[House Hearing, 105 Congress]
[From the U.S. Government Publishing Office]



 
   COMPACTS OF FREE ASSOCIATION WITH THE MARSHALL ISLANDS, FEDERATED 
                    STATES OF MICRONESIA, AND PALAU

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

                        JOINT OVERSIGHT HEARING

                               before the

                         COMMITTEE ON RESOURCES

                                  and

                  SUBCOMMITTEE ON ASIA AND THE PACIFIC

                                 of the

                  COMMITTEE ON INTERNATIONAL RELATIONS

                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED FIFTH CONGRESS

                             SECOND SESSION

                    OCTOBER 1, 1998, WASHINGTON, DC

                               __________

                           Serial No. 105-117

                               __________

 Printed for the use of the Committee on Resources and Subcommittee on 
       Asia and the Pacific, Committee on International Relations


                               


 Available via the World Wide Web: http://www.access.gpo.gov/congress/house
                                   or
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                      U.S. GOVERNMENT PRINTING OFFICE
 51-943                      WASHINGTON : 1998
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                         COMMITTEE ON RESOURCES

                      DON YOUNG, Alaska, Chairman
W.J. (BILLY) TAUZIN, Louisiana       GEORGE MILLER, California
JAMES V. HANSEN, Utah                EDWARD J. MARKEY, Massachusetts
JIM SAXTON, New Jersey               NICK J. RAHALL II, West Virginia
ELTON GALLEGLY, California           BRUCE F. VENTO, Minnesota
JOHN J. DUNCAN, Jr., Tennessee       DALE E. KILDEE, Michigan
JOEL HEFLEY, Colorado                PETER A. DeFAZIO, Oregon
JOHN T. DOOLITTLE, California        ENI F.H. FALEOMAVAEGA, American 
WAYNE T. GILCHREST, Maryland             Samoa
KEN CALVERT, California              NEIL ABERCROMBIE, Hawaii
RICHARD W. POMBO, California         SOLOMON P. ORTIZ, Texas
BARBARA CUBIN, Wyoming               OWEN B. PICKETT, Virginia
HELEN CHENOWETH, Idaho               FRANK PALLONE, Jr., New Jersey
LINDA SMITH, Washington              CALVIN M. DOOLEY, California
GEORGE P. RADANOVICH, California     CARLOS A. ROMERO-BARCELO, Puerto 
WALTER B. JONES, Jr., North              Rico
    Carolina                         MAURICE D. HINCHEY, New York
WILLIAM M. (MAC) THORNBERRY, Texas   ROBERT A. UNDERWOOD, Guam
JOHN SHADEGG, Arizona                SAM FARR, California
JOHN E. ENSIGN, Nevada               PATRICK J. KENNEDY, Rhode Island
ROBERT F. SMITH, Oregon              ADAM SMITH, Washington
CHRIS CANNON, Utah                   WILLIAM D. DELAHUNT, Massachusetts
KEVIN BRADY, Texas                   CHRIS JOHN, Louisiana
JOHN PETERSON, Pennsylvania          DONNA CHRISTIAN-GREEN, Virgin 
RICK HILL, Montana                       Islands
BOB SCHAFFER, Colorado               RON KIND, Wisconsin
JIM GIBBONS, Nevada                  LLOYD DOGGETT, Texas
MICHAEL D. CRAPO, Idaho

                     Lloyd A. Jones, Chief of Staff
                   Elizabeth Megginson, Chief Counsel
              Christine Kennedy, Chief Clerk/Administrator
           T.E. Manase Mansur, Republican Professional Staff
                John Lawrence, Democratic Staff Director
          Marie Fabrizio-Howard, Democratic Professional Staff

                  COMMITTEE ON INTERNATIONAL RELATIONS

                 BENJAMIN A. GILMAN, New York, Chairman
WILLIAM GOODLING, Pennsylvania       LEE HAMILTON, Indiana
JAMES A. LEACH, Iowa                 SAM GEJDENSON, Connecticut
HENRY J. HYDE, Illinois              TOM LANTOS, California
DOUG BEREUTER, Nebraska              HOWARD BERMAN, California
CHRISTOPHER SMITH, New Jersey        GARY ACKERMAN, New York
DAN BURTON, Indiana                  ENI F.H. FALEOMAVAEGA, American 
ELTON GALLEGLY, California               Samoa
ILEANA ROS-LEHTINEN, Florida         MATTHEW G. MARTINEZ, California
CASS BALLENGER, North Carolina       DONALD M. PAYNE, New Jersey
DANA ROHRABACHER, California         ROBERT ANDREWS, New Jersey
DONALD A. MANZULLO, Illinois         ROBERT MENENDEZ, New Jersey
EDWARD R. ROYCE, California          SHERROD BROWN, Ohio
PETER T. KING, New York              CYNTHIA A. McKINNEY, Georgia
JAY KIM, California                  ALCEE L. HASTINGS, Florida
STEVEN J. CHABOT, Ohio               PAT DANNER, Missouri
MARSHALL ``MARK'' SANFORD, South     EARL HILLIARD, Alabama
    Carolina                         BRAD SHERMAN, California
MATT SALMON, Arizona                 ROBERT WEXLER, Florida
AMO HOUGHTON, New York               STEVE ROTHMAN, New Jersey
TOM CAMPBELL, California             BOB CLEMENT, Tennessee
JON FOX, Pennsylvania                BILL LUTHER, Minnesota
LINDSEY O. GRAHAM, South Carolina    JIM DAVIS, Florida
JOHN McHUGH, New York                LOIS CAPPS, California
ROY BLUNT, Missouri
KEVIN BRADY, Texas
RICHARD BURR, North Carolina
                    Richard J. Garon, Chief of Staff
            Michael H. Van Dusen, Democratic Chief of Staff
                                 ------                                

                  Subcommittee on Asia and the Pacific

                   DOUG BEREUTER, Nebraska, Chairman
JAMES A. LEACH, Iowa                 HOWARD L. BERMAN, California
DANA ROHRABACHER, California         ENI F.H. FALEOMAVAEGA, American 
PETER T. KING, New York                  Samoa
JAY KIM, California                  ROBERT E. ANDREWS, New Jersey
MATT SALMON, Arizona                 SHERROD BROWN, Ohio
JON FOX, Pennsylvania                MATTHEW G. MARTINEZ, California
JOHN M. McHUGH, New York             ALCEE L. HASTINGS, Florida
DONALD A. MANZULLO, Illinois         ROBERT WEXLER, Florida
EDWARD R. ROYCE, California          LOIS CAPPS, California
                Mike Ennis, Subcommittee Staff Director
         Richard Kessler, Democratic Professional Staff Member
                           Dan Martz, Counsel
                   Alicia O'Donnell, Staff Associate



                            C O N T E N T S

                              ----------                              
                                                                   Page

Hearing held October 1, 1998.....................................     1

Statement of Members:
    Bereuter, Hon. Doug, a Representative in Congress from the 
      State of Nebraska..........................................     8
    Christian-Green, Hon. Donna M., a Delegate in Congress from 
      the Virgin Islands, prepared statement of..................    49
    Duncan, Hon. John J., Jr., a Representative in Congress from 
      the State of Tennessee.....................................     1
        Prepared statement of....................................     3
    Faleomavaega, Hon. Eni F.H., a Delegate in Congress from 
      American Samoa.............................................     4
    Miller, Hon. George, a Representative in Congress from the 
      State of California, prepared statement of.................     7
    Underwood, Hon. Robert A., a Delegate in Congress from Guam..     9
        Prepared statement of....................................    10

Statement of Witnesses:
    Campbell, Kurt M., Deputy Assistant Secretary of Defense for 
      Asian and Pacific Affairs..................................    15
        Prepared statement of....................................    55
    Kyota, Hersey, Palau Ambassador to the United States.........    39
        Prepared statement of....................................    63
    Muller, Phillip, Minister of Foreign Affairs and Trade, 
      Republic of the Marshall Islands; Tony DeBrum, Republic of 
      the Marshall Islands, Ambassador to the United States......    36
        Prepared statement of....................................    59
    Roth, Stanley, Assistant Secretary for East Asian and Pacific 
      Affairs, U.S. Department of State..........................    12
        Prepared statement of....................................    52
    Stayman, Allen P., Director, Office of Insular Affairs, U.S. 
      Department of the Interior.................................    16
        Additional material submitted by.........................    19
    Takesy, Hon. Asterio R., Executive Director, Joint Committee 
      on Compact Economic Negotiations, Federated States of 
      Micronesia, accompanied by Jesse Marehalau, Federated 
      States of Micronesia, Ambassador to the United States......    33
        Prepared statement of....................................    56

Additional material supplied:
    Briefing Paper--Compacts of Free Association.................    52
    de Brum, Banny, Ambassador, Embassy of the Republic of The 
      Marshall Islands, prepared statement of....................    77
    DeBrum, Oscar, Chairman, Nuclear Claims Tribunal, prepared 
      statement of...............................................    68
    Nitijela of The Marshall Islands, Resolution.................    72



   JOINT OVERSIGHT HEARING ON: COMPACTS OF FREE ASSOCIATION WITH THE 
      MARSHALL ISLANDS, FEDERATED STATES OF MICRONESIA, AND PALAU

                              ----------                              


                       THURSDAY, OCTOBER 1, 1998

        House of Representatives, Committee on Resources, 
            and Subcommittee on Asia and the Pacific, 
            Committee on International Relations, 
            Washington, DC.
    The Committees met, pursuant to notice, at 2 p.m., in room 
1324, Longworth House Office Building, Hon. John J. Duncan, Jr. 
[acting chairman of the Committee on Resources] presiding.
    Mr. Duncan. [presiding] The joint hearing will now come to 
order.
    The Committee on Resources and the International Relations 
Subcommittee on Asia and the Pacific is meeting today to hear 
testimony on the Compacts of Free Association with the Republic 
of the Marshall Islands, the Federated States of Micronesia, 
and the Republic of Palau.
    Under rule 4(g) of the Committee rules, any oral opening 
statements at hearings are limited to the chairman and the 
Ranking Minority Member. This will allow us to hear from our 
witnesses sooner and help members keep to their schedules. 
Therefore, if other members have statements, they can be 
included in the hearing record under unanimous consent. After 
my opening statement, I will recognize Chairman Bereuter for 
any statement he may have. I will then recognize the Ranking 
Minority Member of the Committee as well as the Subcommittee on 
Asia and the Pacific for any statement.

  STATEMENT OF HON. JOHN J. DUNCAN, JR., A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF TENNESSEE

    Mr. Duncan. Let me, first of all, commend Chairman Bereuter 
of the International Relations Subcommittee on Asia and the 
Pacific, and Chairman Don Young of the Committee on Resources 
for their continuing mutual oversight efforts which began 
during the last Congress with a similar joint hearing on the 
Compacts of Free Association with the Republic of the Marshall 
Islands, the Federated States of Micronesia,and the Republic of 
Palau. Our current free association relationship with these 
three separate sovereign republics is unprecedented in U.S. 
history, and warrants the continued review by the Congress.
    In 1984, President Ronald Reagan proposed a new status for 
the trust territories of the Pacific through negotiated 
Compacts of Free Association. Congress then conducted over 30 
hearings and the Reagan Administration responded to various 
concerns through implementation agreements which were 
ultimately required in the legislation approving the new status 
for the islands. The Congress approved free association 
relationships with these areas with the enactment of Public 
Laws 99-239, 99-658, and 101-219 in 1985, 1986, and 1989. As 
separate sovereign nations, these areas have their own 
nationality and citizenship, are members of the United Nations, 
and have full diplomatic relations based on the Vienna 
Convention on Diplomatic Relations.
    Certain economic provisions of the compact with the 
Marshall Islands and the FSM are set to lapse at the end of 15 
years. By law, the administration is to begin negotiations on 
those provisions next year. The 15-year lease of the U.S. 
missile testing facility at Kwajalein in the Marshall Islands 
is also up for renewal at the same time.
    While not a perfect arrangement, the Compact of Free 
Association has served the United States interests well by 
providing the framework for transition from the United Nations 
trusteeship to separate national sovereignty for the Republic 
of the Marshall Islands, the Federated States of Micronesia, 
and the Republic of Palau. The freely associated states have 
had their share of successes and failures as part of the 
growing pains of separate sovereigns. However, in many respects 
there has been better fiscal accountability by the free 
associated state governments under the compact than there was 
under the trusteeship bureaucracy. This seems to be underscored 
by the lack of Federal oversight of grants and programmatic 
assistance in the freely associated states. In 1989, Congress 
directed the Secretary of the Interior to station at least one 
person in the U.S. offices in the Marshalls, the FSM, and 
Palau. Apparently it is only recently that just one individual 
has been stationed in the islands for all three of the freely 
associated states.
    This oversight hearing provides a chance for the Congress 
to evaluate the progress of the compacts toward realizing 
President Reagan's goal of an internationally recognized 
separate sovereign free association relationship based on 
decades of close friendship between the people of the former 
trust territory of the Pacific Islands. We have an opportunity 
today to meet with members of the Committees on Resources and 
International Relations to jointly review the policy embodied 
in the compact and subsidiary agreements.
    I think we can be proud of the Compacts of Free 
Association, which contributed to a significant United States 
leadership initiative that moved relations with the concerned 
islands out from the shadows of cold war international politics 
and recognized the special bonds that had formed between our 
government and the peoples of the trust territory. Our 
experience since enactment of the compact vindicates the policy 
of President Reagan that self-government, based on the choices 
made by the people of the islands, would represent improvement 
and progress in our relations with the peoples of the former 
trust territory.
    I again wish to thank Chairman Bereuter of the Subcommittee 
on Asia and the Pacific and his staff for their cooperation 
with this hearing. I also want to acknowledge the support and 
interest of Full Committee Chairmen Benjamin Gilman and Don 
Young regarding U.S. freely associated state matters, who have 
introduced House concurrent resolution 92, emphasizing U.S. 
interests in Micronesia. I look forward to joint efforts 
between our respective committees to ensure that the United 
States interest is protected as the U.S. consults with the free 
associated state governments regarding compact provisions. The 
views of the witnesses today from the administration and the 
three freely associated states will help the Congress in 
understanding the progress to date with the existing 
relationship, and provide a basis for review.
    [The prepared statement of Mr. Duncan follows:]

  Statement of Hon. John J. Duncan, Jr., a Representative in Congress 
                      from the State of Tennessee

    Let me begin by commending the Chairman Bereuter of the 
International Relations Subcommittee on Asia and the Pacific 
and Chairman Don Young on the Committee on Resources for 
continuing mutual oversight efforts, which began last Congress 
with a similar joint hearing on the Compacts of Free 
Association with the Republic of the Marshall Islands, the 
Federated States of Micronesia, and the Republic of Palau. 
These Micronesian islands were part of the United Nation's 
Trust Territory of the Pacific Islands which the United States 
administered after World War II as a strategic trusteeship. Our 
current free association relationship with these three separate 
sovereign republics is unprecedented in U.S. history and 
warrants the continuing review by the Congress.
    In 1984, President Ronald Reagan proposed a new status for 
the trust territories of the Pacific through negotiated 
Compacts of Free Association. Many questions were raised about 
the new status concept of full self-government as a separate 
sovereign in free association. Congress conducted over 30 
hearings and the Reagan Administration responded to various 
concerns through implementation agreements which were 
ultimately required in the legislation approving the new status 
for the islands.
    The Congress approved free association relationships with 
these areas with the enactment of Public Laws 99-239, 99-658, 
and 101-219 in 1985, 1986 and 1989. As separate sovereign 
nations, these areas have their own nationality and 
citizenship, are members of the United Nations, and have full 
diplomatic relations based on the Vienna Convention on 
Diplomatic Relations. All three maintain embassies in 
Washington, DC, and similarly, the U.S. has embassies in the 
three freely associated states with either resident 
ambassadors, or in the case of Palau, a charge, the with 
ambassador being accredited out of Manila, Philippines.
    The U.S. and these islands each have entered into 
agreements through their respective Compacts, to provide 
certain rights of obligations to the other party. Most 
significantly, the U.S. has exclusive military rights and a 
legal defense veto over third party use of any of the land, 
ocean, or airspace of the islands (this oceanic exclusive 
economic zone comprises an area larger than the continental 
U.S.), as well as access and use of certain specified land, 
harbor, an airport facilities in various parts of the freely 
associated states, and the islands have free transit into the 
U.S. to work, study, or reside. The FAS also use U.S. currency 
and are synchronized with the U.S. postal system rates. The 
Compacts also provide for economic and programmatic assistance 
for the FAS are varying rates.
    Compacts for the Marshall Islands and the Federated States 
of Micronesia began on respectively on October 24 and November 
3, 1986 while Palau's Compact did not start until October 1, 
1994. Certain economic provisions of the Compact with the 
Marshall Islands and the FSM are set to lapse at the end of 15 
years and by law, the Administration is to begin negotiations 
on those provisions in 1999. The 15 year lease of the U.S. 
missile-testing facility at Kwajalein in the Marshall Islands 
is also up for renewal at the same time.
    While not a perfect arrangement, the Compact of Free 
Association has served the United States interest well by 
providing the framework for transition from the United Nations 
trusteeship to separate national sovereignty for the Republic 
of the Marshall Islands, the Federated States of Micronesia, 
and the Republic of Palau. I also believe it is fair to say 
that these new associated republics are doing a better job 
managing internal and external affairs than the Department of 
Interior was able to do as the trusteeship relationship became 
increasingly anachronistic in the 1970's and 1980's.
    The freely associated states have had their share of 
successes and failures as part of the growing pains of separate 
sovereigns. However, in many respects there has been better 
fiscal accountability by the free associated state governments 
under the Compact than there was under the U.S. trusteeship 
bureaucracy. This seems to be underscored by the lack of 
Federal oversight of grants and programmatic assistance in the 
freely associated states. In 1989, Congress directed the 
Secretary of the Interior to station at least one person in the 
U.S. offices in the Marshalls, the FSM, and Palau. Apparently, 
it is only recently that just one individual has been stationed 
in the islands for all three of the freely associated states.
    There is considerable interest in determining the progress 
of the islands toward economic self-sufficiency, one of the 
primary underlying objectives of the Compact. The U.S. has a 
vested interest in seeing the islands achieve economic self-
sufficiency and adequate employment opportunities as the 
citizens of the freely associated states have the right to 
freely enter, reside, study, or work in the U.S. More people 
will leave the islands and live in the U.S. if the quality of 
life does not improve.
    This oversight hearing provides a chance for the Congress 
to evaluate the progress of the Compacts toward realizing 
President Reagan's goal of an internationally recognized 
separate sovereign free association relationship based on 
decades of close friendship between the people of the former 
Trust Territory of the Pacific Islands. We have an opportunity 
today to with Members of the Committee's on Resources and the 
International Relations to jointly review the policy embodied 
in the Compact and subsidiary agreements which was intended by 
Congress to:

          1. Preserve unique strategic partnerships with the Marshall 
        Islands, Palau and the Federated States of Micronesia;
          2. Establish relations under bilateral treaties and with full 
        self-government for the islands based on U.S. fulfillment of 
        its commitment to respect self-determination, rather than 
        continuing non-self governing status under the United Nations 
        trusteeship; and
          3. Advance economic self-sufficiency through Federal grants, 
        programmatic assistance, infrastructure development like the 
        Babeldaob circumferential road, tax, trade, postal, 
        telecommunications, and other areas of mutual cooperation; and
          4. Complete trusteeship responsibilities including the long-
        term effects of the nuclear testing program in the Marshall 
        Islands, prior service benefits, and infrastructure defects.
    I think we can be proud of Compacts of Free Association, which 
contributed to a significant United States leadership initiative that 
moved relations with the concerned islands out from the shadows of Cold 
War international politics and recognized the special bonds that had 
formed between our government and the peoples of the trust territory. 
Our experience since enactment of the Compact vindicates the policy of 
President Reagan that self-government based on the choices made by the 
people of the islands would represent improvement and progress in our 
relations with the peoples of the former trust territory.
    I want to thank Chairman Bereuter of the Subcommittee on Asia and 
the Pacific for his cooperation with this hearing. I also want to 
acknowledge the support of Full Committee Chairmen Benjamin Gilman and 
Don Young regarding freely associated state matters, who have jointly 
introduced House concurrent Resolution 92, emphasizing U.S. interests 
in Micronesia. I look forward to joint efforts between our respective 
committees to ensure that the United States interest is protected as 
the U.S. consults with the free associated state governments regarding 
the expiration in 2001 of those Compact provisions which were limited 
to fifteen years. The views of the witnesses today from the 
Administration and the three freely associated states will help the 
Congress in understanding the progress to date with the existing 
relationship and provide a basis for the future.

    Mr. Duncan. I now will recognize the Ranking Minority 
Member, my good friend Mr. Faleomavaega, for any statement that 
he wishes to make at this point.

STATEMENT OF HON. ENI F.H. FALEOMAVAEGA, A DELEGATE IN CONGRESS 
                      FROM AMERICAN SAMOA

    Mr. Faleomavaega. Thank you, Mr. Chairman. I commend you 
for calling this joint oversight hearing between the Resources 
Com-

mittee and the Committee on International Relations 
Subcommittee on Asia and the Pacific. I am a member of both 
committees and it is indeed a pleasure to participate in 
today's hearing focusing on a very timely subject in the 
Pacific, the Compacts of Free Association with the Republic of 
the Marshall Islands, the Federated States of Micronesia, and 
the Republic of Palau.
    Mr. Chairman, I welcome to the distinguished panel of the 
administration witnesses to testify before our committees 
today. In particular, I would thank Assistant Secretary of 
State for East Asian and Pacific Affairs, Secretary Stanley 
Roth, for appearing before us. When Secretary Roth was with the 
House Foreign Affairs Committee, for years we worked closely on 
policy issues crucial to the Pacific region, resulting in the 
issuance of a committee report entitled Problems in Paradise. I 
know from personal experience, Mr. Chairman, that few 
individuals in Washington possess the knowledge, the skills and 
the depth of experience as Secretary Roth has in the affairs of 
the Pacific. As a matter of fact, Mr. Chairman, as far as to my 
knowledge, I believe Secretary Roth is probably the only 
Assistant Secretary of East Asian and Pacific Affairs who has 
ever had any understanding or real sense of appreciation and 
sensitivity to the problems of the Pacific region. I want to 
personally welcome Mr. Roth here in our committees.
    I would also note and extend a very warm welcome to the 
second panel, the distinguished diplomats who have appeared to 
testify on behalf of the governments of the Marshalls, the 
Federated States of Micronesia, and Palau. I also welcome my 
good friend, Al Stayman, the director of the Office of Insular 
Affairs in the Department of the Interior.
    Mr. Chairman, as part of the trust territory of the Pacific 
Islands, the islands in Micronesia were placed under the 
trusteeship of the United States after World War II. Under the 
United Nations trust agreement, it was the obligation of the 
United States to promote the development of the inhabitants of 
the trust territory toward self government or independence, as 
may be appropriate to the particular circumstances of the trust 
territory and its people and the freely expressed wishes of the 
people's concern.
    Mr. Chairman, accepting the trusteeship was not an 
altruistic gesture on the part of the United States. Let's be 
quite plain about this. We were careful to use the region for 
military purposes and continue to do to this day. Nevertheless, 
substantial progress has been achieved in developing the island 
groups toward greater self governance. Today there is no longer 
a trust territory of the Pacific Islands.
    The early 1980's brought compact agreements among the 
United States and the different island groups of the trust 
territory. In 1994, with the approval of Palau's Compact of 
Free Association, trusteeship came to an end.
    Mr. Chairman, I want to especially note the tremendous 
contributions and keen foresight of the late Congressman Phil 
Burton, who participated during the negotiations process which 
culminated in our government's approval of the Compacts of Free 
Association with the FSM, the Marshalls and Palau. In fact, Mr. 
Chairman, to my personal knowledge, many of the social and 
educational programs that were provided for the three nations 
were due largely to Congressman Burton's strong belief that 
these programs were critical to the social and economic 
advancements of these nations.
    Mr. Chairman, as we near the end of the initial compact 
term in the year 2001 with the Republic of the Marshall Islands 
and the Federated States of Micronesia, it is an appropriate 
time to assess the state of affairs with these governments. 
Before we begin with our witnesses, I have a few observations.
    I note first that the initial negotiations in the compacts, 
such as with the Marshall Islands, took over a decade and a 
half. Because of the complexity of the issues covered by these 
agreements, the time necessary for their negotiations, I 
strongly recommend, Mr. Chairman, that renegotiation of the 
contract begin as soon as possible rather than delaying matters 
until late next year.
    In particular, Mr. Chairman, the administration should 
immediately enter into compact renegotiations, discussions with 
the Marshall Islands. This is warranted because of the unique 
nuclear legacy that exists between our nations, and the 
continuing security contributions to the United States that the 
Marshall Islands makes through Kwajalein Atoll. One of the 
greatest challenges confronting the Marshall Islands government 
is the need to address the lingering medical and environmental 
problems resulting from radioactive explosions caused by the 
U.S. nuclear testing program.
    The legacy of our 67 nuclear weapons detonations has 
resulted in a nightmare of health problems for the Marshallese 
people. Including elevated rates of thyroid cancer, cervical 
cancer mortality rates 60 times the U.S. rate, breast cancer 
mortality rates five times greater than in the United States, 
and reproductive complications involving high rates of 
miscarriage and deformed babies that are stillborn.
    Mr. Chairman, the same is also true for environmental 
contamination problems in the Marshalls. Temporary storage 
facilities are leaching radionuclides into the marine ecosystem 
around Enewetok and Bikini. Portions of at least four atolls 
remain off limits to human beings. Mr. Chairman, addressing the 
nuclear legacy left by the United States has exhausted the 
limited resources allocated to the Marshallese people and 
profoundly affect the ability of the Marshall Islands to 
achieve a greater sense of self sufficiency as envisioned in 
the compact.
    Despite decades of U.S. Government involvement, Mr. 
Chairman, the Marshall Islands are no closer to caring for its 
radiation problems today than it was when the U.S. testing 
program began. We must never forget that the sacrifices of the 
Marshallese people significantly contributed to America's 
nuclear deterrence program, facilitating our victory in the 
cold war.
    Mr. Chairman, even in the post cold war era, however, the 
Marshall Islands continues to be of strategic value to the 
United States, and will be for the next several decades because 
of the U.S. arms ballistic missile and anti-ballistic missile 
testing facilities at Kwajalein Atoll. Given the increasing 
danger posed by international terrorism and rogue nations such 
as North Korea, Libya, Iran and Iraq, it is good that both the 
administration and Congress have committed to accelerate 
national missile defense research and development programs. 
Kwajalein Atoll is one of only two U.S. strategic missile 
defense test sites authorized under the Anti-Bal-

