The economic provisions of the Compact of Free Association between the United States and the Federated States of Micronesia will expire in 2023. FSM would then start dipping into a mandated trust fund set up years ago to sustain itself. The problem is, such trust fund, is not ready, according to a Government Accountability Office study.
In a recent visit to the FSM, U.S. Secretary of State Michael Pompeo told FSM President David Panuelo that the U.S. is “ready to begin negotiations on the expiring provisions of the COFA,” according to a press release from Panuelo’s office.
The two first met in Washington, D.C. on May 21 when Panuelo visited the White House, along with Palau President Tommy Remengesau and Marshal Islands President Hilda Heine. During their initial meeting, Pompeo asked Panuelo: “How can we help you?” The FSM president replied with a request for “the green-light on the negotiating authority. A lot of our citizens here and (those) residing in the U.S. worry about their future and the future of COFA.”
The FSM Joint Committee on Compact Review & Planning has named Leo Falcam Jr. as the chief negotiator for FSM. Falcam is a 30-year U.S. Marine Aviation veteran with experience in tactical, operational and strategic levels of U.S. National Defense planning and policy implementation. He retired as a colonel. Falcam’s military service, the committee said, “provides him a unique background into U.S. perspective in many areas, including regional security initiatives.”
The FSM national government is working with the U.S. government to organize a bilateral meeting when Panuelo visits Washington, D.C. this month to discuss the timeframe for the negotiations. While the date of the dialog has yet to be discussed, Pompeo said, “we now have the authority to do that. We’ll set a path forward before too long.”
FSM emerged from the Trust Territory of the Pacific Islands, which the United States administered on behalf of the United Nations from 1947 until 1978. FSM adopted its own constitution and became an independent country in 1979. It entered into a Compact of Free Association with the United States in 1986 and became a member of the United Nations in 1991. Under the treaty, the United States provides financial assistance, defends the FSM's territorial integrity, and provides uninhibited travel for FSM citizens to the U.S. In exchange, FSM gives the U.S. unlimited access to its lands and waters for military use.
Compact I’s financial package was good for 15 years, from 1986-2001. But the two nations had to extend the first Compact into 2002 to finish up with renegotiations for a new economic provision for Compact II (2003-2023). Soon a trust fund emerged aiming at sustaining the young Pacific island nation.
From 1987 through 2003, the FSM received more than $1.5 billion in economic assistance under the original Compact, according to GAO’s 2018 report. While Compact grants are set to expire, FSM remains heavily dependent on U.S. aid. It stands to receive $82 million before the Compact grants end.
The U.S. has similar Compacts with Palau and the Republic of Marshal Islands, both of which are also subject for renegotiation.
According to GAO’s report, achieving fiscal stability will likely be a challenge for FSM and the Republic of Marshall Islands once they wean from the Compact grants. The report noted neither of the two nations has established a clear fiscal strategy that would prepare them for transition toward self-sufficiency.
At this point, GAO said, FSM and RMI display complacence as they continue to operate within the comfort of the Compact funds that subsidize a significant portion of their governments expenditures as well as social programs and services. Compact grants focus on education, health, infrastructure, public sector capacity building, private sector development and the environment. RMI and FSM will have to pick up the tab for these sectors when the stream of U.S. aid stopped flowing in.
In FSM, compact sector grants and the supplemental education grant support about one-third of all national and state government expenditures. In fiscal year 2016, U.S. grants backed 8 percent of national government expenditures and 50 percent or more of each state’s government expenditures, GAO said.
The United States provides the Pacific nations over $130 million in direct assistance every year, along with a variety of federal grants and services. The last grants to be released in 2023 will be much smaller. Based on the Department of Interior’s estimates, the FSM would receive $82 million while the RMI would receive $36 million, including Kwajalein-related assistance.
President Trump met with RMI President Hilda Heine, FSM President David Panuelo and Palau President Tommy Remengesau at the White House on May 21, 2019. Photo courtesy of the White House
Besides the Compact funds, RMI and FSM also receive foreign assistance from other countries. FSM, RMI and Palau are the recipients of Australia’s $7.9 million North Pacific grant for 2018-2019. This will include an estimated $5.0 million in bilateral funding to the North Pacific.
The China Factor
One of FSM’s foreign benefactors is China. Last month, FSM and China marked the 30th anniversary of their diplomatic relations. “Today, China-FSM relations are standing firm at the age of 30, which means that we need to push forward the steady and in-depth development of our Comprehensive Strategic Partnership of mutual respect and common development,” China’s ambassador to FSM, Huang Zheng, wrote in an op-ed piece published in Kaselehlie Press. “Over the past 30 years, the Chinese government has attached great importance to developing China-FSM friendly relations and always regarded the FSM as a good brother/ sister, partner and friend.”
FSM’s cozy relationship with China is making the U.S. nervous. In May, President Donald Trump met with the leaders of freely associated states, for the first time, in Washington D.C. to revisit long standing alliances with the Pacific island countries amid China’s expanding influence and growing threats in the region. Trump hosted Panuelo, along with Palau President Tommy E. Remengesau, Jr. and RMI President Hilda C. Heine at the White House.
FAS leaders know the strategic value of their lands and waters to the U.S. national security, which they use as leverage. “Having exclusive military access to the Freely Associated States’ waters provides the U.S. with what Admiral Harry Harris, former Head of Pacific Command, described in 2017 as “a measurable advantage in our strategic posture in the Western Pacific,” Remengesau wrote in an op-ed piece published in The Hill.
