[Senate Hearing 107-399]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 107-399
 
              EXTENSION OF FUNDING AND PROGRAM ASSISTANCE 
                 UNDER THE COMPACT OF FREE ASSOCIATION
=======================================================================


                                HEARING

                               before the

                              COMMITTEE ON
                      ENERGY AND NATURAL RESOURCES
                          UNITED STATES SENATE

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION

   TO RECEIVE TESTIMONY ON NEGOTIATIONS ON EXTENSION OF FUNDING AND 
             PROGRAM ASSISTANCE UNDER THE COMPACT OF FREE 
                              ASSOCIATION

                               __________

                            DECEMBER 6, 2001












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               COMMITTEE ON ENERGY AND NATURAL RESOURCES

                  JEFF BINGAMAN, New Mexico, Chairman
DANIEL K. AKAKA, Hawaii              FRANK H. MURKOWSKI, Alaska
BYRON L. DORGAN, North Dakota        PETE V. DOMENICI, New Mexico
BOB GRAHAM, Florida                  DON NICKLES, Oklahoma
RON WYDEN, Oregon                    LARRY E. CRAIG, Idaho
TIM JOHNSON, South Dakota            BEN NIGHTHORSE CAMPBELL, Colorado
MARY L. LANDRIEU, Louisiana          CRAIG THOMAS, Wyoming
EVAN BAYH, Indiana                   RICHARD C. SHELBY, Alabama
DIANNE FEINSTEIN, California         CONRAD BURNS, Montana
CHARLES E. SCHUMER, New York         JON KYL, Arizona
MARIA CANTWELL, Washington           CHUCK HAGEL, Nebraska
THOMAS R. CARPER, Delaware           GORDON SMITH, Oregon

                    Robert M. Simon, Staff Director
                      Sam E. Fowler, Chief Counsel
               Brian P. Malnak, Republican Staff Director
               James P. Beirne, Republican Chief Counsel
                         Kira Finkler, Counsel
                        Colleen Deegan, Counsel
                            C O N T E N T S

                              ----------                              

                               STATEMENTS

                                                                   Page

Akaka, Hon. Daniel K., U.S. Senator from Hawaii..................     1
Bingaman, Hon. Jeff, U.S. Senator from New Mexico................     1
Christian, Peter, Senator and Chief Negotiator of the Federated 
  States of Micronesia...........................................    17
Kearney, Christopher, Deputy Assistant Secretary for Policy and 
  International Affairs, Department of the Interior..............    28
Murkowski, Hon. Frank H., U.S. Senator from Alaska...............     4
Short, Albert V., Director, Office of Compact Negotiations, 
  Department of State............................................     5
Underwood, Hon. Robert A., U.S. Delegate from Guam...............     2
Westin, Susan S., Managing Director, International Affairs and 
  Trade, General Accounting Office...............................    33
Zackios, Minister of Foreign Affairs, Republic of the Marshall 
  Islands........................................................    12

                               APPENDIXES
                               Appendix I

Responses to additional questions................................    51

                              Appendix II

Additional material submitted for the record.....................    53















 EXTENSION OF FUNDING AND PROGRAM ASSISTANCE UNDER THE COMPACT OF FREE 
                              ASSOCIATION

                              ----------                              


                       THURSDAY, DECEMBER 6, 2001

                                       U.S. Senate,
                 Committee on Energy and Natural Resources,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 9:30 a.m., in 
room SD-366, Dirksen Senate Office Building, Hon. Daniel K. 
Akaka presiding.

          OPENING STATEMENT OF HON. DANIEL K. AKAKA, 
                    U.S. SENATOR FROM HAWAII

    Senator Akaka. The hearing will come to order. Good morning 
to everyone. This morning's hearing will focus on the Compact 
of Free Association between the United States and the Federated 
States of Micronesia and the Republic of the Marshall Islands. 
Negotiations on the compact have been ongoing between the 
United States, and the FSM, and the RMI for the past 2 years.
    During this process, we have met with the partners in this 
process to discuss the progress of negotiations. I thank 
Chairman Bingaman, as well as Senator Murkowski, for agreeing 
to hold this hearing this morning. Together, we have been 
monitoring the progress of the negotiations. As we all know, 
the compact expired on September 30 of this year. Those who 
worked on the compact 15 years ago, however, had the foresight 
to include a provision that extends the compact provisions for 
an additional 2 years, while negotiations are ongoing. And this 
is playing very well.
    The final product of these negotiations must be enacted by 
Congress and signed by the President of the United States by 
September 30, 2003. So I look forward to continuing to work 
with you to meet this deadline. We have lots of work to do, 
lots of talking to do, and we hope to do the best we can for 
the people of FSM and RMI in the negotiations.
    Before proceeding to the panels, we have one of our 
colleagues from the House to testify today, Representative 
Underwood. Welcome to the Senate, Representative Underwood. We 
look forward to your statement.
    [A prepared statement from Senator Bingaman follows:]
 Prepared Statement of Hon. Jeff Bingaman, U.S. Senator From New Mexico
    Good morning. First, I would like to thank Senator Akaka for 
suggesting that the Committee hold this hearing to review the current 
status of ongoing negotiations between the United States and the Freely 
Associated States--the Republic of the Marshall Islands and the 
Federated States of Micronesia.
    I appreciate and support Senator Akaka's commitment to the Freely 
Associated States. He truly is your Ambassador to the Senate.
    In 1985, when this Committee first approved the unique agreement, 
the Compact of Free Association, I was a relatively new Member of the 
Committee. Sixteen years later, I am glad to see that, overall, many of 
you consider the Compact a success.
    Since the Congress ultimately will have to approve extensions or 
modifications to the current Compact, it makes sense for all of us to 
work together from the beginning. The deadline for enacting amendments 
to the Compact, September 2003, is quickly approaching so I encourage 
the negotiators to complete their work as expeditiously as possible.
    I appreciate the Freely Associated States' willingness to consider 
improved accountability, planning, and management of Federal funds. At 
the same time, I was glad to read Mr. Short's statement that the United 
States has strong interests in these countries which justify continuing 
our relationship and cooperation with them.
    I would like to welcome our distinguished guests who are here to 
testify today, especially those that have traveled a great distance. I 
also would like to welcome the newly appointed Compact Negotiator for 
the Administration, Mr. Al Short.
    I look forward to working with all of you during the ongoing 
negotiation and during the subsequent Committee consideration of a 
final agreement that you submit to Congress for approval. Thank you.

            STATEMENT OF HON. ROBERT A. UNDERWOOD, 
                    U.S. DELEGATE FROM GUAM

    Mr. Underwood. Thank you, Mr. Chairman, and good morning, 
Senator Akaka and other members of the committee as they may 
show up. I want to thank you, Mr. Chairman, for holding this 
very important hearing, especially during these difficult and 
trying times. I also appreciate the opportunity to speak about 
the importance of the ongoing negotiations of the Compacts of 
Free Association between the United States and the Republic of 
the Marshall Islands, and the Federated States of Micronesia.
    I certainly would like to welcome the negotiators from the 
FSM and the RMI, as well as Mr. Albert Schwartz, the newly 
appointed Director to the Office of Compact Negotiations at the 
State Department. I was able to meet with him a couple of weeks 
ago, and I understand, and he certainly demonstrated that he 
has firsthand knowledge of Micronesia, having worked on the 
compact agreement during the first negotiations.
    I'm here to express my strongest support for the compact 
agreements and for continuing U.S. assistance to the Federated 
States of Micronesia and the Republic of the Marshall Islands. 
Given Guam's geographical proximity and economic and political 
interdependence with each of these two nations, I believe that 
the Compacts of Free Association have been beneficial to Guam, 
to the region, and U.S. national security in the Western 
Pacific.
    In light of the tragic events of September 11, I would 
highly recommend an increase in assistance for security 
measures to these two nations, as it is vital to our national 
defense and because they are amongst the strongest of U.S. 
allies. Many issues will be legitimately raised in the 
negotiations and the process of congressional review, issues 
about accountability, the nature of economic development, the 
role of various Federal agencies in the implementation of the 
compacts. However, we must always be mindful of the fundamental 
basis for the compacts and the historical development of the 
region.
    We were and still are the primary force in the region's 
development. If there are economic difficulties or political 
setbacks, we have to clearly examine our own historical record 
and influence. We have a fundamental obligation to adequately 
fund the compacts, to ensure political stability, and most 
importantly, to foster economic development. The fruits of our 
efforts, in collaboration with the Micronesian nations, will be 
enjoyed by Micronesians and Americans alike in the region.
    We must recognize that the economies of Guam, the 
Commonwealth of the Northern Marianas, and even Hawaii are 
enhanced by the economic assistance of the compacts.
    Lastly, as we look at the issues of financial assistance 
and continuing Federal services for these nations, I simply 
want to say that the issue of migration should be reviewed. In 
Congress, we must redouble our efforts to address adverse 
impact on the U.S. areas of the Pacific, which result from the 
migrations of people. I look forward to working with the 
members of the Senate Committee on Energy and Natural Resources 
and the delegation of these two nations towards a meaningful 
solution for all parties involved. And I certainly commend you 
for your leadership in holding this hearing.
    I had hoped that we would have the hearing first in the 
House, but you know, the Senate was there first, and I 
certainly appreciate your leadership and interest, Mr. 
Chairman. Thank you.
    Senator Akaka. Well, thank you very much, Congressman 
Underwood, for your statement. It's good to have you there in 
the Pacific. You've been doing a great job in the House with 
the Pacific Islands, and I commend you and thank you for your 
statement. I have no questions for you.
    Mr. Underwood. Oh, great. I'm off the hook.
    [Laughter.]
    Senator Akaka. Our first panel will focus on the status of 
the negotiations. We are honored to have Senator Peter 
Christian, chief negotiator for the Federated States of 
Micronesia, and the Honorable Gerald Zackios, minister of 
foreign affairs and trade for the Republic of the Marshall 
Islands. I also want to welcome Al Short, Director of the 
Office of Compact Negotiations with the Department of State. We 
hope to hear your thoughts about the negotiations process, 
including the expected timeline for the negotiations process.
    I want to thank all of you for coming, and the two of you 
for traveling this far to this hearing. This hearing is 
important for us in trying to bring up to date what's been 
happening and to begin to set a course for the negotiations. 
I'm delighted to have here my friend and colleague, Senator 
Murkowski. And I'd like to ask him, if he's ready, to make any 
statement he wishes on this. While he's getting ready, I want 
to thank all of you here present for coming. As I look into the 
audience, I begin to see so many familiar faces. And I thank 
all of you for coming here to this hearing.
    Senator Murkowski.

      STATEMENT OF HON. FRANK H. MURKOWSKI, U.S. SENATOR 
                          FROM ALASKA

    Senator Murkowski. Thank you very much, Senator Akaka. And 
I too recognize several faces from our travels. And I want to 
commend you, Senator Akaka, for your sensitivity to the 
obligation the United States has with regard to the hearing 
this morning.
    The East Asian and Pacific affairs responsibility of the 
State Department, I think, is one that we need to continually 
emphasize. Many of our friends depend upon not only the State 
Department, but the legislative body as well, for guidance and 
direction. And we've seen situations exist that clearly need 
addressing, and you've led the way in that regard, Senator 
Akaka. I gather that your group is going to meet in Hawaii, 
hopefully this weekend, to discuss the levels and terms of 
future financial assistance. And I hope the discussions are 
fruitful. I would even hope that we'd be out of here for that 
timeframe, but I guess there's no reason to be particularly 
optimistic about this weekend.
    When Senator Akaka and I visited the Federated States and 
the Republic of Marshalls in 1996, both President Alta and 
President Kabua expressed concern that if the United States 
waited until the 13th year to begin discussions, there would 
not be enough time to coincide with discussions adequately and 
allow for congressional review. And when we returned, we 
collectively addressed a letter to President Clinton and 
suggested that he begin the review. But unfortunately, I seem 
to have got the bottom of the list of things to do.
    Also in response to concerns raised during that trip, and 
to prepare for congressional review, we asked the GAO to look 
at how compact assistance was administered, what the actual 
levels were, and how effective the assistance had been. We 
worked with the House Committee on International Relations, 
which also asked the GAO to examine the approach of other donor 
nations and organizations in the Pacific Basin, as well as the 
effects of migration under the compact--a concern that Guam, 
the Marianas, and Hawaii had raised.
    We have considerable experience with the compacts in this 
committee. We had representatives at each of the negotiating 
rounds. We met regularly with both the administration and 
representatives from, then, the trust territory local 
governments. We made several changes in implementing 
legislation, including provisions for future ex gratia 
assistance for the populations in the Marshalls affected by the 
nuclear testing program, and for the extension of the Farmers' 
Home Loan Program to the Federated States.
    We also ensured that the U.S. commitments on basic 
infrastructure would be fulfilled after the compacts went into 
effect. I think Senator Akaka would agree, in some respects, 
the development of governmental institutions, the establishment 
of international presence, and the political relationship 
between our countries--in general, the compacts have been a 
success. In other respects, however, such as health, education, 
economic development, results have not been up to our 
expectations.
    GAO found that the agencies of the United States entrusted 
with monitoring the use of funds and reviewing development 
plans did a rather poor job. Some suggest they failed to do 
their job. I hope we learn from these experiences so that we 
can structure future financial and program assistance so that 
it is more effective and more targeted, and that we have 
measurable and enforceable standards. It's going to require 
some flexibility, as it should.
    That also means that the administration will need to make a 
serious commitment in monitoring, and auditing, and providing 
the necessary technical and other assistance to make these 
provisions effective. I look forward, Senator Akaka, to the 
testimony. I would hope to have an opportunity to visit the 
area again with you, and thank you for the opportunity to 
participate in this hearing this morning.
    Senator Akaka. Thank you very much, Senator Murkowski. 
We've traveled a lot together, and I look forward to traveling 
some more, and especially into the Pacific areas. We've 
certainly seen a lot and heard a lot, and I'm sure we together 
feel that we want to do the best for the people out there.
    Mr. Short, please proceed, followed by Minister Zackios and 
Senator Christian.
    Mr. Short.

   STATEMENT OF ALBERT V. SHORT, DIRECTOR, OFFICE OF COMPACT 
               NEGOTIATIONS, DEPARTMENT OF STATE

    Mr. Short. Senator Akaka, Senator Murkowski, I am the newly 
appointed negotiator for the administration's efforts to 
renegotiate the Compact of Free Association with the Federated 
States of Micronesia and the Republic of the Marshall Islands. 
And it's my pleasure this morning to give you the 
administration's position and goals in the ongoing 
negotiations.
    In summarizing my comments in the written statement, I'd 
like to emphasize four areas: first of all, an assessment of 
the compact to date; second, discuss roles for continuing U.S. 
assistance, provide an update on the negotiations, and lastly, 
share our general approach on negotiations and identify certain 
problem areas that we perceive in those negotiations. First of 
all, an assessment of the compact.
    The administration shares the view of the GAO that the 
compact has been successful in its primary goal of providing a 
stable transition from a trusteeship arrangement to a very 
vibrant and functioning sovereign self-government. And we note 
that we have very close bilateral relations with the two 
governments concerned. They basically are very supportive of 
the U.S.' positions in the area, in the Pacific, and also in 
the United Nations.
    However, the record of the last 15 years has not been 
without some problems, and as noted in GAO reports, there's 
been a lack of accountability and, in some cases, ineffective 
use of U.S. economic assistance. A principal task of the 
renegotiation is to find and put in place effective measures of 
accountability, transparency, and measures of progress, so that 
when we get further down the road, we can look back and have 
basically a template to measure progress, or the lack thereof, 
against. Also in the process, we are looking towards an ending 
of the annual payments by the United States to the respective 
governments.
    What are our goals in compact assistance? First of all, the 
United States has a strong and continuing interest in these 
nations that justifies continued assistance. First of all, we 
intend to maintain economic stability. While we are the primary 
benefactors of the FSM and the Marshalls, we also recognize 
that the Asian Development Bank, the International Monetary 
Fund, and our partners at the ADB Consultant Group, which 
includes Japan and Australia, have also made increasing 
contributions to economic stability. But we are still the 
primary benefactor of the FSM and Marshalls.
    We also intend to focus our efforts on improving health and 
social conditions, including education in the two nations and, 
in the same process, sustaining our long, now developed, close 
ties. And part of this, of course, is self-interest on the part 
of the United States. We have continuing interest in the area, 
which is primarily strategic denial, which is to neutralize 
this vast ocean area to any hostile third party.
    And further, the use and continued unfettered use of the 
Kasan Missile Facility. And, of course, that was in the news 
only a couple of days ago, where a missile was launched from 
that facility to intercept a missile launched off the West 
Coast of the United States.
    The other goal that we hope to achieve is ending the annual 
payments, and I'll have more to say about that later. But any 
sort of ending of annual payments or change in level of 
economic assistance has to recognize that too sharp a reduction 
can lead to economic instability and, in fact, increase some of 
the impacts that we're going to talk about later here this 
morning, if there were to be an economic downturn.
    Let me briefly update you on the status of the 
negotiations. I was appointed as the negotiator on the 30th of 
October this year, and I have had substantive discussions with 
the FSM and Marshalls leadership in New York at the time of the 
U.N. General Assembly, and also when the Marshalls president 
was here earlier this month. I'll be traveling this weekend, 
and my two counterparts here will be on the other side of the 
table in Honolulu next week for a round of negotiations to move 
the process forward.
    What I hope to come out of that session with is basically a 
roadmap to conclusion of these negotiations and to lay the 
groundwork for the presentation of a compact document that we 
want to put on the table early in the new year. The 
negotiations will come to closure only when we have such a 
document. I would note also that while we are renegotiating the 
Compact of Free Association, we are conducting two parallel, 
and separate, and unlinked negotiations. We are dealing with 
the Marshall Islands and the FSM as separate, sovereign 
nations, and that will be the outcome of the negotiations. 
Neither are tied to the other.
    I would note that we received on the 30th of November an 
excellent plan from the Republic of the Marshall Islands that 
lays out their desires for U.S. assistance over the coming 
years. It's a very professional document, and we look forward 
to their oral presentation of that document in Honolulu. So 
that's going to put a marker down for the Marshalls. We have 
received a similar document from the FSM some time ago, and 
they're further along on the process. We'll also be looking at 
some subordinate agreements and basically moving forward on a 
number of parallel tracks with these negotiations to keep them 
moving.
    Our overall approach to the negotiations by this 
administration, envisions four elements: financial assistance, 
a trust fund, a squad of Federal programs and services, and the 
last item is a modification or an addressing of the issue of 
impact, which ultimately is tied to the immigration provisions 
of the compact. First of all, financial assistance. We 
recognize there simply has to be a greater effort to account 
for the funds, and that's through a formal structure that would 
require United States and Micronesian participation.
    And I would also note, there has to be the requisite 
resources put on the U.S. side; that's basically personnel and 
monetary resources to support not just a one-year, but a multi-
year oversight of these expenditures.
    We intend to take a focused, sectoral approach on 
compartmenting the monies between different areas, with the 
highest priority on health and education, but also addressing 
infrastructure, private sector development, capacity building, 
and good governance and the environment. And the details of how 
that process will be worked out is a matter that we're going to 
take on early in the new year with the two parties. But 
effective oversight and a mechanism to carry out that oversight 
is key to that process.
    With regard to the trust fund, this is a major goal. And 
what we hope to do is terminate the annual payments to the FSM 
and the Marshall Islands by a date certain. The concept is that 
the U.S. Government, over a period of years, would fund this 
trust fund. It would be open to contributions from other 
sources, the respective governments, and even third parties. 
That an administrative organization would be put in place with 
joint oversight of the trust fund, and that at the end of the 
compact extension that we are now negotiating, this trust fund 
would come into play and provide sufficient funds that, along 
with local resources, that the governments could be politically 
and financially viable.
    With regard to Federal programs and services, I 
respectfully submit that Federal program coordination under the 
compact that's now expired has been basically ineffective. This 
doesn't mean that the programs themselves have been 
ineffective, but in many cases, the coordination between the 
various departments within the U.S. Government and the 
provision of these services on the ground. We're going to take 
a hard look at them, but we're also recognizing that U.S. 
services, as opposed to Federal programs--such things as 
weather service, the postal, safe air transportation, FDIC. And 
some of these, if you will, professional services that we 
provide, will be required in the future.
    In that regard, the Micronesian governments, over time, 
have developed their capabilities in these service areas. For 
example, telecommunications, where we used to represent them, 
and the ITU and various other international bodies, they have 
taken over those responsibilities. They are running their own 
postal service. So they're, over time, taking over more and 
more of these technical functions or facilities, and we intend 
to facilitate that process as we go forward.
    Migration and its resultant impact on Guam, the Northern 
Marianas, and Hawaii is pursuant to section 141 of the compact. 
And that states, ``Citizens of the RMI and FSM may enter into 
and lawfully engage in occupations and establish residence as a 
non-immigrant in the United States.'' And as the GAO will 
testify to this morning, we're dealing with about 15,000 
Micronesian citizens who, over the years, have migrated to the 
Northern Marianas, Guam, and Hawaii, and have had a fairly 
significant impact on the education, health and welfare 
services in those areas.
    Further, the compact provides that the President shall 
annually report to the Congress on the impact of the compact. 
And these annual reports, as well as the GAO studies, have 
highlighted that impact, and that over time, it has shifted and 
it's also increased. We propose three responses to the issue of 
impact. First of all, we're looking for ways to provide 
compensation to Hawaii, Guam, and the CNMI for the negative 
impacts of migration.
    Second of all, we're looking at a series of actions and 
interactions between the U.S. Government and the respective 
Micronesian governments to mitigate and to rationalize the 
movement of personnel. And part of this is impacted by the 9/11 
situation. We're also concerned that Micronesia not become a 
conduit for third country nationals who want to enter the 
United States through the back door.
    And our counterpart from the FSM and Marshalls is going to 
address some very creative and timely actions that their 
governments have taken over the past few months. And they're 
continuing to address that issue, and to address the whole 
issue of documentation of their citizens who enter the United 
States. And many of these will be taken outside the context of 
the actual compact negotiation. There's no reason to wait for 
enactment of a piece of legislation to do things that we can do 
today.
    And I might draw a parallel. When we initiated the compact 
15 years ago, we had newly constituted States, we had no 
representation on the ground in Micronesia; they had no 
embassies here. We now have a fully functioning government to 
government relationship, and a lot of the issues that are on 
the table are best settled in that government to government 
context, as opposed to taking them into the compact.
    We will address those issues in the compact renegotiations 
that are appropriate, but we're not going to wait to settle 
issues for a piece of legislation that will be coming along in 
the coming years. If things are clear and present that a 
problem needs to be solved, we'll do it on a government to 
government basis and move the situation forward.
    Also for the long term, we're looking at health and 
education in Micronesia, from the standpoint that a well 
educated and healthy population, should they migrate to the 
United States, is simply better able to enter the workforce and 
not be a burden on the welfare systems of the respective 
jurisdictions.
    Sir, this is a very brief summary of my statement, and it's 
a pleasure for the administration to present its position on 
the progress and challenges we see in the compact negotiations. 
We will keep you and the committee fully informed of our 
progress as we move towards an expeditious conclusion. Thank 
you, sir.
    [The prepared statement of Mr. Short follows]
  Prepared Statement of Albert V. Short, Director, Office of Compact 
                   Negotiations, Department of State
    Mr. Chairman and Members of the Committee, thank you for this 
opportunity to testify on the Administration's position and goals in 
ongoing Compact negotiations with the Federated States of Micronesia 
(FSM) and the Republic of the Marshall Islands (RMI).
    I would like to begin by noting that although I recently assumed 
the responsibility of Negotiator, you will see that our basic approach 
to these negotiations has not changed. I am honored to outline the 
priorities of President Bush in the negotiations. The context for the 
current effort to renegotiate the expiring provisions of the Compact 
demands that the Administration realign U.S. priorities. Our past 
efforts have been successful in fostering a political transition from 
Trust Territory Administration to stable, self-governing democracies in 
the Freely Associated States (FAS). We are now facing a similar, 
critical challenge effecting the economic transition toward increased 
budgetary self-reliance. I will work hard to assure that future U.S. 
assistance will be used effectively to meet the object of Title Two of 
the Compact: ``to assist the RMI and FSM in their efforts to advance 
the economic self-sufficiency of their peoples.''
    As you know, Senators, the relationship of free association is not 
up for renegotiation. This special tie with the Marshall Islands and 
the Federated States of Micronesia continues indefinitely. Only Title 
Two (Economic Relations) which provides for U.S. financial and program 
assistance, and Title III, which contains, inter alia, the so-called 
``defense veto'' and provisions regarding additional base rights, are 
subject to renegotiation. Two other important defense provisions, the 
United States' right of ``strategic denial'' and the agreement to use 
Kwajalein, are not among the expiring provisions. Under the Compact and 
the Guam Omnibus Opportunities Act, an extension of U.S. assistance for 
FY-2002 and FY-2003 is currently in effect.
    In the wake of the September 11th terrorist attack on the United 
States, I have reemphasized to the FSM and the RMI the need to examine 
our immigration procedures to ensure that the security and safety of 
both our peoples are safeguarded and terrorists are apprehended and 
shut down. Accordingly, the United States will continue to review the 
desirability of amending the migration provisions of the Compact in the 
negotiations, even though they are not among the expiring provisions.
    There are four things I hope to accomplish today: 1) present our 
assessment of the Compact to date; 2) discuss the goals of continued 
U.S. assistance; 3) provide an update on the negotiations; and, 4) 
share with you our general approach to the negotiations.
                      i. assessment of the compact
    The Administration shares the view of the GAO that the Compact has 
successfully met its primary goal of providing for a stable transition 
from the United Nations Trusteeship to sovereign self-government. At 
the same time, the Compact has protected U.S. security, maritime, and 
commercial interests in the Pacific by assuming defense 
responsibilities for the vast sea and air space of the Freely 
Associated States and by maintaining a missile testing site at 
Kwajalein Atoll in the Marshall Islands.
    The Compact has been successful in transforming the relationship 
between these islands and the United States from one of trust 
Administrator and ward to being among our closest bilateral 
relationships and among our staunchest friends in the United Nations. 
These achievements are solid and lasting, in my opinion, and the 
American and FAS peoples can be rightly proud of them.
    However, the past fifteen years have also recorded the lack of 
accountability and the ineffective use of U.S. economic assistance. 
Therefore, the principal task of our negotiations is to improve the 
effectiveness and accountability of U.S. assistance and to develop a 
strategy for ending the annual payments by the United States to these 
countries. These are the key priorities of this Administration.
    Finally, the past fifteen years have ushered in an era of increased 
impact on the health, education, and welfare programs of U.S. 
jurisdictions in the Pacific because some migrants from the Freely 
Associated States have come with low work skills, poor health, and 
dependent children. The Administration will address the need to 
reimburse U.S. jurisdictions for the added costs they bear in honoring 
our commitment on migration to the FAS peoples. I should note that 
every new arrival in our country imposes costs on our communities by 
drawing on social services. But, many arrivals also add to our economy 
and pay taxes that support those public services. Many FAS arrivals to 
the U.S. come with job skills, work hard like any American, spend money 
here, and pay U.S. taxes. Their contribution should not be ignored or 
forgotten in reaching an understanding of the impact of migration on 
U.S. jurisdictions.
    Just as importantly, these migratory flows follow established trade 
and business routes. U.S. business looms large in the trade and 
commerce of the Freely Association States, earns money for many U.S. 
companies, and reinforces our special relationship.
                  ii. the goals of compact assistance
    The United States has strong interests in these countries which 
justify continued economic assistance. These interests include:

   Maintaining economic stability. (In this regard, we believe 
        the United States should continue its commitment to the 
        economic strategies that the RMI and FSM have developed with 
        the support of the United States, the Asian Development Bank 
        (ADB), the International Monetary Fund, and our partners in the 
        ADB Consultative Group, including Japan and Australia);
   Improving the health and social conditions of the people of 
        the RMI and FSM.
   Sustaining the political stability and close ties which we 
        have developed with these two emerging democracies;
   Assuring that our strategic interests continue to be 
        addressed; and,
   Developing a strategy for ending annual payments by the 
        United States by the end of the next Compact funding term.