listic Missile Treaty. Moreover, as a buffer between Hawaii and 
Asia, Kwajalein Atoll acts as a U.S. intermediary to potential 
political, economic, and military adversaries such as China and 
the Pacific region. Kwajalein Atoll also serves U.S. interests 
by providing a NASA tracking center and satellite launching 
sites.
    Mr. Chairman, in calling for early compact renegotiations, 
I would further recommend that the discussions take place in 
the Pacific at the East-West Center in Hawaii. Since its 
formation in 1960 by an Act of Congress, the East-West Center 
has distinguished itself as the region's most respected 
institution for furthering U.S. relations with the nations of 
the Asia Pacific region. It is my understanding that the center 
would welcome the opportunity to host these important compact 
discussions. It provides an ideal forum, conveniently located 
for all parties concerned.
    Concluding, Mr. Chairman, it is important that the compact 
renegotiations occur in an atmosphere of good faith, free of 
negativism and disrespect. I find it very disturbing, Mr. 
Chairman, that some representatives of the U.S. Government may 
not share this point of view and have gone out of their way to 
show lack of respect for our compact partners, even to the 
point of interfering with domestic political affairs such as in 
the Marshall Islands. Such behavior, if true, Mr. Chairman, is 
highly unprofessional and beneath the dignity of our relations 
with these nations, and they should be stopped.
    Thank you, Mr. Chairman, for holding this hearing to 
provide members of both committees the opportunity to determine 
the status of the commonwealths of the freely associated 
states. America has never walked away from her allies in their 
times of need. As we enter this important period for compact 
negotiations, I am confident that our Nation will do what is 
right and fair for our friends throughout the island nations of 
Micronesia. I thank you, Mr. Chairman.
    Mr. Duncan. Well, thank you. I mentioned in my opening 
statement and thanked a couple of times Chairman Bereuter 
because this is, as I mentioned, a joint hearing between our 
Committee and the subcommittee that he chairs, the 
International Relations Subcommittee on Asia and the Pacific. I 
would like to call on my good friend and one of the most 
respected members of this body, Chairman Bereuter, for any 
statement he wishes to make at this time.
    Mr. Bereuter. I thank you very much, Chairman Duncan. Thank 
you for your kind words.
    Mr. Faleomavaega. Will the chairman yield? I would also 
like to ask unanimous consent if the statement of the gentleman 
from California, Mr. Miller, be made part of the record.
    Mr. Duncan. We'll make that part of the record.
    [The prepared statement of Mr. Miller follows:]

Statement of Hon. George Miller, a Representative in Congress from the 
                          State of California

    Mr. Chairman. I'm pleased this hearing is being held today 
in order for us to look at how well the compacts of free 
association with the Republic of the Marshall Islands, 
Federated States of Micronesia, and Palau are working. I want 
to thank you for bending to the will of the Democratic members 
and permitting representatives of the Pacific nations to join 
us here today and testify as to their experiences with compact 
implementation. I understand the concern for time limitation 
and the de-

sire to focus on the administration, however, since these 
compacts are bilateral agreements, it makes sense to have all 
parties present.
    This afternoon we will hear from the agencies responsible 
as to the various provisions of the compacts to determine if 
the intended goals are being met and promises kept on all 
sides. This hearing will help us prepare for negotiations next 
year with the Federated States of Micronesia and the Republic 
of the Marshall Islands on the economic provisions. The stated 
goal of Title II is ``to assist the FAS in their efforts to 
advance the economic self-sufficiency of their peoples.'' This 
is a tall order and one that requires hard work, sacrifice, and 
flexibility by all the nations.
    We have a very unique and close relationship with the 
freely associated states and their people. I believe we have a 
special responsibility to nurture and assist these developing 
governments in an area of the world where the U.S. has, at 
times, had a checkered history. Recently, the House passed a 
bill dealing with higher education which would have ended 
eligibility to certain education programs for FAS students 
attending college in the U.S. This language was put in by the 
Majority party on the Education and Workforce Committee because 
of their view that as foreign nations the FAS shouldn't have 
access to U.S. programs. I disagree with this notion and firmly 
believe that assisting FAS students in gaining access to U.S. 
universities will only enhance the likelihood of the mutually 
agreed goals of the compacts. As I believe all here are aware, 
we were able to have that language removed from the final 
product but it is a stark reminder of what we will be facing 
when renegotiations begin next fall.
    I want to thank all of the witnesses for being here this 
afternoon--those that traveled a few blocks and those who 
traveled many time zones.

 STATEMENT OF HON. DOUG BEREUTER, A REPRESENTATIVE IN CONGRESS 
                   FROM THE STATE OF NEBRASKA

    Mr. Bereuter. I just have a few words I would like to say 
preliminarily. First of all, one, I appreciate the opportunity 
to hold this joint hearing with the Resources Committee, Mr. 
Chairman. I think it is appropriate now that we examine the 
state of affairs with the Freely Associated States and 
peripherally I would say with the Northern Marianas, that opted 
for a commonwealth status.
    When I was a junior Member of Congress, I served in this 
Committee room on the Interior Committee and on what was called 
the Insular Affairs Subcommittee. I have visited several parts 
of all four of our former trust territories in the Pacific, and 
followed with considerable attention what has happened in those 
areas since that time. I think as we examine these issues 
today, we ought to look at how well the objectives we attempted 
to achieve in negotiating the compacts with three of the four 
Pacific trust territories are working out. The assistance of 
course for the Marshalls and Micronesia, the Federated States 
of Micronesia, will last until 2001. Assistance to Palau, 
because of a later start will continue to 2009.
    The annual grant funding for the Federated States of 
Micronesia started out in 1986 at $60 million. Although that 
figure has declined somewhat since 1991, other program funding 
has added approximately $50 million a year. The Republic of the 
Marshall Islands will over the 15-year length of the compact 
receive approximately a very generous $900 million. For its 
part, Palau is scheduled to receive $517 million through the 
compact from 1995 through 2009.
    What will happen when the compact with the Marshalls and 
the FSM expire in 2001 I think will depend greatly on actions 
taken now in the next few years by both the United States and 
the Freely Associated States. I would think that our hearing 
today might attempt to draw attention to issues that will 
ensure that when 2001 arrives, we will be well prepared, and 
therefore, to look at this hearing at the purposes of the 
compacts themselves. We hope to learn if the early hopes in the 
U.S. and the Freely Associated States have been realized. We 
are interested in learning what issues we and our friends in 
the Freely Associated States need to address before the 
compacts expire.
    For example, what programs do the compacts fund, and how 
are these programs administered? To what extent have payments 
under the compact promoted economic development, especially 
self-sufficiency? Also, what additional obligations arise from 
the compact? I know, for example, that the obligations to 
provide Pell Grants and other educational assistance to the 
Pacific Islands' students have come under close scrutiny in 
recent months. What other obligations are there, and what is 
the cost to the American taxpayer?
    The gentleman from American Samoa mentioned the issue of 
nuclear waste. I must say I was very disturbed to learn in a 
visit to Taiwan that negotiations at some stage of 
sophistication were underway, at least exploration for Taiwan 
to ship its nuclear waste to one of the Freely Associated 
States, something that I thought was a very disturbing 
development, inconsistent with all of the suffering that the 
people in that region had been through.
    I would also say very candidly that when I was in the 
Marshall Islands and in the Federated States of Micronesia and 
Palau and the Northern Marianas, at least in one or more of 
those locations, I saw endemic corruption that was very 
troublesome. I would hope that that corruption has been 
reduced, and hopefully eliminated. Certainly it was diverting a 
significant amount of the resources that ought to have gone to 
the people of the region from them. I think, candidly, we need 
to look at whether or not those corruption problems are healed 
or reduced. That is not a blanket condemnation because I saw 
great variation between and among the various Pacific trust 
territories at that time. I hope since they have taken on a 
responsibility for their own self governance, except for 
foreign policy and national security, that those problems have 
declined or been eliminated.
    Mr. Chairman, I look forward to the testimony of our 
distinguished witnesses and the subsequent panel. I thank you.
    Mr. Duncan. Thank you very much, Chairman Bereuter. Now I 
would like to call on for an opening statement my good friend 
Robert Underwood, who is the Congressman from Guam.

 STATEMENT OF HON. ROBERT A. UNDERWOOD, A DELEGATE IN CONGRESS 
                           FROM GUAM

    Mr. Underwood. Thank you, Mr. Chairman. I too want to 
extend my congratulations to the chairman of the Subcommittee, 
Mr. Bereuter, and Chairman Young for holding this hearing. I 
also want to extend my own words of welcome to the first panel, 
especially Stanley Roth, who has been so instrumental in making 
the compacts go, as many of us who are familiar with these 
events fully recognize.
    I have a statement that I would like entered into the 
record.
    Mr. Duncan. Yes.
    Mr. Underwood. Just to say a couple of comments. I just 
want to state that certainly of all the areas that are 
represented in the U.S. House, I think the place I represent is 
most directly affected by the nature of the compacts as well as 
the implementation of the compacts. I want to state for the 
record that the people of Guam certainly endorse the idea of 
continuing whatever kind of assistance can be given to the 
Freely Associated States in order to advance their economies, 
because not only is it good in the fulfillment of an obligation 
to the peoples of the former trust territories, but it also 
helps our own economic development on Guam as well. We are all 
tied together by various connections, cultural, historical, and 
of course geographical. We all maintain ties that far exceed 
and go beyond and sometimes have to go around existing ties 
that exist between the United States and these freely 
associated governments as separate entities.
    The compacts are certainly interesting and provide for a 
different kind of set of international relations. Although 
these states are fully sovereign, I prefer to think of them as 
ongoing partnerships and very close partnerships between the 
United States and the Freely Associated States. We do have our 
share of problems of implementation of the compacts, which have 
had some negative effects on Guam, and certainly I am very 
happy for the opportunity to state some of those in my prepared 
remarks, as well as the process that we're entering into in 
order to state them to members of the administration, so that 
as they prepare for the negotiations with the Freely Associated 
States, that these concerns might be raised in one way or 
another.
    The problems associated with the migration of large numbers 
of people to Guam have been stated repeatedly over and over, 
including an obligation by the Federal Government to help the 
government of Guam recover from some of those costs, 
financially as well as making sure that we have a full 
understanding of the meaning of the term habitual resident. I 
also want to stress my concern about the implementation of 
programs that are designed to help the Freely Associated States 
grow economically, but at some point in time as well, that they 
might have some not very happy circumstances in Guam, happy 
fallout on Guam.
    One of the issues that the people on Guam continually raise 
is the issue of tuna transshipment and how in some of the 
compact states they require the tuna to be transshipped out of 
their own areas rather than being transshipped through Guam. Of 
course that has some negative effect on us.
    I remain fully confident that we can work many of these 
problems out. I certainly hope that we will. I also look 
forward to hearing the comments about the continuing strategic 
value of these areas as we move from what was formerly the only 
strategic trusteeship under the U.N. system to the concept of 
strategic denial and to what we have today, which remains 
rather unclear to me. Thank you.
    [The prepared statement of Mr. Underwood follows:]

Statement of Hon. Robert A. Underwood, a Delegate in Congress from the 
                           Territory of Guam

    Chairman Young and Chairman Bereuter:
    I thank you and, the members of the Resources Committee and 
the International Relations Subcommittee on Asia and the 
Pacific for inviting the panels we have before us today. It is 
very prudent to begin a dialogue on the Compacts of Free 
Association in anticipation of renegotiations, and to discuss 
developments between American-FAS relations since the Compacts 
were originally agreed to in 1986.
    More often than not, I find myself educating my colleagues 
and other Congressional staff not only about the FAS, but also 
about Guam's unique history and our unique relationship with 
the FAS. As former trust territories and currently as nations 
in free association, the Federated States of Micronesia, the 
Republic of the Marshall Islands and the Republic of Palau are 
involved in a mutually-beneficial relationship with the United 
States in areas such as defense, the economy and education. And 
as the closest American territory to the FAS, Guam is affected 
by this special relationship. I would like to take this 
opportunity to discuss some of Guam's concerns regarding the 
upcoming Compact renegotiations.
    Like any dynamic relationship, Guam and the FAS agree on 
many aspects, but we also have issues of contention. As some of 
my colleagues may know, the FAS are great transhipment centers 
for fish products, most notably tuna. Guam also has the 
infrastructure and means for becoming such a center. However, 
due to restrictive regulations requiring fishing fleets who 
fish in FSM waters to transship only through the FSM, Guam's 
potential in this industry has been effectively stifled. I 
understand that it is within international law for the FSM to 
promulgate such restrictions, however, I see the renegotiation 
of the Compacts as an avenue for revisiting this issue.
    The current economic crisis which began in Asia has already 
caused numerous lay-offs and business shut-downs on Guam. Our 
economy relies heavily on Asian tourists and without economic 
diversification, such as one which tuna transshipment can 
provide, the people of Guam will continue to suffer the whims 
of an economy dependent on a single industry.
    Another issue I would like to raise is FAS migration into 
Guam. The Compacts allowed for the free migration of FAS 
citizens to the United States and its territories for the 
purpose of education and employment.
    Because of Guam's proximity to the FAS, we have experienced 
a surge of FAS migration in recent years and house a great 
number of ``habitual residents,'' the technical classification 
for these FAS citizens. Despite the Federal Government's 
limited reimbursement, Guam's social and welfare services are 
strained beyond capacity. Recently, the Immigration and 
Naturalization Service (INS) issued preliminary regulations 
governing and defining the classification of habitual 
residents. I believe the renegotiation of the Compacts will 
also be an advantageous platform to discuss FAS migration. 
While the original intent of the Compacts was to provide a 
manner by which FAS citizens could seek higher education and 
employment through migration, I believe Guam's experiences as a 
result of this regulation deserves greater inspection. I know 
that the people of Guam are very willing to work with the 
Administration and the FAS on this issue.
    Guam's strategic location at the ``spear head'' in the 
Western Pacific, permits a dynamic responsibility as well as 
opportunity. During the Cold War, the United States was the 
guarantor of peace and stability within the region. This 
assertion is no less true today, except that the international 
security environment is more complex and perhaps more urgent. 
The U.S. military has a responsibility to protect and defend 
our interests in the Western Central Pacific, the gateway to 
Asia. But at the same time, we must be cognizant that entire 
civilizations reside in these strategic waters and we must 
respect and acknowledge their historical sacrifices and 
commitment to advance U.S. security.
    With this in mind, I express Guam's support that the U.S. 
take into consideration the economic disadvantages that 
characterize the Pacific Islands. We have been a cornerstone 
for U.S. defense, and will continue to be, but there are 
concrete economic necessities which need Federal assistance, 
not as a handout but as hand up. I am hopeful that in the 
upcoming renegotiations, consideration of extending all 
necessary and appropriate Federal programs to stimulate and 
advance the economies of the FAS will be thought through 
carefully and judiciously.
    Again, I thank the Chairmen for convening this hearing, and 
I thank the panelists for taking the time to educate us further 
on the impact of the Compacts since their inception. I hope my 
colleagues will use this opportunity to educate themselves on 
the importance of our special relations with the FAS, I know I 
will.
    The Compacts are not perfect agreements, and there will be 
room for improvement. I am confident that we can look at the 
renegotiation of the Compacts not as the end of a few programs, 
but as the beginning of improved agreements which will carry 
our relationship to a higher level as we enter the new 
millennium.

    Mr. Faleomavaega. Will the chairman yield?
    Mr. Duncan. Thank you very much. Yes.
    Mr. Faleomavaega. Mr. Chairman, I ask the Chair's 
indulgence in a unanimous request. The poor people have been 
sitting there for 100 hours. I would like to ask if it is 
possible that they can sit over here since we have a lot of 
space for members to come, if it's all right with the chairman.
    Mr. Duncan. It's fine with me.
    Mr. Faleomavaega. You can all come sit in the dais here, if 
you like or you can stand there. You can come right over here 
and sit down.
    Mr. Duncan. All right, I would like to go ahead and 
introduce the first panel. The first panel consists of the 
Honorable Stanley Roth, who is Assistant Secretary for East 
Asian and Pacific Affairs of the U.S. State Department, the 
Honorable Kurt M. Campbell, Deputy Assistant Secretary of 
Defense for Asian and Pacific Affairs, and Mr. Allen P. 
Stayman, Director, Office of Insular Affairs of the U.S. 
Department of the Interior.
    Let me remind the witnesses that under our Committee rules, 
they must limit their opening oral statements to 5 minutes. We 
generally proceed in the order the witnesses are listed on the 
call of the hearing. That means that Mr. Roth, you would go 
first, followed by Mr. Campbell, and then Mr. Stayman.
    Mr. Roth, you may begin your statement.

 STATEMENT OF STANLEY ROTH, ASSISTANT SECRETARY FOR EAST ASIAN 
         AND PACIFIC AFFAIRS, U.S. DEPARTMENT OF STATE

    Mr. Roth. Thank you very much, Mr. Chairman. Let me also 
begin by commending the two committees for undertaking this 
hearing. It is so easy, with all the other big issues on the 
plate in the Asia Pacific region and with all the issues you 
have on the Interior Committee to put this one aside, 
particularly when we have not yet started the renegotiations. 
Taking the trouble to do this in advance speaks well for both 
committees.
    Let me also thank Congressman Faleomavaega and Congressman 
Underwood for their particularly warm welcomes. I wish all my 
hearings began that way.
    I will be brief, not only because of the 5 minute rule, but 
because many of the points I had intended to make were already 
made in the opening statements by the members of the two 
committees. What I tried to do in my statement was to lay out 
the broad framework, for the Compact renegotiation: where we 
started, where we are, where we are going. Many of the specific 
details and particularly the programmatic details are the 
responsibility of the Interior Department, which provides the 
Compact funding. So I suspect that most of the questions will 
go in that direction.
    Let me start off with the big picture. First, where we 
started from has already been very well covered in the 
introductory remarks. We started off from a dual perspective. 
One, what were our legal and moral obligations under the 
trusteeship? One of our obligations was to provide for the 
self-determination of the peoples in the trust territory. That 
was a major issue in the 1980's. It's easy to forget now in the 
post cold war period that this was not then an obscure issue, 
but in fact was a major issue. In the United Nations it had a 
high ideological profile. It was in a sense an anachronism from 
the Second World War. It was a big deal for us to fulfil our 
obligations, not only for the peoples of Micronesia, but for 
our international standing as well.
    The second issue which has been mentioned briefly and will 
be discussed more by Dr. Campbell, is defense. In the cold war 
period again, there were huge defense issues at stake. We have 
forgotten some of those. Of course there was the one that 
Congressman Underwood mentioned: strategic denial. This means 
taking a vast stretch of the Pacific and maintaining the U.S. 
military control and ensuring that we could deny access to the 
ships of other countries. This was not a theoretical issue in 
the last decade. As you'll recall, the Russian navy was 
starting to make significant inroads in the Pacific, including 
in the South Pacific, in the 1980's. So there was very real 
concern at the time we were doing the Compact negotiation about 
Russian agreements with Island countries under the guise of 
fishing agreements, which could have given the Soviet Union 
direct access to the territorial waters of some of these 
countries. So obtaining strategic denial in Miconesian waters 
was a major plus for us.
    Second, during the cold war, continued access to military 
bases in the Philippines was a major worry. As a contingency, 
we wanted to have a place to pull back to. That was one of the 
considerations with respect to the Palau Compact which has now 
dropped off the strategic map but was huge back in the 1980's.
    Third, another consideration that's been mentioned that 
still applies is the vital strategic significance of Kwajalein. 
So you had all these defense interests, combined with our legal 
and moral interests from the trusteeship.
    How has it all worked? Where are we now? I think the answer 
would have to be in some senses it's worked fabulously well. I 
think in terms of fulfilling our legal and moral obligations 
under the Compact, we have done a good job. The entities are 
now all fully up and running as independent states. They are 
well accredited internationally. There is great stability. In 
that sense, I think we have accomplished a lot of what we set 
out to do.
    I think on the security side, the world has changed a lot 
more. I think that in fact with the cold war over and with 
Philippine bases no longer an issue, for one thing, that issue 
has dropped off. The question of strategic denial has changed a 
bit, but I would argue, and I think my Defense colleague will 
argue even more strongly, has not vanished. While there is no 
navy comparable to the Russian navy today in the Pacific, I 
would not want to stake my career that there will never be one. 
The ability to have strategic denial for such a large region 
has to be important as we think about the future and into the 
next century. So strategic denial, if not as urgent as during 
the cold war, is still a very real interest.
    Of course Kwajalein does remain as important as ever 
because of the various missile programs that we have underway 
and the scarcity of facilities to test missiles. So we do have 
strategic interests.
    Now how well have we done on our economic goals? I think 
here the picture is mixed. Frankly, as someone who had worked 
inten-

sively on the Compact at the time, I would have hoped we would 
be further along today in self-sufficiency for all the entities 
of Micronesia. The truth is we're not there yet. We can do a 
lot of fingerpointing and point out mistakes that have been 
made, whether it's by the Freely Associated States themselves 
or whether it's by us, and ``us'' I think would include both 
the executive branch and the Congress. But the reality is that 
there has been some progress. I recently returned to Pohnpei in 
the Federated States of Micronesia after almost 10 years 
absence, and I certainly saw significant signs of economic 
development. So we've made some progress, but they are not 
ready to go it alone.
    The painful truth is, if the Congress and the 
Administration were to cutoff funding today or when we 
renegotiate, then in fact I think we would have a very hard 
time in these entities. There would be great depravation for 
the people in these entities, and that there would be a 
question as to whether we were being consistent with our 
historical relationship, indeed, our special relationship with 
these entities. So I think this is a factor that we do have to 
continue to look at.
    There has been a great emphasis recently on reform, working 
with the Asain Development Bank. Since the light is on, I won't 
go into detail. In my statement, I've addressed our concerns 
about how some of the funds have been utilized. We have real 
concerns, but we are trying to address them. We think they can 
be addressed and we think there can be more progress.
    In terms of where we go from here, first let me commend 
you, Mr. Chairman, for stating the issue accurately. A lot of 
people talk about renegotiating the Compact. That is not 
accurate. The Compact stands. There are certain provisions of 
the Compact which do have to be renegotiated after 15 years and 
the negotiations have to start after 13 years. Those are the 
provisions we're talking about today. We're not talking about a 
fundamental renegotiation of the Compact. We are in the late 
stages of trying to select a high level negotiator to undertake 
this effort for the U.S. Government, but I don't have a name 
for you today.
    Finally, in my statement I close, Mr. Chairman, with some 
of the questions we're going to have to look at. We are going 
to have to work with both of your committees because the issues 
involve congressional actions. There are the questions 
concerning what type of funding we provide. How much, and under 
what terms? Do we continue to provide funds with the full faith 
and credit of the U.S. Government? Does it require annual 
appropriations? Do we continue to provide all Federal programs, 
some Federal programs, or no Federal programs, and, if so, on a 
reimbursable or non-reimbursable basis. For what duration do we 
provide funds? There are many questions. Frankly, we are not 
ready to answer them quite yet.
    I think the first thing we have to do is get a negotiator 
and formulate our internal U.S. position. That has to be done 
in close cooperation with the Congress. I fully share the 
sentiment expressed by one of your colleagues, that we don't 
want this negotiation to last 15 years. If we don't start right 
now with close consultations with the Congress, we are going to 
repeat the mistakes of the past and have a long negotiation.
    But you have my commitment today that we will work closely 
with the Congress to try to come up with an original package 
that is acceptable and doesn't have to be legislatively 
renegotiated over many painful years. Thank you very much, Mr. 
Chairman.
    [The prepared statement of Mr. Roth may be found at end of 
hearing.]
    Mr. Duncan. Thank you, Mr. Roth.
    Mr. Campbell?

