscountries have been attracted to China as an "anti-colonial" power, welcomed the aid and attentionfrom China and Taiwan, and appreciated China's relative support on some issues such as the globalwarming treaty (Kyoto Protocol) to reduce greenhouse emissions. Some regional analysts, Membersof Congress, and leaders of Australia have advocated stronger roles for the United States, Australia,and Japan in the Southwest Pacific as counterweights to growing Chinese influence. (28) Figure 1. Map of the Southwest Pacific

Summary: The major U.S. interests in the Southwest Pacific are preventing the rise of terrorist threats,working with and maintaining the region's U.S. territories, commonwealths, and military bases(American Samoa, Guam, the Northern Mariana Islands, and the Reagan Missile Test Site onKwajalein Atoll in the Marshall Islands), and enhancing U.S.-Australian cooperation in pursuingmutual political, economic, and strategic objectives in the area. The United States and Australiashare common interests in countering transnational crime and preventing the infiltration of terroristorganizations in the Southwest Pacific, hedging against the growing influence of China, andpromoting political stability and economic development. The United States has supported Australia'sincreasingly proactive stance and troop deployment in Pacific Island nations torn by political andcivil strife such as East Timor, Papua New Guinea, and the Solomon Islands. Australia may playa greater strategic role in the region as the United States seeks to redeploy its Asia-Pacific forcestructure. This report will be updated as needed.