    We recognize that too sharp a reduction in U.S. assistance at this 
stage of economic development of the RMI and the FSM could result in 
economic instability and other disruptions, and could encourage an 
increase in the level of migration to the United States by citizens of 
those countries. We continue to believe that maintaining substantial 
financial and other assistance will help to assure economic stability 
while the RMI and FSM continue to implement economic development and 
reform strategies.
                    iii. update on the negotiations
    We continue to negotiate with the FSM and the RMI separately. In 
general, the talks with the FSM are progressing well. We have had three 
negotiating sessions with the FSM, and the fourth round will be held 
next week. During our December session, I hope to present several 
subsidiary agreements involving programs and services of the U.S. 
Postal Service, Federal Aviation Administration, Federal Deposit 
Insurance Corporation, and the Department of Defense. More importantly, 
I intend to lay the groundwork for the presentation of a U.S.-proposed 
Compact text early next year. I am encouraged by President Falcam's 
personal commitment to make upcoming talks as successful as possible.
    Formal talks with the RMI were delayed by a governmental change 
following elections in November 1999. We are pleased that President 
Kessai Note was able to visit the U.S. in November of this year and to 
confirm his administration's readiness to present its proposal on 
Compact assistance. We received the Marshall Islands proposal on 
November 30 and look forward to exchanging views on it during our 
upcoming third round, scheduled for next week. I am impressed by the 
serious commitment of President Note and his cabinet to uphold good 
governance, transparency, and accountability.
                    iv. our approach to negotiations
    To meet the priorities outlined above, the negotiating approach of 
the Administration has four main elements:

   financial assistance,
   a trust fund as a mechanism to allow for the end of U.S. 
        annual financial assistance at the end of the next Compact 
        funding term,
   U.S. federal services and program assistance, and
   modifications to the current migration provisions.
Financial Assistance
    There must be more effective accountability with respect to future 
U.S. economic assistance to the FSM and the RMI. It is time to stop 
pass-through funding in favor of assistance with accountability. In the 
future, we believe that financial assistance should no longer be made 
available through transfers that co-mingle U.S. funds with local funds, 
thereby rendering it difficult to track and monitor their use. Instead, 
we believe that future funds should be provided through targeted, 
sectoral assistance, each with clearly defined scope and objectives.
    We have proposed to the FSM and RMI that any future financial 
assistance be aimed at six sectors:

                       health,
                       education,
                       infrastructure,
                       private sector development,
                       capacity building/good governance, and
                       the environment.

    Built into each sectoral goal would be regular planning, 
monitoring, and reporting requirements. The Administration is also 
seeking the necessary authority and resources to assure effective 
oversight and reasonable progress toward the agreed objectives.
Trust Fund
    The Administration believes that a major goal of the new Compact 
provisions should be to terminate annual payments to the FSM and the 
RMI by a date certain. In its initial proposals to the U.S., both the 
FSM and RMI anticipated the U.S. interest in the eventual termination 
of mandatory annual financial assistance by proposing that the U.S. 
capitalize a trust fund over the next term of Compact assistance. The 
two Freely Associated States proposed that U.S. mandatory annual 
financial assistance be terminated at such time as the fund generates 
sufficient revenue to replace the mandatory annual assistance.
    Like the FSM and the Marshalls, the Administration is interested in 
the concept of using a trust fund to support our objective of 
terminating annual financial assistance. We are still analyzing what 
the appropriate trust fund balance and level of funding would be. The 
Administration has not yet determined what restrictions should be 
placed on any such trust funds, or what level of contributions should 
be anticipated from foreign sources.
    Congress has previously authorized and funded the use of trust 
funds to achieve similar objectives, including one established under 
the Compact with the Republic of Palau, and three established in the 
Marshall Islands as a part of the United States' compensation for the 
U.S. nuclear weapons testing program.
Federal Services and Program Assistance
    I respectfully submit that Federal program coordination under the 
existing Compact is ineffective. We are still considering how these 
important functions could best be carried out.
    I believe some U.S. Federal services should continue for the same 
term as the next Compact period. Generally, these services are targeted 
to priority economic objectives such as weather monitoring, supporting 
the postal system and assuring safe air transportation. Nevertheless, 
in order to move toward our goal of greater self-reliance, we are 
exploring the establishment of a policy that no new Federal program 
would be extended to the FSM and RMI unless an assessment is first done 
of its potential to advance the goal of economic self-sufficiency. To 
the same end, we are considering a policy whereby the Administration 
would annually recommend to Congress actions that could be taken to 
increase the effectiveness of U.S. program assistance, including the 
possible consolidation of federal programs that might be duplicative. 
Such grant consolidation authority exists for federal programs 
operating in the U.S. territories.
Migration
    In the wake of the September 11th attack, we are reexamining 
section 141 of the Compact. This section provides that citizens of the 
RMI and FSM ``may enter into, lawfully engage in occupations, and 
establish residence as a nonimmigrant in the United States.'' Our 
examination has led us towards establishing passport or other 
documentary requirements for Micronesian migrants to the U.S. in an 
effort to halt the entry of inadmissible people such as terrorists who 
might seek to exploit this route of entry into the U.S. In support of 
this effort, we are using our regular government-to-government 
consultations to review specific migration issues and procedures.
    Section 104(e) of the Compact requires the President to report 
annually to Congress on the impact of the Compact. The annual reports 
and a recent GAO study document the substantial impact of FAS migration 
to the State of Hawaii, Guam, and the Commonwealth of the Northern 
Mariana Islands (CNMI). Of particular concern are migrants who have 
communicable diseases, criminal records, or are likely to become a 
public charge as a result of chronic health or other problems. These 
conditions are currently all grounds for inadmissibility to the United 
States under the Immigration and Nationality Act.
    One way to address the issue of Compact impact on Hawaii, Guam, and 
the CNMI is to increase the compensation to those jurisdictions for the 
negative impacts of migration, as authorized by section 104 of the 
Compact. This solution, while helpful, would not decrease the adverse 
impact of migration from the RMI and the FSM. It would, instead, shift 
the cost burden to the U.S. Government.
    Compact impact can also be addressed, in part, through our plan to 
commit a substantial portion of future U.S. assistance through sectoral 
assistance to improve the general health and education of citizens of 
the FSM and the RMI. We believe that improving the quality of life in 
the FSM and the RMI will reduce the incentives for citizens of those 
countries to migrate to the United States. Further, it would ensure 
that those persons who do migrate would be healthier and better 
educated, and therefore in a better position to contribute to the 
communities where they choose to live within the United States.
    In conclusion, we are considering three new responses to the 
migration issue.

   First, we are looking at ways to provide compensation to 
        Hawaii, Guam, and the CNMI for the negative impacts of 
        migration, as authorized by section 104 of the Compact.
   Second, we are exploring various mechanisms for improving 
        our ability to ensure on a timely basis that RMI and FSM 
        migrants to the United States are eligible for admission.
   Third, we believe our approach of committing a substantial 
        portion of U.S. assistance during the second Compact term to 
        improve the health and education of potential migrants from the 
        FSM and RMI can significantly reduce Compact impact.
                               conclusion
    Thank you for this opportunity to present the Administration's 
views on the progress and challenges in the Compact negotiations. Let 
me assure you that we welcome any and every opportunity to keep the 
Committee informed as these negotiations advance.

    Senator Akaka. Thank you very much for your statement, Mr. 
Short.
    Minister Zackios.

 STATEMENT OF GERALD M. ZACKIOS, MINISTER OF FOREIGN AFFAIRS, 
                REPUBLIC OF THE MARSHALL ISLANDS

    Mr. Zackios. Thank you, Mr. Chairman. Honorable members of 
this committee, ladies and gentlemen, on behalf of President 
Note and the people in government of the Republic of the 
Marshall Islands, I bring you warm greetings and thank you for 
the opportunity to appear before you today. I would also like 
to acknowledge the presence of Congressman Underwood at this 
hearing this morning, and his continued support and encouraging 
statements.
    I want to begin by underscoring the messages that President 
Note shared with representatives in the U.S. Government during 
his visit to Washington D.C. 3 weeks ago. We stand with the 
United States in its effort to defeat global terrorism. We are 
with you in this war on terrorism, we have a common defense, 
and indeed, we share a common destiny with you.
    We are more than an ally. The RMI has closer strategic ties 
with the United States than any other Nation in the world. We 
are one with you under the compact when it comes to threats to 
international peace and security. And we are proud of our 
Marshall citizens who are serving in every branch of the U.S. 
Armed Services.
    I would like to take this opportunity to congratulate the 
United States on the successful completion of the recent 
missile intercept test that was conducted from Kwajalein. We 
believe this is a great step forward in your program to protect 
the free world from weapons of mass destruction and our joint 
efforts to preserve international peace and security. Mr. 
Chairman, we believe that free association is a success. Free 
association is a model for decolonization and transition to 
greater self-reliance that has been proven to be effective.
    From the perspective of the RMI, the success of the compact 
can be measured by comparing where we started and how far we 
have come. Since 1986, my country has grown from a dependent 
State into a self-governing nation. We now have mature 
political and economic relations with the United States and the 
rest of the world. Of course, there are always those who seek 
to find faults, and it is true that our progress has, by no 
means, been ideal. But I believe firmly that any objective 
evaluation of free association can only conclude that our 
unique relationship is a success.
    As renegotiations of the expiring provisions of the compact 
are underway, we are prepared to expand negotiations with the 
United States to include certain non-expiring provisions of the 
compact, with a view toward further improving the very 
successful relationship that already exists. In addition, we 
have asked the administration to consider elements of our 
changed circumstances petition and issues related to title III 
and Kwajalein as part of our renegotiations. Mr. Chairman, with 
the permission of your committee, I would like to ensure that 
the record before you is complete, and I request your 
permission to submit a summarized copy of the RMI's Changed 
Circumstances Petition for the hearing record.
    As friends and allies of the United States, we believe that 
it is in both of our nations' interests to address the full 
scope of damages and injuries from the U.S. nuclear weapons 
testing program. Since the compact of free association came 
into effect in 1986, new and additional information about the 
consequences of the testing program have come to light. We have 
put together a petition to outline these changes for you. All 
we request is that Congress and the administration evaluate our 
petition and provide a response to us. The RMI government would 
also welcome a congressional hearing to consider the petition 
so we can collectively discuss the components of our 
submission.
    In addition to the Changed Circumstances Petition, I would 
also like to submit the RMI government's responses to each of 
the GAO studies conducted for the compact renegotiations. The 
responses have offered testimony to our shared concerns about 
addressing and improving our fiscal and financial management 
and accountability. In this context, the RMI appreciates GAO's 
careful review of these important issues. The imperfections in 
this transition process during the first 15 years of the 
compact, as well as deficiencies in the RMI's performance, have 
been identified and are manageable.
    As you may know, Mr. Chairman, our economic proposal was 
recently submitted to the U.S. Government for consideration. We 
have submitted a copy of this proposal to the committee as 
well. As the chief negotiator for the RMI, I look forward to 
hearing the U.S. Government's responses to our proposal at our 
next round of discussions that will take place in Hawaii next 
week. We believe that our compact proposal provides a viable 
framework for future economic relations between the RMI and the 
United States, and addresses the monitoring and accountability 
issues that have been raised by the GAO. It also includes 
mechanisms that will ensure the sustainability of the RMI 
economy.
    The RMI is pleased with the renegotiations that are under 
way. We have every confidence in the U.S. Government's 
representative for compact renegotiations, and the U.S. 
Government's ambassador at the embassy in Majuro. By the same 
token, we look forward to the active involvement of Congress, 
as to the future oversight hearings, so that we can continue to 
have constructive discussions in our renegotiation efforts.
    In conclusion, Mr. Chairman, I want to say that it is 
indeed a privilege and an honor to appear before you today, and 
to tell you with certainty that our bilateral relationship is a 
success, a success we want to continue to build upon. I am 
fully confident in our ability to renegotiate an outcome that 
will serve the interests of both our nations. On behalf of the 
Marshallese people and government, thank you again for the 
honor of appearing here today.
    [The prepared statement of Mr. Zackios follows:]
 Prepared Statement of Gerald M. Zackios, Minister of Foreign Affairs, 
                    Republic of the Marshall Islands
    The Compact of Free Association is a success. The special and 
unique relationship that binds our two nations together has made a 
substantial contribution to the transformation of the Marshall Islands 
into a democratic and stable nation. At the same time it has 
contributed to crucial U.S. strategic interests. I believe the record 
of this hearing should reflect that the Compact has been a great 
success for both nations.
    I also believe we have achieved the principal goals that were 
defined by both President Carter and President Reagan during the 
political status negotiations, and as affirmed by Congress when it 
overwhelmingly approved the Compact with large bipartisan majorities in 
both Houses: I am pleased to say that the Compact has also fulfilled 
the primary goals and aspirations of the people of the RMI.
    From the perspective of the Marshall Islands, the success of the 
Compact can be measured by comparing where we started and how far we 
have come. Since 1986, the Marshall Islands has grown from a dependent 
state into an independent nation. We now have mature political and 
economic relations with the U.S. and the rest of the world. Of course 
there are always those who seek to find fault and it is true that our 
progress has by no means been ideal but I firmly believe that any 
objective evaluation of free association can only conclude that our 
unique relationship is a success.
    Having said this, I would like to touch on some important aspects 
of the first 15 years of the Compact.
    By the late 1970s it was clear that the relationship based upon the 
U.N. Trusteeship no longer suited either the Marshallese people or the 
U.S. The establishment of our special and unique relationship under the 
Compact of Free Association allowed the Marshallese people to achieve 
their long-held goal of self-government while at the same time 
protecting the interests of the U.S.
    The transition from Trusteeship to independence has been a 
difficult process. We always expected the transition to present 
challenges and it is fair to say that the process proved even more 
difficult than expected. However, we have met these challenges and are 
now much stronger and more resourceful for the experience.
    In my view, our single most important achievement is the 
establishment of a politically stable nation where democracy and human 
rights are respected and the rule of law is firmly in place. The rule 
of law is enshrined in our Constitution and effectively administered by 
our courts. Our successful adoption of a participatory democratic 
system while retaining the strengths of our traditional culture is 
something of which I am proud. I strongly believe our efforts and 
successes stand in comparison to those of any other country.
    Notable economic achievements include major improvements in the 
quality and extent of the basic infrastructure, a small but growing and 
resourceful private sector, a health service that reaches most 
Marshallese and a significant increase in the number of tertiary 
trained Marshallese. While we have had several successes we have also 
made some misjudgments. For example, there are several examples where 
direct Government investments in commercial enterprises were not 
successful. We have learned from these mistakes and Government policy 
is to avoid such investments and focus more on creating an enabling 
environment for the development of the private sector. We have also 
reduced direct Government involvement in utilities and other services 
through the commercialization and privatization of the entities. In 
addition we have succeeded in attracting investment in fish processing, 
other marine and maritime activities and in tourism.
    While there remains much yet to be done we have made significant 
advances in the provision of health and education services. For health, 
most indicators have improved significantly and we continue to improve 
health care. The new Ebeye Health Center that is to be opened in early 
2002 will be second to none in the Pacific. In education, the number of 
students graduating from all levels of school has increased 
significantly. While we are pleased with these successes, we recognize 
that issues such as teacher training and curriculum development must be 
addressed more effectively. In addition, the construction and 
maintenance of schools and other public infrastructure needs more 
attention.
    Regarding the performance of our public sector, we have also dealt 
with the reality of a Government that was too large and a financial 
administration system that was inadequate to the needs of the nation. 
Both of these issues were legacies from the time of the Trusteeship.
    First, over the past 5 years we have implemented major reforms to 
the public service. Most notably, the size of Government was reduced by 
nearly one-third between 1997 and 2000. We continue to monitor and 
evaluate our public sector and are striving to create a professional 
public service that is both effective and efficient.
    Second, the transition to a more effective system has proven to be 
difficult and we are still making efforts to improve our financial 
systems. As you know, having such financial systems, and the people to 
work them, is a challenge in all countries, including the United 
States. We continue to address these concerns by strengthening our own 
fiscal and financial management and accountability. In addition, we 
appreciate GAO's careful review of some of these issues. The RMI has 
responded to all the relevant GAO reports and is submitting our 
responses for the record.
    As part of the current negotiations for the renewal of the economic 
provisions of the Compact, the RMI is proposing a range of measures 
that will improve the monitoring and accountability for funds provided 
under the Compact. This time we want to see a system in place and 
implemented from the outset that ensures the legitimate interests of 
the U.S. are protected while ensuring that the sovereign rights of the 
RMI are respected.
    We have proposed the adoption of a Medium Term Budget and 
Investment Framework. This 5 year Framework will allow us to 
effectively allocate our resources and monitor the performance of 
Government agencies. We also suggest that a U.S.-RMI Joint Economic 
Review Board be established and that this Board undertake annual 
reviews of this Framework and the expenditure of the funds provided 
under the Compact. We believe the Board should use a Performance 
Scorecard covering a range of socioeconomic indicators to monitor, 
evaluate and report of the progress of the RMI economy. Related to 
this, we have requested that the U.S. appoint two additional staff 
members at the U.S. Embassy in Majuro to act as liaisons on Compact 
related matters. These measures, together with strengthened auditing 
and enforcement capabilities will enhance the financial management on 
an ongoing basis. We do not think it is in the interests of either the 
RMI or the U.S. to wait another 13 years before such a comprehensive 
review is undertaken.
    A key component of our strategy for the future is the establishment 
of an intergenerational trust fund. In 1999, with assistance from the 
Asian Development Bank, the RMI enacted into law the Marshall Islands 
Intergenerational Trust Fund Act. The Fund will help the Government to 
achieve budgetary self-reliance while providing for future generations. 
To date the Government has already set aside $17.5 million to invest in 
the Fund, and is actively seeking contributions from bilateral donors 
and international agencies. In our proposal for the extension of the 
economic provisions of the Compact we have proposed that the U.S. also 
contribute to this Fund and participate in its management.
    As mentioned earlier, the RMI and the U.S. are undertaking 
negotiations for renewal of the economic assistance provisions of the 
Compact that expired on the 15th anniversary of free association. In 
addition, the RMI is agreeable to expanding negotiations with the U.S. 
to include certain non-expiring provisions of the Compact with a view 
toward further improving the very successful relationship that already 
exists.
    One important issue is the mechanism for addressing responsibility 
for injuries to people and damage to property as a result of the U.S. 
Nuclear Weapons Testing Program. In Section 177 of the Compact, the 
U.S. accepted responsibility for compensation owing to citizens of the 
Marshall Islands for loss or damage resulting from the U.S. Nuclear 
Weapons Testing Program conducted between 1946 and 1958. Many of those 
Marshallese who were exposed to near-lethal levels of radiation 
received some assistance to begin their rehabilitation and resettlement 
of damaged lands and compensation for injuries and losses. However, 
more recent evidence proves that the effects were more widespread and 
insidious than originally thought. Fortunately, the Congress recognized 
the possibility of this eventuality and provided a mechanism in the 
Section 177 Agreement of the Compact to address such changed 
circumstances. In September 2000, the RMI presented a formal petition 
to Congress for additional compensation based on Section 177 of the 
Compact. This petition explains new information about the extent of 
damages and injuries, and new scientific and medical knowledge that was 
not known when our nations signed the Section 177 Agreement. The RMI 
requests that Congress hold a hearing on this petition, and that the 
Executive Branch of the U.S. Government respond to the petition. This 
is a matter of great concern for the Marshallese people and the RMI 
Government will pursue these issues until they have been adequately 
addressed.
    Our strategic and defense relationship with the U.S. is unique 
among sovereign nations--we have entrusted our defense wholly to the 
U.S., without reservation, and in turn delegate to the United States 
plenary powers that enable the U.S. to use our country for our mutual 
defense and security. This agreement has ensured that the United States 
strategic interests in the Central Pacific have been protected. The 
establishment of the right of strategic denial and military operating 
rights in the Marshall Islands has been as effective strategy for the 
U.S. and the RMI. The political stability of the RMI and the nation's 
unreserved commitment to supporting the U.S. has been fundamental in 
enabling the U.S. to project its interests throughout the region and 
beyond. The missile development and testing facilities at Kwajalein 
have been critical to the development of long-range strategic missiles 
and defenses against much missiles, including successful testing as 
recently as this past Monday, December 3rd, of interceptor missiles to 
defend the U.S. against missile attack. These developments undoubtedly 
played an important part in preserving peace throughout the past 50 
years. I am proud of our contribution to this process and am confident 
that the use of Kwajalein will continue to make a substantial 
contribution to peace throughout the world.
    The facilities at Kwajalein have also been of great benefit to the 
RMI in providing jobs, training, and other consequent benefits to our 
citizens. The RMI believes that this mutual success can be built upon 
through the establishment of a Kwajalein Trust Fund and a greater 
shared effort dedicated to the special needs of Ebeye. In this regard 
the RMI stands ready to extend the Title Three Defense and Security 
provisions beyond the next 15-year period.
    The RMI Government welcomes the Committee's decision to hold this 
hearing. While the negotiations for the renewal of the expiring Compact 
provisions are between the administrations of our two nations, the 
Congress and Nitijela have crucial oversight roles. We believe that 
this meeting is an important step in ensuring that the Congress is 
fully briefed on the issues that affect this special and unique 
relationship between the RMI and the U.S.
    The integral and important role of Congress in this process is 
highlighted by the extensive amendments made during the establishment 
of the initial Compact. Title One of the Compact of Free Association of 
1985 [P.L. 99-239] contains exhaustive enabling and implementing 
provisions that Congress added to the original agreement. These 
amendments came out of over thirty hearings before five House and two 
Senate committees during a two-year period from 1984 to 1986. The 
lesson of that long and difficult approval process is that Congress 
needs to be informed and consulted from the very outset of the process.
    It is also important that negotiations between the RMI and the 
Administration reflect the fact that this in neither a domestic 
territorial matter nor entirely a foreign policy matter. It is an 
agreement, which enshrines a unique relationship that encompasses an 
insular policy legacy with strategic significance. The relationship is 
embodied in an international agreement approved by both Houses of 
Congress in the form of a joint resolution signed by the President.
    In closing, let me reiterate what President Note recently told Vice 
President Cheney, the Administration, and Members of Congress during 
his recent visit about the threat we all face from terrorism. We stand 
with you in this war on terrorism, we have a common defense and indeed 
we share a common destiny with you. We are proud that our sons and 
daughters are serving in all branches of the U.S. Armed Forces. We are 
more than an ally; we are one with you when it comes to threats to 
international peace and security.
    I thank you for this opportunity to testify, and I look forward to 
answering any questions you may have.

    Senator Akaka. Thank you very much, Minister Zackios. Thank 
you very much for your country's sentiments, and please thank 
your president for us.
    Senator Christian.