 STATEMENT OF KURT M. CAMPBELL, DEPUTY ASSISTANT SECRETARY OF 
             DEFENSE FOR ASIAN AND PACIFIC AFFAIRS

    Mr. Campbell. Thank you very much, Mr. Chairman. Also in 
the interests of time, I would ask that my full statement be 
presented on the record.
    I also would like to associate myself with the comments of 
Mr. Faleomavaega and Mr. Underwood concerning Stanley Roth. It 
is well recognized in the U.S. Government his leadership role 
he has played throughout the Pacific, and particularly on these 
issues. I think his framework that he has just presented gives 
us an outstanding way to proceed.
    If I may, Mr. Chairman, let me just make four quick points. 
First, Mr. Chairman, I like very much the way you began your 
statement about talking about these islands, critical to our 
history and to our future. And to our present, how they are 
emerging from the shadow of the cold war. I think some of the 
things that we have to remind ourselves, that although that in 
fact is the case, that just because the cold war is over does 
not mean our security and our strategic interests go away. They 
simply changed. That is why it is so important for us as we go 
forward to be able to define, redefine our interests as we go 
forward.
    The second issue, to Mr. Underwood's point, and again, also 
relating to Stanley Roth's questions about the security issues. 
I would prefer and I think you'll see in our report that we'll 
be producing early next year on what we think are the enduring 
security interests that we believe apply to the Freely 
Associated States, that rather than thinking about this 
strictly in a negative sense in terms of strategic denial, 
frankly we are beginning to think about our presence in Asia, 
particularly in the current context, in the positive sense. 
That U.S. presence currently in Asia, a region that is 
experiencing tremendous uncertainty, is the big C, is the big 
constant in the region, amongst a tremendous number of 
variables.
    If I can, and I apologize to other friends who have heard 
this story before, I must give you a European analogy which I 
think has some relevance for the Asian Pacific region. In the 
1980's, Secretary General of NATO, Lord Carrington, a fine 
British statesman, was sitting in a room listening to some 
senior British, German, Italian NATO partners criticizing the 
United States, saying you know, right, they are here in Europe. 
Of course they play an important role, but they are difficult 
to work with, they don't coordinate very well sometimes. 
Sometimes they can be clumsy. It's just very difficult. After 
listening for about 20 minutes, Lord Carrington said, ``Ah, 
alas, they are the only Americans we have.'' That role is 
remarkably consistent in Asia today.
    As we look around the region and we see tremendous 
uncertainty on the economic front, with the rise and fall of 
great nations, instability of the kind that we have already 
talked about on the Korean Peninsula, then one of the most 
important things to keep in mind is the U.S. presence. This 
constant will be critical, not just for this century, not just 
in the post cold war world, but in the next century as well.
    I would be happy, Mr. Underwood, to elaborate on those 
themes as we go forward.
    Then just to my friend Mr. Faleomavaega, on the whole 
question of Kwajalein, I like very much the way he amplified on 
the question of the important role the islands will play as we 
go forward in terms of theater missile defense testing. I think 
as you know, the recent missile test in North Korea has sent 
shock waves through the region. I think those shock waves are 
well understood in Washington. As we go forward, you are right 
to say that there are only two sites in the United States that 
really can be used both legally and operationally for the 
testing of complex theater missile defense systems. But in 
practice, there's really only one that is critical. I think 
you'll see us referring to this specifically as we go forward.
    The last point I just want to underscore is that we will be 
working very closely in partnership with Stanley Roth, my 
friend and colleague, as we appoint a senior negotiator that 
will represent our government in these negotiations. We also 
believe that it is in the best interests of the United States 
and the Freely Associated States that we begin these 
discussions prudently and we conclude them as rapidly as 
possible. We think that is the best way for both of our peoples 
to proceed.
    Again, let me just conclude by suggesting that the security 
interests of the United States still apply, and they will 
continue to apply into the future as we go forward.
    Thank you very much.
    [The prepared statement of Mr. Campbell may be found at end 
of hearing.]
    Mr. Duncan. Thank you, Mr. Campbell.
    Mr. Stayman?

  STATEMENT OF ALLEN P. STAYMAN, DIRECTOR, OFFICE OF INSULAR 
            AFFAIRS, U.S. DEPARTMENT OF THE INTERIOR

    Mr. Stayman. Thank you, Mr. Chairman. I ask that my full 
statement be entered into the record. I will summarize.
    Mr. Duncan. It will be so entered.
    Mr. Stayman. On title II of the compact for which the 
Department of the Interior is responsible, is composed of three 
elements, financial assistance, program assistance, and tax and 
trade investment incentives. With respect to the financial 
assistance, the U.S. will provide nearly $3 billion over the 
15-year life of the compacts. This financial assistance, which 
is mostly guaranteed, is provided with maximum flexibility to 
the Freely Associated States. Tables displaying the estimates 
of the value of the 15 years for this assistance is attached as 
an addendum.
    With respect to the program assistance, under section 221, 
the United States agreed to provide the Freely Associated 
States with services of the Weather Service, FEMA, the Postal 
Service, FAA. These services are also listed in the chart at 
the back. But in addition, section 224 of the compact provided 
that additional U.S. program assistance could be extended from 
time to time by Congress. This provision has been used 
extensively to establish over a dozen additional programs.
    It is important to note that the compacts as originally 
negotiated anticipated that all domestic programs would be 
budgeted under section 221 and through the Department of the 
Interior. When Congress extended these additional programs, 
however, it did not direct that the additional programs be 
budgeted and administered through this unified approach, and 
would instead be administered by each separate agency. This has 
eased program administration, but it has at the same time made 
it difficult to track such programs.
    The third element in title II, the tax and trade investment 
incentives, were designed to stimulate private sector 
development and complement the financial and program 
assistance. However, the tax-writing committees of the Congress 
eliminated this third and perhaps most important element of the 
compacts' economic development strategy. This fundamental 
policy change de-emphasized the private sector's role in 
economic development and undoubtedly weakened the potential of 
the policy.
    A second point to be made in assessing title II of the 
compact is that the Freely Associated States did not have 
extensive economic planning experience. In 1993, the incoming 
administration responded to these problems with two 
initiatives. First, we began the annual bilateral economic 
consultations which were called for in the subsidiary 
agreements of the compact, but for the first 7 years had never 
been held. Second, we contracted with the Asian Development 
Bank to provide economic planning expertise to the FAS. These 
new elements in the economic development policy have been 
successful in enhancing FAS economic planning capabilities and 
decisionmaking.
    Chairman Young in his letter of invitation stated his 
desire to focus on several specific issues. Let me briefly 
address those which I have not already touched on. First, 
exclusive economic zone enforcement. Under the compact, the 
United States provides funding for enforcement of laws 
regulating the exclusive economic zones. These enforcement 
funds are used to operate and maintain patrol boats that were 
donated to the FAS by the government of Australia. This 
combination of the United States and Australian aid has 
significantly enhanced the ability of the FAS to regulate 
fisheries.
    Two, the migration of FAS citizens. Guam, the Northern 
Mariana Islands and Hawaii have all expressed concern about the 
numbers of FAS citizens in their jurisdictions and the burdens 
they have placed on the governments. Moreover, they believe 
they should be reimbursed, pursuant to the compact 
authorization. Guam, the destination of the majority of these 
migrants, is currently receiving $4.6 million annually to help 
compensate for this impact. Additionally, the Immigration and 
Naturalization Service is developing regulations that would 
limit habitual residents of FAS citizens in United States 
territories. This should significantly reduce the burden of 
compact migration as well.
    A third issue, the resettlement of certain Marshall Island 
atoll communities. The peoples of the four nuclear-affected 
atolls in the Marshall Islands are in very different 
circumstances. The peoples of Enewetak and Utrik have mostly 
returned to their islands. The people of Rongelap, who signed a 
resettlement agreement in 1996, are now able to return to 
Rongelap Island. Their restored airfield is now in use, and 
public facilities and homes are currently under construction.
    A delegation representing the people of Bikini visited 
Secretary Babbitt this April seeking a guarantee from the U.S. 
Government that their atoll is safe for resettlement. The 
secretary responded that the department supported the September 
1996 International Atomic Energy Agency Advisory Group Report 
on Radiological Conditions at Bikini. The IAEA found that 
Bikini Island was ready for permanent habitation as long as 
certain remedial measures were fully implemented, especially 
the application of fertilizer to the soil and the use of 
imported food. Should such remedial steps be implemented, 
radiation doses for people living on Bikini Island would be 
acceptable according to international standards, and their 
health would be protected against radiation exposure.
    Four, construction of the Babeldaob Road in the Republic of 
Palau. The NEPA process is nearly complete and the final design 
of this road is complete. The Army Corps of Engineers has 
solicited price bids, and the price proposals are due on 
October 10, that is in just 10 days. We expect the bids will be 
very competitive due to the state of Asian Pacific economies. 
If there is a clearly superior bid, it may be possible to award 
the construction contract as soon as December.
    Finally, compact renegotiation plans. This past July the 
Inter Agency Group on Freely Associated State Affairs began a 
process of outlining the IAG's renegotiation objectives. 
Interior is aware that the FSM and Marshall Island governments 
will continue to need some level of assistance after the years 
2001 or 2003. The administration looks forward to continuing 
discussions with the Congress as the United States position for 
these negotiations is developed.
    Thank you. I would be pleased to answer any questions.
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    Mr. Duncan. Thank you very much, Mr. Stayman. First, I 
would like to just mention that we are honored to have in the 
audience our U.S. Ambassador to the Marshall Islands, 
Ambassador Joan Plaisted. Ambassador, we are certainly pleased 
to have you with us.
    I would like to yield for questions at this time to 
Chairman Bereuter.
    Mr. Bereuter. Thank you, Chairman Duncan. I think I ought 
to focus on the security end of foreign policy issues since 
those are particularly within the jurisdiction, in part at 
least, of the International Relations Committee. Secretary 
Roth, welcome, glad to see you in this venue. What level of 
involvement has there been in Palau by the U.S. Ambassador to 
the Philippines?
    Mr. Roth. He travels there. He takes it seriously as part 
of his beat. When he comes back on home leave, for example, he 
talks to me about Palau. I think he is very conscious that it 
is part of his jurisdiction and job.
    In the meantime of course, we keep a permanent presence on 
Palau itself. We have a charge there and several other 
employees. So it is not as if we have abandoned Palau when Tom 
Hubbard, our current Ambassador to the Philippines, is not 
there.
    Mr. Bereuter. We have a U.S. Ambassador to the Marshall 
Islands that's accredited to Kiribati. How is that working out, 
Mr. Secretary?
    Mr. Roth. Let me start with the big picture and then get to 
the narrow picture. The big picture is that in a different 
world with more budgetary resources, I would prefer to have 
many more Ambassadors throughout the South Pacific. One of my 
own priorities has been to try to reopen a post that was closed 
several years ago, which was in the Solomon Islands. I think by 
definition it's not ideal when you have countries represented 
out of other countries. At the same time, given the enormous 
constraints on the State Department budget, given the new 
expenditures that we are going to have to have on security, it 
would be utterly unrealistic of me to suggest that we're going 
to be able any time soon to open a lot of posts in what are, in 
the final analysis, very small island countries in the Pacific 
region. So we are going to have to live with this situation for 
a while and deal with it as best we can.
    Given that, I think the situation has worked reasonably 
well. Obviously if you ask the people of Kiribati, would they 
prefer to have a full-time resident Ambassador, I am sure they 
would say yes. But in the meantime, we are not getting deluged 
with complaints about the current situation.
    Mr. Bereuter. Secretary Campbell, in the Compact with 
Palau, we have reserved the right to establish military bases 
there, I think in large part it reflected the fact we were 
pulling out of Subic Bay and Clark Air Force Base at the time. 
Has there been any discussions about that? Is there any 
likelihood in the near future that we will attempt to exercise 
that option?
    Mr. Campbell. Mr. Chairman, the assessment of our CINCPAC, 
Admiral Prueher, and most of our senior military command, and 
that's backed up by the civilian Department of Defense, is that 
we have all the permanent military facilities in Asia that we 
currently require, and that we are primarily placing our 
emphasis on in-

creasing access, increasing training with a host of countries 
and places in the Asian Pacific region. I think that is where 
we stand today.
    Mr. Bereuter. Thank you. Mr. Stayman and Secretary Roth, 
has the administration spoken out or does it have a policy with 
respect to the prospect that the Marshall Islands would propose 
as a part of its economic development to store nuclear waste on 
one of its atolls?
    Mr. Roth. Yes. This frankly is going right back to the 
negotiation on the Compact legislation itself more than 10 
years ago. At that time there was concern that countries under 
financial pressure might seek financial arrangements to store 
garbage or nuclear waste or other toxic materials, thereby 
endangering their own environment. I think it's been the very 
clear intent of Congress, and it's supported by various 
Administrations since then, not to see this happen. We believe 
it was a mistake. We have opposed efforts by Taiwan to have 
nuclear waste disposal programs with North Korea. We have 
opposed that in the South Pacific as well.
    Mr. Bereuter. We may have to speak on that issue once more. 
Mr. Stayman, do you have anything to say on that subject?
    Mr. Stayman. I don't really have anything to add except 
reiterate the strong opposition of the administration to such 
proposals.
    Mr. Bereuter. Mr. Stayman, thank you. I'm on my yellow 
light here, so I'll try to crowd in one more question. Since 
Palau, the Rock Islands have such a unique ecological system, 
truly unique in the world in some respects with flora and 
fauna, what if anything has Palau done to try to assure that 
its ecological system is protected? What role is there for the 
United States, if any, in the way of technical assistance that 
has been requested?
    Mr. Stayman. To begin with, under the Compact itself Palau 
must agree to have essentially mirror environmental standards 
as the United States. We think that we are providing technical 
assistance, not just to the government, but to NGO's to develop 
their capability to establish such laws and regulations and 
enforce them.
    With respect to the road in particular, that is probably 
going to be the single largest construction project that the 
U.S. has ever conducted in Micronesia. It's 150 millon----
    Mr. Bereuter. But the road doesn't affect the so-called 
Rock Island area directly, does it?
    Mr. Stayman. It will affect reefs off Babeldaob, you're 
right, but not the Rock Islands. What they are doing in the 
Rock Islands is establishing marine reserves along models 
similar to that in the United States. They have I believe one 
in the Rock Islands. There is one at the north end in Kayangel, 
and under the road for the purpose of conservation areas. We 
expect them to establish two more. So at this point we are 
confident that they are very committed to protection of their 
unique environment.
    Let me just add that they are very sensitive to the role 
that the Rock Islands and their reefs and their natural 
environment play in economic development. I don't think they 
are going to kill the goose that's going to lay the golden egg.
    Mr. Bereuter. Mr. Chairman, if you could just indulge me 
for one quick followup.
    Have they requested World Heritage designation?
    Mr. Stayman. I am not aware at this time.
    Mr. Bereuter. Thank you, Mr. Chairman.
    Mr. Duncan. Thank you.
    Mr. Faleomavaega?
    Mr. Faleomavaega. Thank you, Mr. Chairman.
    Secretary Roth, you had mentioned earlier that the thing 
good about the renegotiations process is that only certain 
provisions of the Compact are subject to renegotiations, so 
we're not starting from scratch again. I had recently discussed 
the matter of renegotiation with President Nena of the FSM. 
They are willing to abide by the current dating, which will not 
start until sometime next year.
    However, in my recent meetings with President Kabua of the 
Marshall Islands, they are very concerned, Mr. Secretary. They 
feel that because of the sensitivities and problems unlike the 
FSM or Palau, they feel that it's really necessary that the 
negotiations with the Marshalls should commence at the earliest 
possible date. What is your position on that?
    Mr. Roth. I was a little bit surprised to hear that in your 
opening remarks because there is a provision of the Compact 
that takes into account the needs of the Marshalls. I'm 
referring to the ``changed circumstances'' provision, which we 
understand is being looked at very carefully. In other words, 
while the nuclear settlement provisions were supposed to be a 
final settlement, there was included in the legislation itself 
very specifically a safety net clause which said that if there 
are ``changed circumstances,'' that a report can be submitted 
to the Administration and will be considered. So there is a 
means even in advance of Compact renegotiations to deal with 
issues relating to the nuclear ones. So one way or another, I 
think we can address the Marshallese concerns. I think we have 
an obligation to address the nuclear concerns. It is in law, 
but I think also we feel it as a matter of policy.
    In terms of starting earlier, frankly by the time we get 
the negotiator appointed and get our own internal coordination 
amongst all the interested agencies of the U.S. Government, and 
I hope have some intensive consultations with the Hill, it is 
not going to be very much earlier than the 1999 date that is 
set in the legislation itself. If we can do a little bit 
better, we'll try to do so. But I am particularly concerned 
that we start off from a realistic base, which means that I 
think we have to do a very good job in consultations with the 
Congress, particularly these two committees on the House side 
before we sit down to engage in negotiations so we don't end up 
with a 15 year fiasco.
    Mr. Faleomavaega. I think the concern that I raised on the 
question of renegotiation is the fact that it's not one shoe 
that fits all. The problems dealing with FSM is certainly not 
the same as the Marshalls. The fact that our nuclear presence 
in the Marshalls is a lot more apparent than we are with the 
FSM or Palau, for that matter, it seems that some of these 
issues are a lot more poignant and really needs to be addressed 
as soon as possible, in my humble opinion.
    Mr. Stayman, you mentioned that Congress had eliminated the 
tax and trade investment provision in development of the 
compacts. Can you explain to the Committee why this was done? 
Is it because of our fear that we don't want to allow these 
countries to negotiate with foreign countries that may not be 
in our national interest?
    Mr. Stayman. I am hesitant to speak for the congressional 
tax writing committees this many years later, but as you know, 
I was working for the Senate at the time. My understanding was 
that generally the Treasury Department did not favor the use of 
these kinds of tax and trade provisions, which were essentially 
the same provisions available to the U.S. territories. As you 
know, since that time the Congress has gone forward and 
eliminated these programs for all U.S. territories.
    So my understanding was that their very fundamental policy 
tendency was toward eliminating these special provisions in the 
tax and trade codes. They have gone ahead and eliminated such 
things as the possession's tax credit.
    Mr. Faleomavaega. I am not an economist, but you know, on 
the one hand we're saying that these islanders be more self-
sufficient economically. On the other hand, we cut the left 
hand by trying to promote trade investments and have some kind 
of an internal tax structure so that they can be more self-
sufficient. This doesn't make any sense to me at all.
    Mr. Stayman. In hindsight, I think most people would 
recognize that a de-emphasis on private sector incentives and 
an increasing of public sector subsidies is not going to help 
develop the private sector and get economic self sufficiency in 
any renegotiation. This is an area we hoped to work much more 
closely with Congress. This is one of the examples which Mr. 
Roth talked about that had their been better communication, 
this might not have happened, so that we can have a more 
appropriate balance between the private sector and the public 
sector.
    Mr. Faleomavaega. Mr. Chairman, may I ask one more 
question?
    Have you had a fellow by the name of Alex Copson come visit 
your office, Mr. Stayman? I want to see his face. This guy is 
going around selling the idea of a nuclear storage waste 
facility in any of the islands in the Pacific, a multi-billion 
dollar proposal with some Russian outfit and some admiral being 
involved in this issue. Then the next thing I hear now, there's 
a Taiwan outfit with Babcock and Wilcox. Is this an American 
company? They want to propose also a nuclear storage. I think 
the last time I heard, Mr. Copson was at Wake Island that he 
wanted to do this.
    What is the latest development on this nuclear storage 
thing?
    Mr. Stayman. We have heard a variety of proposals. I have 
not met Mr. Copson personally, but I have met others who are 
interested in some of these proposals. They have been made with 
respect to several islands. But generally our response is 
always the same. We are against it.
    Mr. Faleomavaega. It's all right to store nuclear waste in 
these islands--it's not all right, but it is OK to transport 
nuclear waste between points, like the French and the Japanese 
are doing now. Is that considered a real guaranteed safe for a 
process? Mr. Campbell, maybe I could ask you. You are the 
defense expert here.
    Mr. Campbell. I'm sorry. I didn't really understand the 
question.
    Mr. Faleomavaega. It's not OK to store nuclear waste 
material basically as a matter of policy. I support that. But 
it is perfectly OK to transport nuclear waste on surface 
transportation, like what is happening now between Japan and 
France?
    Mr. Campbell. Let me try to answer just the security 
dimension. I'll let my friend from Interior answer the first 
part of that. Let me just say that when there are transfers by 
ship by their nuclear fuel for reactors or nuclear waste 
issues, this is one of the issues that the United States tracks 
and looks at very carefully. We do have security concerns 
associated with the movement of nuclear materials on the high 
seas. Yes, indeed.
    Mr. Faleomavaega. No thought or danger that these ships are 
subject to any storms, that one day that they are going to end 
up just like we said in one to a million chances that the 
Valdez situation would not have ever happened, what had 
happened?
    Mr. Campbell. Again, if you asking do you think that the 
United States views these from a variety of perspectives with 
some concern, but from the perspective of a potential terrorist 
attack or some kind of major storm, I think the answer to that 
question is yes. These are not interactions that the U.S. 
Government is itself involved in. We have been in 
communication--I don't know of the communications with France, 
I do know of the communications with Japan. We consult with 
them and we have in the past on safety issues associated with 
this.
    Mr. Faleomavaega. Thank you, Mr. Chairman.
    Mr. Duncan. Thank you.
    Mr. Underwood?
    Mr. Underwood. Thank you, Mr. Chairman. I would, spinning 
off of that statement on the environment made by Mr. Stayman 
that Palau tries to follow exactly the same or approximately 
the same environmental regulations that the U.S., I would like 
to note with some envy that they can catch and eat sea turtles 
and fruit ants. People in Guam can't.
    [Laughter.]
    I am particularly interested in the issue of strategic 
denial. One of the reasons that I raise that issue is because I 
want to know what is the emerging consensus on what is the new 
situation regarding the strategic environment in which 
Micronesia plays in not only the Asia Pacific situation, but 
even worldwide.
    I know, Dr. Campbell, you mentioned that the United States, 
the constant is the big C in the area and that it adds a 
certain level of stability. You also mentioned that the United 
States desires to maintain a presence in the area. Could you 
describe and perhaps Secretary Roth would like to participate 
in this as well, what if any activities engaged in by the 
Freely Associated States would contribute to the erosion of the 
strategic situation or eroded in any way?
    Mr. Campbell. Let me begin and answer, and then ask Stanley 
to continue, Assistant Secretary Roth to continue if I can. On 
the first point about the concept of strategic denial, you will 
note that when the United States talks about the Asian Pacific 
region, by and large we try to talk about it as not a region in 
which sort of great power politics are afoot. We do not see a 
situation in Asia that is in any way relevant to the cold war 
world in which we were involved in a global strategic standoff 
or competition with the Soviet Union.
    Our relations with major powers is complex. We believe that 
the best way both to engage major powers and to hedge against 
the possibility that things do not go in directions that are 
potentially in U.S. interests, is to maintain a presence. So 
our presence in the Asian Pacific region both acts as an 
ability to shape the environment with which we desire to live, 
and also it is a hedge in case things go badly.
    When you ask about what steps that could be undertaken that 
could potentially undercut peace and stability in the region, 
again, I would turn that to the positive. Our goal by our 
presence in the region, our goal with our close association 
with the Freely Associated States is to shape an environment 
which prevents the emergence of threats or challenges to peace 
and stability in the Asian and Pacific region. We think that is 
the enduring rationale for U.S. strategic involvement, not only 
in the Pacific, but in the Asia and Pacific as a whole.
    Mr. Underwood. But is there any kind of specific activity 
engaged in by the Freely Associated States which you are 
monitoring very carefully which may erode or may undercut some 
of this like fishing agreements or I don't know, maybe the 
nuclear waste storage or other issues aside from the 
environmental dimensions? That's what I am getting at.
    Mr. Campbell. Let me just say that we track a variety of 
developments in the region. We look at migration patterns. We 
look at fishing. We look at some of the things that Assistant 
Secretary Roth has talked about in terms of. We have heard 
about sort of groups traveling through the night with nuclear 
proposals in their suitcases. We try to track all of that. 
Again, I think the United States has fairly strong views on all 
of these issues.
    Mr. Roth. Let me just add that I think it is worth getting 
the perspective right. Strategic denial isn't something done to 
the Freely Associated States. It is not per se something we are 
doing to restrict their behavior. It is, in a sense, a benefit, 
since, as you know, under the Compact we are completely 
responsible for their defense and are obligated to defend them 
as if they were part of the U.S. So anything we do in terms of 
denying military access to other countries to this region, 
presumably it's for the same benefit of the Freely Associated 
States as it is to us. I am not aware that there has been a 
single instance where we have ever had to tell one of the 
Freely Associated States no, you can't do something because it 
will be bad for the strategic interests of the U.S. I don't 
believe we have exercised strategic denial.
    Mr. Campbell. That is perfectly said, what Assistant 
Secretary Roth has said. I know of no incident in which we have 
had to say no, those activities are contrary to the interests 
of the United States.
    Mr. Underwood. Though in each and every instance in your 
experience, they have fully complied with the intent and 
purposes of the Compact in that regard?
    Mr. Roth. Yes.
    Mr. Campbell. I would agree with that.
    Mr. Underwood. If I could just ask one brief question on 
EEZ because Mr. Stayman raised it. The United States has the 
obligation and takes on the obligation to help enforce the 
exclusive eco-