The Palau president noted that much has changed since the Compact with Palau was formed in 1982. “The Soviet Union, the U.S.’s former Pacific rival, fell in 1991; Palau became the final compact member to gain independence in 1994; and China has risen as a serious challenge to American dominance of the Pacific Ocean today,” Remengesau wrote. “Yet, the provisions of the agreement have failed to keep pace by deploying capabilities needed to defend the region against 21st century threats.”
In a bid to counter China’s aid-based influence, the Trump administration has raised its proposed budget for U.S. territories and Compact nations from $608 million in 2019 to $611 million in 2020.
“The 2020 budget request prioritizes the Department’s mission to fulfill our insular area responsibilities in the Caribbean as well as in the Pacific,” U.S. Assistant Secretary of the Interior for Insular and International Affairs Doug Domenech said in a statement in March. “The proposed budget represents action to strengthen economic and health capacities in the U.S. territories while also fulfilling U.S. obligations to the freely associated states.”
After the White House visit, FSM saw a flow of fresh U.S. funds. On Sept. 4, the Joint Economic Management Committee (JEMCO) approved an allocation of $56.7 million for in 2020 Compact Sector grants for FSM. JEMCO also authorized use of Public Infrastructure Sector assistance for a number of infrastructure projects for FY2020, including: ADB Water Project Matching, Kosrae Project Management Office Rehabilitation, Yap Catholic High School Science and Library Supplements, Designs for the Lelu Causeway Emergency Repairs, and the College of Micronesia-FSM’s campus in Chuuk State.
At a recent budget hearing in the U.S. Congress, David R. Stilwell, assistant secretary bureau of East Asian and Pacific Affairs, noted the Trump administration’s significant growth in assistance for the Pacific Islands. “China increasingly threatens the stability and sovereignty of Pacific Island countries as it seeks to erode U.S. influence in the Pacific’s vast waters, which offer critical strategic depth,” Stilwell said.
He noted that during Pompeo’s visit to FSM, “the Secretary announced that we intend to negotiate amendments to certain provisions of the Compacts of Free Association with the Freely Associated States. Resourcing these commitments will require close consultation with Congress to advance partnerships, economic growth, and democracy and human rights as we see China expanding its strategic influence.”
FSM’s relationship with the United States has not always been tension-free, however. In December 2015, the Congress of the Federated States of Micronesia, in a fit of anger, passed a resolution signifying its intent to end the Compact by 2018. The resolution, introduced by FSM Sens. Isaac V. Figir, Bonsiano F. Nethon and Robson U. Romolow, expressed the FSM’s resentment against the United States’ attitude toward the Compact, which American officials considered “an act of charity by the United States rather than a treaty between two sovereign nations.”
The apparent disagreement over the nature of the Compact was compounded by the U.S. government’s unilateral decision to make drastic cuts to Compact funding for the College of Micronesia, as well as the U.S. Department of Homeland Security’s plan to establish a pre-screening process and advanced permission requirement for FSM citizens travelling to the U.S. Peter Christian, then president, never acted on the resolution, stating recently that FSM “remains committed to its bilateral relations with the United States.”
Meanwhile, Guam officials believe the U.S. territory has a stake in the negotiation, as the island is among the U.S. jurisdictions that host FAS citizens and incur the cost of providing services to the migrants.
Guam receives $16.8 million from the $30 million in annual mandatory funding and $4 million in discretionary funds to help host jurisdictions defray the cost of hosting FAS citizens. The annual appropriations are distributed among Guam. Hawaii, American Samoan and CNMI.
On Sept. 4, Panuelo was received by Guam Gov. Lourdes Leon Guerrero and Lt. Gov. Joshua Tenorio in a courtesy call. The purpose of the meeting was for the President to update its Micronesian neighbor on regional issues and to respond to the governor’s request that Guam be able to observe the upcoming Compact negotiations.
Panuelo said that, while the decision may not be up to him personally, he supports the idea of Guam—as well as the CNMI and Hawaii — joining negotiations as observers with the capacity to inform the governments of the FSM and the United States their views on issues of import.
“I’ve been working very closely with [the Consul General of the FSM], who has been very responsive. Since a lot of the freely associated states do have a significant impact here…I wrote Secretary [the Honorable Mike] Pompeo about the [Compact] negotiations,” said Governor Leon Guerrero. “[I asked Secretary Pompeo if Guam] could be part of the negotiating team, as an observer.”
“I would welcome Guam to be an observer in the Compact negotiations. It’s not my decision to make, I must say, but I think it will be healthy and show unity…because we have to deal with the Compact’s impact,” Panuelo said. The President also noted that the U.S. Government Accountability Office will provide hard data demonstrating the FSM’s positive impacts in places like Guam, the CNMI, and Hawaii. “When I arrived in Guam, the person helping me with my rental car was [from the FSM], and the person manning the front desk at my hotel was [also from the FSM].”
Last month, Emil Friberg Jr., who led a GAO team, came to Guam to conduct a study on Compact migration on island. In August, the GAO team went to Hawaii, before coming to Guam; and, finally, up north to the Commonwealth of the Northern Marianas Islands before heading back stateside.
On Guam, the GAO team met with key leaders and groups, including a small representation of the Federated States of Micronesia citizens now making Guam their home for an on-site general interview at the FSM Consulate office in Harmon. “We look forward to releasing a public report next year, probably in April,” Friberg said. (With additional reports from Mar-Vic Cagurangan)