 STATEMENT OF PETER CHRISTIAN, SENATOR AND CHIEF NEGOTIATOR OF 
               THE FEDERATED STATES OF MICRONESIA

    Mr. Christian. Thank you very much, Chairman Akaka. Senator 
Murkowski, Congressman Underwood, ladies and gentlemen, good 
morning. My chair squeaks, Senators, so I believe that many 
jittery witnesses have sat here before me, so I'm comforted by 
that thought.
    [Laughter.]
    Mr. Christian. For the record, I am Senator Peter 
Christian, member of the Congress of Confederated States of 
Micronesia. Today, I testify before your committee as the Chief 
Negotiator for the Joint Committee on Negotiations on behalf of 
the Federate States of Micronesia.
    With me today is the chairman of the Joint Committee on 
Negotiations, Lieutenant Governor Gerson Jackson of Kosrae, who 
also serves as the chairman of JCN. Also with me today is 
Asterio Takesy, who serves as the executive director of JCN, 
who was the former secretary of our foreign affairs department. 
Also with me today are members of our key staff who are based 
here in Washington. And I take this moment to introduce one of 
the individuals to the panel, Mr. Stovall, who was with the 
first round of negotiations, and who is helping the FSM----
    Senator Akaka. Peter, will you draw the mike a little 
closer to you?
    Mr. Christian. Thank you very much. As I said, I am a bit 
nervous. I have never sat on this side of the witness table for 
a long time. But thank you very much. I wanted to introduce Mr. 
James Stovall, who has served with the FSM as chief consul for 
the first round of negotiations, and he is serving as our chief 
consul on this second round. We are especially very proud of 
his services, and I welcome him today.
    Our government is grateful to have been invited to 
participate in this hearing in order to provide, first, our 
perspective on the implementation of the compact during the 
initial 15 years period, and second, to outline for the 
committee our vision for the future of this relationship, and 
also the future of our nation. But before I go further, Mr. 
Chairman, let me express the appreciation of the Federated 
States of Micronesia to Mr. Alan Stayman. Much of the progress 
before us today in the negotiations is the result of the 
efforts of Mr. Stayman and his staff.
    At the same time, it has been our pleasure to meet and 
speak with the new U.S. Chief Negotiator, Mr. Short. Mr. Short, 
or Colonel Short, is well known to us from his experience in 
the original compact negotiations. We welcome him aboard again 
and hope to see him soon in Honolulu. Mr. Chairman, I thank you 
for allowing us to submit a full copy of our written statement 
to you. And with your permission, if I would proceed to give my 
oral testimony.
    The FSM has a small but very culturally diverse population. 
It is widely dispersed over some one million square miles of 
water. It has limited resources, both natural and human. It is 
isolated from potential markets, both for import and export 
purposes. But for most of our history, we have been a 
subsistence economy, and I am happy to say, to note for the 
committee, that many of our people still live quite well from 
their farms and from the seas.
    The 20th century brought the first sustained contact with 
the West for the Islands, and with it, a fundamental change for 
our societal and economic structures. The friendship and 
cooperation that our two nations enjoy today was forged after 
the liberation of the Micronesia Islands by the U.S. Armed 
Forces in the war in the Pacific. This relationship has been 
strengthened over the years, during the U.S. administration of 
the Micronesia Islands as a trust territory. And for the next 
40 years, this relationship continued to flourish.
    During this time, work began on the establishment of a 
constitutional Micronesian government, a goal that is of the 
United States, of the Micronesian people, and also of the 
United Nations. This was achieved in 1979. As has been said 
many times before, the compact was a landmark document, taking 
15 years in the formation. It facilitated the return of self-
government to the Micronesian entities. For the Federated 
States of Micronesia, it started in November 1986.
    Clearly, there have been mistakes on both sides during the 
15 year history of the compact, beginning in 1986. However, by 
all accounts, the agreement has been a success, and we in 
Micronesia today believe that it is a better Micronesia today 
than it was 15 years ago. The FSM, as you may know, is a stable 
and democratic nation, and one that respects the basic human 
rights of its citizens and others who live in that country.
    Since 1986, our Nation has gone through six peaceful 
changes in leadership. Currently, we just finished the first 
part of a constitutional revision, which is currently examining 
needed changes in the constitution. We are happy to report that 
the conclusion of this constitutional change will occur in the 
next month or so. I say this to imply to you that we have now 
formed a very stable and very ably led government in 
preparation for our work toward the development of a good 
economic base.
    With this in mind, we welcome the series of recent GAO 
reports. These reports contain a great deal of useful material 
that will assist the Federated States of Micronesia and the 
United States in correcting past mistakes and better--for the 
future. However, Mr. Chairman, Senator Murkowski, we continue 
to have significant difficulties with the underlying negative 
assumptions applied by the GAO in the course of its 
investigations, especially when such assumptions are read and 
interpreted without the benefit of post audit consultations. 
Our objections to elements of the report are a matter of 
record. But given the time constraints, and having your 
permission to do so, we will submit our full report on this 
matter.
    Since 1995, the FSM has been engaged in a sweeping, often 
painful, program of economic and administrative restructuring. 
These measures are intended to enhance the effectiveness of the 
FSM and the use of resources available to it. The reforms are 
ongoing, and the FSM remains deeply committed to seeing these 
through to their completion. In our negotiations with the 
United States, both sides have been working to develop 
mechanisms that will reinforce the work that has already been 
done and put in place.
    Mr. Chairman, on the issue of migration, of late, there has 
been much attention given to the fact that many Micronesian 
citizens, pursuant to compact provisions, travel to and 
establish residence in the United States and its territories. 
The majority of these citizens travel to the United States for 
limited periods and for specific purposes. These are the law-
abiding taxpayers employed in a wide range of jobs. And while 
it is true that new Micronesian migrants, like many migrants 
from elsewhere, tend to be concentrated in low paying, service 
sector positions, they fill an important niche in many local 
economies where they reside and work.
    Employment in these sectors is often crucial to the local 
economy. And, in many instances, residents are either not 
available or unwilling to perform in some low paying, menial 
jobs, leaving such opportunities open to our citizens.
    In Micronesia, there are just over 100,000 persons in the 
FSM today. Our entire population, Mr. Chairman, could fit well 
into a Rose Bowl, and probably with seats left to spare. Of 
course, the actual numbers will come to the United States in 
only a small fraction of this figure. The latest figures from 
the U.S. Bureau of Census estimated that 16,300 have migrated. 
While larger than we like, these numbers barely register in the 
overall United States immigration totals.
    On the issue of compact impact reimbursement, Mr. Chairman, 
we support reimbursement of the governments of the United 
States, to the States, to the territories, and the positions in 
the region for any compact related expenses. However, we 
encourage an impartial, detailed, and accurate accounting of 
these costs. Clearly, there are economic benefits for these 
areas through Micronesian employment, and this important factor 
must be taken into account in the course of any assessment.
    From the first round of negotiations, the FSM has been in 
complete agreement with the United States that a primary goal 
is greater responsibility in expenditures of compact funds. Not 
so much so, just in where money is spent, but more so in more 
efficient and effective use of resources, using, as a 
benchmark, long range economic, social benefits as a result of 
such expenditures. This principle is at the core of the future 
agreement between the United States and the Federated States of 
Micronesia, and is reflected in the joint statement issued at 
the Honolulu talks in January 2001.
    Mr. Chairman, if I may, I would like to submit a copy of 
this agreement and a brief chronology of the negotiations for 
the record. We tried to understand, Mr. Chairman, the 
underlying principles in the U.S. proposal tabled last year as 
a constructive first step by the United States. Unfortunately, 
this proposal invoked too many memories of the trust territory 
administration, an era our two nations left behind for a more 
noble future.
    We, therefore, have since proposed a mechanism by which the 
both the United States and the Federated States of Micronesia 
would jointly, in a partnership, guide and oversee the 
expenditure of funds and the development of economic 
development in the Federated States of Micronesia. This is an 
organization that we have chosen to call the Joint Economic 
Management Mechanism, or JEMM. We have briefly discussed this 
with the former negotiators, and we have also briefly discussed 
this with Mr. Short. And it is our hope that both sides will 
accept the JEMM as a working mechanism to oversee our progress.
    If implemented, Mr. Chairman, the JEMM would provide 
constant rather than occasional oversight by both the United 
States and FSM of all compact funding, and thereby avoid most 
of the difficulties of the past concerning timely reports, 
incompatible standards, and other problematic administrative 
aspects. The result will be a hands on partnership to guide and 
manage funds, and full accountability for all assistance 
provided under the compact.
    With regard to the negotiations, the key objective of the 
FSM is to consolidate the gains made over the past 15 years. Of 
course, also, the secure basis for continued sustainable 
growth. We note that the United States shares these objectives, 
as reflected in the various joint statements that have emerged 
from the earlier rounds. However, Mr. Chairman, I must state 
frankly that the continued progress and economic stability 
cannot be maintained at the level of compact assistance 
currently proposed by the United States.
    When we commenced these negotiations 2 years ago, we had 
hoped to be able to move quickly towards an agreement. However, 
we do recognize that several very important and very tragic 
factors have combined to slow the pace of the work over the 
past 12 months. Nevertheless, we are optimistic, with the help 
of Colonel Short, that the potential for rapid progress from 
this point on will be very good.
    As we have forged a unique relationship through the hard 
work, determination, and commitment of many in both countries, 
let us now resolve to temper this unique relationship with 
renewed commitment and vigilance so that both your country and 
my country may benefit from and be safeguarded by this compact 
of free association. Having said that, Mr. Chairman, I say this 
to close my statement. God bless the people of America, god 
bless the people of New York, as he has always blessed the 
Federated States of Micronesia.
    [The prepared statement of Mr. Christian follows:]
    Prepared Statement of Peter Christian, Chief Negotiator of the 
                     Federated States of Micronesia
    Mr. Chairman and members of the committee, good morning. I am 
Senator Peter Christian, Member of Congress of the Federated States of 
Micronesia (FSM) and Chief Compact Negotiator for the FSM. Thank you 
for the opportunity to appear before this Committee to discuss the 
progress on the renegotiations of expiring provisions of the Compact of 
Free Association. I am accompanied today by the Chairman of our 
negotiating committee, the Honorable Gerson Jackson, Lt. Governor of 
the State of Kosrae, and by the Executive Director of the JCN, former 
Secretary of Foreign Affairs, the Honorable Asterio Takesy. We are all 
very grateful to have been invited to participate in this hearing. We 
welcome this opportunity to provide our own perspective on. the 
implementation of the Compact during the initial 15 years of Free 
Association between our two nations and to outline our vision for the 
future of this relationship and of our nation.
    Before I go further, Mr. Chairman, let me express the appreciation 
of the Federated States of Micronesia to the former Director of the 
Office of Compact Negotiations, Mr. Alan Stayman. Much of the progress 
made in these negotiations is the result of the efforts of Al and his 
staff. At the same time it has been our pleasure to meet and talk with 
the new U.S. Chief Negotiator, Albert V. Short (Col. USA Ret.). Col. 
Short is well known to us from his experience in the original Compact 
negotiations. From his comments to date, we are very encouraged by his 
desire to move these talks along quickly. We look forward to meeting 
with Al Short and his staff at our meetings next week in Honolulu.
    Mr. Chairman, I know that you and many on this Committee are well 
versed in the history of Micronesia. But for the benefit of others, 
please allow me to trace a brief sketch of what has brought us to where 
we are today.
    The FSM has a small but culturally diverse population, widely 
dispersed across thousands of miles of ocean. It has limited natural 
resources and is isolated from potential markets. For most of our 
history, we were a subsistence economy. The twentieth century brought 
the first sustained contact with the West to our islands, and with it a 
fundamental change in our societal and economic structures.
    The long and strong bonds of friendship and cooperation that we 
enjoy today were forged between our two nations after liberation of the 
Micronesian islands by the U.S. at the end of World War II, and were 
strengthened during U.S. administration for the next forty years. 
During the mid-1970s, work began on establishing a Constitutional 
Micronesian government, a goal of the U.S., Micronesia and the United 
Nations. After nearly 15 years of arduous negotiations, an agreement to 
achieve this goal was reached in the form of the Compact of Free 
Association, which was implemented in late 1986.
    As has been said many times before, the Compact was a landmark 
document, not only in U.S.-Micronesian relations, but in terms of 
international agreements as a whole. It recognized and facilitated the 
return of self-government to the Micronesian entities (the Federated 
States of Micronesia [FSM], Republic of the Marshall Islands [RMI], and 
later the Republic of Palau.) It was a unique initiative, with little 
if any precedent in international relations to guide its 
implementation.
    Clearly, there have been mistakes on both sides during the fifteen 
year history of the Compact, and we recognize our shortcomings in this 
regard. However, by all accounts the agreement has been a success. 
Micronesia today is much better off than it was fifteen years ago. 
Despite the recent slowdown associated with the second step-down in 
assistance, and contrary to the GAO's findings, the FSM has experienced 
real growth during the Compact period. In recent years, this growth has 
been spearheaded by the private sector, which has been increasing its 
share in the overall economy. Our nation has also gone through six 
scheduled, peaceful changes in leadership. Our political institutions 
are secure and increasingly accountable. There is widespread and 
growing optimism concerning the future of the country and our 
relationship with the U.S.
    This is a record in which both of our nations can take pride. The 
FSM is a stable and democratic nation, and one that respects the basic 
human rights of its citizens. It has achieved a respectable level of 
economic growth during the period in which the Compact has been in 
place. These are not insignificant accomplishments, taking into account 
the significant obstacles that the country has faced. In fifteen years 
we have seen the adoption of Western governance practices, accounting 
standards, and the emergence of a thriving international affairs 
capacity. The introduction of a monetary economy has not been without 
its bumps in the road, but as of now the prospects for economic self-
sufficiency within the global economy can be discussed, and the ground 
for this new phase in our history is being broken.
    With this in mind, we welcomed the series of recent GAO reports. 
These contain a great deal of useful material that will assist the FSM 
and the U.S. in correcting past mistakes and better adapting for the 
future. While we would not agree with all of the conclusions of these 
reports as they reflect upon the FSM, we acknowledge that there have 
been significant shortcomings in the past, and that problems persist in 
some areas. Some of these are already being addressed, as part of a 
generalized focus on improvements in management. In other cases, we 
will be looking closely at what can be done to resolve those weaknesses 
that persist.
    However, and this is a key point Mr. Chairman, we continue to have 
significant difficulties with the underlying negative assumptions 
applied by the GAO in the course of its investigations. It is 
disheartening to note that these have continued in recent reports, 
despite having made our concerns known and having provided additional 
and often contradictory data.
    We understand that it is the nature of GAO review to examine 
problems rather than to develop a balanced picture. Still, we can't 
help but fear that these reports have created an unjustly negative 
portrait of the FSM that threatens to cloud our ongoing Compact 
negotiations with the U.S.
    One of our major problems with the reports is that they were 
compiled on the basis of negative anecdotal evidence from visits to 
selected locations within the FSM, and not from the experiences of all 
four-FSM states. The GAO conclusions regarding education in the FSM, 
for example, took no notice whatsoever of the truly remarkable 
accomplishments in education in the State of Yap.
    Our objections to elements of the reports are a matter of record. 
Given time constraints during this hearing I will not go into specific 
areas, and would refer Members to our responses provided earlier to the 
GAO. Unfortunately, many of our comments seem to have been lost on the 
GAO in subsequent reports. To cite but one example, the FSM Government 
objected strongly to treatment of the FSM and RMI as one entity in the 
first report. Clearly, the situation and circumstances of both 
countries warrant separate examinations. Still, we are concerned to see 
that inadequate separation has been maintained in all reports since. 
This is not fair to either the FSM or RMI, and results in a series of 
inaccurate conclusions.
    Some of the conclusions reached by the GAO are made all the more 
troubling given the steps the FSM has already taken to address economic 
and administrative challenges. As the Members of the Committee are 
undoubtedly aware, since 1995, the FSM has been engaged in a sweeping 
(and often painful) program of economic and administrative 
restructuring. The main factor behind the decision to undertake these 
measures was the need to accommodate the step-down in Compact funding 
that occurred in 1998. At the same time, the FSM took advantage of the 
opportunity to enhance accountability and improve transparency in 
government operations.
    In the late 1990s, a series of economic summits were held at the 
state and national levels, in order to identify key priorities, goals 
and strategies. Two rounds of these meetings have now been held. The 
results of these meetings, which involved a broad cross-section of 
stakeholders, form the basis of the FSM's Strategic Development 
Framework. This is our ongoing, continuing development plan, which, 
with U.S. agreement, has replaced the outmoded five-year cycle of 
development planning referred to in the Compact.
    Finally, the state and national governments have begun implementing 
performance-based budgeting procedures. These procedures strengthen the 
linkage between the identified objectives and strategies and government 
expenditure.
    These measures are intended to enhance the effectiveness of the FSM 
to use the resources available to it. In our negotiations with the 
U.S., both sides have been working to develop mechanisms that will 
reinforce the work that has already been done.
    The reforms are ongoing, and the FSM remains deeply committed to 
seeing these through to their completion. Obviously, these measures 
have required a good deal of political courage and the foregoing of 
short-term economic benefits in favor of the broader, longer-term 
economic health of the nation. There is no doubt that the resulting 
changes have hit many Micronesian citizens hard, as they have the 
national, state, and local governments. Thus, there is a natural 
temptation to seek short-term sources of revenue to cover pressing 
expenses. Nevertheless, my people are steadfastly committed to charting 
a sustainable economic course. Our commitment to the Trust Fund 
mechanism as a workable component of the FSM's future economic planning 
stands as testament to this long-term view.
    Mr. Chairman, of late there has been much attention given to the 
fact that many Micronesian citizens have come to the U.S. for various 
periods of time and for various purposes. However, I believe that the 
term ``migration'' is inappropriate to describe these movements.
    The majority of FSM citizens travel to the U.S. for limited periods 
of time and for specific purposes. These are law-abiding taxpayers 
employed in a wide range of jobs. While it is true that new Micronesian 
migrants, like many migrant groups, tend to be concentrated in low-
paying, service-sector positions, they fill an important niche in many 
local economies where they reside and work. Employment in these sectors 
is crucial to the local economy. I refer especially to our workers in 
the tourism and construction sectors, most notably in Guam, Hawaii and 
Saipan. The GAO would suggest that these are somehow ``parasitic'' on 
the local economy. I suggest otherwise.
    Another important factor prompting the short-term movement of 
Micronesians to the U.S. is enrollment in post-secondary educational 
institutions. This was deemed to be an important benefit of the new 
relationship by both sides in the first Compact negotiations, and has 
proven to be a tremendous success in improving the capacity of 
Micronesians to self-govern and achieve a viable economic future. Those 
who graduate from U.S. colleges and universities often return to the 
FSM and put their newly-acquired skills to work for the betterment of 
the county. Still, not as many return as we would like due to the 
comparatively low wages for scarce professional positions in the FSM. 
Increasing the number and profitability of private-sector employment in 
the country represents a primary goal of the ongoing reform process, 
and is a key objective for both sides in the negotiations now underway.
    A third factor prompting Micronesians to travel to the U.S. is 
access to health care. There currently exist inadequate primary health 
care facilities in the FSM, let alone secondary and tertiary-level 
treatment facilities. As such, our people have little choice but to 
travel to health facilities overseas. Many offset the cost of treatment 
through productive employment in the local economy while they are 
there.
    Finally, a large group of ``migrants'' come to the U.S. for 
opportunities that simply are unavailable at home. One segment of this 
group is Micronesians who volunteer to serve in the U.S. armed forces. 
Today Micronesians serve alongside U.S. servicemen and women throughout 
the world. FSM citizens in the U.S. military have tended to concentrate 
in some of the more dangerous specialty areas, such as Special Forces 
and airborne units.
    I would ask you, Mr. Chairman, and the distinguished Members of 
this Committee, to approach the movement of FSM citizens into and out 
of the United States with a proper perspective. There are just over 
100,000 persons in the FSM today. Our entire population could fit in 
the Rose Bowl, with a few seats to spare. Of course, the actual number 
who come to the U.S. is only a small fraction of this figure. The 
latest figures from the U.S. Bureau of the Census, point to 1,503 
citizens of the FSM living in the Commonwealth of the Northern Mariana 
Islands (CMNI); 6,325 in Guam; and 3,312 in Hawaii. The total number of 
FSM citizens throughout the United States, its Territories and 
Possessions, is estimated at 16,346. While larger than we would like, 
these numbers barely register in the overall U.S. immigration totals. 
Please, Mr. Chairman, let us keep this discussion in perspective.
    We know that the numbers indicated above impact far more 
significantly on the U.S. insular areas, but we also know that these 
same areas are host to other visiting nationalities in even larger 
numbers. We do not wish to be singled out unfairly.
    Obviously, it is in the best interest of the FSM to reduce these 
numbers. The primary motivations for migration--wage levels in the FSM, 
educational opportunities and health care, are all centerpieces of the 
Compact agreement now being negotiated. If successful in improving 
these aspects of life in the FSM, we can reasonably expect these 
figures to decline. However, unrestricted movement of persons 
throughout the region will remain as important as ever, and these 
flows, in both directions, must be maintained.
    The FSM Government has pledged its full cooperation in working with 
the U.S. authorities, and particularly the authorities of Hawaii, Guam 
and the CNMI, to ensure that immigration concerns are addressed. We 
maintain the position that the immigration provisions of the current 
Compact grant sufficient authority to the U.S. to allow these concerns 
to be met through administrative means, rather than necessitating a 
renegotiation of the Compact's immigration provisions.
    We support reimbursement of the governments of the U.S. States, 
Territories and Possessions in the region for any Compact-related 
expenses. However, we encourage an impartial, detailed, balanced and 
accurate accounting of these costs. There are clear economic benefits 
for these areas through Micronesian employment, and this important 
factor must be taken into account in the course of any assessment.
    Throughout the life of the first Compact agreement, there have been 
persistent attempts by some Congressional offices to cut back on 
educational assistance provided through the Compact to Micronesians 
studying abroad and at home. This is directly counter to the goals 
expressed by the U.S. at the time of Compact signing. Through the 
tireless efforts of some in the U.S. Senate, including some in this 
Committee, we have succeeded in maintaining these benefits. However, 
doubt over the continuation of educational assistance creates great 
difficulties for our students and economic planners, who cannot rely on 
continuation of these funds from one year to the next.
    There is much more that time does not permit here to be discussed 
on this topic, and I would refer the Committee to review the documents 
provided by the FSM Government in response to the GAO report entitled 
``Level and Characteristics of Migrants from the FSM.''
    From the first round of negotiations, the FSM has been in complete 
agreement with the U.S. that a primary goal is greater accountability 
in expenditures of Compact funds. This has not changed. The principle 
is at the core of any future agreement between our two countries, and 
is reflected in the Joint Statement issued at the Honolulu talks in 
January 2001. I would request that this statement be placed in the 
record of this hearing.
    We welcomed the underlying principles in the recent U.S. proposal 
as a constructive first step. However we believed that there should be 
a greater partnership in overseeing mechanisms to ensure accountability 
for it to be truly effective. We therefore have proposed the Joint 
Economic Management Mechanism, or ``JEMM.'' Our proposal has met with 
an encouraging response from the U.S. negotiators, and we hope to agree 
on the principle and the framework of the mechanism during upcoming 
negotiations.
    If implemented, the JEMM would provide constant, rather than 
occasional, oversight by both the U.S. and FSM of all Compact funding, 
and thereby avoid most of the difficulties of the past concerning 
timely reporting, incompatible standards, and other administrative 
aspects. The result will be a hands-on partnering approach to funds 
management and full accountability for all assistance provided under 
the Compact.
    I wish to stress that the mood in Micronesia today is hopeful and 
optimistic. We look forward to maintaining our steadfast relationship 
with the U.S. and will work constructively to address its concerns. 
Most importantly, we recognize the tremendous success of the Compact of 
Free Association, and encourage Members of this Committee to keep these 
aspects in mind when considering the materials presented today, and in 
the future.
    With regard to the negotiations, the key objective of the FSM is to 
consolidate the gains made over the past fifteen years and to secure a 
basis for continued sustainable growth. We feel that the U.S. shares 
these objectives, as reflected in the various joint statements that 
have emerged from the earlier rounds. However, Mr. Chairman, I must 
state frankly that continued progress and economic stability cannot be 
maintained at the level of Compact assistance currently proposed by the 
United States.
    When we commenced these negotiations two years ago, we hoped to be 
able to move quickly towards an agreement. However, we do recognize 
that several factors have combined to slow the pace over the past few 
months. Nevertheless, we are optimistic about the potential for rapid 
progress from this point on.
    The FSM has been prepared at every stage of the negotiations thus 
far. We have presented data as requested by the U.S. and have 
maintained the initiative in presenting proposals and counter-
proposals. In short, we have pushed for a swift conclusion to the 
talks. I am providing a brief chronology of the renegotiations for your 
background, and would ask that this be placed in the record.
    We have forged a unique relationship through the hard work, 
determination and commitment of many in both countries. We look forward 
to strengthening these bonds during the next twenty years and to 
working together to ensure an economically self-sufficient Micronesia 
for the future.
    In closing Mr. Chairman, let me again thank you and your Committee 
for scheduling this oversight hearing into the status of Compact 
negotiations. We are pleased to be negotiating with our long-time 
friend and ally, and fully expect that the U.S. will continue to honor 
and respect the unique relationship between our two countries.