nomic zone. The irony for the people of Guam is that our 
country, of which Guam is a part, is enforcing this EEZ, 
particularly with regard to fishing agreements. Then the 
benefits, the potential benefits of some of those fishing 
agreements, i.e. transshipment through Guam, are being denied 
by one of the FAS states.
    I am just wondering, is that going to be taken into 
consideration somewhere in the thinking about how we continue 
to implement these Compacts?
    Mr. Stayman. Yes. I think that first off, they have these 
resources but we don't have direct U.S. program involvement in 
that surveillance. You know, in Guam you have the Coast Guard 
would provide that. What has happened here is we're simply 
giving them money to essentially run Australian boats. 
Nevertheless, your point about the impact of transshipment 
highlights the dilemma we have, that both Micronesia and Guam 
are looking to fisheries for development. It is in the 
interests of the FAS and FSM in particular to get as much of 
those benefits within their borders as they can. That in fact 
is the policy of the United States under our fisheries laws, to 
force as many operations within our borders as possible and 
maximize the economic benefit.
    I would suggest that the way to start resolving this 
problem so that there is a balance between the interests of 
Guam and the interests of FAS in extracting the maximum amount 
of economic benefit is through a regional dialogue. Fisheries 
in the Pacific have generally been addressed most effectively 
through some kind of regional dialogue. As you may know, let's 
see in November, we expect to have many members of the 
Micronesian Chief Executives and the Pacific Basin Development 
Council gathered in Guam. I think this is the kind of issue 
that's going to be at the top of their agenda, is how do we 
take the Micronesian region and keep folks from competing over 
a very important resource like fisheries and try to strike a 
balance where the strengths of Guam will complement the 
strengths of the FSM and the RMI.
    Mr. Underwood. I'm glad to hear then, I am glad to hear 
that there's appreciation of that in the administration because 
obviously much of the enforcement of the EEZ activities that 
the United States engages in actually come directly out of 
Guam. It seems a great irony to the people of Guam that our own 
government is not in a sense working against the interests of 
Guam, but perhaps not as mindful as they could be.
    Thank you, Mr. Chairman.
    Mr. Duncan. Thank you, Mr. Underwood.
    I did spend about a week in the Northern Mariana Islands a 
little over a year and a half ago, but I really am the new kid 
on the block here as far as these issues in the Pacific go. I 
was just asking Mr. Mantz here, I know we have programs with 
the State Department, the Interior Department, the Defense 
Department, and other agencies, and I was wondering what the 
total expenditures were from the Federal Government. But he 
says that he has just provided me with information that this 
Fiscal Year, we are spending $40,533,000 in the Marshall 
Islands, $78.9 million in the Federated States of Micronesia, 
and $21,221,000 in Palau. Do your all's figures agree with 
that? Is that basically accurate?
    Mr. Stayman. Yes. Those are the numbers I believe off the 
addendum in my testimony. Those reflect the funds provided 
under the compacts. There may be other amounts, but not that 
significant, particularly you know--let me just go back. For 
the Freely Associated States, that fairly represents everything 
we are providing under the compacts. Again, there may be some 
small stuff not caught up in that. Let me just give an example 
which has recently been very important, that's Pell Grants. 
Pell Grants were extended outside of the compact. They 
obviously have a substantial value. But that is a payment made 
to individuals so that does not track here. If for example, 
someone happened to be a veteran, payments to individuals would 
not be reflected.
    Mr. Duncan. So payments to individuals are not in those 
figures?
    Mr. Stayman. Right.
    Mr. Duncan. And yet I understand from the staff that your 
department projects an increase in these outlays at the end of 
the 15 year compact period. I also understand that as far back 
as 1947, we said it was a goal of the United States or we were 
committed to self sufficiency. Yet they tell me that 
particularly in the Marshall Islands, that per capita income is 
$1,600, factoring in compact payments, but only $200 to $600 
without it. Is self-sufficiency a realistic goal? Are some of 
these people in areas becoming more dependent? Why the increase 
that you project?
    Mr. Stayman. First, that issue, the increase in the last 2 
years is a consequence of a provision of the compact itself 
which provides a separate formula for funding in what are 
essentially the two contingency years. We had a formula which 
covered the 15 year term. Then there is a 2-year contingency 
period if the negotiations should not be concluded. The formula 
for funding in those 2 years is tied to the average for the 
preceding 15 years, which was in fact a declining amount. So 
simply the provisions of the compact provide for a step-up in 
the last 2 years. That was the way it was negotiated.
    Your more fundamental point about self sufficiency I think 
is an important one. I for one believe that complete self 
sufficiency is not a realistic goal. We have to recognize that 
these are small resource poor countries in very remote regions 
of the earth. There will either always be a need for some kind 
of outside subsidy, that doesn't necessarily mean a U.S. 
subsidy, and there will probably be a continuing pattern as we 
see throughout the region, of out-migration. There is simply 
not enough land or enough jobs to provide the opportunity for 
all of the people.
    Having said that, one of the goals that I would like to 
establish in renegotiation is to the extent we can use U.S. 
money as efficiently as possible and achieve the maximum level 
of self sufficiency, we should do that. But we have to be 
cognizant of the fact that by emerging as independent nations, 
the Freely Associated States can now tap into other sources of 
funding and programmatic assistance. They have not been as 
aggressive as they could be in doing that. I mentioned briefly 
in my statement developing the linkages with ADB. I think it's 
important to recognize that the U.S. isn't the only provider of 
assistance.
    Mr. Duncan. Let me ask you very quickly about a couple of 
other things. In some of the materials provided to me I saw 
that the re-

quirement for essential air service has ended and that the 
flights to the Marshall Islands have been reduced to two a 
week. I know that most of the people in these areas are heavily 
dependent on air travel. Is that going to be a problem or is 
there work being done to try to get more air service to these 
islands?
    Mr. Stayman. Let me say it is not only going to be a 
problem, it is a problem. The two primary opportunities 
available for economic development are fisheries and tourism. 
It is hard to find tourists who are going to go to an area 
where there are only two flights a week. This is one of the 
areas of economic development that I think we should look at 
very carefully as we approach the renegotiations. Because if 
you believe that you have to maximize the benefits from 
fisheries and tourism, you really have to resolve this problem. 
It is already affecting our ability to deliver mail in a timely 
manner. Again, businesses don't like to be confronted with 
problems like that. It makes it extremely difficult to get 
outside investment.
    Mr. Duncan. Mr. Campbell, let me ask you this about 
defense. We have been closing bases around the world. You 
stressed the strategic importance of some of these areas. What 
are our security obligations to them? You stated how valuable 
they were to us. What are our security obligations to these 
islands? Also, do you foresee a point at which we would need to 
build some type of military base or facility in the Pacific 
some place and use one of these areas?
    Mr. Campbell. Thank you, Mr. Chairman. I think Assistant 
Secretary Roth stated it very succinctly, and it's in my 
statement as well. Our security and defense commitment to the 
Freely Associated States is absolutely unique. It is deeper and 
more profound than we have made to any other alliance, 
including NATO. We protect and secure, we take steps to do so 
in the Freely Associated States as we would defend a piece of 
U.S. territory, continental U.S. territory. We believe that 
that is a fundamental commitment that will endure in our 
relationship as we go forward.
    On the question of, as you can imagine, Mr. Chairman, the 
question of bases in Asia is a very sensitive topic. Chairman 
Bereuter has had a number of hearings on this. What we tried to 
do, given the fact that there are often difficulties and 
sensitivities associated with the creation of major permanent 
facilities in the Asia and Pacific region, and again, and we 
also suffer from the tyranny of distance and costs associated 
with the maintenance of these bases. We put more stake and 
influence emphasis now on patrols, on deployments, on temporary 
and short-term deployments than we do on permanent basing of 
facilities.
    We have major military facilities, permanent major military 
facilities in Asia now in only two countries, in Japan and 
South Korea. However, we have increased substantially our 
training and our deployments throughout the Pacific and the 
Southeast Asian region over the last 4 or 5 years. I expect 
that will continue.
    So to answer succinctly your question, I believe that our 
access and our training will continue and perhaps even increase 
in the immediate future. I can not state here that I foresee a 
period in the future where we will want permanent military 
facilities in the FAS. No, I can not.
    Mr. Roth. This is a big change from 15 years ago, when we 
were contemplating the possibility that we might want to do 
something. In fact, we were doing actions in several places, 
leasing land in Tinian negotiations, the whole Compact 
arrangement with Palau because we were worried about possibly 
losing access to the Philippines. So this is a major change in 
the situation.
    Mr. Duncan. All right. Well, thank you very much, 
gentlemen. We want to move onto the second panel, but thank you 
very much for being with us. It's been a great honor and 
privilege to have you here.
    We will call forward at this time panel No. 2. The second 
panel consists of the Honorable Asterio R. Takesy, executive 
director, Joint Committee on Compact Economic Negotiations of 
the Federated States of Micronesia. He is accompanied today by 
the FSM Ambassador to the United States, the Honorable Jesse 
Marehalau. The second panelist is the Honorable Phillip Muller, 
who is minister of Foreign Affairs and Trade, Republic of the 
Marshall Islands. He is accompanied today by the Marshall 
Islands minister of finance, Tony DeBrum. Also in the audience 
is RMI Ambassador to the United States, the Honorable Banny 
DeBrum. The third panelist will be the Honorable Hersey Kyota, 
Ambassador of the Republic of Palau, who is also accompanied by 
other Palau embassy officials in the audience.
    Let me welcome all of the witnesses, and say to you that we 
are honored to have you here with us today. I will remind all 
of the witnesses that we do limit the witnesses to 5 minutes, 
the 5 minute opening statements. I will call on the witnesses 
as listed in the call of hearing. That means that the first 
witness will be the Honorable Asterio R. Takesy, who is the 
executive director of the Joint Committee on Compact Economic 
Negotiations.
    Mr. Takesy?

STATEMENT OF HON. ASTERIO R. TAKESY, EXECUTIVE DIRECTOR, JOINT 
COMMITTEE ON COMPACT ECONOMIC NEGOTIATIONS, FEDERATED STATES OF 
MICRONESIA, ACCOMPANIED BY JESSE MAREHALAU, FEDERATED STATES OF 
           MICRONESIA AMBASSADOR TO THE UNITED STATES

    Mr. Marehalau. Mr. Chairman, my name is Jesse Marehalau, 
the FSM Ambassador to the United States.
    Mr. Duncan. Are you going to give the statement?
    Mr. Marehalau. He will. I am just introducing him, sir.
    Mr. Duncan. Right. Oh, OK. Thank you very much.
    Mr. Marehalau. I would like to introduce Mr. Takesy, former 
secretary of development and resources, former secretary of 
foreign affairs, and now currently serving as the executive 
director for the Joint Committee on Compact Economic 
Renegotiations, who will present our testimony.
    Mr. Duncan. Well, thank you very much, Mr. Ambassador. 
Certainly we are pleased to have you here with us today.
    Mr. Takesy. Thank you, Mr. Chairman. First I want to thank 
you very much for holding this hearing to give us an avenue to 
relate to you what we have done under the compact. Mr. 
Chairman, my written statement is just a little over 5 minutes, 
so to adhere to your rules, I will summarize.
    Mr. Duncan. That's fine. Go right ahead, if it runs 
slightly over.
    Mr. Takesy. Mr. Chairman, first I would like to thank you 
very much for the assistance that you have given us in the work 
on the Pell Grants, which are very, very essential to the well-
being and for the education of our young people. We thank you 
very much for that.
    Second, I want to bring to you as my president has been 
here earlier in the week, in the month rather, he was here to 
express to you, to the government, at the very highest level to 
underscore the value that we attach to the compact. It is an 
expression of collective interest, of mutual interests between 
our two countries. We certainly want to underscore that to you 
in these hearings.
    The FSM views the success of the compact in other ways. The 
cornerstone of course of our relationship is in the security 
and defense areas. We have over the 10 years or so, have 
adhered very strictly and have carried out our responsibilities 
under the compact. For instance, at the United Nations, we have 
allied ourselves very closely with the United States in its 
voting on very critical issues at the United Nations such as on 
the Middle East, on Israel, and we have elected to abstain from 
joining organizations or conventions that the United States has 
viewed as contrary to its interests, and therefore our 
interests, such as the Nuclear Free Zone of the Pacific, and 
the Land Mines Treaty Convention.
    Our annual meetings between our two countries on military 
affairs have had a very smooth holding. The presence of the CAT 
teams in Micronesia are very much appreciated, and a 
demonstration of the good will between our two countries. The 
meetings that we have had are of course done either in our 
country or in Honolulu. We appreciated this because it gives us 
an avenue to see firsthand the security setup and the world 
situation that we periodically receive from SINCPAC.
    As you know, Mr. Chairman, there is an elaborate conflict 
resolution clauses under the compact. They were negotiated over 
long periods of time and very acrimonious at times. I 
personally was involved in that and I spent quite a number of 
weeks here in Washington, DC, in climates that are not very 
conducive to my thin blood from the Pacific. But not once have 
we resorted to these articles. The relationship we have carried 
out. Where we have some differences we were able to resolve 
them amicably without resorting to any conflict provision.
    The defense arrangement under title III, Mr. Chairman, is 
something that we are very satisfied with and are fully 
committed to for our own interests as well as for the United 
States and security of the region. We are very happy to 
contribute to that. My president in his meeting with Assistant 
Secretary of Defense, Mr. Kramer, reiterated our offer for 
prepositioning of military forces in the lagoons of our waters.
    I would like to address a point that was raised by my good 
friend from Guam, Congressman Underwood, on the fisheries issue 
because it has been a point of some contention between us. The 
point of the matter is, Mr. Chairman, it is one of the very few 
resources we have, and we have approached it in as responsible 
and as economic a manner as we can.
    Let me just point out some statistics for this Committee so 
there is expected. The income that is generated in the 
territory of Guam as a consequence of the transshipment of 
fisheries that are generated not only from the FSM but from 
Marshalls and Palau, is some $240 million. Now, Mr. Chairman, 
what we receive in my country by way of fee for licensing these 
vessels, and they are fishing in our waters, not necessarily in 
Guam's water, is some $20 million. Now what we are doing is 
instituting arrangements to maximize and to increase the income 
from these resources. We would like to continue to work with 
our friends from Guam in seeing how best we can mutually 
together benefit from these resources.
    Mr. Chairman, the important cornerstone of our relationship 
from our viewpoint is of course economic self-reliance. That is 
going to be sometime, Mr. Chairman, to come. As has been 
pointed out by previous speakers, we are a resource-poor 
country. We have tremendous constraints that must be overcome. 
We are very far from markets. We are geographically scattered 
and dispersed. We have great distances to cover, even within 
our own country. We have 1,800 miles across and most of our 
territories are under water.
    The funding that we have gotten under the compact 
admittedly has not been put to the best use as one would 
expect, including us. But having reviewed what we have and 
seeing that what we started were not so well-thought-out, we 
have begun 3 years ago to take a re-look at things and 
reorient. So we have begun a restructuring and reform. I am 
happy to report, Mr. Chairman, that that exercise is well along 
its way. We hope to be able to accomplish that sometime next 
year.
    As a matter of example, the state of Chuuk, as many of you 
know, was in very deep trouble in terms of deficits. Today it 
is paying its debt and there is no reason to expect that it can 
not continue. In fact, they have just appropriated additional 
funds last week. This money will be used to pay out its foreign 
debts as well as domestic, so that by June of next year, Chuuk 
will be in the black.
    Mr. Chairman, the assistance that we are receiving in our 
restructuring is done by an independent group that is funded by 
the United States, Japan, and the Asian Development Bank. It is 
being administered by the bank. It is a two-pronged approach. 
That is to produce an environment for private sector growth, 
and at the same time, reduce costs and downsize the public 
sector. As you well know, it is the biggest employer in the 
country.
    Now it is going to take some time for this exercise to 
produce some positive results, but presently we are encouraged 
by what has happened. More importantly, there is political will 
behind it. The people have warmed up to it and there is wide 
consultation among ourselves as to the wisdom and the suffering 
that we must undertake in order to produce some positive 
results.
    As an example, we have actually downsized the public sector 
some 20 percent. We have laid off about 1,200 people from the 
payroll. We have reduced the wage by some 20 percent. We have 
also frozen increases, promotions, and we are attempting to 
privatize or corporatize many of our utilities and other 
services and activities by the government.
    We are also attempting to improve our tax structure. Next 
month our Congress will tackle that. We have improved its 
administration. I am happy to report that there has been some 
marked increase in the revenue.
    Mr. Chairman, the 15 years of funding under the compact is 
of great value to the FSM. But as I have stated earlier, it is 
not going to be enough for us to achieve the measure of self 
reliance that we had anticipated. In fact, there is relevance 
and reference in the compact itself, acknowledging that fact so 
that the renegotiations are built in, because we did not and 
could not envision that in 15 years we would achieve a level of 
self reliance or economic development that can generate total 
revenue for needed public services.
    Mr. Chairman, let me summarize for you what we are doing to 
prepare for these negotiations. Last year this month, we 
organized a Joint Committee on Compact Economic Negotiations, 
consisting of members from across the nation, at state and 
national level, from executive and legislative. The chairman of 
this group is the Honorable Petrus Tun, who is our former vice 
president, the first vice president. It is served by a full-
time secretariat that is headed by me. We are served by an 
attorney, economists, and other consultants on areas that are 
of concern in the next--in renegotiations.
    Mr. Chairman, I would like to end by stating that some in 
your country have viewed the funding under the compact as 
foreign aid. Others have described it as rental for defense 
purposes. Some have labeled it other ways. But for us, we view 
this is as this the mutually beneficial relationship. This is 
the unique cornerstone for us. We view this as a partnership in 
development for self-reliance and security.
    Mr. Chairman, I thank you very much for allowing me to 
appear before this Committee. We in the FSM welcome this 
dialogue. We would like to provide this Committee, including 
the administration, information that they may wish from us. We 
look forward to the renegotiation.
    [The prepared statement of Mr. Takesy may be found at end 
of hearing.]
    Mr. Duncan. Thank you very much, Mr. Takesy.
    The next witness as listed in the call of the hearing is 
the Honorable Phillip Muller.
    Mr. Muller?

 STATEMENT OF PHILLIP MULLER, MINISTER OF FOREIGN AFFAIRS AND 
TRADE, REPUBLIC OF THE MARSHALL ISLANDS; TONY DEBRUM, REPUBLIC 
    OF THE MARSHALL ISLANDS AMBASSADOR TO THE UNITED STATES