    Senator Akaka. Thank you very much, Senator, and I thank 
you for your sentiments from your country to ours. I thank all 
of you for your testimonies, and would like to begin a round of 
questions to each of you. I want to first pose a question to 
Director Short. I thank you very much for your statement, your 
goals, and your priorities for the financial assistance trust 
fund, the Federal programs, and the impact issues. Do you plan, 
Mr. Short, to request additional funds from Congress for fiscal 
year 2003 and beyond to ensure oversight?
    Mr. Short. Sir, I would envision that the package that 
embodies the compact would include in there a mechanism and 
necessary funding for oversight. If you reflect back on the 
previous compact legislation, there was the negotiated document 
embedded in that piece of legislation, but there were a number 
of other provisions in that legislation that addressed internal 
U.S. Government matter and also some government to government 
relationships and activities.
    So I would see it as being part of the overall package that 
comes to the Congress to renew the compact. It would definitely 
have to address resources for that purpose.
    Senator Akaka. Each of you have mentioned GAO and its 
report. GAO has completed several reports related to the 
compact of free association. Do you agree, Mr. Short, with 
their findings, and why or why not?
    Mr. Short. Yes, sir, we do. In fact, my office has been the 
lead office within the State Department that has coordinated 
the review of the three reports that we have under discussion 
here today and also some others that are still in the 
preparation process. So the bottom line is, we agree with their 
findings, yes, sir.
    Senator Akaka. Minister Zackios, you testified that RMI is 
proposing that both military and economic relations provisions 
of the compact that were initially limited to 15 years be 
extended up to 50 years. Can you share any general thoughts you 
may have on this proposal?
    Mr. Zackios. Thank you, Mr. Chairman. As was stated several 
weeks ago during President Note's visit, we find that both 
defense and economic relations under the compact are a 15 year 
period. We feel that an extension of the term, generally, and 
looking at the possibilities of that extension will bring 
greater stability in the relationship that exists between the 
RMI and the United States.
    Senator Akaka. As I understand it, the RMI recently 
submitted its development plan to the administration, which 
will serve as a basis for the U.S. response in the economic 
area. Could you briefly describe your development plan?
    Mr. Zackios. Thank you very much again, Mr. Chairman. Our 
development plan, as I indicated in my summary of the 
presentation, has been submitted for your further review. But 
in general terms, our plan has addressed a lot of the concerns 
and a lot of the areas that the United States has requested 
that we negotiated, and we have proposed that we negotiated 
upon. I would like to say that the main core of that being 
better accountability and fiscal monitoring and management, but 
at the same time, dealing with the crucial areas of health and 
education, and other infrastructure and environment issues.
    Also in that, the concept of a trust fund is very crucial. 
In fact, in that concept, the Marshall Islands, from 
transitional funds that have been provided for these next 2 
years have invested, with the assistance of the Asian 
Development Bank, the enactment of a legislation called the 
Marshall Islands Intergenerational Trust Fund, and from the 
first bump of money, invested $14 million into this trust fund 
concept from that one. And from money outside, from other 
donors, including the Asian Development Bank, over $3 million, 
which brings the current trust fund to $17.5 million currently.
    And it's anticipated that in the next year, when we get 
future additional funds, we'll inject another $14 million, 
bringing it to over $30 million within the next 2 years to 
commence this trust fund concept, which is a core element of 
the proposal.
    Senator Akaka. Thank you for that. Minister Zackios, 
critics contend that the RMI has a wavering commitment to 
economic reform. What is your response to that statement?
    Mr. Zackios. Mr. Chairman, even prior to the GAO reports, 
the Marshall Islands had taken economic reforms, commencing in 
1985. And, in fact, we have, from 1995, done a public sector 
reform downsizing of government. In addition to that, we have 
entered into, prior also the GAO report, a fiscal and financial 
management loan that will help fiscal and monetary 
accountability with the Asian Development Bank, and this is 
currently in progress.
    Senator Akaka. As I said, each of you has mentioned GAO. 
GAO suggests that targeting financial assistance to health and 
education sectors in the RMI could decrease motivations of RMI 
residents to migrate to Hawaii and U.S. territories. Do you 
agree with that statement?
    Mr. Zackios. I'm sorry, Mr. Chairman, could you rephrase 
your statement?
    Senator Akaka. GAO suggests that targeting financial 
assistance to health and education sectors in the RMI could 
decrease motivations of RMI residents to migrate to Hawaii and 
U.S. territories, and I'm asking whether you agree to that 
statement, that it would decrease motivations of RMI residents 
to move to Hawaii and other U.S. territories.
    Mr. Zackios. Mr. Chairman, in general terms, I think we 
agree, to a certain extent, with the findings of the GAO 
investigations. And, in fact, the RMI has been addressing them 
since well before. A lot of the issues raised by the GAO have 
been submitted in our responses to you, but I think generally 
that we agree, to a certain extent, with the findings of the 
GAO.
    Senator Akaka. Thank you for your response. Senator 
Christian, again, I'm lifting GAO and its report. GAO reports 
that business ventures that received compact funding have 
generally failed. Do you agree to that? I'll repeat that.
    Mr. Christian. I understood the question, sir. I'm just 
trying to figure out what GAO meant by business ventures, 
whether they were referring to business ventures that had 
government ownership or private sector business.
    Senator Akaka. Yes, I'm asking about business ventures.
    Mr. Christian. Strictly private sector led business. You 
know, I thought I would be let off the hook here like 
Congressman Underwood, but I guess not.
    [Laughter.]
    Mr. Christian. I would say that I would disagree with that.
    Senator Akaka. Are you willing to consider, in extensions 
of compact provisions, increased accountability measures for 
the Federal funds you receive?
    Mr. Christian. Absolutely, sir. I think that is the core of 
our negotiations. It is part of our ongoing dialogue with the 
U.S. negotiating team to put into place and implement a system 
by which both sides could monitor and help in the execution of 
projects for developmental purposes.
    Senator Akaka. As I understand it, you view the migration 
rights in the compact as key to easing problems associated with 
limited economic opportunities and population growth. 
Conversely, are you concerned about your declining population?
    Mr. Christian. At the moment, sir, no, because we see from 
statistics that the number of people traveling out to the U.S. 
mainland and to its territories, the State of Hawaii, Guam, 
CNMI, are relatively small in comparison with the number that 
chooses to remain at home. It is our hope that through the new 
compact and the new partnership program, the invigoration of 
assistance, we would be able to develop the economy to a level 
where we could probably and most likely be able to attract back 
some of these who have traveled out for the purpose of finding 
jobs.
    Senator Akaka. Mr. Short, I have three questions for you at 
this time. As I see it, one of the most challenging parts of 
your job is to address this agreement among various Federal 
agencies, as well as different factions within each agency 
regarding the many different programs and provisions of the 
Compact.
    Have you thought about how you will avoid losing sight of 
the big picture as you struggle with the warring factions 
within the Federal Government?
    Mr. Short. Yes, sir. There is in place a so-called IG, 
interdepartmental group structure, that's chaired by Assistant 
Secretary James Kelley of the Department of State, and it 
consists of senior members from each of the relevant 
departments. The core group of that of course is State, Defense 
and Interior, but includes all other agencies who have 
interests and/or programs in the Micronesian States. That 
organization is in place and my game plan is to meet in 
Honolulu in December, flesh out the issues and then convene 
with Secretary Kelley and the chair of that organization in 
January basically to get everyone onboard the administration's 
plan for closure on the negotiations.
    Senator Akaka. As I understand it, in 1987 the Secretary of 
the Interior determined that the most effective method for U.S. 
Federal agencies to provide continuing Federal programs to the 
FSM and RMI was to create direct grant relationships between 
the other agencies and the island governments. Do you believe 
this is still the best approach?
    Mr. Short. I think what we have seen is that these direct 
relationships really have not been coordinated either at the 
Washington level or on the ground in Micronesia, so you have 
various Federal agencies and sub elements of those agencies 
carrying out actions and activities and programs with little or 
no coordination, and we intend to address that.
    Senator Akaka. What is your timeline for completing the 
negotiations?
    Mr. Short. Well, I'm always reluctant to lay down markers, 
but realistically, as you pointed out in your opening 
statement, we have some budgetary considerations here with the 
2-year extension, and OMB, of course, has their cycle. And as 
I've discussed with my Micronesian counterparts, we need to 
have basically an agreement by next summer and a number for OMB 
in the fall to make the gate to keep this process where we want 
it, and to not have to go into some sort of a subroutine of 
special legislation.
    Senator Akaka. Well, I thank you for the timeline. The 
other end of this is what would you do in case whatever that 
line we have set there is not a firm agreement?
    Mr. Short. Well, I think first of all we're going to make a 
concerted effort, and I believe an attainable effort to reach 
that goal by the summer. I don't foresee any major roadblock 
that would prevent us getting there, either on our side or the 
other side. We have some issues to deal with and my approach on 
the negotiations is let's do the tough things first and the 
easy stuff will take care of itself along the way. And so 
that's going to be the thrust of our approach in the 
administration. And I've had good responses from the 
Micronesian counterparts that they want to do the same thing.
    Now, should we not make that objective, then we're going to 
have to consult with you and members of the Congress very early 
on to make sure that there is some additional transition action 
taking place. But I do not foresee that.
    Senator Akaka. Well, I want to thank the three of you for 
your testimony. It will be helpful to the committee. I also 
want to wish you well. There's no question in my mind that by 
going to Hawaii things will work out.
    [Laughter.]
    Mr. Short. The venue is definitely great.
    [Laughter.]
    Senator Akaka. And I know you all will be working very hard 
to try to come about with the best agreements that you can. We 
look forward to meeting the deadlines as we propose them, but 
above all we are looking forward to agreements that can best 
help the people of FSM and RMI. And that's what we're here for. 
My intention here for calling this hearing is to hear from you 
and to move this along, so that we can help these countries, as 
well as our country, and to help the peoples there.
    So I wish you well and thank you so much for coming and for 
your testimonies. Thank you.
    At this time I'd call a short recess.
    [Recess.]
    Senator Akaka. The hearing will be in order. I hope you 
appreciated the short recess as much as I did.
    Our second panel will discuss the implementation of the 
current Compact. Mr. Chris Kearney, Deputy Assistant Secretary 
for Policy and International Affairs for the Department of the 
Interior will discuss the department's role in the Compact of 
Free Association. Ms. Susan Westin, Managing Director for 
International Affairs and Trade for the General Accounting 
Office will discuss the GAO's findings regarding the 
implementation of the Compact. And I look forward to your 
statements. So I call on Mr. Kearney to begin.

 STATEMENT OF CHRISTOPHER KEARNEY, DEPUTY ASSISTANT SECRETARY 
    FOR POLICY AND INTERNATIONAL AFFAIRS, DEPARTMENT OF THE 
                            INTERIOR

    Mr. Kearney. Thank you, Mr. Chairman and good morning.
    Thank you very much for inviting me to discuss the status 
of the Compact negotiations with the freely associated States, 
the Federated States of Micronesia and the Republic of the 
Marshall Islands. It is a pleasure to be with you here today.
    I want to focus my remarks primarily on the accountability 
aspect of my statement and dispense somewhat with the 
background. The factual information I think is fairly self-
explanatory and is somewhat historical in nature, but I'd be 
happy to answer any questions in that area.
    Regarding the administration's overall position, I would 
commend you to what Mr. Short has said in his statement. He 
articulates our view well as it relates to the importance of 
FSM and RMI to the United States and identifies the goals and 
challenges as we enter the negotiations.
    Let me say at the outset that the Department of the 
Interior is fully committed to participating in discussions 
designed to meet the objectives of title II of the Compact of 
Free Association to ``Assist the Marshall Islands and Federated 
States of Micronesia in their efforts to advance the economic 
self-sufficiencies of their people.''
    In particular, Mr. Short's recent arrival is welcome news. 
For a number of reasons, negotiations to this point have not 
advanced further for any of us. We now look forward to working 
with the State Department and the Defense Department and others 
in the administration to formulate policy positions that 
address many of the issues stemming from the real-world 
experiences of the Compact, the General Accounting Office 
reports and indeed the budget framework we face in the 
aftermath of September 11.
    As I said, let me focus my remaining remarks on the 
accountability and oversight aspects as we go forward, which we 
believe to be very, very important.
    Accountability and oversight are critical elements that 
have been lacking in the Compact to this point. While the 
Department is still formulating specific oversight and 
accountability proposals, we view increased accountability and 
developing performance measures as critical priorities for the 
negotiations. It is our responsibility to strike a balance 
between ensuring that taxpayer dollars are spent wisely while 
meeting our obligations to the FSM and RMI.
    In the future, increased accountability may require a range 
of actions that are a change in practices from the past, 
including a change in the way U.S. dollars are administered in 
the FSM and RMI, more stringent reporting of expenditures to 
DOI and other U.S. agencies, more specific standards by which 
to measure results, changes in how services are provided, 
enhanced auditing by the Office of the Inspector General and 
GAO, and indeed a greater degree of communication with the 
governments of FSM and RMI than has occurred in the past.
    The U.S. Government must ensure that it is doing everything 
possible to advance the economic progress of the peoples of the 
two island nations, while addressing the concerns and 
difficulties that have been documented in the past by GAO and 
others regarding monies the two countries have received.
    Working with the Congress, we believe there are a number of 
tools at our disposal that can ensure we meet many of the 
overall objectives of economic progress, with respect to the 
two nations.
    First, the Government Performance and Results Act provides 
a framework for developing enhanced accountability and 
measurable results for domestically administered programs. Each 
department and agency is required to administer a 5-year 
strategic plan submitted to Congress, as well as submit annual 
performance plans with their budgets each year. This process 
holds promise for enhanced accountability of the monies that we 
provide as we go forward.
    Second, in August of this year the President's Management 
Agenda was released, which we believe is an integrated plan to 
reform the Federal Government. The PMA established the specific 
steps to accomplish management reform through five government 
wide initiatives and nine program specific initiatives. In 
particular, improving financial performance, expanding 
electronic government and budget and performance integration we 
believe has the potential for particular application in the 
Compact negotiations.
    While I'm not able to tell you specifically how we and 
other agencies will apply the management agenda to funding and 
oversight, please rest assured that the President and Secretary 
Norton are committed to bringing significant reform to the way 
we carry out our mission, including our responsibilities to 
island nations.
    Third, the Congress has required that several specific 
statutes that did not exist in 1986 apply to how Federal 
agencies conduct their business. These statues provide real 
guideposts and tools for increased accountability as we go 
forward, including the Chief Financial Officers Act and the 
Klinger-Cohen Act. So many of the tools we believe are there or 
have the potential for being there.
    Finally, let me say that we face significant challenges 
with FSM and RMI in enhancing financial accountability, 
efficiency and coordination of spending on services. However, 
we are committed to significant improvement in all three areas 
and welcome the suggestions of the committee, others in 
Congress and the GAO regarding this effort.
    We are also confident that the senior leadership of the FSM 
and the RMI are committed to reform and will work cooperatively 
with us to ensure that in the future spending of Compact 
dollars reflects measurable results, transparency, 
accountability and responsible management.
    Thank you very much for the opportunity to appear before 
you today, and I'd be happy to answer any questions that you 
might have.
    [The prepared statement of Mr. Kearney follows:]
 Prepared Statement of Christopher Kearney, Deputy Assistant Secretary 
    for Policy and International Affairs, Department of the Interior
    Mr. Chairman, and members of the committee, thank you very much for 
inviting me to discuss with you the status of compact negotiations with 
two freely associated states (FAS): the Federated States of Micronesia 
(FSM) and the Republic of the Marshal Islands (RMI). It is a pleasure 
and an honor to appear before you today.
    You will hear testimony from several distinguished speakers 
addressing several aspects of the compact and the negotiations. 
Regarding the Administration's overall position, I would commend you to 
what Mr. Short has said in his statement. He articulates the 
Administration's position as it relates to the importance of the FSM 
and RMI to the United States, and identifies the goals and challenges 
as we pursue negotiations. The Department of the Interior is fully 
committed to participating in discussions designed to meet the 
objectives of Title II of the Compact of Free Association, to ``assist 
the . . . Marshall Islands and Federated States of Micronesia in their 
efforts to advance the economic self-sufficiency of their peoples. . . 
.''
    Mr. Short's recent arrival is welcome news. For a number of 
reasons, negotiations to this point have not advanced further. We now 
look forward to working with the State Department to formulate policy 
positions that address many issues stemming from ``real world'' 
experience with the compacts, the General Accounting Office (GAO) 
reports, input from others, and the budget framework we face in the 
aftermath of September 11th.
    My remarks will address two matters: our role under the compact, 
namely administration of title II; and issues that have arisen 
regarding accountability and effectiveness in overseeing the 
implementation of the compact.
                           compact background
    Under the direction of the Interagency Group on Micronesia, chaired 
by the Department of State, the President's Personal Representative for 
Micronesian Status Negotiations negotiated a Compact of Free 
Association with the RMI and FSM that was implemented in 1986.
    The documents that define the relationship between the United 
States and the freely associated states (FAS) include: the compacts as 
negotiated; the numerous subsidiary agreements to the compacts; Public 
Laws 99-239 and 99-658, through which the Congress approved the 
compacts; and other legislation subsequently enacted by the Congress.
    As negotiated, the compact with the RMI and FSM set forth the 
elements of the relationship in four titles: Governmental Relations, 
Economic Relations, Security and Defense Relations, and General 
Provisions. However, titles I and II were substantially altered by the 
Congress during and after the approval process. Title I of the 
negotiated compacts did not envision recognition of the freely 
associated states as fully independent nations in the international 
community. Shortly after the RMI and FSM compact was implemented in 
1986, the Administration proposed legislation, which Congress approved, 
upgrading diplomatic relations so that they conformed to the standards 
of the Geneva Convention. This change had significant implications for 
how the FAS and the relationship of free association were perceived.
    The role of the Department of the Interior is focused on title II--
Economic Relations--because the Congress, in section 105(b)(2) of 
Public Law 99-239, stipulated that all appropriations under the compact 
must be made to the Secretary of the Interior. Congress also assigned 
responsibility to the Secretary of the Interior to coordinate and 
monitor United States domestic programs.
    Title II is composed of two key elements: financial assistance and 
program assistance.
    First, I will briefly describe financial assistance. Over the 15-
year life of compact funding, it is expected that the United States 
will pay $945 million to the RMI, and $1.345 billion to the FSM in 
direct title II financial assistance. This financial assistance, most 
of which is guaranteed, is provided with maximum flexibility and 
requires that 40 percent of the financial assistance must be spent on 
capital development. A table displaying the estimates of the value of 
the 15 years of financial assistance for the FAS is provided as an 
addendum to my written statement.
    Second, with respect to program assistance, under section 221(a), 
the United States agreed to provide the FSM and RMI with the services 
of the Weather Service, Federal Emergency Management Agency, Postal 
Service, and Federal Aviation Administration. While the costs of these 
services cannot be determined exactly until after they are rendered, 
our current 15-year estimate is $139 million for the two countries.
    Section 224 of the compacts provides that additional United States 
program assistance may be extended from time-to-time by the Congress. 
This provision has been used extensively. In fact, section 105(h)(1) of 
the legislation approving the compacts (P.L. 99-239) extended the 
programs of the Legal Services Corporation, Public Health Service, and 
the Farmers Home Administration (currently the Rural Housing Service, 
the Farm Service Agency, and the Rural Business-Cooperative Service of 
the Department of Agriculture). The compact legislation, in sections 
102(a) and 103(a), extended law enforcement and illegal drug 
enforcement programs to the RMI and FSM, and section 103 also extended 
agricultural and food programs and radiological health care to the RMI. 
Additionally, the Congress extended, in section 111(a), the programs of 
the Federal Deposit Insurance Corporation, Small Business 
Administration, Economic Development Administration, Rural 
Electrification Administration (currently the Rural Utilities Service 
of the Department of Agriculture), the Labor Department's Job Training 
Partnership Act (later replaced by the Workforce Investment Act) and 
Job Corps programs, and the marine resource and tourism programs of the 
Department of Commerce. Finally, all United States domestic programs 
originally scheduled for immediate termination upon implementation of 
the compact were instead subject to a three-year phase-out under 
sections 105(c)(2) and 105(i)(2).
    This pattern of extending eligibility for United States domestic 
programs and services under compact section 224 has continued since 
enactment of the compact approval legislation. Citizens covered by the 
compact were made eligible for Pell post-secondary education grants 
beyond the first four years negotiated in the compacts. Each country 
was also allowed to receive Department of Education programming through 
the Pacific Regional Education Laboratory.
    Although there is significant fluctuation each year in the total 
value of these United States domestic programs, these programs have 
totaled approximately $700 million over the 15-year period for the RMI 
and FSM.
    The compacts, as originally negotiated, anticipated that all United 
States domestic programs would be budgeted under compact section 221(a) 
and through the Department of the Interior. When the Congress extended 
additional programs, however, it did not direct that they be budgeted 
and administered through this unified appropriation to the Department 
of the Interior. They were and are, instead, administered by each 
Federal agency. This significantly eased program administration but has 
made it more difficult to track such programs. For example, it is 
impractical to track the relatively limited funding paid directly to 
individuals, small businesses, or non-governmental agencies.
                      accountability and oversight
    Accountability and oversight are critical elements that have been 
lacking in the administration of the monies spent over the life of the 
compact.
    While the Department is still formulating specific oversight and 
accountability proposals, the Administration views increasing 
accountability and performance measures as critical priorities for the 
negotiations. It is our responsibility to strike a balance between 
ensuring that taxpayer dollars are spent wisely while meeting our 
obligations to the FSM and RMI.
    In the future, increased accountability may require: (1) a change 
in the way United States' dollars are administered in the FSM and RMI; 
(2) more stringent reporting of expenditures to DOI and other United 
States agencies; (3) more specific standards by which to measure 
results; (4) changes in how the services are provided; (5) enhanced 
auditing by the Office of Inspector General, and GAO; and (6) a greater 
degree of communication with the governments of the FSM and RMI than 
has occurred in the past.
    The U.S. government must ensure that it is doing everything 
possible to advance the economic progress of the peoples of the FSM and 
RMI, while addressing the concerns and difficulties that have been 
documented in the past by the GAO and others regarding monies the two 
countries have received.
    Working with the Congress, a number of tools at the 
administration's disposal can ensure that we meet our overall objective 
of economic progress for the FSM and RMI. First, the Government 
Performance and Results Act (GPRA) provides a framework for developing 
enhanced accountability and measurable results for domestically 
administered programs. Each department and agency is required to 
administer a five-year strategic plan (submitted to Congress) as well 
as submit annual performance plans to Congress along with their budgets 
every year. This process holds promise for enhanced accountability of 
monies provided to the FSM and RMI. I understand that the FSM and RMI 
are implementing performance budgeting in their government framework.
    Second, in August 2001, the President's Management Agenda (PMA) was 
released, which is an integrated plan to reform the Federal Government. 
The PMA establishes specific steps to accomplish management reforms 
through five government wide initiatives and nine program-specific 
initiatives. The five government-wide initiatives include: competitive 
sourcing, strategic management of human capital, improving financial 
performance, expanding electronic government, and budget and 
performance integration. While I am not able to tell you specifically 
how Interior and other agencies will apply the management agenda to 
funding and oversight of the FSM and RMI, the President and Secretary 
Norton are committed to bringing significant reforms to the way we 
carry out our mission including our responsibilities to the FSM and 
RMI. We are excited about the prospects for real change in the way the 
government meets its obligations through implementation of the PMA.
    Third, the Congress has required that several specific statutes 
that did not exist in 1986 apply to federal agencies to provide 
guideposts and tools for accountability as we pursue negotiations, 
including the Chief Financial Officers Act, the ``Clinger-Cohen Act,'' 
and others.
    Finally, let me say that we face significant challenges with the 
FSM and RMI in enhancing financial accountability, efficiency, and 
coordination of spending on services. However, we are committed to 
significant improvement in all three areas and welcome the suggestions 
of the Congress, the GAO, and others regarding this effort. We are 
confident that the senior leadership of the FSM and the RMI are also 
committed to reform and will work cooperatively with us to ensure that, 
in the future, spending of compact dollars reflect measurable results, 
transparency, accountability, and responsible management.
    Thank you very much for the opportunity to appear before you today.

    Senator Akaka. Thank you very much, Mr. Kearney.
    We'll hear from Ms. Westin.

STATEMENT OF SUSAN S. WESTIN, MANAGING DIRECTOR, INTERNATIONAL 
          AFFAIRS AND TRADE, GENERAL ACCOUNTING OFFICE

    Ms. Westin. Mr. Chairman, I'm pleased to be here today to 
testify on the Compact of Free Association between the United 
States and the Pacific Island nations of the FSM and the RMI. 
During the past 2 years, as negotiations have been underway, we 
have been asked to review how key Compact provisions have 
functioned since the agreement went into effect.
    Today, I will discuss the results of our work that address 
three issues: The impact of and accountability over U.S. direct 
economic assistance to the FSM and the RMI, the experience and 
impact of migration from the FSM and the RMI to Guam, Hawaii 
and the Commonwealth of the Northern Mariana Islands or CNMI, 
and third, lessons learned from other nations that have 
provided development assistance to Pacific islands nations.
    Mr. Chairman, I'd asked that my entire written statement be 
made part of the record, and I will just summarize.
    Senator Akaka. Your full statement will be made a part of 
the record.
    Ms. Westin. The title of my testimony really captures the 
essence of our message, that negotiations should address both 
the effectiveness and accountability of future assistance, as 
well as addressing migrant impact on U.S. areas.
    Let me turn first to direct economic assistance. Direct 
U.S. Compact funds amounting to $1.6 billion for the FSM and 
the RMI from 1987 through 1998 have limited impact on economic 
development and were subject to limited accountability. The FSM 
and the RMI used these funds for general government operations, 
capital projects such as building roads or investing in 
businesses.
    However, funds used for general government operations 
helped maintain high government wages in public sector 
employment that have discouraged private sector growth. 
Spending to create and improve infrastructure has not 
contributed to significant economic growth.
    Moreover, Compact funded business ventures have generally 
failed due to poor planning, inadequate construction and 
maintenance or misuse of funds.
    Furthermore, while the Compact set out specific obligations 
for reporting and consulting regarding the use of Compact 
funds, we found that the governments of the FSM, the RMI and 
the United States have provided limited accountability over 
Compact expenditures and have not ensured that the funds were 
spent effectively.
    With regard to the impact of migration, thousands of 
citizens of the FSM and RMI have migrated to the United States. 
Employment opportunities, education and family ties were the 
main reasons given for migrating.
    The U.S. island areas of Guam, Hawaii and the CNMI have 
been key destinations for these migrants, who have generally 
worked in jobs requiring few skills and receive low wages. As a 
result, many were living in poverty in all three of these U.S. 
island areas.
    The reported impact of this migration on Guam, Hawaii and 
the CNMI has been significant, at least $371 million in cost to 
local governments for 1986 through 2000, primarily for health 
and education services.
    The U.S. Government has provided Compact impact funding in 
the amount of $41 million to Guam and $3.8 million to the CNMI 
through fiscal year 2001. However, the governments of both 
island areas consider this funding inadequate. Hawaii received 
no compensation through fiscal year 2001.
    Third, our review of major donors' experiences in the 
Pacific could provide some guidance to the United States as it 
negotiates further economic assistance to the FSM and the RMI. 
These lessons include the following:
    Assistance strategies involve tradeoffs between costs, 
effectiveness and accountability.
    Flexible strategies are important to adapt assistance to 
changing circumstances and needs.
    And well-designed trust funds can provide a sustainable 
source of assistance and reduce long-term aid dependence.
    As you know, we have made several recommendations in our 
report for executive action regarding the effectiveness and 
accountability of future assistance to the FSM and the RMI, and 
I would like to note that it was gratifying to hear from all 
the negotiators this morning, as well as from the Department of 
the Interior that everyone is taking seriously the issue of 
accountability as we extend the Compact.
    I'd like to close by noting our recommendations to reduce 
the impact of migration on U.S. island areas.
    With respect to migration, we recommended that the 
Secretary of State direct the Compact negotiator to consider 
how to target future health and education funds provided to the 
FSM and RMI in ways that also effectively address adverse 
migration impacts identified by Guam, Hawaii and the CNMI. For 
example, the negotiator could consider whether a specific 
portion of health sector assistance should be targeted at 
treating and preventing the communicable diseases in the FSM 
and the RMI that are of public health concern in the U.S. 
island areas.
    Mr. Chairman, this completes my oral statement. I'd be 
happy to respond to any questions.
    [The prepared statement of Ms. Westin follows:]
Prepared Statement of Susan S. Westin, Managing Director, International 
              Affairs and Trade, General Accounting Office
    Mr. Chairman and members of the committee, I am pleased to be here 
today to testify on the Compact of Free Association between the United 
States and the Pacific Island nations of the Federated States of 
Micronesia, or FSM, and the Republic of the Marshall Islands, or RMI. 
The United States entered into this Compact with these countries in 
1986 after almost 40 years of administering the islands under the 
United Nations (U.N.) Trust Territory of the Pacific Islands. The 
Compact is a separate international agreement with each country. It 
provides direct U.S. economic assistance and extends selected U.S. 
domestic programs and federal services to the FSM and the RMI. Total 
U.S. Compact assistance-direct funding, program assistance, and federal 
services to the two countries for fiscal years 1987 through 2001 is 
estimated to have been at least $2.6 billion.\1\ Further, the Compact 
allows for migration from the FSM and the RMI to the United States, 
with limited restrictions, and establishes U.S. defense rights and 
obligations in the region. Provisions of the Compact that deal with 
economic assistance were scheduled to expire in late 2001; however, 
they will remain in effect up to 2 additional years while the United 
States and each of these Pacific Island nations renegotiate the 
affected provisions. These expiring provisions must be renegotiated and 
reauthorized by the Congress by late 2003 in order for Compact economic 
assistance to continue uninterrupted.\2\
---------------------------------------------------------------------------
    \1\ This is an estimate of U.S. assistance (excluding nuclear 
compensation). We reported on total U.S. assistance for fiscal years 
1987 through 1999 in Foreign Relations: Better Accountability Needed 
Over U.S. Assistance to Micronesia and the Marshall Islands (GAO/RCED-
00-67, May 31, 2000). This report also contained information on U.S. 
expenditures in the RMI made prior to the Compact related to nuclear 
testing.
    \2\ Other Compact provisions are also due to expire in 2003 if not 
renegotiated and approved. These include (1) certain defense 
provisions, such as the requirement that the FSM and the RMI refrain 
from certain actions that the U.S. government determines are 
incompatible with its defense obligations in the region and (2) federal 
services listed in the Compact.
---------------------------------------------------------------------------
    During the past 2 years, as negotiations have been underway, we 
have been asked to review how key Compact provisions have functioned 
since the agreement went into effect. My testimony today will draw on 
the Compact-related reports that we have published since September 
2000. Specifically, I will discuss the results of our work that 
addressed (1) the impact of and accountability over U.S. funding 
provided to the FSM and the RMI for fiscal years 1987 through 1998; \3\ 
(2) the experience and impact of migration from the FSM and the RMI to 
the U.S. island areas of Guam, Hawaii, and the Commonwealth of the 
Northern Mariana Islands, or CNMI; \4\ and (3) the experiences of and 
the assistance strategies used by other donors to Pacific Island 
nations.\5\ While they address separate issues, these reports are 
related because they provide insight into how key Compact provisions 
have functioned over the past 15 years and identify issues that the 
U.S. government might consider as it renegotiates expiring Compact 
provisions with the FSM and the RMI.
---------------------------------------------------------------------------
    \3\ See Foreign Assistance: U.S. Funds to Two Micronesian Nations 
Had Little Impact on Economic Development (GAO/NSIAD-00-216, Sept. 22, 
2000). This report did not address U.S. programs and federal services 
that are extended to the two countries. We also provided this 
information during a hearing before the House Committee on 
International Relations, Subcommittee on Asia and the Pacific. See 
Foreign Assistance: U.S. Funds to Two Micronesian Nations Had Little 
Impact on Economic Development and Accountability Over Funds Was 
Limited (GAO/T-NS1AD/RCED-00-227, June 28, 2000).
    \4\ See Foreign Relations: Migration From Micronesian Nations Has 
Had Significant Impact on Guam, Hawaii, and the Commonwealth of the 
Northern Mariana Islands (GAO-02-40, Oct. 5, 2001).
    \5\ See Foreign Assistance: Lessons Learned From Donors' 
Experiences in the Pacific Region (GAO-01-808, Aug. 17, 2001).
---------------------------------------------------------------------------
    Finally, before I continue, I should point out that we will publish 
two more Compact-related reports in January that address (1) 
effectiveness and accountability issues related to U.S. program 
assistance (such as Head Start) to the FSM and the RMI; and (2) the use 
of the Compact's defense and security provisions, as well as U.S. 
defense interests in the region. However, because these reports have 
not been finalized, I will not be discussing our work in these areas at 
this hearing.
                                summary
    Direct U.S. Compact funds amounting to $1.6 billion for the FSM and 
the RMI from fiscal year 1987 through 1998 had limited impact on 
economic development and were subject to limited accountability. The 
FSM and the RMI used these funds for general government operations, 
capital projects such as building roads, or investing in businesses. 
However, funds used for general government operations helped maintain 
high government wages and public sector employment that have 
discouraged private sector growth; and spending to create and improve 
infrastructure has not contributed to significant economic growth. 
Moreover, Compact-funded business ventures have generally failed due to 
poor planning, inadequate construction and maintenance, or misuse of 
funds. In addition, both the FSM and the RMI remain highly dependent on 
U.S. assistance despite having made some improvements in economic self-
sufficiency, as measured by their governments' lower reliance on U.S. 
funding. Further, while the Compact set out specific obligations for 
reporting and consulting regarding the use of Compact funds, we found 
that the governments of the FSM, the RMI, and the United States have 
provided limited accountability over Compact expenditures and have not 
ensured that the funds were spent effectively. In the case of the U.S. 
government, oversight was limited by interagency disagreements between 
the Departments of Interior and State, a lack of resources dedicated to 
Compact oversight, and Interior's belief that Compact provisions 
restricted the Department's ability to require accountability and 
withhold funds.
    In part due to the lack of economic opportunities in the FSM and 
the RMI, thousands of citizens of these countries have migrated to the 
United States resulting in significant impact on three nearby U.S. 
island areas--Guam, Hawaii, and the CNMI--which are the key 
destinations for migrants.\6\ Employment opportunities, education, and 
family ties were the main reasons for migrating, according to 
Department of the Interior surveys and information we collected. 
Further, we found that the migrants to Guam, Hawaii, and the CNMI have 
generally worked in jobs requiring few skills and received low wages. 
As a result, most were living in poverty in all three U.S. island 
areas.\7\ The reported impact of this migration on Guam, Hawaii, and 
the CNMI has been significant: at least $371 million in costs to local 
governments for 1986 through 2000, primarily for health and education 
services. The U.S. government has provided Compact impact funding in 
the amount of $41 million to Guam and $3.8 million to the CNMI through 
fiscal year 2001; however, the governments of both island areas 
consider this funding inadequate to fully cover the estimated financial 
impact of these migrants. Hawaii received no compensation through 
fiscal year 2001. Our work indicated that a reduction in the level of 
future Compact assistance could spur migration, while targeting 
assistance to the FSM and the RMI's health and education sectors could 
reduce the impact of migration.
---------------------------------------------------------------------------
    \6\ Citizens of the FSM and the RMI have this right under the 
Compact. Government officials in the two countries view migration as a 
key safety valve for easing problems associated with the limited 
economic opportunities in these small nations.
    \7\ Migration data also include migrants from the Republic of 
Palau, another Pacific Island nation. The United States has a Compact 
of Free Association with Palau as well. This Compact went into effect 
in 1994 and established the same migration rights provided in the 
Compact with the FSM and the RMI. The U.S. mainland is reportedly the 
destination for an increasing number of Compact migrants.
---------------------------------------------------------------------------
    Several donor nations and multilateral organizations, including the 
United States, have given $11.9 billion to Pacific Island nations since 
1987, with the primary goal of advancing their economic self-
sufficiency and alleviating poverty. However, the major donors believe 
that many Pacific Island nations will not be able to achieve 
improvements in development without continued assistance in the 
foreseeable future or will need assistance indefinitely. They also 
acknowledge that important trade-offs exist in providing assistance, 
such as taking into consideration foreign policy objectives. These 
different motivations for providing assistance have led some countries 
to place a lower emphasis on accountability and effectiveness issues. 
In addition, donors have found that there are trade offs between 
ensuring effectiveness and accountability and the costs of 
administering aid. Taking into account these factors, donors have 
explored and adopted various assistance strategies such as establishing 
trust funds and stopping assistance under undesirable conditions, such 
as political instability. Some of these strategies may be useful to 
negotiators of future U.S. aid.
    To address concerns about future U.S. assistance to the FSM and the 
RMI, in our reports we recommended that the U.S. Secretary of State 
work with the Congress to develop guidelines regarding the policy 
objectives for the assistance as well as the amount of assistance and 
its duration. We also recommended that the Secretary of State direct 
the Compact negotiator to negotiate provisions that provide greater 
control over and effectiveness of further U.S. funding to those two 
nations in any future Compact provisions. With respect to migration, we 
recommended that the Compact negotiator be charged with considering how 
to target future health and education funds for the FSM and the RMI in 
order to address the effect of migration on Guam, Hawaii, and the CNMI.
                               background
    Located just north of the equator in the Pacific Ocean are the two 
island nations of the FSM and the RMI (see fig. 1).7a The 
FSM is a grouping of 607 small islands--including 65 of which are 
inhabited--in the western Pacific totaling 270 square miles. The 
country, which is comprised of four states Pohnpei, Chuuk, Yap, and 
Kosrae, was home to an estimated 107,000 people in 2000. The RMI, which 
is made up of more than 1,200 islands, islets, and atolls, has a total 
land area of about 70 square miles and a population that numbered 
50,840 in 1999.\7\ The islands of both of these countries are spread 
out over vast stretches of the Pacific Ocean.
---------------------------------------------------------------------------
    \7a\ All figures have been retained in committee files.
    \8\ The populations of both countries have shown little growth in 
recent years. From 1995 through 1999, the FSM population grew by only 
about 1,500 people (0.2 percent annually). In the RMI, population 
growth has slowed to 1.5 percent annually. The 1999 RMI census reported 
50,840 persons in the RMI, which was about 10,000 fewer people than the 
RMI government had projected. Emigration was reported as the primary 
reason for the lower population growth in both countries. Birth rates 
remain high in the FSM and the RAU.
---------------------------------------------------------------------------
    In 1986, after 17 years of negotiations, the United States and the 
FSM and the RMI entered into the Compact of Free Association.\9\ This 
Compact represented a new phase of the unique and special relationship 
that has existed between the United States and these island areas since 
World War II. The three main U.S. goals for the Compact--(1) to secure 
self-government for the FSM and the RMI, (2) to assure certain national 
security rights for all the parties, and (3) to assist the FSM and the 
RMI in their efforts to advance economic development and self-
sufficiency represent a continuation of U.S. rights and obligations 
first embodied in the U.N. trusteeship agreement that made the United 
States the Administering Authority of the Trust Territory of the 
Pacific Islands. The Trust Territory included the area that currently 
comprises the FSM and the RMI, as well as other Pacific islands 
liberated from Japan during World War II.\10\
---------------------------------------------------------------------------
    \9\ The agreement had previously been approved in separate U.N.-
observed plebiscites conducted in the FSM and the RMI in 1983.
    \10\ From 1947 to 1986, the United States administered these places 
under a trusteeship agreement that obligated it to foster the 
development of political institutions and move the Trust Territory 
toward self-government and promote economic, social, and educational 
advancement as well as economic self-sufficiency. In addition, the 
agreement, which established the only U.N. strategic trust, allowed the 
United States to establish military bases and station forces in the 
Trust Territory and close off areas for security reasons, as part of 
its rights.
---------------------------------------------------------------------------
    The Compact of Free Association provided a framework for the United 
States to work toward achieving its three main goals. Two goals have 
been met through the Compact and its related agreements: (1) the FSM 
and the RMI became Freely Associated States, independent in all 
respects except for defense and security matters; and (2) national 
security rights for all the parties have been assured.\11\ Through the 
Compact and related agreements, the United States assumed full 
authority and responsibility for security and defense matters in the 
FSM and the RMI.
---------------------------------------------------------------------------
    \11\ This included, among other things, a U.S. obligation to defend 
the FSM and the RMI as the United States and its citizens are defended, 
a U.S. right to deny military access to the islands by other countries, 
and a U.S. option to establish and use military areas and facilities in 
the FSM and the RAU. These security provisions will continue 
indefinitely unless mutually terminated. Through a Compact-related 
agreement with the Republic of the Marshall Islands, the United States 
has secured continued access to military facilities on Kwajalein Atoll 
through 2016. These facilities are used for missile and missile defense 
testing and space-tracking activities.
---------------------------------------------------------------------------
    The third objective of the Compact, promoting economic development 
and self-sufficiency, was to be accomplished primarily through direct 
financial payments from the United States to the FSM and the RMI. The 
provisions governing the amount and distribution of this economic 
assistance are due to expire, unless renegotiated and subsequently 
reauthorized by the Congress, in late 2003.\12\ The Department of the 
Interior's Office of Insular Affairs has the responsibility for 
disbursing and monitoring this assistance, which includes a requirement 
to work with the Department of State to consult annually with both 
countries.
---------------------------------------------------------------------------
    \12\ The largest Compact funding provision, section 211(a), 
provides specific levels of direct funding for the Federated States of 
Micronesia and the Republic of the Marshall Islands over a 15-year 
period (1987-2001), with amounts decreasing every 5 years. Direct 
funding for the 2-year negotiating period (2001-03) is based on the 
average of the annual amounts provided to the FSM and the RMI during 
the first 15 years.
---------------------------------------------------------------------------
    Another aspect of the special relationship between the FSM and the 
RMI and the United States involves the unique immigration rights that 
the Compact granted. Through the Compact, citizens of both nations are 
allowed to live and work in the United States as non-immigrants, 
without limitations on their length of stay.\13\ Further, the Compact 
exempts FSM and RMI migrating citizens from meeting U.S. passport, 
visa, and labor certification requirements. Unlike economic assistance 
provisions, the Compact's migration provisions are not scheduled to 
expire in 2003. In recognition of the potential adverse impacts that 
Hawaii and nearby U.S. commonwealths and territories could face as 
result of an influx in migrants, the Congress authorized Compact impact 
payments to address the financial impact of migrants on Guam, Hawaii, 
and the CNMI.
---------------------------------------------------------------------------
    \13\ Typically, non-immigrants include only those individuals who 
are in the United States temporarily as visitors, students, and 
workers.
---------------------------------------------------------------------------
    Finally, the Compact served as the vehicle to reach a full 
settlement of all compensation claims (past, present, and future) 
related to U.S. nuclear tests conducted on Marshallese atolls between 
1946 and 1958. In a Compact-related agreement, the U.S. government 
agreed to provide $150 million to create a trust fund, targeted to 
produce at least $18 million in annual income to be disbursed in 
specified amounts over 15 years to persons displaced from the four 
affected RMI atolls--Bikini, Enewetak, Rongelap, and Utirik--and to the 
RMI government for health care for the population of the four RMI 
atolls and to fund a Nuclear Claims Tribunal.\14\ While the Compact and 
its related agreements represented the full settlement of all nuclear 
claims, it provided the RMI the right to submit a petition of changed 
circumstance to the U.S. Congress requesting additional compensation. 
Such a petition has recently been prepared and submitted.
---------------------------------------------------------------------------
    \14\ Including the trust fund, the United States has spent more 
than $380 million since 1987, related to the effects of nuclear 
testing, to the people of four RMI atolls. Also, prior to the Compact, 
the U.S. government spent about $250 million to address nuclear 
testing-related issues in what is now the RMI. This included direct 
payments to the islands' governments and individuals, rehabilitation 
and resettlement services, and health care and monitoring of islanders 
exposed to radioactive fallout.
---------------------------------------------------------------------------
          compact funds had limited impact and accountability
    While the FSM and the RMI spent nearly $1.6 billion in Compact 
direct funding during 1987 through 1998, these funds have contributed 
little to improving economic development. The FSM and the RMI used the 
funds mainly for government operations, physical and social 
infrastructure, and business ventures. However, many business ventures 
and infrastructure investments did not succeed. They failed mainly 
because of poor planning, construction and maintenance problems, and 
misuse of funds. Despite some growth in economic self-sufficiency, the 
FSM and the RMI remain dependent on U.S. assistance. In addition, the 
FSM, the RMI, and the United States have not complied with 
accountability requirements specified in the Compact for all three 
countries. As a result, the U.S. government's ability to oversee the 
use of Compact funds and ensure that they are used effectively has been 
limited.
Compact Funds Have Led to Little Improvement in Economic Development
    From 1987 through 1998, during the first 12 years of the Compact, 
the FSM spent about $1.08 billion in Compact direct funding provided by 
the U.S. Department of the Interior, while the RMI spent about $510 
million. Nevertheless, these expenditures contributed little to 
advancing economic development in those two countries. The FSM and the 
RMI spent the nearly $1.6 billion on government operations, physical 
and social infrastructure, and business ventures.
            Government Operations
    The FSM spent $510 million for general government operations, while 
the RMI spent $107 million. This spending generally helped to maintain 
high levels of public sector employment and wages but acted as a 
disincentive to private sector growth. However, in response to 
scheduled reductions in U.S. assistance under the Compact, the FSM and 
the RMI have begun economic reform efforts. These efforts are aimed at, 
among other things, decreasing their large public sectors through 
reductions in government personnel and wage freezes.
    In addition, the Compact did not preclude the FSM or the RMI from 
borrowing funds in anticipation of U.S. assistance. Using this 
flexibility, from the late 1980s to the mid-1990s, the FSM and the RMI 
issued nearly $389 million in Compact revenue-backed bonds in order to 
obtain greater funding in the earlier years of the Compact. Repayments 
on bond debt have limited the availability of Compact funds for other 
uses in the RMI, particularly in recent years. For example, in 1998, 
the RMI spent $39 million in Compact funds. Of this total amount, $25 
million went to service debt. The RMI was also required to spend an 
additional $8 million to compensate landowners for U.S. military use of 
Kwajalein Atoll. This left only $6 million (15 percent) in Compact 
expenditures to support new capital investment, general government 
operations, or other areas.
            Physical and Social
    The FSAI and the RMI have spent at least $256 million in Compact 
funds Infrastructure for physical infrastructure improvements and 
operations. Both nations viewed this area as critical to improving the 
quality of life and creating an environment attractive to private 
businesses. While these improvements have enhanced the quality of life, 
they have not contributed to significant economic growth in the two 
countries. Expenditures in this area for the years 1987 through 1998 
included (1) over $122 million in both countries to operate and improve 
energy and communications; (2) about $5.9 million in the FSM to 
maintain ships that haul cargo between islands and $27 million for the 
RMI national airline (through fiscal year 1997); and (3) $114 million 
in both countries to invest in social institutions, including schools 
and hospitals.\15\
---------------------------------------------------------------------------
    \15\ Both nations show some improvement in social indicators over 
the life of the Compact but still rank in the bottom half in terms of 
human development among Pack Island nations.
---------------------------------------------------------------------------
            Business Ventures
    Compact funds spent in the two countries for business ventures 
amounted to $188 million, according to our analysis. These funds were 
invested in fisheries, agriculture, aquaculture, livestock, business 
advisory services, handicrafts, tourism, and manufacturing. When we 
visited the FSM and the RMI, government officials reported that few 
Compact-funded business ventures were operating at a profit, if at all. 
Government officials from both countries told us that investing in 
business ventures has been a bad strategy, and using Compact funds for 
this purpose had been a failure. Some examples of failed business 
ventures include (1) $60 million in the FSM spent on fish processing 
plants that were inactive when we visited in March 2000 (see fig. 2) 
and (2) a garment factory in the RMI that received almost $2.4 million 
in Compact funds but was never operated and is closed (see fig. 3).
Reasons for Infrastructure
    During our visit to the FSM and the RMI in March 2000, we 
determined that many Compact-funded projects (both infrastructure and 
business ventures) experienced problems as a result of poor planning 
and management, construction and maintenance difficulties, and misuse 
of funds. These problems reduced the effectiveness of Compact 
expenditures. A few examples of such problems included the following:
    Poor planning and management: The RMI government spent $9.2 million 
in Compact funds to build a road, or ``causeway,'' from Ebeye, an 
extremely crowded island in the Kwajalein Atoll, to a planned 
development on a nearby island. The causeway was meant to relieve 
population problems on Ebeye by allowing residents to move to 
additional islands connected by the road. However, the causeway remains 
unfinished. Ebeye officials told us that the causeway is covered with 
water in places during high tide.
    Construction and maintenance difficulties: The capitol building in 
the RMI, built during the 1990s using $8.3 million in Compact funding, 
had visible signs of deterioration when we visited. Stairs were 
rusting, elevators were inoperable, and roof leaks were evident 
throughout the building.
    In addition, we found inadequate or nonexistent maintenance in 
numerous FSM schools and hospitals we visited, despite the government's 
spending $80 million in Compact funding designated for health and 
education. We visited schools in the FSM states of Pohnpei and Chuuk 
where sections of ceilings were missing, bathrooms were in disrepair, 
and electricity had been disconnected. At the Pohnpei hospital, the 
Director told us the hospital lacked adequate funding, drugs, and 
supplies. As a cost-cutting measure, the hospital no longer provided 
sheets to patients.
    Misuse of funds: As an example of what appeared to be a misuse of 
funds, the FSM used funds in what the U.S. embassy described as ``cars 
and boats for votes.'' The FSM Public Auditor reported that $1.5 
million was spent on cars and boats that were simply given away to 
individuals for their personal use (see fig. 4).\16\ Although the 
procurement documents for purchasing boats stated that they were to be 
used for economic purposes, we learned in interviews with two different 
recipients that they had received the boats with no restriction placed 
on their use. Furthermore, the embassy reported that another 187 cars 
had arrived in May 1999 and were used for ``re-election assistance.''
---------------------------------------------------------------------------
    \16\ We were unable to determine the portion of this $1.5 million 
that was comprised of Compact funding.
---------------------------------------------------------------------------
The FSM and the RMI Have Made Some Improvements in Economic Self-
        sufficiency
    Since 1987, the FSM and the RMI have reduced their dependence on 
Compact funds. Total U.S. funding (Compact direct funding as well as 
U.S. program funds) as a percentage of total government revenue has 
fallen in both countries, particularly in the FSM. However, both 
countries remain highly dependent on U.S. assistance, which still 
provides more than half of total government revenues in each country. 
In 1998, U.S. funding accounted for 54 percent and 68 percent of total 
FSM and RMI total government revenues, respectively. This assistance 
has maintained standards of living that are artificially higher than 
could be achieved in the absence of Compact funding, according to our 
analysis.
The U.S., FSM, and RMI Governments Have Provided Limited Accountability 
        Over Compact Expenditures
    Although the Compact established accountability requirements for 
all three countries, none of them has fully complied with the 
requirements. The FSM and the RMI are required to submit 5-year 
economic development plans and annual reports. Both countries have, for 
the most part, submitted the required development plans and annual 
reports, but these documents fell short of meeting their intended 
purposes. For example, 5-year FSM and RMI economic development plans 
gave inadequate attention to broad development goals and plan 
implementation, as the Compact required. Further, the RMI submitted 
only 7 of the 13 required annual reports on development plan 
implementation and Compact fund expenditures. These plans inadequately 
described how Compact funds were used to achieve development goals and 
were submitted too late to be relevant for timely U.S. oversight.
    In addition, the FSM and the RMI have not demonstrated adequate 
control over the use of Compact funds. According to their annual 
financial audits, the FSM and the RMI did not maintain or provide 
sufficient financial records to allow for effective auditing of Compact 
funds. Further, program audits by the FSM Public Auditor found 
inappropriate use of Compact funds and extensive management weaknesses 
in accounting for Compact funds.
    The U.S. government also did not meet its oversight requirements. 
For example, the United States did not initiate required annual 
consultations with the two countries until 1994-7 years after the 
Compact went into effect. U.S. agencies took little action to address 
questioned costs identified in the annual independent audits of the FSM 
and the RMI. Moreover, Interior resources devoted to Compact oversight 
were minimal. At the time of our report, Interior had one person in 
Washington, D.C., who worked with the two Compact nations, as well as 
one person in the FSM and no one in the RMI. Interior officials have 
claimed that interagency disagreements between the Departments of State 
and the Interior concerning the level of and responsibility for 
oversight, and a Compact provision guaranteeing payment of Compact 
funds (``full faith and credit''), have limited the U.S. government's 
ability to oversee the use of Compact funds and ensure that they are 
used effectively.
fsm and rmi migrants have had a significant impact on u.s. island areas
    The migration of citizens from the FSM and the RMI has had a 
significant impact on three U.S. island areas: Guam, Hawaii, and the 
CNMI. As of 1998, about 14,000 Compact migrants were living in these 
areas. Migrants were working mainly in low-skill, low-wage jobs and 
costing the islands' governments an estimated $371 million to $399 
million mainly in health care and education costs. In addition, the 
migrants have raised public health concerns in Guam, Hawaii, and the 
CNMI. The Compact provided for two options to address the impact of 
migrants from the FSM and the RMI-compensation for Guam, Hawaii, and 
the CNMI and limitations on the amount of time migrants can stay in 
U.S. territories without being self supporting. However, government 
officials in Guam, Hawaii, and the CNMI have expressed dissatisfaction 
with the options' use. Finally, changes in U.S. assistance to the FSM 
and the RMI might affect the rate of migration. For example, a 
significant reduction in aid that also led to a decline in government 
employment would be expected to increase migration. Conversely, if 
funds were targeted for health and education, migration and migrant 
impact might decrease.
Thousands of FSM and RMI Citizens Have Migrated to Guam, Hawaii, and 
        the CNMI Since 1986
    According to Department of the Interior surveys, almost 14,000 
Compact migrants (i.e., those migrants who came to a U.S. area after 
Compact implementation in 1986) were living in Guam and Hawaii in 1997 
and the CNMI in 1998.\17\ Guam had the largest number of Compact 
migrants at 6,550, followed by Hawaii at 5,500 and the CNMI at 1,755. 
Migrants from Compact nations (regardless of when they migrated) 
accounted for 5 percent of Guam's total population and around 4 percent 
of the CNMI's total population. In contrast, they accounted for only 
0.5 percent of Hawaii's total population. For those migrants surveyed, 
employment opportunities were the primary reason for moving to U.S. 
areas, while those pursuing education and dependents of those employed 
also were living in the U.S. areas. The majority of Compact migrants 
were living in poverty in all three U.S. areas, with the CNMI having 
the lowest poverty rate (51 percent of all migrants living below the 
poverty level) and Guam having the highest (67 percent). In all three 
areas, many Compact migrants were working in jobs that required few 
skills and paid low wages, such as cleaning or food services. U.S. 
island government officials and migrant community members told us that 
Compact migrants often accept jobs that local workers refuse to take. 
Compact migrants surveyed were not highly educated, with few having 
college degrees and just over 50 percent of adults having graduated 
from high school.
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    \17\ As noted previously, in addition to FSM and RMI data, Compact 
migrant data presented include citizens of the Republic of Palau. This 
is because Palauans are included in migrant impact data and cannot be 
isolated and removed from those estimates. Further, Compact migrant 
data include U.S.-born children of migrants.
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Cost of Migrant Impact Has Been Significant
    The Guam, Hawaii, and CNMI governments have identified significant 
costs for services provided to Micronesian nation migrants. For 1986 
through 2000, these three governments have estimated a collective 
impact of between $371 million and $399 million (see table 1). Guam's 
impact estimate for that period totaled $180 million, while the CNMI's 
estimate was $105 million to $133 million. The government of Hawaii, 
which prepared impact estimates from 1996 through 2000 but only had 
partial data for 1986 through 1995, estimated a total impact of $86 
million.