    Mr. Muller. Thank you, Mr. Chairman. Mr. Chairman, I wish 
to request that the full text of my statement be made a part of 
this proceeding.
    Mr. Duncan. The full statement of all the witnesses will be 
placed in the record.
    Mr. Muller. Let me begin by stating that my government 
remains fully committed not only to preserve, but to strengthen 
our close friendship with the United States. At this time I 
would like to discuss with the Committee three major points 
that are of great interest to the Marshall Islands.
    First, the value the RMI places on our bilateral 
relationship. Second, U.S. Government concerns about fiscal 
management in the Marshall Islands. Third, difficulties the RMI 
is facing in implementing certain provisions in the compact.
    The RMI provides tangible concrete commitments to support 
the United States military interests. We provide U.S. strategic 
denial rights over one million square miles of the Central 
Pacific. We extend this right to the U.S. in perpetuity. We 
provide land for new launch sites when requested. Our 
Marshallese citizens serve in every branch of the U.S. armed 
forces. In exchange, the U.S. provides generous levels of 
social and economic assistance to the RMI.
    The point I want to stress here is that we can not examine 
the compact program by program or to dissect it into separate 
pieces. The compact has to be seen as a whole package of 
corresponding military, economic and social assistance. I find 
one particular passage in the Mutual Security Agreement, the 
subsidiary agreement of the compact, to reflect this principle 
particularly well. This passage reads as follows: ``The 
Government of the United States and the Government of the 
Marshall Islands recognize that sustained economic advancement 
is a necessary contributing element to the mutual security 
goals expressed in this agreement.''
    I have attached resolution 67 to my written testimony, a 
resolution that Nitijela passed on February 5, 1998. This 
resolution serves as another example of the RMI's concrete 
commitment to its bilateral relationship with the United 
States. It expresses the importance the RMI government 
attributes to our strategic partnership. I was extremely 
pleased to see that these same elements and sentiments were 
reflected in the joint resolution introduced by the chairman of 
both committees holding this hearing, as well as our good 
friend, Congressman Faleomavaega.
    We understand that some people in the U.S. Government have 
concerns about fiscal management in the RMI. We acknowledge 
that there have been a number of problems with our financial 
management and budget execution. We would like to put this 
discussion in context.
    During the trusteeship, the Marshall Islands was deemed a 
secure area by the U.S. administrators. Until 1968, outsiders 
could not visit the Marshall Islands without first obtaining 
permission from the U.S. Navy. Until 1973, no foreign 
investment of any sort was allowed in the Marshall Islands. 
Most of the compact money we now receive goes to pay debts from 
loans that were necessary to create as well as to upgrade the 
economic infrastructure we inherited from the trust territory 
government.
    After devoting our attention to infrastructure, we moved to 
economic development projects. Some of our efforts have worked, 
such as our ship registry program, the National 
Telecommunications Authority, and the Marshalls Energy Company. 
Still other projects were admittedly over ambitious or as we 
found out inappropriate for the Marshall Islands. In 12 years 
time, however, we can not be expected to achieve the economic 
development that U.S. strategic interests and trusteeship 
policies intentionally thwarted for decades.
    As for financial management, we had to struggle to improve 
a system of accounting we inherited from the trusteeship that 
consisted primarily of pencils and papers. Because we had no 
system to properly audit expenditures, we could not effectively 
assure accountability. Consequently, some moneys in the compact 
were not used as effectively and efficiently as they could have 
been.
    The Auditor General's office, together with Deloitte and 
Touche, has been working steadily over the years to improve our 
audit and reporting system. We are seeing improvement. For 
example, I am now happy to report that satisfactory 
arrangements have been made to complete the important Ebeye 
Hospital construction project.
    Like the U.S., we also have concerns about aspects of the 
compact related to the implementation of programs. Problems 
have emerged when essential provisions, such as the Immigration 
and Labor Rights, are constrained and compromised by laws or 
regulations passed without considering the special rights that 
the compact provides to each of our nations.
    Other provisions in the compact have never been 
implemented. Some programs are not provided because U.S. 
agencies lack proper understanding of their obligation to 
extend services we are eligible for. We also believe that loss 
of certain economic trade and tax provisions prevents both U.S. 
and Marshallese companies from opportunities to jointly expend 
our economic interests. After the Marshallese electorate 
overwhelmingly approved the compact, a number of economic 
incentives were unilaterally removed by Congress. Just 
yesterday the essential air services provision, an integral 
part of the compact, expired. This provision ensured an 
adequate level of air service between the Marshall Islands and 
the United States. This arrangement should continue.
    Mr. Chairman, if you would bear with me, I think the most 
important part of my testimony I am going to provide at this 
time.
    Mr. Duncan. Go ahead.
    Mr. Muller. This is on the section 177 agreement. Thank 
you. Section 177 of the compact has proven to be manifestly 
inadequate. Section 177 fails to recognize the full scope of 
radiation injury in the Marshall Islands. The United States 
conducted 67 nuclear tests, yet only people exposed to one of 
these tests, the Bravo shot, are considered ``exposed'' to 
radiation. As a result, only 174 people are defined as exposed 
and eligible to participate in a Department of Energy medical 
program.
    The Nuclear Claims Tribunal lacks the funds to pay personal 
injury claims that are awarded. Because personal injury awards 
have depleted available funds for awards, the tribunal will 
have no funds for land damage awards.
    There are also problems with the 177 health care program. 
Unlike other programs in the compact, there is no inflation 
adjustment. The program's ability to provide much needed 
medical care to four of our atoll populations is also hampered 
by over enrollment. Eligibility is a complex issue, however, 
because of land claims and limited health services care. We 
wish to study this issue and report back to Congress and the 
administration.
    There is also a gross inequity in the way the U.S. 
Government deals with downwinders in the United States and 
people affected by radiation in the Marshall Islands. The 
cumulative yield of the testing in the Marshall Islands is 100 
times greater than the yield of the U.S. tests in Nevada. Yet 
the area in the United States considered exposed by radiation 
from the Nevada tests is four times as great as the legally 
defined exposed area in the Marshall Islands. American citizens 
also receive a one-time full award for their radiation 
injuries. Marshallese often die before they receive the 
majority of their award. I would like to ask your support, Mr. 
Chairman, in securing an immediate ex gratia payment consistent 
with the compact for the victims dying of radiation related 
illnesses.
    Fortunately there is a provision in the compact that allows 
Congress to work within the purview of the existing bilateral 
framework to respond to shortcomings in U.S. efforts to address 
problems resulting from the U.S. nuclear weapons testing 
program. This provision, the changed circumstances provision, 
require that there be one, new and additional information, two, 
that additional information was not known during the 
negotiations of the compact, and three, that the new 
information renders section 177 manifesting inadequate.
    We believe it is in the best interests of both nations to 
deal with problems in the existing framework of the compact. 
This issue can not wait for renegotiation because these are 
current obligations under the existing compact.
    Finally, Mr. Chairman, I am confident that the upcoming 
negotiations with the United States of certain elements of the 
compact will provide the constructive process to reflect our 
shared commitment to the relationship. We hope these 
discussions will commence as soon as possible.
    Thank you, Mr. Chairman. My colleague Mr. DeBrum and I will 
be prepared to answer any questions you may have. Thank you.
    [The prepared statement of Mr. Muller may be found at end 
of hearing.]
    Mr. Duncan. Thank you very much, Mr. Muller.
    Our next witness will be Ambassador Kyota. Mr. Ambassador?

   STATEMENT OF HERSEY KYOTA, PALAU AMBASSADOR TO THE UNITED 
                             STATES

    Ambassador Kyota. Thank you, Mr. Chairman. Good afternoon 
to all the distinguished members of the Committee. It is indeed 
a pleasure and a privilege for me to testify today on behalf of 
our President Nakamura and the government of Palau.
    Before I proceed, Mr. Chairman, I believe it is worth 
noting that today, October 1, 1998, the Republic of Palau 
celebrates the fourth anniversary of its Compact of Free 
Association with the United States. On this special day for 
Palau, it is only fitting and appropriate that I express our 
gratitude and appreciation to the Congress for passing the 
original compact legislation in 1986, and also a special 
gratitude and appreciation to former President Ronald Reagan, 
for signing the measure into law, which really set the stage 
for our independence. Also appreciation and gratitude is due to 
President Bill Clinton for signing the bill in 1994 to 
specifically put the Compact of Palau into effect. Of course 
the bottom line is to thank the U.S. Congress for working so 
hard and patiently to make our dream a reality.
    Mr. Chairman, the relationship that exists between our 
countries is the greatest gift to Palau, or any country for 
that matter. We are grateful, Mr. Chairman, not only for the 
many benefits extended to Palau in the Compact of Free 
Association, but even more so for the countless assistance that 
has been so generously provided to Palau for many, many years 
since the end of the war. Because of the assistance and the 
special relationship that exists, Palau considers itself as a 
member of the American family.
    I would like to analyze that in a Palauan way. Based on our 
strong culture and traditional values, if one family offers 
help, generous help and assistance to another family, the 
normal thing for that beneficial family is to wrap itself to 
the circle of the providing family. That way, the family who 
benefited can reciprocate within its means necessary to nurture 
and foster the relationship.
    In our relationship, Mr. Chairman, U.S. extended economic 
assistance to Palau in exchange for military land use rights, 
services of our people in the armed forces of the United 
States, and our continuing support to the United States in the 
United Nations, in other international organizations and forum. 
Mr. Chairman, I hope that explains why 4 years into our 
independence, our people still believe and consider Palau as a 
member of the American family.
    Mr. Chairman, I must thank you and your colleagues for 
passing the Higher Education Act the other day which includes 
extension of FAS students eligibility for Pell Grant assistance 
until the year 2004. While I welcome and appreciate this 
extension, I am a bit disappointed as I fail to see the 
rationale for ending the eligibility of Palauan students in the 
year 2000, when in fact Palau would still have 5 years 
remaining in our compact economic assistance. I hope, Mr. 
Chairman, that the facts surrounding this issue will be 
carefully reviewed so that a fair and equal treatment may be 
extended to Palauan students for the duration of our compact 
economic assistance. I think, Mr. Chairman, a 15 year 
assistance in eligibility for Pell Grants is all we need and 
ask for today.
    Of the compact, we are very grateful for this Committee and 
the Congress for assisting us to improve specifications and 
quality standards of our Babeldoab Compact Road. As you know, 
Mr. Chairman, the original road in the compact was of poor 
quality, way below standards. But because of members like 
yourself and others in the Congress who worked very hard for 
this compact road, Palau will be the proud owner of a much 
better, bigger, and high quality concrete asphalt road that 
will last for a long time.
    Now to further ensure the quality and safety standards of 
the road, our government requests your government in funding a 
team of highly qualified professionals to oversee all aspects 
of the road construction on our behalf. We initially planned to 
fund this team, but due to unexpected and unfortunate collapse 
of the Koror Bridge in 1995, we don't have the means or the 
resources adequate enough to fund this team. We sincerely ask 
for your support in this request.
    We ask also this Committee to assist in securing the 
necessary funding for the International Coral Reef Center in 
Palau. As you may know, this project is a tripartite 
undertaking as a result of U.S.-Japan common agenda on global 
environmental issues. Palau was chosen as a site for the 
center. Under the memorandum of understanding signed between 
the three nations, each nation must bear a responsibility for 
this center. To date, Palau and Japan have fulfilled their 
obligation. Unfortunately the United States has not committed 
any funding or financial assistance toward this project. Mr. 
Chairman, I think this is a worthwhile project. We ask your 
assistance for this project.
    We ask, Mr. Chairman, that also a representative from your 
government and our government meet sometime soon to review and 
reassess the importance and needs of certain Federal programs 
and assistance that have been phased out or terminated pursuant 
to the terms in the compact. As you, Federal programs have been 
the backbone of the success of our institutions in Palau. I 
would ask the representative to meet to assess this Federal 
program in order to determine whether they should continue or 
not.
    Mr. Chairman, another very important issue which still 
remains unresolved is the U.S. Government financial obligation 
to the former trust territory prior service trust fund. The 
Congress, as you may be aware, appropriated initial funding of 
$8 million for this program, with a remaining balance of $19 
million to be appropriated later. The U.S. Government has not 
fulfilled this obligation yet after numerous requests from the 
government of the former TPI. The program, as you can imagine, 
is experiencing problems in meeting regular payments to the 
beneficiaries. I understand, however, that some Members of 
Congress have indicated their willingness to fulfill this 
obligation over a period of several years. We welcome that, Mr. 
Chairman.
    Mr. Chairman, I believe these requests are reasonable and 
well within the scope and boundaries of the compact. I ask that 
you take the lead in resolving or funding them. I thank you, 
Mr. Chairman, for inviting us to share our views on a number of 
important issues. Thank you.
    [The prepared statement of Ambassador Kyota may be found at 
end of hearing.]
    Mr. Duncan. Thank you very much, Mr. Ambassador, for your 
testimony. I want to thank all of the witnesses.
    I want to turn now at this time to Chairman Bereuter for 
any comments or questions that he might have.
    Mr. Bereuter. Thank you, Chairman Duncan. Thank you very 
much, gentlemen, for your testimony. I have a couple of very 
specific questions which may surprise you a bit.
    To the representatives of the Federated States of 
Micronesia. Tell me the age, the relative age of the hospital 
that exists on Pohnpei. What would be your guess?
    Mr. Takesy. Mr. Chairman, the hospital is approximately 15 
years old.
    Mr. Bereuter. The question I would ask for any one of you 
who wishes to respond to this question, to what extent are 
capital facilities, buildings now being built with compact 
funds from the United States? Is this still ongoing and 
occasionally there will be a construction project for a 
specific building? Is this exclusively the decision of the 
Federated States or the Marshall Islands or Palau or is it a 
mandate?
    Mr. Takesy. Mr. Chairman, speaking for the Federated 
States, the compact calls for a 60-40 split in the funding in 
the current account and capital account.
    Mr. Bereuter. And who makes the decision about what 
buildings will be constructed? Is that a decision that you 
would make, for example, in the Federated States?
    Mr. Takesy. That is correct, sir. The choice of what 
buildings to build are actually decisions reserved to the 
states within the Federation and at the national capital where 
the capital complex is. It is in compliance with a development 
plan that we have developed and submitted to the U.S. for 
approval.
    Mr. Bereuter. Now when you were a trust territory, and that 
hospital was built for example, were the plans for that 
hospital prepared by a consultant, engineer, architect chosen 
by the Interior Department or by the Federated States, which 
didn't exist at that point?
    Mr. Takesy. They were done by the trust territories.
    Mr. Bereuter. I recall seeing a development plan for the 
Federated States that called for a very elaborate capital 
structure. I was concerned about what a large part of the 
resources you were going to be devoting potentially to that 
project. What happened? Does it exist today? What can you tell 
me?
    Mr. Takesy. I am happy to report that the capital was built 
under budget. Unfortunately the construction company that bid 
the project actually was a Korean company and I think they lost 
money on the deal, but the project has been completed and I am 
happy to report that it is being complimented by many people 
within the area as conducive to the environment and meeting the 
needs of the nation.
    Mr. Bereuter. Generally I am very discouraged with the way 
that construction projects and plans were let during the period 
when the Interior Department was in charge, because I felt that 
there were a variety of disreputable companies that were 
pursuing energy development projects in particular, which I 
thought were not very cost effective, and probably not a very 
good business deal. I was concerned when I saw the hospital of 
Pohnpei, for example, that had been designed almost as if the 
tropic environment did not exist. Relatively speaking, the 
Japanese and even before them the Germans, given the advance in 
building technology were building more tropically sensitive 
buildings than were being built and turned over to you. So that 
is one of the reasons I am raising this question.
    If I could just ask a couple questions to representatives 
of the Marshall Islands. Chairman Duncan mentioned before what 
a large part of the per capita income seems to come from 
compact payments or government, and questions about what this 
does to the potential self-sufficiency of the Marshall Islands. 
I understand that increasingly people outside the Marshall 
Islands are moving there to do much of the private sector work. 
That would seem to have implications that the Marshall 
Islanders could be a minority in their own country. What would 
you say about that issue?
    Mr. Muller. Mr. Chairman, let me try to answer that in a 
couple of ways. First, I think it is important for us to make a 
distinction with the fundings that come under the compact to 
the Mar-

shall Islands because a number of those fundings are earmarked 
for payments for the use of lands that the military uses and 
also payments to victims of the nuclear testing program. I 
think sometimes there is a misconception that all that money 
comes to the government for its spending. Those moneys go to 
the individual families and persons to compensate----
    Mr. Bereuter. Yes. I do understand that. But tell me about 
the allegation that much of the private sector work today in 
the Marshall Islands is being conducted by non-islanders, non-
Marshall islanders, and the result is that the private sector 
can not become competitive as long as government pays so much 
more than the private sector.
    Mr. Muller. Mr. Chairman, let me answer that question by 
saying that when our government came into existence, most of 
our training of the labor force was very minimal. At the 
beginning of the compact, we needed assistance from outside 
labor to assist in our development, economic development.
    I am happy to say that we have been undergoing a number of 
programs to train and to retrain a lot of our young people to 
be able to get into the private sector programs and services. 
Still at the same time, we look to outside assistance, 
especially in specialized training to assist us, especially in 
construction and fisheries areas and technology. But there is a 
conscious effort on our part to provide as much training to 
allow for our people to get into the labor market.
    Mr. Bereuter. Mr. Chairman, if I could have unanimous 
consent for one more question, I would appreciate it.
    I had the misfortune of visiting Ebadon in the Marshall 
Islands when I was there. It has, at that time it had at least 
the highest per capita per square mile, I should say the 
highest population per square mile in the Pacific. I was 
ashamed to see that area under the American flag at that time. 
I understand that families were attracted there, extended 
families because of the higher wages being paid at Kwajalein. 
But still the conditions there were so bad for the population 
that I was ashamed to see American flags over it. I hope that 
conditions are improved there now. If not, I would like your 
suggestions about what the United States Government's 
responsibilities are through the DOD, which is the major source 
of employment for at least the breadwinner on Ebi.
    Mr. DeBrum. Mr. Chairman, first let me say that we agree 
with Chairman Bereuter on his assessment that too many of the 
projects, construction in the past were designed by outside 
engineers not familiar with the needs and the climate 
conditions in our area. For that reason, many of the original 
infrastructure built by the trust territory had to be replaced 
by early compact funding.
    On the specific question of Ebi, yes, Ebi has and continues 
to be a problem. Although we try our best to make sure that we 
alleviate the problems associated with housing, with sewer and 
water, and with power, there's still a limited availability of 
the basic power and water requirements. We are still trying to 
deal with a hospital construction project that went awry not 
too long ago. We are hopeful that we can complete that very 
soon.
    Putting 15,000 to 18,000 people on 56 acres of land is 
extremely difficult to do and does cause problems, as the 
chairman described. There are also problems associated with 
people being moved from the mid corridor and the military areas 
of Kwajalein onto Ebi with promises of housing, electrical and 
water supplies, for which the DOD was originally responsible, 
but have not committed money or services provide. We are trying 
to work with the military and with DOD to solve that problem 
now.
    But under the new administration and government, we are 
also concentrating a great deal more money and more attention 
to Ebi to deal with this problem.
    Mr. Bereuter. Thank you, Mr. Chairman.
    Mr. Duncan. Thank you, Chairman Bereuter.
    Mr. Faleomavaega?
    Mr. Faleomavaega. Mr. Chairman, at this time I would like 
to defer to my friend from Guam.
    Mr. Duncan. Mr. Underwood?
    Mr. Underwood. Thank you, Mr. Chairman. I want to extend my 
warmest greetings to all my fellow Micronesians. Thank you very 
much for your testimony.
    It's just a general question. I have one general question 
to ask all three governments. That is that there has been a 
great deal of discussion about the nature of compact assistance 
which is after all, primarily the basis for any renegotiation 
as what kind of assistance will be given. In general, as I 
understand it, it's been characterized, much of the assistance 
that has been given has been characterized as being ineffective 
because it was tied quite often to specific domestic U.S. type 
programs, and perhaps there is more interest in trying to give 
more general assistance or perhaps some kind of novel approach 
to any level of future assistance. Perhaps I would just like to 
hear some of your thoughts on that.
    Maybe we'll start with the FSM.
    Mr. Takesy. Thank you. Congressman, as you well know, these 
Federal programs are of course conceived in the country for 
needs that are specific to an urban and very elaborate program. 
As you well know, in our areas, they vary even from the state 
centers to the rural areas. Dealing with these programs are 
very costly for us from an operational viewpoint, because it 
takes special expertise to even apply and to execute these 
programs and then account for them. So that is one side of it 
that we are finding difficult to live with. The standards are 
of course based on this country's standards, and they don't at 
times don't quite fit into our area.
    But having said those specific problems, the impact of 
Federal programs on the well-being of the Federated States has 
been quite positive. On the whole, it has been positive. The 
area that I think can be improved is perhaps in the 
administration and streamlining of some of the regulations and 
administration of these programs.
    Mr. Underwood. Thank you very much.
    Mr. DeBrum?
    Mr. DeBrum. We see a continuation of U.S. programs such as 
FEMA, Farmers Home Administration, Rural Electrification, some 
of those projects to be very well worth it. The rate of success 
in these programs have been very high. In education, both 
secondary and post-secondary education provision of 
scholarships, we mentioned earlier Pell Grants and other U.S. 
grants, have been very useful in bringing up the level of 
education to our country. We think that this will continue to 
help.
    Of course we can not go back to some of the original 
provisions that were taken out by Congress because as you know, 
they have been taken out for the territories as well. But we 
need to sit down and figure out ways to attract American 
business to the islands. I think that a marriage of economic 
interests may be the best way to be self sufficient within the 
island.
    Of course we have had increase from China and Korea and 
Japan about investment, but we believe that associating ourself 
with American business is probably the best way to self 
sufficiency.
    Let me add just one more comment here. The entry 
provisions, immigration and labor provisions that I know that 
some of our colleagues from Guam are concerned about as well, 
have allowed for entry not only for education, but for labor as 
well to the United States. Some communities of people from the 
Marshalls in the Northwest and in Arkansas and Kansas and 
Oklahoma have been very successful. We have entered not for 
Medicare or for social welfare, but for jobs, and are 
providing, citizens are providing to the advancement of those 
communities in which they reside. But if they only send back 20 
or 30 percent of their income to people at home, that is a 
major part of our income.
    Mr. Underwood. Thank you.
    Ambassador Kyota. Thank you, Congressman. Since we are only 
beginning the fifth year of our compact, we are still awaiting 
a lot of programs in our area. But I would like to take this 
opportunity to report that beginning today, a number of Federal 
programs are going to phaseout in this fiscal year. They total 
up to like $6 million. As you know, that translates into many 
jobs and many essential services that would be lost for our 
people.
    But if the renegotiation for our economic assistance is 
going to be held let's say next year, I'm sure we have lived 
more than 5 years, I'm sure we will be in a better position to 
give you some of the programs that we want them to continue. 
That's why in my oral statement I requested that 
representatives of the U.S. Government and our representative 
commence a meeting sometime next year to evaluate and to 
reassess the needs of those programs that are being phased out. 
I know that's not asking too much because it is in the 
provision of the compact that we will review those programs in 
order to determine whether they should continue or not. Thank 
you.
    Mr. Underwood. Thank you. So next time I get in my office 
citizens from your area asking me to continue eligibility for 
certain programs, I will refer them back to you.
    Mr. Duncan. All right. Thank you very much.
    Mr. Faleomavaega?
    Mr. Faleomavaega. Thank you, Mr. Chairman. I want to again 
thank our distinguished guests here before the Committee and 
their fine testimonies.
    I guess at the height of the cold war, by some assessment 
of the officials of our government, we have decided that 
approximately $2 billion was supposed to be the base in terms 
of the kind of economic assistance as it was part of the 
compact agreements that were made with the FSM as well as with 
the Marshalls and ulti-

mately also with Palau. I suspect also, gentlemen, that the 
question of assistance is going to be probably the soul of the 
negotiations that will be forthcoming in the coming months.
    My question is, I make the presumption that the last or the 
projection of the first 15 year period, that the vast majority 
of this $2 billion has been primarily for purposes of 
infrastructure development and now I suspect that perhaps 
another important phase of these renegotiations. Do you 
suspect, gentlemen, that it's going to be less than $2 billion 
for the next 15 years or going to be more?
    You know, I make an observation, every year we give $6 
billion to Egypt and Israel to maintain stability in the Middle 
East. Now that may not be any relation to the situation that we 
have in Micronesia, but I can rest assured, gentlemen, that at 
the height of the cold war, Micronesia was very, very critical 
as far as the Department of Defense was concerned. In fact, the 
entire compact during the negotiation period, Tony, you know, 
and Asterio, was practically done by the Department of Defense.
    I can also say as a matter of statement that the 
negotiations was very much an unequal on the basis that the 
people that you had to deal with were not exactly very 
friendly. If I would put it more nicely, to the extent that it 
was almost like take it or leave it. Thank God we had a Phil 
Burton there that had to constantly beat on the administration 
to tell them that these are human beings. These are not just 
some mechanical toys that you can play with. I still remember 
the classic statement that Henry Kissinger made concerning 
Micronesia. I'll repeat it again. ``Well, hell, there's only 
90,000 of them. Who cares?''
     That was the kind of attitude that you had to deal with 15 
years ago, when we talk about compact renegotiations. I 
sincerely hope, and I'm sorry that the administration is not 
here, that we will not have a repeat of that.
    My question, gentlemen, I find it very strange that we are 
trying to promote economic self-sufficiency in these three 
entities, and at the same time, you are restricted to do 
certain things. My question is, would you have been better off 
if you were never involved with the United States in terms of 
where we are now? Could you have done it on your own? Go out 
and negotiate with other countries of the world and do your own 
thing without being colonized after 400 years? First it was the 
Spaniards, then it was the Japanese.
    I mean the problem is, gentleman, is that many Members here 
in the Congress have no concept, no idea where you were and how 
you got to where you are now. It is a sad situation. I don't 
fault my colleagues. But that is the reality in fact that we 
deal with here in Washington. I wish every Member of Congress 
could understand and appreciate what the Micronesians have had 
to endure in the last 400 years. I am sad to say I would say 
probably--well, look at here. Again, I don't fault my 
colleagues. This is the reality that we deal with here in 
Washington.
    My question, gentlemen, what is your best shot, give us 
your best shot in terms of how we should improve on the compact 
when renegotiate in the coming months? FSM?
    I'll say one thing. I'm sorry. I didn't mean to interfere. 
You know, we have the same problems even in insular areas as 
you do right now. We talk about self sufficient the last 100 
years, and we're still not self sufficient. We export national 
football players now. I understand there are 1,000 Marshallese 
working for Tysons Chicken in Arkansas making more money there 
than they would if they were in the Marshalls. What's wrong 
with inviting the Micronesians to come and work here to be more 
self sufficient, make more money, and the export it back to the 
islands? Every other country in the world does that, with the 
exception maybe of our own country here. The Philippines, a 
classic example. Of the 500,000 Filipinos that work outside of 
the country, they bring in $8 billion plus in remittances. That 
has tremendously assisted that country to stay above water, if 
you will. We even have Samoans who work in the logging 
companies up in Montana. So I think it's possible.
    My basic concern, and I want to ask my friends here from 
Micronesia, I have always advocated strongly that the salvation 
of our island people lies in the ocean. But I am sorry to say 
that we have not even gone near, we can't even get the Law of 
the Sea Treaty approved. We have some very serious problems 
with that. So I would like your suggestions on how this 
Committee, how the Congress could be helpful when you begin the 
renegotiation process.
    Asterio? Jesse?
    Mr. Takesy. Thank you, Mr. Chairman. You have asked some 
very profound and difficult questions, so I hope you can bear 
with me. In the FSM, we view the compact as a critical 
component of our effort at building an economy that will be 
sustainable and one that will support our people, not only now 
but in the future. In point of fact, we have begun an exercise 
within the JCN itself to assess where we are in cooperation 
with the entire government, where we are economically, where we 
hope to be, and what it's going to take to get us there.
    This means hard economic reviews and analysis. We are not 
done, Mr. Chairman. But I am happy to report that we are 
assisted, as I have stated earlier, by an independent team of 
economists funded by this country, Japan, and the Asian 
Development Bank. We hope to be able to come to produce a 
picture that can give our decisionmakers options----
    Mr. Faleomavaega. Let me give you an example, Asterio. Look 
don't be so nice about this, Asterio. You are my brother. Look, 
these fishing countries take out in excess of $1 billion worth 
of tuna from our waters. What do we get in return? Pittance. I 
would say that if our own island countries could even gross at 
least maybe $300 to $400 million out of that $1 billion that is 
taken out. I am frustrated, Asterio, help me on this. We could 
get the ships. They even had the gall to say the Samoans didn't 
want to go fishing because they don't know how to go fishing. 
We are fishing now the Albacore and grossing $700 million a 
year, and we are just starting. You don't need to go into 
pursanders that cost $12 million. We can start small. I don't 
know. I am frustrated because the resources are there. But 
maybe I'm wrong, Asterio. Help me on that.
    Mr. Takesy. No. You are quite right. We have embarked on 
that. But unfortunately, we embarked with the government 
actually directly involved in it. We are correcting that. As 
Tony pointed out, there needs to be some adjustment to attract 
foreign investors from this country.
    Under the treaty that allows for an organ fleet to fish in 
our zones, the entire fleet, the whole United States fleet is 
allowed to come in under the treaty. It's a very preferential 
treaty. Not only that, but as you well know, under the compact, 
we have a 10 percent duty free processed tuna coming into this 
country. To this day, we have not been able to take advantage 
of that. In looking back, we can only say that perhaps this is 
not an attractive area for such investors as Heinz and Starkist 
and Bumblebee. But the best way for us to get into the fishing 
business and to reap the most from it is to catch the fish 
ourselves.
    Mr. Faleomavaega. You've got the market, Asterio. I have 
the largest tuna cannery operation now in the world on my 
island.
    Mr. Takesy. So we need to learn how to catch. It takes 
capital and it takes training, and it takes high tech to do it. 
As you well know, the pursanders are the most efficient, but 
unfortunately, they cost a lot of money to upgrade and to 
purchase. But we are getting there. We are beginning with long 
lining in accessing the high sashimi market in Japan.
    Mr. Faleomavaega. Thank you, Asterio.
    Tony?
    Mr. DeBrum. If I might, Mr. Chairman, we want to associate 
ourselves with Asterio's comments. We think tuna has a 
potential and we think that the way to do it would be for the 
United States to help us develop it, along with the other 
territories and the other island countries that live off of 
tuna.
    But if we go onto the other areas, in tourism, for example, 
we have some of the best tourist destinations in the world. But 
those are hampered when, for example, Minister Muller mentioned 
earlier, when the essential air service terminated yesterday. 
We can not be sure to attract investment in the tourism 
business when we don't have control or we don't have any real 
idea what the future looks like in air travel. Air transport 
also plays into the tuna market. If we don't have freight 
service out of the Marshalls, there can be no sashimi market 
advantage taken.
    Also, because of the lack of infrastructure, water and 
power, tourism begins to be a difficult area to enter. However, 
we can go into ecotourism. We can go into aspects of tourism 
that are good for the country, good for the environment, and 
affordable. But again, transport and support from investors and 
those people that know how to market and know how to handle 
tourist facilities is needed.
    The United States mentioned earlier that they have embarked 
on a program to enlist ADB support for training and for 
business development in the Marshalls and for working to reduce 
the size of government. Mr. Chairman, as we have said before, 
we don't think governments can run business. But that works a 
little bit to the other way around also. We don't think 
business can run government. Sometimes we bring in experts in 
business from ADB who try to chop off services in government 
that are still essential. We can not continue to reduce 
government services in health and education in the Marshalls 
just in the interest of reducing the numbers to what ADB says 
those numbers ought to be.
    Also expertise from ADB consists largely of international 
civil servants from such places as Sudan, Bangladesh, Sri 
Lanka, Paki-