                  Table 1.--COMPACT IMPACT ESTIMATES FOR GUAM, HAWAII, AND THE CNMI, 1986-2000
                                            [Dollars in millions] \1\
----------------------------------------------------------------------------------------------------------------
                           Year                              Guam   Hawaii \2\       CNMI             Total
----------------------------------------------------------------------------------------------------------------
1986-95..................................................    $69.8  \3\ $23.4       \4\ $43.7-     $136.9-$164.9
                                                                                         $71.7
----------------------------------------------------------------------------------------------------------------
1996.....................................................     16.9        6.4         \5\ 11.0               4.3
----------------------------------------------------------------------------------------------------------------
1997.....................................................  \6\ 16.       12.2             13.7              42.8
                                                               9
----------------------------------------------------------------------------------------------------------------
1998.....................................................     21.9       12.4             15.1              49.4
----------------------------------------------------------------------------------------------------------------
1999.....................................................     23.0       14.1             12.3              49.4
----------------------------------------------------------------------------------------------------------------
    Total................................................   $180        $86          $105-$133         $371-$399
----------------------------------------------------------------------------------------------------------------
\1\ The data in this table cannot be converted into constant dollars, since some of the impact data reported by
  the U.S. island governments are not assigned to specific years.
\2\ While Guam and the CNMI have calculated costs on a fiscal year basis, Hawaii's costs are a combination of
  fiscal year and calendar year costs.
\3\ This figure represents Hawaii's education and inmate incarceration costs for Freely Associated States
  migrants from 1988-95; these costs were provided in later estimate reports.
\4\ This 1986-95 impact cost range was provided in a 2000 CNMI congressional testimony.
\5\ This figure was calculated by the Hay Group/Economic Systems, Inc., for the government of the CNMI.
\6\ This figure was calculated by Ernst & Young LLP for the government of Guam. The government of Guam estimates
  for 1996, 1998, and 1999 were derived from the 1997 Ernst & Young calculations, though costs associated with
  the hospital that receives government funding were added beginning in 1998.
 
Source: Yearly impact reports of Guam (1987-95, 1997, 2000), Hawaii (1996-2000), and the CNMI (1996-2000),
  supplemented by additional totals provided by Guam and the CNMI for years when separate impact reports were
  not prepared.

    Costs for the three areas have been focused in the areas of health 
care and education, though government officials identified public 
safety and welfare costs as well. While the reported impact costs of 
Guam and Hawaii have been increasing over time, the CNMI's impact 
estimates decreased by almost 40 percent from fiscal year 1998 to 
fiscal year 2000. This reduction was reportedly due to a decreasing 
presence of Micronesian migrants in the CNMI. The 2000 impact estimates 
that the three areas prepared showed that impact amounts represented 
about 7 percent, 0.5 percent, and 4 percent of the budget revenues of 
Guam, Hawaii, and the CNMI, respectively, for that year.
            Health Care Costs
    The health care systems of the FSM and the RMI are viewed by U.S. 
island area government officials as inadequate to meet the needs of the 
population, providing incentives to travel or move to the United States 
in order to receive appropriate health care. Health costs were the 
greatest area of impact for the CNMI in 2000, accounting for 43 percent 
of all identified impact costs. According to a CNMI Department of 
Public Health Services official, neonatal intensive care is a key issue 
for Compact migrants. This official noted that expectant mothers often 
have no insurance and receive no prenatal care at all until they arrive 
at the government's Community Health Center, ready to deliver. Guam 
officials also noted that expectant mothers arrive at Guam Memorial 
Hospital (which receives government funding) close to delivery and with 
no prior prenatal care. Officials from the Guam hospital also expressed 
frustration that Compact migrants often rely on the hospital's 
emergency room for primary health care and that many conditions treated 
are not urgent. Hawaii's health care costs in 2000 went to support 
migrants who, as of April 2000, no longer received federal health 
benefits (Medicaid), due to U.S. welfare reform legislation.\18\ A 
Hawaii Department of Health official noted that it is illogical for the 
United States to make migration to the United States easily accessible 
for poor FSM and RMI citizens but then make health care difficult to 
obtain. As with all other non-immigrant groups, health screenings are 
not required of Compact migrants prior to entering the United States.
---------------------------------------------------------------------------
    \18\ While the Welfare Reform Act was passed in 1996, Hawaii 
disputed the exclusion of Compact migrants from the program and 
continued to submit Medicaid claims and receive federal funding for 
these patients until April 2000.
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            Education Costs
    Inadequate school systems in the FSM and the RMI are another reason 
for migration. According to Guam and CNMI education officials, there is 
an incentive for FSM students to come to those two U.S. locations for 
public education, as teachers in the FSM do not have 4-year university 
degrees, and the education infrastructure is inadequate. Guam and 
Hawaii's costs in 2000 for the migrants were primarily in education, 
accounting for 54 percent and 58 percent, respectively, of total 
impact. In their most recent impact reports, students from Compact 
nations accounted for about 11 percent, 1 percent, and 9 percent of the 
total student population in Guam, Hawaii, and the CNMI, respectively. 
Officials from the Departments of Education in Guam and Hawaii noted 
that these students have a tendency to be transient, entering and 
leaving school a few times each year. Moreover, education officials in 
Guam and the CNMI said that some students have never been in a school 
classroom prior to moving to a U.S. area. This makes their integration 
into the school system difficult.
            Public Health Concerns
    In addition to financial costs, public health concerns have been 
raised as migrant impacts, particularly by Hawaii, due to the number of 
Compact migrants with communicable diseases entering U.S. island areas. 
For example, in its 1997 impact assessment, Hawaii stated that public 
health was the state's most pressing concern and noted a recent 
outbreak of Hansen's Disease (leprosy) on the island of Hawaii among 
Compact migrants. A CNMI Department of Public Health Services official 
told us that the number of cases of tuberculosis and Hansen's Disease 
diagnosed for citizens of Compact countries is increasing. Also, a Guam 
Department of Public Health and Social Services official reported that 
concerns exist regarding these migrants and communicable diseases, low 
immunization rates, and noncompliance with treatment regimens.
Use of Options to Address Impact Has Not Satisfied U.S. Island 
        Government
    The Compact and its enabling legislation include two options to 
address the impact of migrants. The extent to which these two options 
have been used has not met with the satisfaction of any of the three 
U.S. island area governments who believe, among other things, that 
additional funding for impact costs is necessary. The law \19\ states 
that the Congress will act ``sympathetically and expeditiously'' to 
redress adverse consequences of Compact implementation. It provided 
authorization for appropriation of funds to cover the costs incurred, 
if any, by Guam, Hawaii, and the CNMI resulting from any increased 
demands placed on educational and social services by migrants from the 
FSM and the RMI. Guam has received about $41 million in compensation 
(about 23 percent of total estimated impact costs) since the Compact 
went into effect, and the CNMI has received almost $3.8 million 
(between about 3 to 4 percent of total estimated impact costs). Hawaii 
received no compensation through fiscal year 2001.
---------------------------------------------------------------------------
    \19\ Public Law 99-239, January 14, 1986.
---------------------------------------------------------------------------
    Further, the Compact states that nondiscriminatory limitations may 
be placed on the rights of Compact migrants to establish ``habitual 
residence'' (continuing residence) in a territory or possession of the 
United States. The ``habitual residence'' restriction is only 
applicable to Guam, as the CNMI is a commonwealth that controls its own 
immigration, and Hawaii is a state. Such limitations went into effect 
in September 2000 and provide that, in part, migrants who have been in 
the U.S. territory for a total of 365 cumulative days are subject to 
removal if they are not, and have not been, self-supporting for a 
period exceeding 60 consecutive days or have received unauthorized 
public benefits by fraud or willful misrepresentation. Immigration and 
Naturalization Service officials we interviewed viewed the regulations 
as difficult to enforce and, therefore, unlikely to have much impact.
Changes in Compact Assistance and Provisions Might Affect Migration 
        Levels and Impact
    Changes in U.S. economic assistance to the FSM and the RMI may 
alter the rate of migration. For example, significant reductions in aid 
to the FSM and the RMI that reduce government employment would be 
expected to spur migration. On the other hand, targeting future U.S. 
assistance to the FSM and the RMI for health and education purposes 
could reduce some of the motivation to migrate (although migration will 
continue as long as employment opportunities in both countries remain 
limited). Furthermore, improvements in migrant health and education 
status would be expected to reduce migrant impact on U.S. destinations. 
Additionally, changes in Compact provisions, such as requiring health 
screening, could reduce the impact of migrants on U.S. areas, though 
government officials from the two Pacific Island nations do not view 
migration provisions as subject to renegotiation.
 donors' experiences highlight trade-offs between aid motivations and 
               accountability and effectiveness concerns
    Major donors to Pacific Island nations, including Australia, Japan, 
New Zealand, the United Kingdom, the United States, the Asian 
Development Bank (ADB), and the European Union, expect that most of 
these countries will need assistance for the foreseeable future in 
order to achieve improvements in development. In addition, they have 
stated that one of their primary goals-promoting economic self-
sufficiency-is a difficult Accountability and challenge for many of 
these island nations and an unrealistic goal for others. Further, their 
experiences have shown that providing aid involves significant trade-
offs, such as dealing with multiple policy objectives, historical ties, 
and administrative costs. In an attempt to improve the effectiveness 
and efficiency of their assistance, these donors have tried a variety 
of strategies, some of which may provide useful examples for future 
U.S. aid.
Donors Recognized Challenges in Promoting Economic Self-Sufficiency and 
        Alleviating Poverty
    Major donors to Pacific Island nations have provided about $11 
billion to this region from 1987 through 1999. Two of the main 
objectives of this assistance, according to planning documents and 
interviews with officials, were to promote economic self-sufficiency 
and alleviate poverty. However, the donors realize that achieving 
economic self-sufficiency will be a difficult goal for some and an 
unrealistic goal for others. For instance, according to an ADB report, 
``[I]t is widely understood that the smallest and least-endowed states 
will need to be assisted by free transfers of resources indefinitely, 
if they are to maintain standards of welfare that the donors of the aid 
can bear to look at. . . .'' One measure that illustrates the degree to 
which countries are dependent on aid to maintain standards of living is 
aid as a percentage of gross domestic product (GDP). In 1998, the FSM 
and the RMI were two of three most aid-dependent places in the Pacific 
region, with economic assistance making up over 50 percent and 70 
percent of their respective GDPs, according to our analysis.\20\ In 
addition, the FSM and the RMI received a high level of aid per capita 
compared to most other Pacific Island nations.
---------------------------------------------------------------------------
    \20\ The 14 Pacific Island nations that we reviewed all received 
assistance.
---------------------------------------------------------------------------
Providing Aid Involves Significant Trade-Offs
    The major donors (including the United States) to the Pacific 
Island nations are aware that providing assistance for economic 
development often involves trade-offs among policy issues and other 
interests. For example, Australia, New Zealand, and the United States 
initially chose to provide unrestricted budget support to their former 
territories or administrative ``districts'' as a means of helping them 
to separate themselves from ``colonialist'' administration. This choice 
required a trade off between political goals and oversight concerns. In 
the case of the Compact, the U.S. Department of State counseled the 
Department of the Interior to be lenient in reviewing the use of 
Compact funds by the FSM and the RMI during the early years of the 
Compact. In those years, State placed a high priority on maintaining 
friendly relations with the FSM and the RMI. As a result, a trade-off 
was made between the foreign policy goals and the need for providing 
accountability. Trade-offs also exist between the administrative costs 
associated with aid disbursement and oversight and accountability and 
effectiveness goals. Again, in the current Compact, the United States 
chose a strategy of providing relatively unrestricted cash transfers to 
the FSM and the RMI.\21\ This low-cost approach has contributed to some 
of the problems related to effectiveness and accountability that we 
have identified today.
---------------------------------------------------------------------------
    \21\ The experience of other donors has confirmed that higher 
levels of control involve greater administrative costs. For instance, 
when Australia gradually eliminated its annual budget support to Papua 
New Guinea from 1990 to 2000 and replaced it with more than 100 
separate project grants, the staff administering the programs went from 
1 or 2 in 1990 to 73 staff from the Australian Agency for International 
Development, 30 Papua New Guinea staff, and at least 1 contractor for 
each project by 2000-01.
---------------------------------------------------------------------------
Variety of Strategies Attempted to Improve Effectiveness and Efficiency 
        of Assistance
    Based on their experiences, major donors have used a range of 
assistance strategies in striving to reach the desired balance of aid 
effectiveness, accountability, and efficiency. Taking into account the 
trade-offs involved in various approaches, the major Pacific donors 
have adopted the following strategies to improve the effectiveness and 
efficiency of their assistance:

   Five of the major donors have supported projects to improve 
        governance in recipient countries, such as developing a rule of 
        law, as a foundation for effective development.
   ADB has adopted an approach to development that tailors aid 
        to the individual characteristics of recipients rather than 
        applying the same strategy to all island nations. ADB has 
        advocated a trust fund for the RMI, based on its assessment of 
        the country's growth potential, while it has put forth a 
        different strategy for the FSM.
   Two donors have built flexibility into their assistance 
        strategies, which enables them to provide incentives for 
        positive achievements or to stop assistance to recipients under 
        undesirable conditions, such as political instability. For 
        example, New Zealand suspended funding to the governments of 
        Fiji, in response to a coup, and to the Solomon Islands, in 
        response to civil unrest, while maintaining the assistance to 
        community organizations, such as nongovernmental health 
        providers, so that aid for basic human services could continue.
   Australia is trying a sectorwide approach to assistance. 
        This approach consists of a pilot project in the health sector 
        in Papua New Guinea in an effort to encourage the recipient 
        country to take ownership of the development process on a 
        limited basis. To reduce its administrative costs while trying 
        to maintain aid effectiveness, Australia began moving from a 
        portfolio of 16 individual health projects to cofunding (with 
        other donors) sectorwide projects and programs identified in 
        Papua New Guinea's national health plan. In exchange for giving 
        up control over the projects, Australia gained a voice in 
        developing the national strategy and allocating resources for 
        health projects.
   Six of the major donors have relied on trust funds in 
        Pacific Islands, such as Tuvalu, Kiribati, and Nauru, as a 
        means of providing recipients with a self-sustaining source of 
        future revenue. According to ADB, the Tuvalu and Kiribati trust 
        funds have been successful because they were designed to 
        protect the investment capital from misuse. The United Kingdom 
        was able to discontinue its annual budget support for Tuvalu 
        because the trust fund provided the means to balance the 
        budget.
Potential Lessons for Compact Assistance Strategies
    Our review of major donors' experiences in the Pacific could 
provide some guidance to the United States as it negotiates further 
economic assistance to the FSM and the RMI. These lessons include the 
following:

   Assistance strategies involve trade-offs between cost, 
        effectiveness, and accountability. In the current Compact, the 
        United States chose a low administrative cost strategy of 
        providing relatively unrestricted cash transfers, which led to 
        problems with the effectiveness of and accountability over the 
        assistance. State and Interior officials have said that the 
        United States will need significantly more staff to administer 
        an assistance program to the FSM and the RMI that has increased 
        accountability as an objective.
   Strategies tailored to specific island conditions may be 
        more effective by better adapting to the recipient's needs, 
        resources, and capacities. The current structure of the 
        Compact, which generally applies the same objectives and 
        strategies for both the FSM and the RMI, does not account for 
        these differences.
   Flexible strategies are important to adapt assistance to 
        changing circumstances and needs. The U.S. assistance to the 
        FSM and the RMI through the first 15 years of the Compact was 
        distributed according to a negotiated formula that did not 
        allow changes in the distribution of the funds. Moreover, 
        Interior officials believed that the provision of assistance 
        backed by the ``full faith and credit'' of the United States, 
        combined with a lack of controls typically available with 
        domestic grant assistance, severely limited its ability to 
        withhold funds, even in cases of misuse.
   Well-designed trust funds can provide a sustainable source 
        of assistance and reduce long-term aid dependence. Such a trust 
        fund may provide the United States with the opportunity to end 
        its annual assistance.
                              conclusions
    Compact funds spent on economic development have been largely 
ineffective in promoting economic growth. Many development efforts have 
been unsuccessful because of poor planning and management and the 
apparent misuse of funds. Bad investments in business ventures and the 
maintenance of a large public sector also limited improvements in 
economic development. Both the FSM and the RMI remain highly dependent 
on U.S. assistance and, thus, economic self-sufficiency at current 
living standards remains a distant goal for those countries.
    Compact migration has clearly had a significant impact on Guam, 
Hawaii, and the CNMI and has required government services in key areas. 
Compact migrants have required local expenditures in areas such as 
health and education and, further, have particularly affected the 
budgetary resources of Guam and the CNMI-U.S. island locations that 
have relatively small populations and budgets. The budgetary impact on 
Hawaii can be expected to grow as Hawaii begins to absorb health care 
costs that the U.S. government once covered. Public health problems are 
also an important concern for all three U.S. island areas.
    The negotiation of new economic assistance presents an opportunity 
for the United States to benefit from its 15-year experience under the 
Compact and the experiences of other aid donors to Pacific region, in 
order to potentially increase the effectiveness of the assistance it 
provides. The United States can strengthen accountability over funds, 
introduce flexibility into how assistance is provided, and consider 
different approaches for the FSM and the RMI, such as the use of trust 
funds. Providing increased accountability requires additional 
investment, on the part of the U.S. government, in administrating 
Compact assistance.
                  recommendations for executive action
    In order to help determine the extent and nature of future 
assistance to the FSM and the RMI, we have previously recommended that 
the Secretary of State, in consultation with the Congress, develop 
guidelines regarding U.S. policy objectives for such assistance and its 
level, duration, and composition as well as U.S. oversight.
    Further, in order to provide greater control over and effectiveness 
of any future U.S. assistance, we have made certain recommendations to 
the Secretary of State regarding the negotiation of Compact provisions. 
For example, we have recommended that

   funds be provided primarily through specific grants that, 
        among other things, direct the money to mutually agreed-upon 
        priority areas and projects and that funds, either Compact or 
        from local revenues, be set aside for capital project 
        maintenance;
   annual reporting requirements for the FSM and the RMI be 
        expanded and the consultation process with the United States 
        strengthened;
   ``full faith and credit'' provisions be excluded from any 
        future economic assistance agreement; and
   provisions be included that will provide that funds can be 
        withheld from the FSM or the RMI for noncompliance with 
        spending and oversight requirements.

    With respect to migration, we previously recommended that the 
Secretary of State direct the Compact negotiator to consider how to 
target future health and education funds provided to the FSM and the 
RMI in ways that also effectively address adverse migration impact 
problems identified by Guam, Hawaii, and the CNMI. For example, the 
negotiator could consider whether a specific portion of health sector 
assistance should be targeted at treating and preventing the 
communicable diseases in the FSM and the RMI that are a public health 
concern in Guam, Hawaii, and the CNMI.
    Mr. Chairman and Members of the Committee, this completes my 
prepared statement. I would be happy to respond to any questions you or 
other Members of the Committee may have at this time.