stan. Although some of these people are highly trained, I have 
not been able to see projects from those countries or exported 
by those countries that have worked in the Marshalls. We think 
that our real future in economic development is with United 
States business. United States business can also talk to their 
Congressmen. We can't, except for occasions like this for which 
we are thankful.
    I think the ideas to attract American business, keep them 
going in our area, and they are welcome, and we can do that 
very well. Thank you very much.
    Mr. Duncan. Thank you very much, Mr. Faleomavaega. We have 
been joined by Ms. Christian-Green, and I would like to turn to 
her for any comments or questions at this time.
    Ms. Christian-Green. Thank you, Mr. Chairman. I would like 
to ask unanimous consent to enter for the record an opening 
statement.
    Mr. Duncan. Yes, ma'am.
    [The prepared statement of Ms. Christian-Green follows:]

Statement of Hon. Donna M. Christian-Green, a Delegate in Congress from 
                           the Virgin Islands

    I thank you Mr. Chairman for holding this hearing today. I 
want to welcome my colleagues from the International Relations 
Subcommittee on Asia & the Pacific, especially Chairman 
Buereuter and Ranking Democrat Berman. I might add that our own 
Resources Committee colleague and fellow Pacific Islander 
himself, the Honorable Eni Faleomaveaga is a member of the Asia 
& Pacific Subcommittee as well.
    Mr. Chairman this is an important hearing today, if for no 
other reason than the fact that the Compacts we are discussing 
today are historic in their differences from the other 
relationships that the United States has with its other non-
state entities. As a representative of one of these areas, our 
political status as a unincorporated territory is often 
determinative of much of our political and economic growth.
    Because of our status, no U.S. citizen resident of an 
unincorporated territory or Commonwealth has the right to vote 
for President of the United States, even though the President 
can order our children to go to war to defend the nation. Also, 
because we do not have representation in the Senate, we are 
limited in our ability to prevent the application of various 
laws which because of size and other factors, would severely 
impact us negatively.
    At the same time, we are prohibited in forming the kinds of 
international economic alliances which could possibly enhance 
our economic development. And for many of us, the opportunity 
for enhancing our status to statehood is viewed as not 
available, at this time.
    In part because of the limitations of the various 
territorial statuses, the idea of a Compact of Free Association 
with the United States is at times viewed as appealing by many 
from the offshore areas. In some sense, the status of Free 
Association can be seen as a possible solution to the problems 
of full citizenship and sovereignty which I described in the 
current U.S. Territorial statuses.
    And so I look forward to hearing from the witnesses today, 
so that I can learn how these Compacts have worked over the 
last fifteen years and where we are in the process of their 
renegotiation. I welcome the witnesses to that are here with us 
today, especially those from the Marshall Islands and the FSM 
who have traveled a very long way to get here. Thank you.

    Ms. Christian-Green. I want to begin by apologizing for not 
being here at the beginning of the testimony because I had gone 
to the White House for an event which went longer than I had 
anticipated. But I wanted to welcome our panel this afternoon. 
I know you came a long way, but it is very important that you 
are here this afternoon to give your testimony. I will be 
reviewing the record so that I don't miss anything. But I can 
already hear from your responses to some of the questions and 
from some of the questions actually that a lot of the areas of 
concern, a lot of the issues that we all have are very, very 
similar. It makes me wonder what is the difference between 
being an unincorporated territory and have a compact with Free 
Associated States status.
    But I would like to maybe, since I don't have a specific 
question, give you an opportunity--as a new member, I still 
need to be educated somewhat on the process that you are going 
through. Maybe there might be one particular issue that you 
have not had a chance to really focus on that you might want to 
bring out at this time that would help me also to understand 
the process of the negotiations that you are going through that 
you feel is of critical importance to each of the areas.
    Mr. Muller. Mr. Chairman, if I may start. I think as I 
mentioned in our statement, it is very important that we 
continue to address the legacy and the outstanding issues that 
surround the continued injuries that had been caused by the 
nuclear testing program of the U.S. I think to the Marshall 
Islands, that is one of the main points that we would like to 
see that it be fully addressed and that judged and fair 
compensation be finally brought to a successful conclusion.
    Mr. Duncan. Let's go to Ambassador Kyota for his major 
problem or issue.
    Ambassador Kyota. Thank you, Mr. Chairman. I did not have 
an opportunity to answer to the Congressman from Samoa, 
questions about fisheries and some of the most important 
things. So if I may, I would like to respond to that before I--
--
    Mr. Duncan. Sure.
    Ambassador Kyota. Right now we in relation to fishing, we 
have two active companies doing long line fishing in Palau. The 
Congress in Palau, the legislator there is now considering or 
evaluating whether to extend their fishing agreement or to stop 
them when they expire. They are looking into a new, another 
means of getting the most money out of the water. That is the 
sports fishing aspect, you know, like since Palau and the rest 
of the Micronesian islands are gaining popularity in tourism, 
becoming one of the world's tourist destinations, we'll get 
into the sports fishing. Although the money is not as big as 
the fishing company, but at least the money is given directly 
to the people rather than using this big fishing company which 
pollutes the water, pollutes the land, and the return is very 
small, is very small there.
    Mr. Duncan. All right. Thank you. Let's go to Mr. Takesy.
    Mr. Takesy. Thank you very much, Mr. Chairman. Mr. 
Chairman, in our view, the one aspect of the compact that we 
thought was not emphasized enough and in hindsight we're seeing 
is that there is no attention to the private sector development 
aspect. In our view, this is where we should be going. In our 
review now, as advised by the team of economists and in our own 
evaluation, attention should be paid to this area.
    In that connection, Mr. Chairman, the human resources to 
move the private sector needs to be trained, not only trained 
but specifically catered to the areas that have promise for 
potential, such as my colleagues have pointed out, tourism, 
fisheries, and agriculture for the FSM. This is where I 
thought----
    Mr. Duncan. Thank you very much.
    Ms. Christian-Green, anything else?
    Ms. Christian-Green. Thank you, Mr. Chair, for the 
opportunity to ask the questions. I really do find that a lot 
of the issues are very, very similar for all of us who have 
been in one status or another as territories to the United 
States. Thank you.
    Mr. Duncan. Well, thank you very much. I think this has 
been a very valuable and informative hearing. I want to thank 
all of the witnesses for their testimony and the members for 
their questions. The members of the Committee on Resources and 
the Subcommittee on International Relations may have additional 
questions for the witnesses. We will ask you to respond to 
those in writing. The hearing period will be held open for 
these responses.
    If there is no further business, the chairman again thanks 
the members of the Committee and the subcommittee and our 
witnesses, particularly those who traveled from Micronesia to 
participate. The joint hearing stands adjourned.
    [Whereupon, at 4:30 p.m., the committees were adjourned, 
subject to the call of the Chairs.]
    [Additional material submitted for the record follows.]
              BRIEFING PAPER--COMPACTS OF FREE ASSOCIATION

    The Congress approved unprecedented free association 
relationships with these areas with the enactment of Public 
Laws 99-239 and 99-658 in 1985 and 1986. As separate sovereign 
nations, these areas have their own nationality and 
citizenship, are members of the United Nations, and have full 
diplomatic relations based on the Vienna Convention on 
Diplomatic Relations. All three maintain embassies in 
Washington, DC, and similarly, the U.S. has embassies in the 
three freely associated states with either resident 
ambassadors, or in the case of Palau, a charge, with the 
ambassador being accredited out of Manila, Philippines.
    The U.S. and these islands each have entered into 
agreements through their respective Compacts, to provide 
certain rights of obligations to the other party. Most 
significantly, the U.S. has exclusive military rights and a 
legal defense veto over third party use of any of the land, 
ocean, or airspace of the islands (this oceanic exclusive 
economic zone comprises an area larger than the continental 
U.S.), as well as access and use of certain specified land, 
harbor, airport facilities in various parts of the freely 
associated states, and the islands have free transit into the 
U.S. to work, study, or reside. The FAS also use U.S. currency 
and are synchronized with the U.S. postal system rates. The 
Compacts also provide for economic and programmatic assistance 
for the FAS at varying rates.
    Compacts for the Marshall Islands and the Federated States 
of Micronesia began respectively on October 24 and November 3, 
1986 while Palau's Compact did not start until October 1, 1994. 
Certain economic provisions of the Compact with the Marshall 
Islands and the FSM are set to lapse at the end of 15 years and 
by law, the Administration is to begin negotiations on those 
provisions in 1999. The 15 year lease of the U.S. missile-
testing facility at Kwajalein in the Marshall Islands is also 
up for renewal at the same time.
    The hearing will focus on the oversight of the Compacts of 
Free Association for the Republic of the Marshall Islands, the 
Federated States of Micronesia, and the Republic of Palau, with 
regards to government-to-government relations, including mutual 
cooperation on defense, exclusive economic zone enforcement, 
transit of residents, and Federal oversight in the islands of 
Federal grants and programmatic assistance. In addition, the 
hearing will focus on the progress of economic self-sufficiency 
in the freely associated states, radiological rehabilitation 
and resettlement of certain Marshall Island atoll communities, 
construction of the Babeldaob circumferential road in Palau, 
and Compact renegotiation plans.

STAFF CONTACT: T.E. Manase Mansur, x67400.
                                ------                                


  Statement of Hon. Stanley O. Roth, Assistant Secretary of State for 
                     East Asian and Pacific Affairs

    Mr. Chairman, thank you for the invitation to discuss one 
of the United States' most unique relationships: our 
relationship with the Freely Associated States (FAS). Though 
poorly understood and often overlooked, U.S. ties to the three 
FAS (the Federated States of Micronesia (FSM), the Republic of 
the Marshall Islands (RMI), and the Republic of Palau) have a 
long history and are an important part of our posture in the 
Pacific. I personally devoted many years of my life to this 
issue in the mid 1980s, when, as Staff Director of the House 
Asia and Pacific Affairs Committee, I worked to get the 
Compacts of Free Association legislation through Congress. This 
process, as you know, Mr. Chairman, was long and arduous, in 
part because Congress had not been adequately consulted from 
the outset of negotiations. I thus welcome the opportunity to 
open a dialogue with Committee members on the state of U.S.-FAS 
relations and to consult with you regarding the upcoming 
renegotiation of certain provisions of our Compact with the FSM 
and the RMI.
    My testimony today will be divided into two sections. 
First, I will give a brief overview of the Compacts of Free 
Association, laying out the parameters which guide these unique 
relationships. Second, I will reexamine what the United States 
had hoped to accomplish with these Compacts of Free Association 
and evaluate our success in meeting those goals.

Compacts of Free Association

    The Freely Associated States were formerly part of the 
Trust Territory of Pacific Islands (TTPI), a group of islands 
administered by the United States after 1947 under a U.N. 
Strategic Mandate. In 1969, the United States entered into 
discussion with representatives of the various islands on their 
future political status, a process which had different outcomes 
for the four island groupings in the Trust Territory.
    The people of the Northern Mariana Islands opted for an 
association with the United States that made them U.S. 
citizens. In January 1978, the United States began 
administering the Northern Mariana Islands under provisions of 
the negotiated and Congressionally approved Commonwealth 
Covenant. On November 3, 1986, the Northern Mariana Islands 
became a Commonwealth in political union with the United 
States.
    The FSM, RMI and Palau, on the other hand, chose to become 
sovereign nations in free association with the United States. 
On this date sixteen years ago (October 1, 1982), the United 
States and the FSM agreed to a Compact of Free Association, 
some provisions of which will expire fifteen years from the 
date of its entry into force. In June, 1983, we reached a 
similar agreement with the RMI. These Compacts were approved 
and enacted into law by Congress in January 1986, and endorsed 
by the U.N. later that year. Our Compact with the RMI thus 
officially went into effect on October 21; while that with the 
FSM started on November 3. The Republic of Palau opted for a 
longer 50-year Compact which did not go into effect until 
October 1, 1994 due to multiple delays in ratification in 
Palau.

A Unique Relationship

    These Compacts established unique relationships between the 
United States and these former trust territories, elaborating 
bilateral arrangements unprecedented in the history of U.S. 
diplomatic relations. While each of the states is now sovereign 
and our dealings with the FAS are no longer internal but rather 
foreign policy matters, our relationship with the Freely 
Associated States differs from those with other nations in 
several fundamental ways: we provide the people of the FAS 
access to direct services of over forty U.S. Federal domestic 
programs and to U.S. Government funding at a per capita rate 
greater than any other foreign government; we take 
responsibility for the security and defense of each of the 
island states in return for denial of third-country access to 
the FAS for military purposes; and we give FAS citizens the 
right to work and live in the United States as nonimmigrant 
residents within the parameters laid out in the Compacts.

Towards Renegotiation

    We are rapidly approaching the 12th anniversary of our 15 
year provisions of our Compact with the FSM and the RMI, and so 
these elements of the agreement will soon be up for 
renegotiation. Under the terms of both Compacts, negotiations 
should open two years before the 15th anniversary in the fall 
of 2001, putting us just a year away from the start of this 
process. The Administration is fully cognizant of the 
significance of this upcoming exercise, and we are in the 
process of trying to identify the best negotiator for the job.
    As we move towards the 1999 deadline, it is important that 
we reevaluate where we have come from and where we now stand 
with the FAS. The United States entered into Compacts of Free 
Association with these former trust territories for two basic 
reasons. First, as the administrator of the U.N. mandated Trust 
Territories, the United States was obligated, and I quote, ``to 
promote the development of the inhabitants of the trust 
territory toward self-government or independence as may be 
appropriate to the particular circumstances of the trust 
territory and its peoples, and the freely expressed wishes of 
the peoples concerned.'' In accordance with these 
responsibilities, the United States moved the various island 
groupings toward self-governance, and having achieved 
statehood, the people of the FSM, RMI and Palau elected a 
relationship of free association with the United States.
    Second, in the Cold War environment of the mid-1980s, the 
United States was keen to bolster its security posture in the 
Pacific. For much of the post-World War II period, the United 
States had had unrivaled influence in the Pacific. This 
position was challenged in the mid-80s as the Soviets undertook 
an aggressive campaign to increase their presence in the 
region, concluding a fishing agreement with Kiribati and 
opening diplomatic relations with Vanuatu. At the same time, 
consultations with the Filipinos had already begun to cast 
doubt on the future of U.S. bases at Subic, Clark and other 
facilities in the Philippines. For the first time in almost 
three decades, then, our supremacy in the Pacific appeared to 
be in jeopardy.
    The Compacts with the FAS alleviated this problem in three 
ways. First, the principle of strategic denial elaborated in 
the agreements with each of the three FAS guaranteed the United 
States exclusive military access to these countries and their 
surrounding waterways. Second, our agreement with the RMI 
ensured continued access to the Kwajalein military facility. 
Third, our agreement with Palau included the right to develop a 
military base should the United States need an alternative to 
the Philippines. Combined, these three components of the 
Compacts served to safeguard our long-term military interests 
in the region.
    As we move towards renegotiation, it is of course useful to 
reassess both our continued interests in, and obligations to, 
the FAS. First, on the strategic side. Geo-politics have 
changed significantly since the mid-1980s, as the Cold War is 
over and the Soviet threat is no more. Nonetheless, the FAS 
continue to be of strategic significance to the United States. 
The thousands of islands of which the FAS are composed cover 
vast stretches of ocean and sit astride vital sea lanes. The 
United States has a clear interest in keeping these sea lines 
of communication open.
    Moreover, the FAS are located between U.S. positions in 
Hawaii and Guam. U.S. defense relationships in the Asia Pacific 
form an arc from South Korea and Japan, through Thailand, the 
Philippines and on to Australia. Guam is the forward military 
bridgehead on U.S. ground, from which we can leap, if 
necessary, not only to Asia and the Pacific but also on to the 
Persian Gulf--a point aptly demonstrated during the 1995 U.S. 
military action in support of U.N. sanctions on Iraq. To 
protect the forward presence in Guam and beyond, the United 
States has a strong interest in maintaining friendly 
governments and denying potentially hostile forces access to 
these sea lanes. While there is currently no direct threat to 
these vital waterways, we can not assume that this will remain 
the case.
    As mentioned above, the RMI is also home to the U.S. Army 
Kwajalein Atoll (USAKA)/Kwajalein Missile Range (KMR). 
According to a DOD assessment, the USAKA/KMR is a ``national 
asset,'' currently the only facility in the world with an arena 
suitable for full-scale testing of long-range missiles. The 
study also determined that Kwajalein is uniquely situated for 
intelligence gathering and provides important support for our 
space programs. We have, over time, invested upwards of $4 
billion dollars in this facility, and relocating would be a 
difficult and costly proposal. Our lease of the Kwajalein base 
expires in 2001, though if we choose to renew, our Compact with 
RMI provides automatic renewal rights for an additional 15 
years.
    On the obligation side of the coin, our position is more 
complicated. The United States has clearly fulfilled its 
responsibility under the U.N. Mandate to prepare these 
territories for self-governance. The new states have become 
self-governing and responsible for their own foreign affairs. 
They have exchanged diplomatic representatives with other 
nations besides the United States and have become members of 
international organizations including the U.N., the IMF and the 
World Bank, as well as regional organizations like the South 
Pacific Forum, the Pacific Community and the Asian Development 
Bank.
    Still, while our legal obligation to the FAS can be said to 
have been fulfilled, our moral obligation to the people on the 
ground is ongoing. In the original Compact legislation, the 
United States pledged to help each of the three FAS move toward 
economic self-sufficiency. However, despite generous financial 
assistance from the United States, progress toward attainment 
of economic self-sufficiency has been slow. Since our Compact 
with Palau will not be on the table in this round of 
negotiations, I will focus my remarks on the FSM and the RMI.
    For years both the FSM and the RMI seemed hopelessly 
dependent on our provision of aid and services, unwilling and/
or unable to undertake the reforms necessary to transform their 
economies. Recently, the Federated States of Micronesia has 
begun to make headway with economic reform, working with us, 
the IMF and the Asian Development Bank to restructure its 
economy, downsize the national government, and privatize many 
governmental functions.
    In accordance with IMF recommendations, the FSM Government 
formulated a structural reform program which has been under 
implementation since 1995. Considerable progress has been made 
under the reform program in the past two years, including the 
recent National Government Restructuring, which downsized the 
public sector, and the new Foreign Investment Act, which 
streamlined the foreign investment approval process, devolved 
discretionary power to the States and created a more 
competitive environment for the attraction of foreign 
investment. Other new initiatives have included a reform of the 
tax code designed to increase customs revenue, and financial 
sector reform, such as liberalization of interest rates.
    Even with these reforms, however, there is still much to be 
done. Private sector development of agriculture, fisheries and 
tourism is crucial for the FSM's future viability. Growth of 
the private sector will require a consistent regulatory 
framework, reform of the land-tenure system, continued 
simplification of foreign investment policy, and further 
reforms to the taxation system. At the same time, a 
comprehensive reform of the education system will be essential 
if Micronesians are to attain the knowledge base and skills 
training they need to move forward with reform. While the 
Micronesians are on the right economic path, their ability to 
carry through with such reforms might be undermined by 
termination of our economic assistance.
    The RMI is not as far along the reform path as its 
neighbor. A swollen and inefficient public sector continues to 
swallow a substantial percentage of the budget; debt-servicing 
requirements are greatly constraining fiscal policy; and high 
population growth rates, rising unemployment, and declining per 
capita income are placing serious strains on the nation's 
social services. The government, meanwhile, has exhausted its 
financial holdings and borrowing capacity and has not created a 
climate attractive to foreign investment. There is also 
controversy surrounding the RMI's management of funds 
established to provide compensation for claims related to the 
1946-1958 U.S. Nuclear Testing Program, with critics contending 
that manipulation of the criteria by which claimants are 
determined eligible for programs supported by these funds has 
led to an unsustainable ballooning of the subscriber base. The 
Government of the RMI, moreover, has not released required 
annual audits on the Fund.
    Having said all that, let me stress that not all is gloomy 
in the economic management of the RMI. The Marshallese have 
undertaken a Public Sector Reform program in conjunction with 
the ADS, and some progress has been made, including a 25 
percent reduction in civil service staff since January 1996, 
termination of subsidies to Air Marshall Islands, and a public 
sector wage freeze. Other notable initiatives have included the 
tariff structure rationalization carried out in FY96 and the 
amalgamation of ministries which helped minimize redundancies 
and reduce the range of services provided by the government. 
Still, I think the record shows that it is not yet clear 
whether or not the RMI government is committed to genuine 
economic reform.
    In short, Mr. Chairman, our provision of Federal aid and 
services has had only partial success in fostering economic 
self-sufficiency. The question is, having set the FAS on a path 
of economic reform, can we abandon them before their reforms 
are finished? Terminating most or all of our assistance 
programs would likely devastate these fragile economies, and 
historical ties compel us to consider the impact that severance 
of aid and/or services would have on the ground. That is not to 
say that we must continue to provide the FAS with more funding 
per capita than any other nation in the world; our obligation 
to U.S. taxpayers dictates that even historical bonds must be 
reexamined in light of changed global conditions and new fiscal 
realities.
    As we move towards negotiations, then, Mr. Chairman, the 
Congress and the Administration must answer a number of tough 
questions. First, should the United States continue to provide 
financial assistance and/or government services to the FAS? If 
so, how much? For how long? And under what terms? Should aid 
continue to be provided with the full faith and credit of the 
U.S. Government? Or should aid be provided as an annual 
appropriation as it is with U.S. Government assistance to other 
countries? It goes without saying, Mr. Chairman, that any 
future provision of assistance must serve to help the FSM 
complete its reforms and compel the RMI to adopt and implement 
more wide-ranging reforms. Past policy failures must therefore 
be addressed if future aid is to improve economic performance.
    Finally, Mr. Chairman, let me add one thought about our 
unique financial obligations to the RMI relating to nuclear 
claims. While the implementation agreement of the Compact with 
the RMI constituted the full settlement of all claims, past, 
present and future, related to nuclear testing, it does provide 
that the RMI may submit a request for additional compensation 
to the Congress under certain provisions. RMI representatives 
have said that additional atolls should be considered affected 
by the nuclear program, and that compensation for all the 
affected atolls should be increased. I understand that the 
Marshallese are hard at work preparing a case for additional 
compensation and we will of course give their materials full 
consideration in accordance with our legal obligations.
    Before I conclude, Mr. Chairman, I would like to emphasize 
that I take my obligation to consult with Congress during this 
process seriously. I again thank you and the members of the 
Committee for the opportunity to discuss the Compacts of Free 
Association today. I look forward to getting your feedback this 
afternoon and to continuing this dialogue as we move towards 
negotiations next year.
                                ------                                