    Senator Akaka. Thank you very much, Ms. Westin, for your 
testimony.
    I would like to begin with questions to Deputy Assistant 
Secretary Kearney. I know that your Department has been engaged 
in this for a number of years in implementing the Compact. And 
over those years you've had many, many kinds of experiences.
    My question to you is what lessons have you learned over 
the past several years in implementing the Compact?
    Mr. Kearney. I think part of my statement speaks to that, 
and let me preface by saying my own personal experience on this 
issue is not as extensive as I would like even in the time that 
I've been at the department, but I have, particularly over the 
last couple of weeks and will be, assuming things don't 
intervene, be able to dedicate considerably more time and 
perhaps have a more informed and detailed answer for you in the 
weeks to come.
    But my experience to this point is that the lessons have 
focused on accountability issues, on managing, taking the money 
that we have, ensuring it goes for the things it's supposed to 
go to, that there has been for a variety of reasons, for a 
variety of decisions that were made at the time of this 
Compact, that were outside the scope, and candidly I have the 
sense much larger than our particular activity at the time 
there was a lot of reasons why we did the things we did.
    I think one of the biggest lessons is that both the 
Congress, this administration and the taxpayer have a different 
level of expectation and frankly knowledge of how their 
government should manage this money, how it should be provided 
and what they get for it so that it can benefit the people it's 
intended for.
    So I think that's probably one of the biggest lessons to 
this point that I've learned, and as I indicate in my statement 
I think there are a number of tools and opportunities and 
knowledge that we can bring to the process as we go forward to 
learn from those lessons and ensure that the people who are 
getting this money get it for the things that they're supposed 
to, and it benefits them the way that it should, as we all are 
trying to strive for.
    Senator Akaka. It has been emphasized that accountability 
is needed in the process and in the continuing Compact 
agreement, and that the monitoring needs to be done.
    What resources do you think are required for proper 
monitoring of the Compact?
    Mr. Kearney. It's an excellent question, and it's one we're 
trying to get a handle on right now. It's one of the issues 
we're going to be looking at hard, that we're going to be 
talking to the State Department with, that we're going to be 
talking to Defense and OMB and others to make a determination 
of just exactly what we can effectively do to ensure that we 
have adequate accountability with the resources we have 
available.
    I agree and acknowledge that it is easy to say that it's 
important to enhance the accountability and ensure that you 
have accountability, and turning that into practice is 
critical, and we've got to do it right, and that's exactly one 
of the places we are right now is making that determination of 
exactly what resources, what kind of electronic information 
technology can we take advantage of, what kind of reporting 
requirements can we take advantage of, what kind of existing 
processes do we already have in place that we can build from.
    So we hope that there are an array of things that we can 
draw on to make the best determination of what resources we're 
going to need.
    Senator Akaka. That question leads to a kind of service we 
can give these nations in accountability, and I think whatever 
services we can give them will help them in this.
    We're then again mentioning GAO and I will tell you that in 
any family there are disagreements. GAO mentioned that 
disagreements have occurred between the Departments of State 
and the Interior regarding staffing issues. Can these issues be 
resolved between Interior and State, do you think?
    Mr. Kearney. I'm optimistic that they will, yes, sir. I've 
had an opportunity to meet briefly with Mr. Schwartz and I 
think going forward that we will be able to do that, yes, sir.
    Senator Akaka. Let me ask Ms. Westin a few questions. What 
do you see as the economic prospects for the FSM and RMI? And I 
know the answer is correct when I say there are differences 
between the two. What would the differences be?
    Ms. Westin. Well, a couple of the differences, of course, 
relate to the resources of the two countries. They're both 
island nations. The RMI is essentially a collection of atolls. 
The FSM is quite different and spread over more than a million 
square miles and some of the States are basically one island.
    One of the things that we learned from our work of looking 
at what other donor experiences had been with Pacific island 
nations is that the other major donors to these areas have 
found that it's not just the FSM and the RMI that will face 
difficulties in becoming economically self sufficient. It's a 
concern for all the Pacific island nations in the area. And I 
think that that was one of the reasons that we wanted to 
highlight the lesson learned about a well-established trust 
fund can be a mechanism that can provide some assistance in the 
future without constant annual payments from the United States.
    I think that both countries though, in direct response to 
your question, would agree that it hasn't been easy to 
establish economic self sufficiency, and they do remain quite 
dependent on U.S. assistance to maintain their present standard 
of living.
    Senator Akaka. In your September 2000 report you agree that 
FAS, Free Associated States, have improved self sufficiency 
since their dependence on the U.S. aid is decreasing. Why then 
is the title of the report U.S. funds in two Micronesian 
nations had little impact on economic development?
    Ms. Westin. Senator, the level of self sufficiency and the 
level of economic development are a little bit different. When 
we measure self sufficiency we looked at what proportion of the 
government's overall revenue were they able to generate and 
what came from the United States. And so that ratio did go down 
over time partly because they were able to generate some more 
tax revenue, but partly also because of the step down in the 
Compact that every five years the level of assistance went 
down. So when you figured out the ratio, the level of self 
sufficiency was going up a bit, becoming less dependent, 
although they still remain quite dependent.
    In terms of economic development, as our report indicated, 
we went in and looked at many, many of the projects that had 
received direct Compact funding, and that's what we were 
looking at with the level of economic development, particularly 
with regard to the direct economic assistance.
    Senator Akaka. You know, travel out there to the region we 
hear from the folks out there, including their government 
officials, and sometimes we hear some criticism of the United 
States.
    Could you elaborate on the implications of your findings 
that the U.S. Government failed to meet these accountability 
obligations under the Compact?
    Ms. Westin. There were accountability provisions within the 
current Compact. I think one of the biggest opportunities that 
was lost was for the first 7 or 8 years of the Compact there 
were no annual meetings or discussions between the United 
States, particularly with the Interior Department that had 
responsibility to take the lead and the government nations 
about how the funds were being spent. And I think that was an 
example of an opportunity that was lost.
    Also, I think it's recognized that there have not been 
adequate resources for monitoring the use of this money in both 
the FSM and the RMI, resources on the part of the Interior 
Department to provide oversight.
    Senator Akaka. We've spoken of the impact of the U.S. 
regions in the Pacific, and you pointed out that Hawaii, I 
think you stated, did not receive any compensation for the 
impact problem. And I know some of the Hawaii health 
institutions have mentioned to me that they have been treating 
folks from FSM and RMI without compensation. So that's becoming 
a problem there.
    Compact impact aid has traditionally come from the 
Department of the Interior's budget. So the question is should 
there be an effort to utilize other agency budgets for Compact 
impact aid, for example, the Department of Education and Health 
and Human Services, since that's where a lot of the impact 
occurs for Guam, CNMI and Hawaii? Can both of you make comments 
on that?
    Mr. Kearney.
    Mr. Kearney. I can certainly comment that, and we recognize 
impact aid is an important issue, and it's something that's 
going to have to be evaluated in the course of the discussion 
and the details, and certainly that's a context in which a 
whole range of issues will be discussed, and that would 
certainly be one of them for sure.
    Ms. Westin. I believe in the present Compact with regard to 
the compensation for the impact of migration on these areas it 
states that Congress should sympathetically and expeditiously 
consider the request from these areas for funds to mitigate the 
impact. But as I understand from our legal counsel, this is 
authorizing money but it isn't appropriating money and there's 
no legal obligation for Congress to do this. And as far as I 
know, they haven't appropriated that much money. As I stated, 
the governments of Guam and CNMI do not believe that they have 
received adequate compensation.
    I'm not sure whether the negotiator is considering in his 
negotiations that perhaps more of this money should come from 
other departments, particularly the departments that deal with 
education and health.
    Senator Akaka. Time moves along and some improvements are 
made. I want to tell you, because you mentioned it, but I want 
you to know that Hawaii will receive $4 million in Compact 
impact for fiscal tear 2002. And so that will help and this is 
for the first time.
    I want to thank you so much for your responses. Again what 
we've been doing today was to bring together several agencies 
and folks that could give us a better idea of where we are at 
this point in time, with the hope that this will be a 
springboard to the negotiations and meetings of the future.
    And again I want to emphasize that what we are trying to do 
is to help the people of that region and to do the best that we 
can for them.
    I want to thank all of the witnesses here. It's good to 
have our visitors who have come here to attend this hearing and 
to wish all of you a safe trip on your way home, and that again 
what has occurred will certainly be a big help to the 
Committee.
    Before we conclude this morning, I would like to announce 
the hearing record will remain open for one week if anyone 
wants to submit additional comments.
    Again, thanks so much for being here and thank you again, 
witnesses. And if there are no further comments from our 
witnesses or anyone, the hearing is adjourned.
    [Whereupon, at 11:10 a.m., the hearing was adjourned.]
                               APPENDIXES

                              ----------                              


                               Appendix I

                   Responses to Additional Questions

                              ----------                              

           Embassy of the Republic of the Marshall Islands,
                                  Washington, DC, January 18, 2002.
Hon. Jeff Bingaman,
Chairman, Senate Committee on Energy & Natural Resources, U.S. Senate, 
        Washington, DC.
    Dear Mr. Chairman: Thank you for holding the December 6 hearing on 
Compact renegotiations.
    My Government welcomes as much Congressional participation in the 
renegotiations as possible including participation in the formal 
renegotiation talks.
    I am pleased to provide you with responses to your questions from 
the hearing. If you need further explanation on any of the issues 
please feel free to contact me for clarifications.
    I look forward to working with you, your wonderful staff and the 
Committee throughout the New Year.
            Sincerely,
                                             Banny de Brum,
                                                        Ambassador.
 Responses of the Republic of the Marshall Islands (RMI) to Questions 
                         From Senator Bingaman
    Question 1. In an effort to promote our mutual goal of advancing 
economic self-sufficiency, we would like FASs to commit to the US-ADB-
FAS partnership process (i.e. develop or subcontract essential planning 
and management capacity and use of future U.S. assistance to move 
toward specific development objectives in health, education, private 
sector growth, public sector accountability, etc.)
    Answer. The Republic of the Marshall Islands is committed to the 
U.S.-ADB-RMI partnership process with the goal of fiscal management 
capacity building in support of development. The RMI is committed to 
achieving growth and development by effectively using the resources it 
has available as well as maintaining adequate living standards for its 
people.
    The RMI has implemented several initiatives, with the assistance of 
the ADB, to strengthen its economic management and implementation 
capacities. The main initiative is the implementation of the ADB-
sponsored Fiscal and Financial Management Program (FFMP). The FFMP is a 
program that is designed to enhance the Government's financial 
management capabilities as well as institute economic management 
capabilities. The program involves further strengthening of the 
Ministry of Finance (MOF) and by establishing the RMI-inspired Economic 
Policy, Planning and Statistics Office (EPPSO) for which the ADB is 
providing technical assistance for its start-up.
    The EPPSO, with the MOF, will be responsible for coordinating the 
preparation of sector strategies in some of the areas indicated in your 
question. And, for instance, sector strategies are already complete for 
health and education. The result will be the preparation of a Medium 
Term Budget and Investment Framework (MTBIF). This Framework will allow 
the Government to plan, manage and evaluate funding on a cyclical 
basis. It will also allow the Government and its partners, mainly the 
U.S. and ADB, to review the funding and its effectiveness on an annual 
basis. In addition, the RMI has proposed to the U.S. that a Performance 
Scoreboard be maintained to measure progress on social and economic 
indicators.
    Such instruments as the MTBIF and the Performance Scoreboard will 
be reviewed annually within the proposed RMI-US Joint Economic Review 
Board. The RMI also envisions sponsoring a Consultative Group Meeting 
of Donors to explain the Compact negotiation process and to explain the 
Marshall Island Intergenerational Trust Fund and future donor 
assistance to assist the Fund.
    Question 2. The FSM and RIM will be receiving a significant 
increase in U.S. financial assistance for FY02 and FY03. How will these 
funds be used? Rather than increasing public expenditures, will these 
funds be set aside for deposit in any trust funds that may be agreed 
to?
    Answer. The so-called ``bump-up'' funds are an increase from the 
last 5-year step-down of the Compact assistance. We have set aside 
these ``bump-up'' funds in a separate escrow account far FY 2002 and 
will do the same in FY 2003. In fact, the amounts being set aside are 
significantly higher than the anticipated ``bump-up'' levels as we have 
included additional un-tied Compact funds and RMI revenues. To date we 
have set aside $17 million and we are targeting $30 million as the 
residual balance in the escrow account by the end of FY 2003. These 
funds, as we have presented in our Compact proposal, will be the 
initial seed funds in the Marshall Islands Intergenerational Trust Fund 
to which we hope the United States will also be a main contributor.
                              Appendix II

              Additional Material Submitted for the Record

                              ----------                              

                  Republic of the Marshall Islands,
                               Ministry of Foreign Affairs,
                           Majuro, Marshall Islands, July 19, 2001.
Loren Yager,
Director, International Affairs and Trade, General Accounting Office, 
        Washington, DC.
    Dear Director Yager: At the direction of President Note, I am 
pleased to respond on behalf of the Government of the Republic of the 
Marshall Islands (RMI) to the GAO draft report, Foreign Assistance: 
Lessons Learned From Donors' Experience in the Pacific Region. I would 
like to take this opportunity to thank your Office for providing a copy 
of the draft report to the RMI for comment.
    The RMI would like to provide several comments in respect to the 
GAO draft report.
    In reference to the GAO figure of $1.7 billion provided to the RMI 
and FSM under the Compact of Free Association Agreements (page 1). 
Furthermore, it was also pointed out in the report that ``U.S. 
assistance to the FSM and the RMI, through the Compact of Free 
Association, is one of three elements (political, economic, and 
defense) of the Compact. The defense element includes a right granted 
to the United States by the FSM and the RMI to deny access by third 
countries for military use'' (page 11). In this context, the RMI 
considers the following point essential in establishing a more complete 
understanding of the figure mentioned above in respect to the Marshall 
Islands:
    The U.S. provides economic assistance to the RMI in exchange for 
military and strategic benefits that the RMI provides to the U.S. 
However, the report fails to point out that in addition to the 
strategic denial clause of the Compact, a major element of the U.S. 
assistance provided to the RMI is towards land rent payment for defense 
sites in the Marshall Islands. Thus, it is a misrepresentation to state 
that the $1.7 billion provided under the Compact is ``Foreign 
Assistance''.
    The RMI would also like to provide the following specific comments 
in respects to the objective review of the report.

1. More explicit recognition that one size does not fit all with 
economic development assistance.

    The Asian Development Bank has begun to recognize the inherent 
differences among Pacific Islands states and how these differences can 
potentially impact development programs and projects. The paper 
discusses the one size fits all approach of the Compact of Free 
Association with Palau, RMI and FSM. The U.S. is stressing the new 
sectorial approach and should recognize the different environments and 
resources that will impact development in the RMI and the FSM under the 
re-negotiated Compact. A document or aid package that stresses the same 
sectors in the RMI and FSM will be missing out on the important points 
learned from the ADB. Different factor endowments will dictate 
different approaches toward development. These factor endowments will 
also have an impact on the eventual success or failure of economic 
development programs and projects. In terms of development and the 
potential for development there are important differences that must be 
recognized by the United States when considering the different 
development paths in the RMI and FSM. There must be some understanding 
as to how these differences will impact the sectorial approach being 
developed by the United States for the Compact.
    For example, since RMI has little in terms of natural resources on 
land, the development of the Marshall Islands Intergenerational Trust 
Fund should have more weight assigned towards its future development 
than say agriculture. This natural resource situation may not be so 
lopsided in the FSM. However, when the topic of the environment is 
brought up, what is being considered? In the RMI issues of marine 
resources and their management should be a major focal point in the 
discussion. Again, the assignments of weights, or relative value, 
should be explored; to what extent are programs delivered for natural 
resource development and protection and marine resource development and 
protection? Every development topic or sector needs to be evaluated in 
this manner.

2. In theory and practice, what are the strengths and weaknesses of the 
sector based aid delivery approach?

    There is discussion on the sector-based approach and how it could 
strike a balance between flexibility and accountability. But there is 
little evidence provided. The report mentions that this sector-based 
approach is being applied on a pilot basis only in Papua New Guinea in 
the health sector. The report mentions there has been substantial 
literature produced over the last two decades as well as experience 
with program implementation in Africa. The report also mentions that it 
appears where sectors are well defined the sector approach has the 
potential to work well. In those areas where it appears sectors are 
less well defined, such as capacity building and the environment, 
program implementation can be problematic.
    There should be a section that surveys the development literature 
concerning the sectorial approach for aid delivery. What are the 
strengths and weaknesses of this approach? What has been learned in 
Africa that MIGHT be applicable to the Pacific region and the RMT/FSM 
more specifically? As for the Pacific, there is only one pilot program 
in the entire region, PNG with health programs, but no evaluation or 
partial evaluation of results. Therefore, in order to make a more 
appropriate response to this proposed sector based aid delivery policy, 
more information and evaluation of work in Africa should be undertaken 
so a more thoughtful Pacific plan can be thought out and developed. The 
report makes allusions to these sector development topics, but the 
reader is left without much tangible, experienced based, insight on 
this important and timely policy matter.
    The RMI Government hopes that the comments provided will assist the 
GAO in finalizing the draft report and looks forward to seeing these 
issues incorporated and explained thoroughly in the final report.
            Sincerely,
                                            Gerald Zackios,
                                       Minister of Foreign Affairs.
                                 ______
                                 
                  Republic of the Marshall Islands,
                               Ministry of Foreign Affairs,
                       Majuro, Marshall Islands, November 19, 2001.
Loren Yager,
Director, International Affairs and Trade, General Accounting Office, 
        Washington, DC.
    Dear Mr. Yager: The Government of the Republic of the Marshall 
Islands (RMI) once again welcomes the opportunity to offer its comments 
on a draft GAO report on implementation of the Compact of Free 
Association between the RMI and the United States. Like previous GAO 
reports on free association, the draft report on the security and 
defense elements of the Compact presents a great deal of useful 
information.
    However, as with earlier installments in this serial process for 
releasing reports on the Compact, the draft report on security and 
defense relations requires substantial commentary to put the 
information and analysis presented into what the RMI would regard as a 
more objective and accurate context. Even where it is based upon the 
threat assessments and opinions of U.S. military experts and planners, 
the GAO report's analysis uses those views as the point of departure 
for its own opinions about how the Compact has operated, and will in 
the future, to promote the mutual security interests of the parties.
    The RMI respects but cannot concur in many of the GAO's opinions.
    For example, the fact that the U.S. has not formally exercised the 
``defense veto'' over foreign policy actions of the RMI, at least not 
overtly in a manner recognized as such, is cited by the GAO as a case 
of U.S. defense rights not exercised. However, the RMI's view is that 
if the defense veto did not have to be invoked overtly and regularly it 
has been because the mechanisms and procedures for consultation that 
are part of the architecture of security and defense relations under 
the Compact have worked precisely as contemplated.
    Similarly, it apparently did not occur to the GAO that the right of 
strategic denial was never exercised because the Compact put the whole 
world on notice that the U.S. has the same military operating authority 
in the RMI that it has in Hawaii. Instead, the GAO argues that U.S. 
strategic denial rights have been exaggerated because ``. . . these 
rights are identical to those that the United States exercises in its 
own territorial waters.'' If the GAO will advise the RMI how it can 
grant the U.S. greater defense and security rights than plenary power 
identical to U.S. powers over its own waters, the RMI certainly will 
sympathetically consider doing so.
    Indeed, only grudgingly does the GAO admit at page 19 that 
strategic denial of access by third country military to land facilities 
``. . . limits the ability of other nations to undertake long-term 
naval operations in the area, and makes activities in the region, such 
as surveillance, more costly.'' Of course, since the GAO apparently has 
concluded that the hostile actors or foreign powers will never again 
attempt to transit RMI waters or develop a presence in our islands, 
even the recognized and tangible security benefits for the U.S. are 
thematically discounted in the report.
    The RMI has experienced unrestrained warfare, as well as the 
peacetime use of high-yield nuclear weapons, in our territory. We do 
not share the GAO's assessment as to the predictability, the nature, or 
the consequences of future threats to international peace and security.
    That is one of the reasons the RMI is committed to the strategic 
partnership defined by the Compact. However, the RMI's commitment to 
its alliance with the U.S. is not motivated only by the protection the 
RMI receives, nor economic assistance. As discussed in some detail 
below, the RMI rejects the attempt to oversimplify the RMI-U.S. 
relationship under the Compact. Specifically, free association cannot 
accurately be characterized as a quid pro quo exchange of defense 
rights for economic benefits.
    Most recently, the RMI has made it clear at the highest level that 
our nation stands with the United States in the war on terrorism 
without condition or exception. The U.S. is on the side of rule of law, 
human liberty and freedom from violence in the world. The RMI is on the 
same side and stands with the U.S. in this struggle, and that will be 
the policy whether free association continues or not. Even if our 
citizens were not serving today in the uniform of the United States, 
even if we were not supporting the U.S. missile defense program, even 
if we did not delegate full powers of government over all security and 
defense matters arising in our territory to the United States, the RMI 
will align itself with the U.S. on these matters of international 
peace.
    However, we would also note that the U.S. has benefited far in 
excess of what the GAO seems to regard as the burdens and cost of the 
relationship. The ability of the U.S. to conduct nuclear tests in the 
RMI and the missile defense program at Kwajalein played a role in the 
success of U.S. strategic policy in the post-WWII era that is hard to 
overstate. What price tag would the GAO put on the role that the 
Marshall Islands played in support of the U.S., at a time when the 
world was divided in two camps and the stakes were not just life and 
death for the generation, but the very survival of civilization?
    With respect to the value of the Compact to the U.S., the 
termination of the trusteeship in favor of free association was itself 
important to the Reagan Administration's efforts to develop the 
Strategic Defense Initiative without Soviet interference in the 
Trusteeship Council. Not only does the GAO ignore some of these 
significant historical facts in its historical account of the 
relationship at pages 5-6, but any mention of the nuclear testing 
program and its legacy for the people in the RMI is omitted entirely. 
Yet, this and many other matters were part of the public policy 
equation Congress embedded in the Compact, and the GAO report is the 
best evidence that the institutional memory of the U.S. government 
about this relationship needs to be refreshed.
    The litany of oversimplification in this report must also include 
the statement that ``Ongoing negotiations to renew these expiring 
provisions provide the United States with the opportunity to reexamine 
its defense and security interests in the region in light of the end of 
the Cold War and the current use of Kwajalein Atoll in the Marshall 
Islands as a test site for missile defense.'' This might not be an 
unreasonable statement were it not for the fact that the reexamination 
urged by GAO includes the strategic denial right, which by the terms of 
the mutual security agreement concluded under the Compact can only be 
altered by mutual agreement.
    The U.S. may be able to renounce the mutual security agreement and 
terminate the Compact. However, the GAO suggestion that expiration of 
the economic provisions of the Compact entitles the U.S. to 
unilaterally reexamine the mutual security agreement ignores the terms 
of mutuality and comity set forth in a treaty that has the force and 
effect of U.S. Federal law.
    Similarly, in support of the thematic insinuation that the RMI is 
as much or more of a military obligation to the U.S. than an asset, the 
GAO report characterizes the commitment of the U.S. to defend the RMI 
as a higher level of defensive burden than the mutual defense 
obligations of the U.S. under the NATO pact. Yet, the GAO report fails 
to mention that the strategic denial power, the defense veto power, the 
plenary authority of the U.S. to exercise sovereign power over all 
security and defense matters in the RMI as delegated under the Compact, 
and the military operating rights in the lands and waters of the RMI, 
separately and especially in combination, all provide the U.S. with a 
greater degree of rights and powers that the U.S. enjoys in NATO 
nations or as a NATO partner.
    Perhaps the GAO opinion that demands the most scrutiny and 
correction of the record is the heavily-emphasized assertion that the 
Compact's security and defense provisions reflected ``Cold War concerns 
. . . that existed at the time of the negotiations''. This is a pivotal 
assumption around which much of the logic and analysis in the draft 
report revolves. The accompanying recital of the levels of direct 
economic assistance and costs of Federal programs provided under the 
Compact would tend, as mentioned above, to lead the reader to conclude 
that the Compact is simply or primarily a quid pro quo arrangement 
involving a bargained-for exchange of military rights for Federal 
payments. This presentation of facts and the related analysis is so 
incomplete and misleading that it fairly can be characterized as 
historical revisionism.
    The negotiations and the status resolution process spanned the 
better part of two decades, from 1969 to 1985 (including Congressional 
ratification, during which some leaders in Congress actively engaged in 
negotiations with the Executive Branch and the island leaders to alter 
the effects of the agreement, resulting in formulation of the elaborate 
implementing provisions in Title I of P.L. 99-239). Five House and two 
Senate committees conducted somewhere near 30 hearings on the legal, 
political, economic, social, and cultural, as well as strategic and 
military, implications of the Compact.
    This was during the Cold War era, and to be sure the Soviet threat 
to international peace and security from the end of WWII forward was a 
significant factor in U.S. policy for administering the trust 
territory, including the nuclear testing program at Bikini and Enewetak 
and the missile systems development program at Kwajalein. However, 
these strategic programs of the U.S. in the trust territory did not 
operate in a vacuum, and both before and after the Compact was 
implemented the relationship between the RMI and the U.S. was much more 
complex than this or previous GAO reports reveal.
    To begin with, during the 38-year period from approval of the 
trusteeship agreement by Congress in 1947 to 1985 when the Compact was 
approved, the RMI and other parts of the trust territory were 
administered in much the same manner as U.S. territories had been. 
Military occupation government was replaced by civilian administration 
under the Department of the Interior. The committees in Congress that 
exercised plenary powers over the U.S. territories under article IV, 
section 3, clause 2 of the U.S. Constitution acquired jurisdiction over 
the trust territory, and the prevailing view reflected in the record of 
Congressional oversight during these years favored treatment of trust 
territory citizens as much as possible like U.S. citizens in the 
territories.
    The most notable exception to treatment not the same as but 
comparable to U.S. national status was that trust territory citizens 
had no vested rights in the U.S. political and legal system, and 
whatever treatment was received was at the discretion of the U.S. under 
the trusteeship system. Thus, as a privilege rather than as a result of 
rights, there was a policy of gradual extension of Federal programs and 
services to the trust territory on the same or similar basis as the 
U.S. territories.
    Many members of Congress and influential Congressional staff openly 
advocated territorial status for the islands, and some even asserted 
that somehow a defacto annexation had already occurred under which the 
Territorial Clause of the Federal Constitution applied in the trust 
territory. The proponents of this view openly argued that only 
termination of the ``obsolete'' trusteeship was required to complete 
the conversion to territorial status. The RMI would be glad to assist 
the GAO in locating in the records of Congressional hearings and 
correspondence the materials that reflect this legislative history of 
the Compact.
    Although the Executive Branch officials responsible for the status 
resolution process did not accept or adopt the ``de facto annexation'' 
theory, a status process was agreed to in the early 1970s that resulted 
in succession of the Northern Mariana Islands to territorial status. 
This was subject to the legal requirement of trusteeship termination at 
such time as the future status of the other island groups was achieved.
    However, the status resolution process in the rest of the trust 
territory proved far more complicated than in the CNMI. Indeed, by the 
time the negotiations clarified the probable features of the available 
political status options for the other islands (territory, independence 
or free association), which did not occur until 1980, the U.S. 
negotiators and Congressional leaders of committees of jurisdiction had 
made it clear that significant elements of U.S. domestic policy were at 
play in the negotiations and approval of any agreement reached.
    Thus, the Soviet threat had little or nothing to do with the 
intense political debate in Congress over whether the Executive Branch 
negotiators were ``abandoning'' islands with populations to which the 
U.S. had commitments and obligations more analogous to those owed to 
U.S. citizens. The ``cutting off'' of Federal programs was criticized 
in Congress, and in the Compact ratification process Congress added the 
very Federal programs cited by the GAO as part of the cost of the 
Compact with strong bipartisan support.
    The record of over 30 hearings in the House and Senate committees 
with jurisdiction over both the U.S. territories and the trust 
territory also reflect the fact that, in the case of the Marshall 
Islands, economic development in the islands was precluded by closure 
of the islands and relocation of their populations during decades of 
U.S. nuclear weapons and missile testing. The population of the RMI had 
been both forced and induced to rely upon and, in turn, to become 
dependent upon, U.S. support and assistance, including woefully 
inadequate measures to address the effects of nuclear testing.
    At the same time our people in the Marshall Islands despaired at 
the hardship and injury inflicted on us during nuclear testing, there 
also developed a friendship with the U.S. based on decades of common 
experience living under the trusteeship. Even though that common 
experience involved a man-made crisis of survival due to the effects of 
the U.S. strategic programs on the population, somehow a residual 
mutual respect and understanding grew between our peoples and 
governments. Even as the Marshallese slowly were angered and refused to 
accept the actions of the U.S. that damaged land and injured people, 
the virtues of Americans and the U.S. model of a political economy were 
recognized and admired by our people.
    The people of the Marshall Islands experienced the horrors of 
nuclear contamination and learned about radiation in the environment in 
a way that few populations ever have. At the same time they held the 
U.S. responsible for their hardship, they had the collective wisdom to 
recognize that the U.S. was engaged in a struggle to prevent, rather 
than cause, nuclear war. The compassion Americans showed even as they 
created the conditions of hardship required that the Marshall Islanders 
learn to live with the contradictions and paradoxes of the modern world 
in a way that perhaps no other culture ever has. It speaks volumes 
about who the Marshallese people are that we seek justice with 
forgiveness in our hearts, and that we chose to become allies with the 
U.S. based on all that we knew about Americans instead of just what we 
suffered from nuclear testing.
    The GAO report notes that several landowner demonstrations have 
taken place at Kwajalein in the past, but fails to point out that all 
of these demonstrations took place prior to the effective date of the 
Compact and Military Use and Operating Rights Agreement (MUORA). 
Although there have been issues which needed to be addressed over the 
course of the last fifteen years, the fact is that the mechanisms and 
framework established in the Compact through the Community Relations 
Council (CRC), Joint Committee Meeting (JCM) and other bi-lateral means 
have been largely successful in addressing these concerns. Nonetheless, 
the special needs of Ebeye and the Kwajalein Atoll communities must 
continue to be addressed in the future.
    The programs of the United States to provide economic assistance to 
the people of the Marshall Islands, and the blessings and benefits of 
friendship with the U.S. in terms of education, business, 
transportation, communications, medical science, technology and capital 
infrastructure development, all were an integral part of the legacy of 
the trusteeship era, including the policy of ``compensation'' for the 
impact of security and defense programs in the RMI. This was well known 
and understood by those in Congress and the U.S. Executive Branch who 
negotiated the Compact. It was no accident, no lapse in judgment, and 
it was not simply the excesses of the Cold War era, that led to the 
structuring of a package that included significant economic assistance 
and a close strategic partnership under the Compact.
    Thus, when it came time to approve a political status option, the 
people of the Marshall Islands were able to balance their desire to 
control their own destiny through attainment of sovereignty with their 
aspirations to share that destiny with the U.S. based on mutual 
agreement. The Cold War may have been the backdrop for this dramatic 
model of decolonization based on separate sovereignty but a continued 
close relationship, but neither the Cold War nor economics of the 
Compact were what defined the interests and motivations of the parties 
to that relationship. The GAO's ``analysis'' here is both simplistic 
and ahistorical.
    For its part, in addition to defense rights, the U.S. honorably 
ended its role as administering power and substituted it with the role 
of an ally to democratic governments. The RMI assisted the U.S. in this 
foreign policy success, and Congress not only agreed but insisted that 
the economic and social features of the Compact reflect the close and 
special relationship embodied in the Compact.
    The last GAO opinion that requires correction appears in the title 
and throughout the report. It is the misleading reference to Kwajalein 
as an interest the U.S. has in two ``Micronesian nations''.
    The rights, powers and obligations of the United States with 
respect to security and defense matters under the Compact of Free 
Association between the U.S. and the RMI, including most particularly 
the use of Kwajalein Atoll by the U.S. as a military facility, is not 
an interest of the United States that arises from, or is legally, 
politically, or in any other respect directly related to, the free 
association relationship between the U.S. and the Federated States of 
Micronesia (FSM).
    The Compact is a multilateral agreement only because, for reasons 
of practicality and diplomacy in the U.N. Trusteeship Council, the U.S. 
originally sought to negotiate free association and terminate the U.N. 
trusteeship contemporaneously for the RMI, FSM, and Palau. If the GAO 
were to carefully examine the record of Congressional oversight from 
1970 to 1985 regarding the political status process, it would discover 
that there was intense international and domestic political pressure on 
the Executive Branch negotiators and the emerging island governments to 
preserve ``Micronesian unity'', and to conclude a status agreement with 
a single ``Micronesian entity''.
    The only problem was that Micronesian unity would have had to been 
imposed against the will of the bodies politic that constituted 
themselves through the self-determination process in the trust 
territory. Specifically, the people of the Marshall Islands, Palau and 
the Northern Mariana Islands did not share the aspirations of those 
island peoples who voted to ratify the constitution of the Federated 
States of Micronesia, and thereby to be part of a ``Micronesian 
nation''.
    The U.S. abandoned the idea of a single multilateral document when 
it asked Congress to approve free association for the RMI and FSM 
without Palau, due to the delay in Palau's internal ratification 
process. Thus, the Compact approved by P.L. 99-239 is a multilateral 
document that defines two separate bilateral relationships. The 
government-to-government relationship between the U.S. and the FSM does 
not confer, secure or in any other legal and political sense bear upon 
the U.S. security and defense relationship between the RMI and the 
United States.
    Thus, the GAO recital of the costs of the Compact to the U.S. 
incorrectly combines the amounts provided to the FSM with the amounts 
provided to the RMI, and then devalues the U.S. defense rights in the 
RMI along with those in the never-militarized FSM. This obviously 
invites the reader to engage in a cost/benefit analysis that is unfair 
and misleading.
    For these and other reasons set forth above, the RMI questions the 
premise of this GAO report, as well as its value for those trying to 
determine if the Compact security and defense provisions embody 
important U.S. government interests.
            Sincerely,
                                         Gerald M. Zackios,
                                       Minister of Foreign Affairs.
                                 ______
                                 