   Statement of Hon. Kurt M. Campbell, Deputy Assistant Secretary of 
 Defense for Asian and Pacific Affairs, International Security Affairs

    The Department of Defense has a deep appreciation of the 
current significance and past history of our special 
relationship with the Freely Associated States; the Republic of 
the Marshall Islands, the Federated States of Micronesia, and 
Palau. We cannot, and should not, forget the price we paid in 
liberating these islands from Imperial Japan in World War II 
and the role some of the islands and peoples played in 
developing crucial U.S. defense programs in the 1950s and 
1960s. Our relationship is founded upon the unique role of U.S. 
defense responsibilities to the sovereign nations of the Freely 
Associated States under the terms of the Compact of Free 
Association.
    The Compact and subsequent agreements obligate the United 
States to provide for the defense of the Freely Associated 
States in perpetuity, unless mutually agreed upon to terminate 
the arrangement. We are committed to provide security to these 
nations and their peoples ``as the United States and its 
citizens are defended.'' This level of defense commitment goes 
beyond any other U.S. treaty or alliance. In return for this 
fundamental security guarantee and other DOD obligations, we 
retain the right for certain military uses and access, as well 
as the right to veto access to third countries.
    In the absence of the Compact or the Security and Defense 
Relations Title of the Compact, the Mutual Security Agreement 
still provides for defense obligations, military access, and 
denial of military access by third countries. Although it may 
appear that the termination of the Compact would result in 
little change, it is clearly in the best interests of the U.S. 
to maintain the full range of military access and security 
engagement options the Compact provides. One of the most 
important aspects of the Compact is the foundation it provides 
for our day-to-day working relationship with the people of the 
Freely Associated States.
    In preparation for the upcoming Compact renewal 
negotiations, the Department of Defense has conducted a study 
to determine our defense interests in the Freely Associated 
States for the post-2001 era. This study, which will be 
finalized in early 1999, has considered many issues of mutual 
concern, such as continued access, current and future threats, 
and roles the Freely Associated States may play in future 
scenarios.
    The overriding defense interest in the negotiations will be 
continued 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, infrastructure investment, and real world 
treaty restrictions, make this an issue of the highest 
priority.
    Under the Military Use and Operating Rights Agreement, 
negotiated subsequent to the Compact, the United States retains 
the right to automatically extend the use of Kwajalein for an 
additional fifteen years to 2016. However, the Compact and use 
of Kwajalein are not that easily separated. While the 
agreements may be negotiated separately, proviso's of the 
Compact help provide the basis for the support of the 
Marshallese, who in turn provide not only much of the labor 
force, but also a positive local environment which is critical 
for continued success at Kwajalein.
    If the goal of the Compact is to maintain a unique 
relationship with the Freely Associated States while helping 
them become financially self-sustaining democracies, then a 
renegotiated Compact, in some form, is in the best interests 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 defense interests.
                                ------                                


    Statement of Hon. Asterio R. Takesy, Executive Director, Joint 
Committee on Compact Economic Negotiations, Government of the Federated 
                          States of Micronesia

    Mr. Chairman:
    The Government of the Federated States of Micronesia (FSM) 
is very grateful for the opportunity to appear before you today 
to discuss the Compact of Free Association and the upcoming 
renegotiation of certain of its provisions. We agree with the 
Committee Members that it is none too early to begin sharing 
with you our assessment of the Compact experience thus far, and 
our tentative views on what may lie ahead.
    First, I should refer to the visit to Washington last month 
by our President, His Excellency Jacob Nena, who came with the 
intention of conveying to the United States Government 
personally, and at the highest possible levels, the strength of 
our people's ongoing commitment to the Compact relationship. 
Today I would like to concentrate on the points that he made in 
a very successful series of meetings with Administration 
officials and with Members of Congress. He also had the 
fortunate opportunity to discuss these matters at some length 
in a conversation with President Clinton.
    The most important point that was stressed by President 
Nena, which I want to emphasize to you today, is the profound 
gratitude of the people and the Government of the FSM for the 
assistance that the United States has extended to us over many 
decades--throughout the forty years of the Trusteeship, and 
under the Compact. Those of us in the current generation of 
government in the FSM, along with our people, have grown up and 
lived in an emerging country that remembers past colonial rule, 
but has known throughout our lives the faithful encouragement 
of the people and Government of the United States. We realize 
that from your perspective this is only a small part of your 
global concern, but we ask that you not overlook the 
appreciation felt by the FSM people for our good fortune in 
having the opportunity to model our political, social and 
economic development after the example of the greatest Nation 
in the world.
    More particularly, the FSM remains grateful for the strong 
support given by the United States, from the very beginning of 
our Compact relationship, to the FSM's emergence into full 
sovereign statehood within the international community. This 
consistent support has played a significant role in what we 
believe to be the Compact's great success, and in the fact that 
the relationship of Free Association remains strong.
    One indication of the strength of the relationship is that 
the FSM has steadfastly supported the positions advanced by the 
United States at the United Nations and elsewhere in the 
international community, even when our positions have 
occasionally placed us at odds with our developing country 
partners and some of our fellow Pacific Island countries. 
Another is that despite the presence within the Compact of 
elaborate dispute and claims resolution procedures, which were 
forged out of months of intense debate during the original 
Compact negotiations, there has not been a single instance when 
any difference of views between our governments could not be 
resolved through informal discussions. This is testimony to the 
dedication of all our respective officials who have worked 
under the Compact through the years, and to the fact that the 
guiding document is a sound expression of common interests.
    We are keenly aware that strategic and security 
considerations are the cornerstone of our free association 
relationship with the United States. Thus, we have worked hard 
to give more than just lip service to the responsibilities we 
assumed in the Compact. The FSM has been strictly supportive of 
United States defense and security policy in the Region, such 
as, for example, by refraining from joining its neighboring 
island countries in the South Pacific Nuclear Free Zone Treaty 
(SPNFZ), and by refraining from signing the Convention against 
Land Mines. Our consistent support for the State of Israel, 
while motivated in part by internal considerations, has also 
been with an eye toward supporting U.S. policy in this 
important security area. Our regular direct contact with the 
Department of Defense through the annual meetings of the Joint 
Committee on Military Affairs has been a highly useful channel 
of communication. In addition, we regard the service of the 
Civic Action Teams as invaluable to our people at the community 
level and a constant reminder of our close relationships.
    As you know, Mr. Chairman, the Compact as a whole has no 
termination date, and was envisioned to create a long-term 
relationship. However, Section 354 ofthe Compact says that the 
defense provisions are ``binding . . . for fifteen years . . . 
and thereafter as mutually agreed. . . .'' This provides the 
opportunity during our renegotiations for any needed 
readjustment. For its part, the FSM remains satisfied with and 
committed to Title Three and to that end would like to remind 
the United States of the availability of locations within the 
FSM for Defense activities such as the propositioning of 
forward deployment supply ships (a matter that was reiterated 
by President Nena with Assistant Secretary Kramer at the 
Department of Defense during his Washington visit).
    It is the FSM's view that despite the end of the Cold War 
the uncertainties in Asia necessitate a long-term U.S. security 
umbrella throughout the former Trusteeship area. It was the 
consensus view of the original Compact negotiators, and remains 
our view, that continued economic progress and stability within 
Micronesia serves that security interest.
    The fifteen years of economic support provided in the 
Compact was never envisioned to produce full self-sufficiency 
within that time period, and in fact, the Compact reflects an 
awareness that some level of continuing assistance will be 
needed. While the FSM today still has a long way to go in terms 
of economic development, we feel that from the standpoint of 
due diligence, the progress made in the relatively brief time 
so far, together with our currently building momentum, 
justifies an appropriate level of continued economic assistance 
by the United States, beyond the first fifteen years.
    Mr. Chairman, about five years ago, we in the FSM, as well 
as our friends in the United States and elsewhere, began to 
realize that the impressive improvements in infrastructure made 
possible by Compact funding were not being accompanied by the 
degree of economic growth we had hoped for. The long-term 
implications of this situation were quite ominous, and 
something obviously had to be done. With the help of the Asian 
Development Bank, the United States, Japan and other donors, an 
FSM-wide economic self-analysis was commenced. National and 
State economic summit meetings were held to clarify and 
redefine our economic goals. Then, three years ago, the FSM 
began making serious and painful course-corrections to reform 
its governmental structure, downsize its governmental workforce 
and energize its private sector. The process, known as 
``structural adjustment,'' is well-advanced, but will be 
ongoing for some years to come. It includes efforts to improve 
efficiency and to develop our own indigenous statistical and 
planning capabilities, including our capability to evaluate and 
measure economic progress.
    This is a two-pronged program that involves, on one hand, 
Government and Public Enterprise reforms, and on the other, 
Private Sector reforms. On the government side, we are 
reorganizing and downsizing our institutions and improving our 
tax structure, in order to move along the adjustment path to 
sustainable finances and rational service levels. On the 
private sector side, our reforms are designed to improve the 
economic environment for private sector growth, especially in 
those productive activities that earn dollars from abroad. This 
means, among other things, reducing the role of Government in 
productive activities, and restructuring our legal and 
regulatory environment to encourage private sector activity and 
investment, especially foreign investment.
    It is still somewhat early to project results, but we are 
encouraged by tangible actions taken thus far that have been 
quite difficult, politically.
         We have restructured governments at the National and 
        State levels.
         We have reduced the size of the Government workforce--
        in all we have so far eliminated over 1,200 positions, or 
        almost 20 percent.
         We have frozen wage increases and even reduced the 
        salaries of most government employees by some 10-20 percent.
         All of our public utilities and many other former 
        government activities have been either commercialized or 
        privatized.
         We have improved the structure of our tax system and 
        have thus increased the share of Government revenues raised 
        from domestic sources.
    One State-specific example is worth noting. Many of you will be 
aware that our largest State--the State of Chuuk--faced a financial 
crisis of great magnitude starting in 1995. I will not burden you with 
the details of measures that have been taken, but I am happy to report 
that the crisis has been overcome. The arrears that Chuuk built up 
through domestic and offshore debts have been fully acknowledged and 
partially repaid. Based on current and credible projections, Chuuk's 
operating deficit will become a growing surplus and creditor debts will 
be paid in full by June of 1999.
    Mr. Chairman, it is only natural that in approaching the question 
of the future of our free association with the United States we must 
take stock of the Compact experience during the first fifteen years. 
This includes the development of the world security picture and its 
outlook, but it also includes the need to account for how the Compact 
has worked from the standpoint of its developmental goals, and what 
changes might need to be made in the Compact arrangements.
    To that end, for over a year now, the FSM, on its own initiative, 
has mounted a major undertaking to identify its reasonable and 
appropriate needs for ongoing United States assistance after the first 
fifteen years, taking into account the structural adjustment, the 
outlook for other sources of assistance and its internal capacity for 
revenue generation. This undertaking is being conducted by a 
representative body constituted by law, known as the Joint Committee on 
Compact Economic Negotiations, chaired by former FSM Vice President, 
Petrus Tun. The Committee is supported by a full-time Secretariat 
headed by myself as its Executive Director, with the assistance of 
development economists, an attorney, and other expert consultants as 
needed. We expect this endeavor to be completed prior to the opening of 
the renegotiations late next year.
    Mr. Chairman, recalling my earlier remarks expressing appreciation 
for all that the United States has done, I would like to close by 
saying that the FSM does not approach the question of continued United 
States assistance as asking for ``foreign aid,'' nor do we assert an 
entitlement, but rather, we respectfully suggest that such assistance, 
should it be forthcoming, will continue to be a key aspect of a unique 
and mutually beneficial partnership between our two nations--a 
Partnership in Development for Self-Reliance and Security.
    I thank you once again for inviting us to appear today. We in the 
Federated States of Micronesia look forward to continuing our dialogue 
with the United States Government, including with the Congress of the 
United States, from this day forward.
                                 ______
                                 
 Statement of Hon. Phillip Muller, RMI Minister of Foreign Affairs and 
                                 Trade
    Mr. Chairmen and Distinguished Members of the House Resources and 
International Affairs Committees:
    It is an honor for me to appear before your Committees today on 
behalf of his Excellency Imata Kabua, President of the Republic of the 
Marshall Islands (RMI). Thank you for allowing me to share the 
perspective of the RMI Government at this important and welcome 
oversight hearing. I see this hearing as an opportunity to present and 
discuss challenges in the Compact before negotiations to extend certain 
of its provisions commence next year.
    For the purposes of today's hearing, I will focus my remarks on 
three major points. First, I will discuss the value the RMI places on 
our bilateral relationship. Second, I will address some of the specific 
issues the U.S. Government has raised concerning fiscal administration 
in the RMI. Finally, I will identify some of the difficulties the RMI 
is experiencing with the existing Compact.

The value the RMI places on the bilateral relationship:

    Let me begin by expressing that the Government of the Republic of 
the Marshall Islands remains fully committed to not merely preserving 
but to strengthening its close friendship with the United States. 
Having moved successfully from colonial status to full national 
sovereignty and self-government, the Republic of the Marshall Islands 
stands, by choice, as a friend and ally of the United States. We share 
commitments to world security, democracy, and disarmament. We have a 
friendship shaped by a shared history, and shared goals; a relationship 
characterized by transparency, and cooperation; a successful 
relationship which has allowed for the decolonization of the Marshall 
Islands, and a special, close and continued relationship which extends 
indefinitely under the Compact of Free Association.
    The Compact of Free Association and its subsidiary agreements 
embody the strategic alliance that evolved during the Trusteeship and 
continues in perpetuity in accordance with the Compact. These mutual 
security arrangements include the U.S. Army Missile Range at Kwajalein 
Atoll which the Marshall Islands is proud to host. As the site 
specifically named in the Anti-Ballistic Missile Treaty for the U.S. 
Government to test its missile defense systems, Kwajalein Atoll helps 
provide security to the United States, the Marshall Islands, the 
Pacific region, and the world. On several occasions, the RMI Government 
has accommodated Department of Defense requests to utilize additional 
islands for its programs. We believe the present arrangement is in the 
best interest of both our nations, and contributes to our shared 
commitments to world security. Furthermore, the Marshall Islands 
provides a permanent buffer zone between the United States and 
potential threats from Asia, and extends U.S. military access to 
approximately l million square miles of the Pacific Ocean where no 
other foreign military can enter.
    The strategic nature of our partnership continues to be of 
tremendous mutual importance to our nations. I was extremely pleased to 
see these same sentiments reflected in the Joint Resolution introduced 
by the Chairmen of both committees holding this hearing, as well as our 
good friend, Congressman Faleomavaega. The Marshall Islands appreciates 
these expressions and hopes that the resolution will continue to move 
forward. I am also pleased to inform the Committees that the Nitijela 
passed its own resolution on February 5, 1998, conveying the RMI 
Government's commitment to its bilateral relationship with the United 
States. The text of the Nitijela resolution, which recognizes the 
importance of continued friendly relations and the maintenance of long-
term military alliance and strategic partnership, is attached as a 
supplement to my statement.
    In recognition of the strategic partnership between the RMI and the 
United States, the Mutual Security Agreement signed by our governments 
reflects the understanding that economic assistance to the Marshall 
Islands is not foreign aid, but an integral aspect of creating the 
stability necessary to augment our mutual defense goals, provided in 
exchange for important strategic denial and defense rights that the 
U.S. enjoys in the Marshall Islands. The words ``mutual'' and 
``security'' are meant to reflect how each of our countries benefit 
from our relationship; the United States secured its defense interests 
and the Marshall Islands secured its economic and social interests, 
thereby creating a mutually beneficial alliance based on four decades 
of Trusteeship. Relations between military and economic security is a 
recognition of the conditions required to promote international peace 
and prosperity. This principle is expressly stated in the Mutual 
Security Agreement:

        ``The Government of the United States and the Government of the 
        Marshall Islands recognize that sustained economic advancement 
        is a necessary contributing element to the mutual security 
        goals expressed in this agreement.'' (Agree-

        ment Between the Government of the United States and the 
        Republic of the Marshall Islands Regarding Mutual Security 
        Concluded Pursuant to Section 321 and 323 of the Compact of 
        Free Association.)
    In this respect, I would like to extend my sincere gratitude to the 
Members and Administration representatives who argued that the Pell 
Grant, an economic and social program consistent with the strategic 
nature of our friendship, is an integral component of the overall U.S. 
interest in the Marshall Islands. Our youth who are pursuing their 
higher education, as well as Marshallese serving in all branches of the 
U.S. armed forces, will enhance the economic and strategic goals 
embodied in the Compact. No country receiving conventional foreign aid 
has a relationship with the U.S. including the special legal, military, 
political, economic and social mutual undertakings that exist between 
our governments by treaty and law. That is why the RMI is not a foreign 
assistance recipient.
    We look forward to continuing to strengthen our friendship, and 
therefore, are confident that the upcoming negotiation with the U.S. of 
certain elements of the Compact will provide a constructive process to 
reflect our shared commitment to the relationship. We are likewise 
confident that in due course the U.S. will select a person of integrity 
to lead the U.S. team. This will give us confidence that both sides are 
committed to ensuring that our relationship continues to work in the 
best interest of both our nations.

U.S. Government concerns about fiscal management in the RMI:

    We understand that some people in the U.S. Government have concerns 
about fiscal management in the RMI. We acknowledge that there have been 
a number of problems with our financial management and budget 
execution. I would like to put some of our financial faltering into 
perspective, however.
    During the Trusteeship, the Marshall Islands was deemed a secure 
area by the U.S. Administrators. Until 1968, outsiders could not visit 
the Marshall Islands without first obtaining permission from the U.S. 
Navy. Until 1973, no foreign investment of any sort was allowed in the 
Marshall Islands. The public works department was established to create 
government jobs for Marshallese people as a means to distribute U.S. 
money. Most of the Compact money we now receive goes to pay debts from 
loans that were necessary to upgrade the dilapidated infrastructure we 
inherited from the Trust Territory Government. I raise these points 
only to note that although we have made mistakes--some of our 
investments were admittedly overambitious, some were questionable, and 
still others were sound--we have made a bona fide effort to develop our 
economy. In 12 years time, however, we cannot achieve the economic 
development that U.S. strategic interests intentionally thwarted for 
decades during the Trusteeship.
    In retrospect, we acknowledge that monies were not used as 
effectively and efficiently as they could have been. For the most part, 
our infrastructure has been built, but the costs have been higher than 
they should have been. Unfortunately, we did not effectively enforce 
financial reporting from individuals and companies who expended funds. 
In the case of the Ebeye Hospital, we have made arrangements with the 
ADB to help recoup funding to complete the project sponsored by the 
U.S. Government. ADB has responded positively to our request for 
assistance. I think it will be in both our nations' best interest to 
build accountability mechanisms into the next phase of Compact 
assistance.
    Despite our growing pains, the RMI Government is committed to meet 
the challenges necessary in order to install rigid systems of financial 
management and to operate within our financial means. We are 
undertaking democratic institutions building to improve deficiencies in 
the financial system that we inherited.
    Concern has also been expressed about the over-enrollment of the 
177 Health Care Program. We made the mistake of not requiring 
eligibility criteria for enrollment in the program. As a result, 
everyone with land claims to those atolls, and not just those requiring 
medical attention as a result of the testing program, enrolled in the 
program. This is a mistake that my government acknowledges. In 
response, my Ministry has drafted eligibility criteria for the Cabinet 
to consider. We are working with the 4 atoll leadership to help them 
understand the absolute necessity of getting enrollment in this program 
under control and in accordance with the original intent of the 
Compact. I expect the eligibility criteria to be established in the 
near future.
    I would also like to point out that the RMI Constitution provides 
for an independent Auditor General to audit all public accounts. The 
Auditor General's Office has hired an internationally recognized 
auditor, Deloitte & Touche, to conduct annual audits in the RMI. The 
very fact that we know what our budget management problems are 
demonstrates that the audits ensure accountability. Over the years, the 
Auditor General's Office has been introducing progressively more of the 
sophisti-

cated financial systems necessary to properly manage accounts. Please 
keep in mind that the RMI inherited a financial management system from 
the Trust Territory that consisted primarily of pencils and papers. We 
are doing our best, however, to create first-class financial management 
systems in the Marshall Islands.
    In recognition of the fiscal management problems we have had, the 
RMI Government has committed itself to a vigorous reform program. I 
would like to briefly describe some of our fiscal reform measures. Many 
of these reforms have been painful both in political and practical 
terms as they affect the lives of all Marshallese people: The RMI 
Government worked closely with the Asian Development Bank (ADB) to 
develop a Public Sector Reform Program (PSRP). With a $12 million loan 
from the ADB, the Reform Program is downsizing our public sector which 
became overinflated during the Trusteeship. We have determined, 
however, that we will not allow our downsizing efforts to compromise 
the RMI's Constitutional mandate to provide essential health care and 
education services to the population; We have launched a Private Sector 
Investment Program (PSIP) that aims to develop strategies in each of 
the sectors which make best use of the country's resources within the 
overall fiscal and budgetary constraints; A Private Sector Unit has 
been established to formulate and implement a strategy and a program 
for the privatization of state-owned enterprises and service 
departments. The Private Sector Unit is also tasked to create a 
competition and regulatory policy framework to ensure that the eventual 
privatization of those state-owned enterprises having monopolies in 
their sectors, such as the national airline and the public utilities, 
do not unfairly infringe on the public good; Our Foreign Investment 
Advisory Service (FIAS) has prepared draft legislation for the 
Government to consider ways to promote a comprehensive investment 
program; An Office of the Economic Policy Advisory Services & 
Statistics provides the budget framework based on macroeconomic factors 
facing the country which can be addressed through fiscal policy; and 
the RMI has adopted a set of principles that requires that the 
recurrent and capital budgets are closely integrated and visibly linked 
to national and sector development goals and objectives.
    I would also like to point out that the RMI Government has reduced 
government expenditure from over $105 million in fiscal year 1995 to a 
projected $75 million in fiscal year 1999. The reduction in expenditure 
has been achieved by a curtailment of capital spending, by a 27 percent 
decline in established civil service posts, by a reduction in 
government subsidies (especially by the national air carrier), by a 
lowering of wages of elected of finials and civil servants in both real 
and monetary terms, and cuts in the operating costs of line ministries 
(including the elimination of 4 ministries). At the same time, we are 
providing training to the individuals whose public jobs have been 
terminated so they can become productive members of the private sector.

Difficulties in the existing Compact:

    Like the U.S., we also have concerns with the existing Compact 
which we would like to bring to your attention. These problems exist 
primarily with the economic development incentives and Section 177 of 
the Compact. Because of the complex nature of the Compact, it is often 
difficult to interpret its intent. When attempts are made to deny 
special rights or privileges specified in the Compact we often face 
problems in our implementation of the Compact's provisions. Problems 
have emerged when essential provisions in the Compact, such as the 
immigration and labor rights, are constrained and compromised by 
misinterpretations of the Compact's intent. Our relationship cannot be 
categorized like other countries when it is unique.
    With regard to the aspects of the Compact intended to stimulate 
economic development in the Marshall Islands, there are certain 
provisions in the Compact that were never implemented. For example, we 
would have liked to take advantage of the National Health Service Corps 
in Section 105(k) or the technical assistance envisioned in 105(1). For 
the programs available on a reimbursable basis, we do not have the cash 
flow assumed to pay for the services up front.
    The RMI Government also demonstrated that it lost key economic 
benefits under Section 111(d) of the Compact. The RMI lost these 
benefits when the U.S. made unilateral changes to the Compact that the 
Marshallese electorate decidedly approved. We thank Congress for 
recognizing the economic loss as a result of the U.S. removal of the 
economic incentives. Yet, we have only received 1/10th of the amount 
for which we established a U.S. commitment under Section 111(d). We ask 
that you revisit the loss of economic benefits with us, Mr. Chairmen.
    We are also concerned about the limited nature of the Essential Air 
Services Agreement in the Compact. On September 30th of this year, the 
Essential Air Services provision of the Compact will expire. This 
provision, which ensures that U.S. air carriers provide flights 
adequate to promote economic development, is vital to every aspect of 
our efforts to promote economic development. It is my hope that the 
Administration and Congress will work with us on this matter and that 
your Committees, Mr. Chairmen, can support the Essential Air Service 
provision that is a vital component of the path to economic self-
sufficiency that both of our nations envision for the Marshall Islands.
    The other major area of RMI concern about the Compact is Section 
177, the section which defines U.S. responsibility for and efforts to 
address the consequences of the nuclear testing program. Like people 
throughout the world, the Marshallese found great relief and assurance 
in the end of the Cold War. We, in the Marshall Islands, like the 
United States, played an important role in helping the United States 
actualize its national, and global defense goals and in protecting the 
world from the threats of nuclear war.
    Although we share in the relief that the Cold War has ended, our 
countries together bore a disproportionate amount of the burden and 
suffering in reaching this goal. People in the Marshall Islands 
continue to die and suffer from the debilitating health effects of 
radiation exposure. The expense and breadth of radiation illnesses 
experienced in the Marshall Islands has overburdened our health care 
system and depleted scare economic resources. As you will see from the 
attached statement of the Chairman of the Nuclear Claims Tribunal, 
Oscar deBrum, the funding for the Nuclear Claims Tribunal is inadequate 
to cover even the personal injury claims brought before the Tribunal. 
It troubles me to report that the Tribunal's Chairman has had to make 
emergency allocations of just a few hundred dollars to radiation 
victims dying in the hospital and the families of the awardees to 
provide a contribution to the costs of death ceremonies.
    The Tribunal has not awarded a single environmental claim despite 
the fact that the Compact intended for the Tribunal to distribute both 
personal injury and land damage claims. Although the Tribunal has not 
yet adjudicated the land damage claims, it is clear from evidence 
presented that loss of use for the affected atolls and the cost of 
remediation to restore the atolls to U.S. cleanup standards is 
substantial.
    As for the 177 Health Care Program, there is no inflation 
adjustment although inflation adjustments exist for almost every 
program in the Compact. Because of rising health care costs and 
inflation, even if we substantially reduce our eligibility, which I 
promise we will do, the 1998 value of the $2 million amount envisioned 
during Compact renegotiations amounts to approximately $90O,000 a year. 
This is grossly inadequate to provide for the expensive care of this 
uniquely exposed population needs. The program is further hampered by 
the great expense of transporting and housing tertiary patients off-
island due to a lack of medical facilities and trained personnel in the 
islands. It is also expensive to maintain health care facilities at 
multiple, scattered locations. Furthermore, we are forced to employ 
outsiders to assist with health care delivery as 42 years after the end 
of the testing period there still is not a single Marshallese trained 
in radiation science or radiation medicine.
    While we are proud of our strategic partnership with the United 
States, it saddens us that Marshallese citizens who suffer from 
radiological illnesses are not compensated in one, full payment the way 
U.S. radiation victims are. Because I was one of the RMI's Compact 
negotiators, I know we were led to believe that awardees would receive 
a one-time payment for their radiological illnesses and that market 
earnings would lead to annual increases of the fund of 15 to 18 
percent. Furthermore, we were told that the interest from the fund 
alone would be adequate to make our awards and that the fund would 
remain untouched so it could serve as an intergenerational fund to 
provide long-term financial stability. None of these assumptions have 
proven to be true. This inequity of the awards process leads to great 
suffering and discomfort in the Marshall Islands.
    As you are aware, the Marshall Islands agreed to put to one side 
the nuclear-related claims it presented to U.S. Federal courts while we 
determine the effectiveness and adequacy of the programs and 
allocations in Section 177 addressing the adverse consequences of the 
testing program. In our 12th year of the Compact and Section 177 
claims, it disturbs me to report to you, Mr. Chairmen, that Section 177 
of the Compact is inadequate to the point of becoming dysfunctional. 
While the U.S. Federal courts accepted our decision to put these claims 
before the RMI Nuclear Claims Tribunal, that decision was based on the 
presumption of adequacy of the remedy. That presumption is now being 
seriously undermined, and called into question.
    In addition to the inadequacy of funds for the Nuclear Claims 
Tribunal, the Compact fails to provide adequate health services to 
populations affected by radiation and it fails to recognize the full 
scope of radiation injury. The United States conducted 67 atomic and 
thermonuclear tests in the air, on the land, and in the seas 
surrounding our islands. Seventeen of these tests were in the megaton 
range far exceeding the size of the bomb the U.S. dropped on Hiroshima. 
Yet, the Compact defi-

nition of exposure, which determines which populations are eligible for 
medical care, is based on exposure to just 1 of the 67 tests conducted, 
the ``Bravo'' test. What about the radiation effects of the other 66 
tests? What about the cumulative radiation effects of all 67 tests? As 
a result of this extremely narrow definition of radiation exposure, 
only 174 people in the nation are legally eligible in Section 103(h)(1) 
to participate in a U.S. provided radiological health care program. 
Furthermore, only 4 atolls covering 22,500 square miles, including the 
two ground zero test sites, are legally defined as affected by 
radiation. In comparison, I find it interesting that the United States 
considers the Nevada land area affected by radiation to extend over 3 
million square miles despite the fact that the total tonnage detonated 
in the Marshall Islands was almost 100 times greater than the total 
yield of weapons tested in Nevada.
    Fortunately, there is a provision in Section 177 of the Compact, 
the changed circumstances provision, that allows Congress to work 
within the purview of the existing bilateral framework to address 
shortcomings of the U.S. programs designed to address the problems 
resulting from radiation exposure. We believe that it is in the best 
interest of both our nations to deal with problems in the existing 
Compact framework. This issue cannot wait for renegotiation of the 
second Compact. People are dying now. People are suffering now. Medical 
expenses are beyond our means. We lack the medical care and the money 
to finance their awards.
    Thanks in great part to the Committee on Resources' efforts to see 
that Department of Energy documents relating to the U.S. Nuclear 
Weapons Testing Program in the Marshall Islands were declassified and 
released to the RMI, we now know that the extent of damage caused by 
the nuclear testing is much greater and much broader than either the 
U.S. or Marshallese negotiators of the Compact understood at the time. 
Based on this new information, we are compelled to act, and the Compact 
provides the framework for taking action. I would like to ask you, Mr. 
Chairmen, to convene hearings on the changed circumstances after you 
receive our petition. Changed circumstances hearings would provide us 
an opportunity to present our findings to you, and hopefully, to lay 
out a pathway for providing medical care and assistance to all of those 
people who have truly suffered as a result of our shared strategic 
interests.
    I would like to ask your support, Mr. Chairmen, in securing an 
immediate ex gratia payment for the victims dying of radiation-related 
illnesses for which there are no means to pay for. The Compact allows 
for ex gratia payments under Section 1O5(c)(2). We request your 
assistance in convincing the Appropriations Committee of the importance 
of this allocation which the Compact provides for.
                                 ______
                                 
Statement of His Excellency Hersey Kyota, Ambassador Extraordinary and 
   Plenipotentiary, Palau Ambassador to the United States of America
    Mr. Chairman and distinguished members of the Committee on 
Resources and the Committee on International Relations Subcommittee on 
Asia and the Pacific, it is indeed an honor and privilege for me to 
testify, on behalf of President Nakamura and the government of the 
Republic of Palau, before this joint committee. Thank you, Mr. Chairman 
for the opportunity.
    As manner of introduction and background information, allow me Mr. 
Chairman to briefly explain for the record the relationship and 
camaraderie that first began during World War II between Palau and the 
United States. I believe that such camaraderie between our people 
encouraged and paved the way in the establishment of our countries 
current relationship. Because of its location, Palau quickly became one 
of the most important areas in the Pacific for strategic purposes 
during and after the war, for that matter. As a result, some of the 
fiercest battles in the Pacific during the war took place in our 
islands. Thousands of Americans, Japanese and native Palauans lost 
their lives in those battlefields. Palau, undoubtedly played a major 
role in the U.S. victory in the Pacific during World War II. 
Immediately after the war, the United States established its 
administration under the Department of the Navy. In 1946, the United 
Nations formally placed Palau and the rest of the Micronesia Islands 
under the U.N. Trusteeship Council directly under the administering 
authority of the United States. Palau and the rest of the islands of 
Micronesia became known as the Trust Territory of the Pacific Islands. 
For many years preceding independence, Palau was administered by the 
Department of the Interior. During that time, the Government of the 
United States established self government, provided Palauan people with 
education and health care programs, and nurtured democratic 
institutions, which guarantee human rights, protect freedom of speech, 
and preserve the rule of law in Palau. Although independent, Palau will 
always remain a member of the American family by virtue of its long 
friendly tie and its present special relationship under the Compact of 
Free Association between our two countries.
    Before I continue, Mr. Chairman, I believe it is worth noting that 
today, October 1, 1998 is the fourth anniversary of the Republic of 
Palau's independence in free association with the United States of 
America. As you know, the original Compact legislation for the three 
Freely Associated State governments was passed by the U.S. Congress in 
1986. On behalf of the people of Palau, I would like to gratefully 
acknowledge former President Ronald Reagan, whose beliefs in freedom 
for all mankind and whose vision of sovereignty for islands of the 
Pacific Trust Territory led him to sign the compact legislation into 
law, thus setting the stage for Palau's independence. We are also 
grateful to President William Jefferson Clinton for signing into law an 
enabling legislation passed by the Congress in 1994 putting into force 
the specific Compact of Free Association between Palau and the United 
States, which came into effect on October 1, 1994. October First is now 
our Independence Day and a national holiday in Palau. As we begin our 
fifth year of independence under the Compact agreement, Palauans 
everywhere proudly celebrate this day and the special relationship that 
exists between our two nations. The feeling of respect and admiration 
on the part of the Palauan people toward this great nation and its 
people for giving us our independence will continue throughout the term 
of this special relationship and beyond.
    This special relationship, as embodied in the Compact of Free 
Association, extends to Palau the privilege of military and defense 
protection of the most powerful nation in the free world. As a mutual 
partner and member of the American family, Palauan citizens may 
voluntarily serve in the Armed Forces of the United States. The 
Republic of Palau receives the benefit of a variety of Federal grants 
and program assistance, particularly in the fields of education and 
health care. Our citizens also enjoy the freedom of migration and 
unrestricted access to the United States and its territories. At the 
same time, Palau enjoys complete independence and sovereignty. These 
benefits and freedom given to Palau are not entirely free. Under the 
Compact, as you know, the United States provides these benefits and 
economic assistance in exchange for military land use rights.
    Mr. Chairman and members of this joint committee, while minor 
disputes and questions exist with regards to interpretations of certain 
terms and provisions of the compact, I am happy to report that the 
relationship that exists between our governments is functioning 
effectively and efficiently. These disputes should not, in anyway, 
interfere or affect the normal government to government relations 
between our two republics. In fact disputes and minor disagreements are 
regarded as a normal aspect of a healthy, working relationship. As long 
as lines of communication and continuing dialogue remain open and 
sincere, I am confident that all issues can be resolved pursuant to the 
provisions of the Compact, and, indeed, this oversight hearing serves 
as an important step in this process.
    Mr. Chairman, during this fiscal year which begins today, our 
government will lose approximately six million dollars in U.S. Federal 
programs and grant assistance, due to the compact five-year phase out 
schedule requirement. In addition, the compact operation fund that 
Palau receives annually for the first fifteen years is drastically 
reduced from twelve million dollars to seven million dollars, a five 
million dollars reduction. This loss of Federal programs and reduction 
in operation fund, totaling eleven million dollars, translates to loss 
of many jobs and valuable services to our people. While the effect of 
these reductions was anticipated, the reality as to how much they would 
affect our budget was not fully comprehended until the Olbiil Era 
Kelulau (Palau National Congress) began its 1999 fiscal year 
appropriation process this past summer. Mr. Chairman, eleven million 
dollars may represent a tiny fraction of the U.S. budget, but in Palau, 
it represents over twenty percent (20%) of our total annual budget. 
This will not only hinder our ability to deliver essential services to 
our people, but more importantly, it will also affect our economy.
    U.S. Federal grants and program assistance had helped many Palauans 
of all ages. These Federal grants and programs have been the backbone 
behind the success of our education, health care and social 
institutions. Although, some of these Federal grants and program 
assistance have been terminated or phased out pursuant to the terms of 
the Compact, other Compact provisions stipulate that Palau may request 
for continuation of various grants and program assistance and the 
United States may consider the request. I ask this Committee to 
consider this, as our request for your representatives and ours to 
revisit those sections of the compact dealing with Federal grants and 
program assistance in order to discuss and assess the need for 
continuation.
    Mr. Chairman, one of the most important Federal grants that has 
truly helped many Palauan citizens is the Pell Grant. Without this 
grant, hundreds and hun-

dreds of Palauan students graduating from high schools would not have 
been able to attend colleges and universities in the United States, 
regardless of their academic standing. I understand that the House and 
the Senate conferees were able to agree on compromised language on H.R. 
6 to extend the termination of freely associated states students Pell 
Grant eligibility from the year 2001 to 2004. I want to take this 
opportunity, Mr. Chairman, to extend my appreciation and gratitude to 
your colleagues in the House of Representatives and the Senate who 
expressed strong support for our students' eligibility, and to 
especially thank you for your direct and persistent involvement in 
addressing our request.
    Allow me, then, Mr. Chairman to point out one minor fact that may 
have been overlooked during your specific deliberation on the FAS Pell 
Grant eligibility provision in H.R. 6. While it is certainly the 
prerogative of the Congress to legislate on any issue it sees fair and 
appropriate, I feel that Palauan students are being short changed by 
terminating Pell Grant eligibility for all three freely associated 
states at the same time. Palau, as I mentioned at the outset, is 
celebrating its fourth anniversary today. We are ten years away from 
2009, the year in which our compact economic assistance terminates. The 
Compacts for the Federated States of Micronesia and the Republic of the 
Marshall Islands, however will terminate in the year 2001, giving their 
students full eligibility during and possibly beyond the terms of their 
first fifteen years of their Compacts. As a matter of policy, I 
strongly believe that the Congress should be consistent and fair in its 
treatment to the freely associated states. Mr. Chairman, to end or 
sunset the Pell Grant eligibility for all three FAS in the year 2004 
would not be fair for Palauan students. Palauan students should remain 
eligible for Pell Grant assistance until the termination of our compact 
economic assistance in year 2009 and three years thereafter to be 
equitably fair. After all, section 124 of Palau's compact stipulates 
that the United States will extend similar benefits and treatment 
extended to FSM and RMI to Palau. While this may have been simply an 
oversight, Mr. Chairman, I respectfully request your Committee to look 
into this matter in a fair and equitable manner.
    As an island nation, Palau is surrounded by a vast ocean. Our 
exclusive economic zone extends to two hundred miles from our shores 
and traditional baselines. With limited technology and government 
resources, it is extremely difficult to patrol our waters; as a result, 
a variety of ocean resources, particularly tuna stock and other highly 
migratory species, are harvested in our waters by poachers often using 
illegal fishing methods. We certainly need assistance in this area. 
Without consented efforts and mutual cooperation among the freely 
associated states and other Pacific islands and, certainly the 
assistance of the United States, we will not realize the full economic 
benefit of our ocean resources. In this connection, I request this 
Committee and the Congress to assist us in this endeavor.
    Palauan culture is greatly influenced by the ever-present 
interaction between our people and the surrounding sea. As you know, 
Palau's Coral Reefs are blessed with perhaps the richest diversity of 
marine life in the entire world. And now, as a newly independent 
nations seeking long-term economic stability, we look to our coral 
reefs as the resources which can attract and sustain our emerging 
tourism industry. The establishment of the Palau International Coral 
Reef Center could provide immeasurable support for our efforts to 
rehabilitate, maintain and conserve Palau fragile reef system and serve 
as an ideal research base for the preservation of other reef systems 
the world over. This project is a tri-partite undertaking by the United 
States, Japan and Palau which was advanced within the framework of the 
Japan-U.S. common agenda. Both Japan and the United States have been 
focusing on the preservation of coral reefs since 1994 as part of their 
cooperation for addressing global environmental problems. Through a 
services of tri-partite discussions, we have developed a Basic Design 
Study in which the Republic of Palau has agreed to make available land 
for the site and to clear it in preparation for construction. Recalling 
the many years of Compact negotiations with respect to land issues, I 
know you can appreciate the significance of Palau gesture to provide 
this land at no cost to the Center. Under the proposed plan, the 
Government of Japan will begin construction of the Center during the 
first half of next year. As for the United States role in supporting 
the Center, we have yet to see any significant commitment of funding to 
ensure the successful startup of the Center operations. In discussions 
on technical cooperation held in April of this year, U.S. delegation 
members pointed to the Federal Funds and programs committed to the 
Republic of Palau during the fifteen year life-span of the Compact of 
Free Association. I wish to make one point very clear. The Palau 
international Coral Reef Research and Conservation Center was not part 
of Compact negotiations and, as a project arising from the bilateral 
cooperation between Japan and the U.S. under the Common Agenda, should 
not be funded with existing Compact funds. Reasonably, additional funds 
should be made available for this project whether under the Compact or 
otherwise.
    Mr. Chairman, I would like to commend you for your strong support 
for House Congressional Resolution 131 which encourages the 
Administration to identify opportunities to take substantive actions to 
advance the exploration of the ocean and the appropriate use of ocean 
resources and for your endorsement of the Coral Reef Conservation Act. 
Palau also views that June 11, 1998, Executive Order on Coral Reef 
Protection as a further indications of the U.S. Government's commitment 
to international cooperation on the protection of coral reef species 
and the implementation of appropriate strategies and actions to promote 
conservation and sustainable use of coral reef resources worldwide.
    Our record of discussion of June 7, 1996 on Palau Coral Reef 
Project, signed by then Charge d'affaires, Mr. Richard Watkins, 
indicates that the United States considers the proposed Center to be 
thought of as an integral part of the larger International Coral Reef 
Initiative. The recent Executive Order specifically calls for expanded 
collaboration with other International Coral Reef Initiative Partners 
to implement through its framework for Action. We would like to suggest 
that technical cooperation in the form of startup support for the 
initial five years of operation of the Palau International Coral Reef 
Center would be the one most significant gesture that the United States 
could make in the area of global coral reef protection. Whether under 
the Coral Reef Conservation Act or through existing Federal programs 
under the Department of State, Department of Interior, Department of 
Commerce, and the Agency for International Development, we urge the 
United States to seek available means for supporting the Palau 
International Coral Reef Center Project as a truly tri-partite 
endeavor. In this regard, Palau stands ready to assist in advancing the 
ideas of the Japan-United States common agenda.
    The largest single and certainly the most important project ever to 
be built in Palau, in terms of funding, magnitude, development and 
economic value, is the Babeldaob Compact Road. This project, as you 
know, is financed by the Government of the United States as part of the 
economic assistance package under the Compact of Free Association 
between Palau and the United States. The U.S. Army Corps of Engineers 
is charged with the responsibility to manage and oversee the 
construction of the road project, on behalf of the United States 
Government. The Palau Presidential Task Force on Babeldaob Road and the 
U.S. Army Corps of Engineers, have had many meetings in the last three 
years to discuss essentially all aspects of the road project. As a 
result, most of the preliminary work relating to plans and designs, 
surveys, land easements, environmental assessment study and 
environmental impact statement are completed. The actual ground 
breaking for the project is scheduled to commence at the end of this 
year or very early next year.
    Palau Government had planned to play an active role during the 
actual construction of the project, as announced by President Nakamura 
on several occasions during the initial discussions of the project. To 
demonstrate his seriousness and desire to be part of the ``team'' and 
to really engage in all aspects of the road project, President Nakamura 
created a task force, which was responsible to oversee all aspects of 
the project, including minimizing impact and damage to the environment. 
The plan was for the Government of Palau to unilaterally fund the task 
force with sufficient budget to hire and employ professionals in the 
fields of engineering, environment and others to assist the task force 
in their task. Due to the unexpected collapse of the Koror-Babeldaob 
Bridge in the late 1995, much of Palau's financial resources were 
directed to the bridge relief effort, leaving virtually no funding for 
this much desired professional team of experts to oversee the 
construction of the Babeldaob Road Project. Having no other options, 
the President submitted an application to the Department of the 
Interior requesting for technical assistance, in the form of grants, to 
fund the professional U.S. under the Common Agenda, should not be 
funded with existing to oversee all aspects of the road project and 
report to the Government of Palau. This team will represent the 
Government of Palau to ensure (1) that contractors meet design 
specifications and work quality standards; (2) that the environmental 
impact statement and requirements are complied with to minimize damages 
to the environment; and (3) that the interests of the Government of 
Palau are addressed and considered. Palau's request for technical 
assistance from the Department of the Interior amounts to $525,000.00. 
I believe this is a reasonable request and, with the blessings of this 
Committee, I would like to ask the Department of the Interior to 
approve our application in an expeditious manner.
    Needless to say, Mr. Chairman the completion of this important 
project will play a major role in shaping our development, economic 
opportunity and self sufficiency and prosperity to our young nation. 
The island of Babeldaob, often referred to as the ``Big island,'' has 
great potential for development in the areas of agriculture, poultry, 
aquaculture, cattle ranches and tourism among others.
    The last thing I wish to report to you today, but certainly not of 
least importance, is the status of our Compact Trust Fund. As you may 
recall, in 1994 and 1995 Palau received the sum of sixty six million 
dollars and four million dollars, respectively as trust fund. These 
funds are part of our economic package under the Compact of Free 
Association with the United States. Under the terms of the compact, 
investment of these funds is restricted to U.S. securities and 
financial instruments and should be invested for at least five years 
before the Government of Palau can withdraw any interest from the 
principle investment. Mr. Chairman and members of the Committee, I am 
happy to report to you that the investment of our trust fund is doing 
exeptionally well. In just five years time, our investment has grown to 
a sizable sum. We have been very fortunate in the sense that our 
investment firms and money managers have not suffered any major 
financial setbacks, thanks to healthy economic conditions of the United 
States. Our Government can now withdraw funds from the investment to 
supplement our budget shortfall, however, we are mindful of the fact 
that Palau, unlike FSM and RMI, is not eligible for FEMA and other 
Federal relief programs, thus the leadership is reluctant to exercise 
that option. Unless it is absolutely essential, particularly in time of 
major disaster or emergency, the general feeling among the leaders in 
Palau is to leave the fund untouched for another five years.
    Mr. Chairman, these matters and issues I bring to your attention 
today are certainly within your grasp to address, consider and resolve 
expeditiously and fairly. While minor disputes and differences exist, I 
am confident that this Congress and this Administration, like Palau, 
will focus on positive accomplishments that we have achieved in just 
four short years of our special relationship. The Government of Palau 
realizes the importance of maintaining open dialogue and lines of 
communication on a regular basis, and welcomes oversight hearings such 
as this one, and Congressional or inter agency meetings in the future. 
Again, Mr. Chairman, on behalf of Palau President Kuniwo Nakamura and 
the people of Palau, I thank you for this opportunity to appear and 
testify before you and your distinguished colleagues.

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