           Embassy of the Republic of the Marshall Islands,
                                    Washington, DC, April 21, 2000.
Ms. Gary Jones,
Associate Director, Energy, Resources, and Science Issues, General 
        Accounting Office, Washington, DC.
    Dear Ms. Jones: It is my distinct pleasure to deliver the response 
of the Government of the Republic of the Marshall Islands (RMI) to the 
GAO draft report, Compact of Free Association: Better Accountability 
Needed Over Payments to Micronesia and the Marshall Islands. I 
sincerely hope that our comments will be helpful to the GAO as it 
finalizes the report.
    At this time, I would also like to extend my personal thanks to you 
and your staff for working closely with the Embassy from the beginning. 
If you would need any further information or assistance in the future, 
please do not hesitate to call on the Embassy.
            Sincerely,
                                             Banny de Brum,
                                                        Ambassador.

                  Republic of the Marshall Islands,
                     Ministry of Foreign Affairs and Trade,
                          Majuro, Marshall Islands, Apri1 13, 2000.
Ms. Gary Jones,
Associate Director, Energy, Resources, and Science Issues, General 
        Accounting Office, Washington, DC.
    Dear Ms. Jones: At the direction of H.E. President Kessai H. Note, 
I am pleased to respond on behalf of the Government of the Republic of 
the Marshall Islands (RMI) to the draft report of the GAO. I would like 
to take this opportunity to first thank the GAO for providing a copy of 
the draft report, Compact of Free Association Better Accountability 
Needed Over Payments to Micronesia and the Marshall Island, to the RMI 
for comment. The RMI Government realizes the significance of this 
report in developing our mutual understanding of assistance and/or 
allocation of funds provided to the Marshall Islands both prior to and 
during the Compact of Free Association. In that context, I am pleased 
to forward to you the RMI Government's comments on the GAO report.
    The attached comments reflect the RMI's serious concerns that both 
the request made to the GAO and its response are based on 
misconceptions about the terms of the Compact in certain respects. As a 
result, we believe some of the information in the draft report is 
misleading and inaccurate at times. The unique history of the Marshall 
Islands vis-a-vis the United States is not adequately explained in the 
draft. In our comments, the RMI Government has provided the necessary 
context and background within which the figures cited in the report can 
be critically examined.
    You will note that we have organized our comments into three parts. 
Part I summarizes our position in brief. In Part II, we address the 
text of the draft page by page. Finally, Part III briefly concludes our 
commentary, We thank you in advance for your consideration of these 
comments and hope they will be reflected in the final draft.
    Again, we welcome the opportunity you have afforded the RMI 
Government to review and comment on this report. Please do not hesitate 
to contact me should you have any questions.
            Sincerely,
                                            Alvin Jacklick,
                             Minister of Foreign Affairs and Trade.
                            part i: overview
    The Government of the Republic of the Marshall Islands (RMI), 
having reviewed the General Accounting Office's (GAO) draft report, is 
seriously concerned that the report misrepresents and confuses the 
unique history of U.S. financial assistance to the RMI. The confusion 
stems from the report's repeated failure to provide any background or 
context to the figures for U.S. assistance that it cites. The RMI 
considers the following points to be essential to establishing a more 
complete understanding of U.S. assistance in the islands:

          1. Under the Compact of Free Association, the U.S. provides 
        economic assistance to the RMI in exchange for military and 
        strategic benefits that the RMI provides to the United States. 
        Thus, it is a misrepresentation to frame the discussion in 
        terms of ``foreign assistance.''
          2. It further confuses the case to present the total amount 
        of U.S. assistance as money given to the RMI to benefit the 
        RMI. Under the Trust Territory of the Pacific Islands (TTPI) 
        regime, U.S. funds were completely controlled by U.S. federal 
        agencies and administrators with responsibility for programs 
        and activities conducted in the region. Even after the RMI 
        became self-governing, indirect U.S. program assistance 
        remained outside of the RMI's control.
          3. For this reason and others, it is extremely misleading 
        that $250 million is reported as prior ``compensation'' for the 
        effects of the testing on the people and lands of the Marshall 
        Islands.
          4. The Section 177 Agreement provided for the first time a 
        framework for compensation to affected communities and 
        individuals. However, it must be noted that a significant 
        portion of that money continues to benefit the U.S. through the 
        DOE driven scientific and medical research conducted in the 
        Marshalls.

    In the following pages, these points are explained in full.
                   part ii: section specific comments
 ``Foreign Assistance'' (Title Page)

    Although the report's title is ``Better Accountability . . .'', the 
large bold print words ``Foreign Assistance'' on the title page should 
be deleted. Compact funding is not provided under the Foreign 
Assistance Act of 1961, as amended, codified in Title 22 of the U.S. 
Code. Rather, it is provided under statutes printed in the Historical 
and Statutory Notes accompany Section 1681 in Title 48 of the U.S. 
Code. Compact funding is therefore not included in the budget of the 
State Department or the Agency for International Development (AID). 
Compact funding is instead provided through the ``850 Account'' for 
domestic spending programs including those administered by the 
Department of the Interior. In this context, the reference to ``Foreign 
Assistance'' is both confusing and misleading.

 ``The Compact granted these two former Trust Territory 
districts their independence . . .'' (Page 1).

    As a matter of technical accuracy, it should be clarified that the 
Federated States of Micronesia (FSM) comprises islands that were 
organized into four of the six Trust Territory districts. The Republic 
of the Marshall Islands (RMI) was also one of these six districts. It 
should be further clarified that the Compact provided the basis for 
U.S. and international recognition of the FSM and RMI as sovereign 
nations in free association with the United States. However, subsequent 
admission of both nations as members of the United nations with support 
from the U.S. constitutes full recognition under U.S. and international 
law that free association as defined under the Compact is consistent 
with the status of independent nationhood.

 ``Prior to the Compact, the United States provided about $250 
million to the Republic of the Marshall Islands as compensation for the 
effects of the U.S. nuclear weapons testing program . . .'', and that 
the ``. . . Departments of Defense, Energy, and the Interior provided 
this compensation in the form of direct payments to the Islands' 
governments and individuals` rehabilitation and resettlement services, 
and health care and monitoring of islanders exposed to radioactive 
fallout'' (Page 2).

    The incomplete and often inaccurate description of U.S. 
``compensation'' for the effects for the Nuclear Testing Program 
throughout this document is deeply troubling to the RMI.
    First, it should be clarified that the $250 million expended prior 
to the Compact was not provided to the Republic of the Marshall Islands 
since it did not then exist as a nation. The $250 million in question 
was in fact controlled by the Departments of Interior, Defense and 
Energy to fund programs that addressed in various ways the effects of 
the nuclear testing on the people of Marshall Islands and their 
homelands. This was not actual ``compensation'' based on any legal 
determination of damages or adjudication of costs for recovery, and the 
purpose of most of these programs was not compensation to manage public 
needs created by the testing program. For example, it is misleading to 
describe the cost of evacuation and funding subsistence living for 
dislocated people as ``compensation.''
    Furthermore, the bulk of the funding was expended for U.S. programs 
and activities that were part of the process for carrying out the 
nuclear testing program and then closing down the testing grounds. Of 
the amounts expended that assisted the Marshallese in any direct way, 
most of the funding was for carrying out the U.S. role as the 
administering authority responsible for civil governance of the islands 
and the affected population, including the discretionary provision of 
assistance and services to the dislocated populations and communities 
recognized as exposed.
    Small amounts were paid to individuals and local communities as ex 
gratia or compassionate payments, without any attempt to provide actual 
compensation. For example, under P.L. 95-134, victims whose thyroids 
were removed due to tumors were paid $25,000.00 as ``compassionate'' 
assistance. This program was a small fraction of the $250 million cited 
by GAO, and was not part of any full or final compensation program.
    During this period, the Mashallese had limited recourse to legal 
process and even more limited forms of constitutional self-government. 
We were subject to virtually unfettered discretion of U.S. military and 
civilian authorities, under a trusteeship regime that had no precedent 
in U.S. political history other than military occupation and martial 
law. Thus, this paragraph is extremely inaccurate especially as it 
suggests there was an orderly system of compensation for the 
Marshallese people individually or as a nation.

 ``As Freely Associated States, the government may engage in 
world affairs as sovereign states with very limited restraint and 
operate their own fiscal systems'' (Page 4).

    In light of this very narrow description of our unique relationship 
with the United States, the RMI cannot emphasize enough the importance 
of adding the following background information to this section.
    First, under Title III of the Compact the U.S. retains ``full 
authority and responsibility for security and defense matters in or 
relating to . . .'' the Freely Associated States. This includes the 
authority under Section 313 to veto any exercise of sovereignty by the 
RMI which the U.S. determines unilaterally to be incompatible with U.S. 
security policy. Since the RMI has been a close ally and strong 
supporter of U.S. policy in the United Nations, the impression may be 
that delegation by the RMI of plenary governmental authority to the 
U.S. for a core element of national power is a ``limited restraint.'' 
However, this is hardly the case. Indeed, the strategic alliance 
referred to here by the GAO and the accompanying characterization of 
the RMI ability to operate its own fiscal system cannot be understood 
without reference to Title III. Specifically, the logic of the 
Compact's goals of self-sufficiency, fiscal autonomy and mutual 
security is repeatedly reiterated throughout the Compact and its 
related agreements. For example, pursuant to Section 321 and 323 of the 
Compact, the parties agreed and Congress ratified in P.L. 99-239 a 
Mutual Security pact, Article V of which states:

          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 attainment of the 
        mutual security goals expressed in this Agreement. The 
        Government of the United States reaffirms its continuing 
        interest in promoting the long-term economic advancement and 
        self-sufficiency of the people of the Marshall Islands.

    Thus, the close strategic alliance in the Compact is underpinned by 
a close economic relationship. The fact that the RMI has a separate 
fiscal system and as a sovereign nation is not part of the U.S. federal 
system directly does not diminish the linkage that Congress created in 
the Compact between its military and economic goals. In minimizing this 
linkage, the GAO fails to fully inform Congress of the nature of the 
assistance provided under the Compact.

 Description of the nuclear legacy (Pages 5-6, 10-11, 29)

    Once again, the RMI is extremely concerned with the misleading 
information that is presented by the GAO regarding the nuclear testing 
legacy in the Marshall Islands. The following discussion addresses 
several inaccuracies in the report.

    1. The suggestion that Enewetak rehabilitation was complete ``after 
the cleanup and reconstruction . . . in 1980'' (6) is misleading. The 
people of Enewetak continue to have limited use of their atoll given 
lingering contamination in the northern islands and the environmental 
degradation that occurred as a result of cleanup activities. In 
addition, the cement-capped dome built to house long-lived nuclear 
waste not only constrains access to the land but remains unmonitored. 
The people of Enewetak continue to pursue claims before the RMI Nuclear 
Claims Tribunal for their losses.

    2. In the one sentence explanation of U.S. measures on behalf of 
the Utrik community, the draft report fails to inform Congress that 
while the people of Utrik ``were returned a few months after being 
removed'' (6), there remains a deep-seated concern within the community 
about the consequent health effects they attribute to living in a 
contaminated environment. In this regard, the Utrikese share many of 
the same concerns that led to the evacuation of Rongelap.

    3. The statement that since the time of the testing, ``the U.S. has 
compensated the people of the Marshall Islands for hardships they 
experienced . . .'' (6) represents the crux of the problem in this 
report's description of the RMI's nuclear legacy. While some 
compensation has been paid, this statement is grossly misleading in 
that it implies much more. First, under programs prior to the Compact, 
the U.S. provided certain limited measures to address the effects of 
the testing on the Marshallese people and their lands. Recognizing the 
inadequacy of those measures, the Section 177 Agreement then 
established a more comprehensive program to address the nuclear testing 
legacy. However, even after all the funding under the Section 177 
Agreement has been fully expended, it may or may not be true that the 
U.S. ``has compensated'' the people of the RMI for the effects of the 
nuclear testing. Rather, the Section 177 Agreement specifically 
establishes a framework under which the U.S. accepts responsibility for 
compensation, but the scope and amounts of compensation are yet to be 
determined. Please note the attached submission to Congress by the 
former U.S. legal advisor to the first Compact negotiations, Howard 
Hills, confirming that the Section 177 payments were not based on an 
actual calculation of damages, but were based on the political figure 
of $150 million. The $150 million dollar trust fund and other measures 
taken under the Section 177 Agreement now and in the future, including 
any additional assistance provided due to changed circumstances, are 
all part of the compensation owing to the Marshallese.

    4. In this context, the statement repeated at page 10 that the U.S. 
previously provided $250 million in addition to the compensation 
provided under Section 177 is again misleading. Among other things, the 
breakdown of this ``prior compensation'' appearing at pages 10-11 
confirms the analysis presented above that the earlier measures were ad 
hoc, random, served U.S. program purposes rather than first and 
foremost the interests of the affected population, and were inadequate. 
For example, the Enewetak cleanup cited on page 10 occurred in a 
limited attempt to mitigate contamination and advance but by no means 
complete a general environmental rehabilitation. It stretches the 
meaning of compensation to suggest that the $134 million spent by the 
Department of Defense to close down the proving grounds and leave the 
test sites in a partially restored condition should be considered as 
the bulk of $250 million dollars in ``compensation'' already given to 
the Marshallese people.
    The report further suggests that the $52 million that the 
Department of Energy expended conducting medical programs should be 
counted as compensation. The RMI believes that the GAO's logic is 
extremely flawed in this case. Considering as ``compensation'' the 
DOE's emergency measures to treat Marshallese exposed to nearly fatal 
doses of radiation as a result of U.S. testing is akin to giving the 
negligent party in a car crash credit against a court ordered judgment 
for serious bodily injuries and long term losses based on the first aid 
given at the scene by the ambulance team. Moreover, given that 
scientific and medical research programs represented a major portion of 
DOE's expenditures, it remains in question whether or not the DOE 
programs were a case of continuing trespass by the U.S. upon the 
persons and lands of the Marshallese people. The reliance on the DOE 
program in many cases prevented more comprehensive measures that should 
have been taken during these critical years.
    Finally, the report's analysis of the $250 million ``prior 
compensation'' package ends with a one paragraph description $66 
million that supposedly went to the people. Of the $66 million, only 
$15 million was actually paid out to those recognized as having 
suffered from the test. This $15 million is further divided such that 
only 34% went to relieve the hardship of actual victims, and 64% went 
into trusts for the communities involved. In other words, the victims 
of the testing received just $5,100,000 in direct payments prior to the 
Compact. This analysis once again reveals the misleading nature of the 
assertion that $250 billion dollars in ``compensation'' was provided to 
the people of the Marshall Islands prior to the Compact.

    5. As mentioned in the above discussion, the Section 177 Agreement 
established a framework for compensation within which the U.S. 
Government recognized its moral and legal obligation to provide for 
injuries caused by the U.S. testing program. This obligation cannot be 
characterized as ``foreign assistance.''

    6. Furthermore, the $75 million that the Department of Energy 
received to provide ``assistance'' in the form of environmental and 
medical monitoring programs in the Marshall Islands funded scientific 
and medical research that the U.S. Government wanted to undertake to 
better understand the effects of radiation on human beings and the 
environment. Thus, the expenditure of this money has enormously 
benefited the DOE specifically and the U.S. Government generally. This 
is just one of many examples in which the United States and its 
citizens benefited from allocation of Compact funds.
                          part iii: conclusion
    The RMI Government hopes that the issues and information raised in 
the above commentary will assist the GAO in finalizing a report that 
provides not just numbers but a thorough explanation of the data on 
financial assistance.
    The bilateral relationship established under the Compact of Free 
Association between the Republic of the Marshall Islands and the United 
States is so unique that understanding the relationship in context 
becomes particularly critical. The history of U.S. nuclear testing and 
its continuing legacy in the RMI further complicates the picture. 
Therefore, it is essential that the GAO provide the necessary 
background information when describing U.S. assistance in the Marshall 
Islands.
    The RMI Government welcomes the opportunity to raise the above 
issues. We hope to see these complexities more thoroughly explained in 
the final report.
                                 ______
                                 
           Embassy of the Republic of the Marshall Islands,
                                   Washington, DC, August 30, 2000.
Dr. Susan S. Westin,
Associate Director, International Relations and Trade Division, U.S. 
        General Accounting Office, Washington, DC.
    Dear Dr. Westin: As directed by H.E. President Kessai H. Note and 
relevant Ministries, I am pleased to provide the RMI Government's 
response to the GAO draft report entitled U.S. Funds to Two Micronesian 
Nations Had Little Impact on Economic Development. I would like to 
acknowledge GAO's consideration in allowing the RMI the opportunity to 
comment on the draft report.
    As you will note, our comments consist of three critical parts: 
Part I provides a brief overview of the draft report; Part II gives a 
more detailed assessment of the test by page number: and Part III 
briefly concludes our commentary. Thank you again for including these 
comments in the final report and we look forward to assisting in 
providing further input upon request.
    Please feel free to contact the Embassy should you require further 
clarification on the attached.
            Sincerely,
                                             Banny de Brum,
                                                        Ambassador.
                            Part I: Overview
    The Government of the Republic of the Marshall Islands (RMI) 
extends its appreciation for the opportunity to comment on the General 
Accounting Office (GAO) draft report entitled ``U.S. Funds to Two 
Micronesian Nations Had Little Impact on Economic Development.'' In 
this regard, the RMI takes issue with the GAO's assertion that the 
funds provided pursuant to the Compact of Free Association essentially 
failed to advance economic development in the Marshall Islands. The RMI 
Government believes that by domestic standards that there have been 
both economic successes and failures over the rears. Without a doubt, 
these successes and failures reflect the unique status of and 
concurrent resource-level available to the RMI through the Compact. 
Applying U.S.-based standards of success in this case once again 
confuses the contest of the situation on the ground in the Marshall 
Islands.
    The RMI considers the Compact of Free Association a mutually 
beneficial agreement that not only provided a successful model of self-
government and a means of economic advancement for the Marshallese 
people, but also ensured U.S. security and defense rights at a reduced 
cost to the United States of America. The Compact must be judged in 
this content. Its successes and failures cannot be fairly-judged 
otherwise.
    The following points summarize in brief the background information 
that the RMI would like to see added to this report:
    1. As previously noted by the RMI and agreed to by the GAO in its 
first report, it is a misrepresentation to frame the discussion of 
Compact funding in terms of ``foreign assistance.''
    2. The statement that the Compact of Free Association ended U.S. 
Administration of the RMI is misleading. The Compact may have ended the 
U.S. role as administering power under U.N. Trusteeship but continues 
U.S. powers and functions of government as agreed to by Congress and 
the Government of the Republic of the Marshall Islands.
    3. The report's characterization of ``private sector growth'' or 
lack thereof does not include important background information on the 
relatively remarkable expansion of the private sector in the Marshall 
Islands and the measures taken by the RMI Government to ensure that 
this expansion continues.
    4. The report further provides inaccurate information concerning 
the progress of the public sector reform program. It is a gross 
misrepresentation on the GAO's part to claim that the RMI Government 
reneged on its reform policies when, in fact, reform targets such as 
the reduction in force have been realized.
    5. Contrary to the claims of the GAO report, the modernization of 
the woefully inadequate social and physical system of infrastructure 
left behind by the Trust Territory Administration has not only enhanced 
the quality of life in the RMI, but has also provided the necessary 
foundation for private sector growth.
    6. Finally, the GAO report evaluates investments and outcomes 
without considering contextual factors affecting the outcome of 
government business ventures.
    In the detailed response below, this necessary background 
information is provided.
                       Part II: Specific Comments
 Reference to ``Foreign Assistance'' (Title Page).

    It is both surprising and disappointing to the RMI that the GAO 
would persist in using the misleading term ``Foreign Assistance'' in 
large, bold print on the title page after agreeing in its report of May 
2000 that the ``title page heading `Foreign Assistance' may have 
presented some confusion.'' \1\ The RMI firmly believes this reference 
should be changed as it was in the May report. For the sake of clarity, 
the Government of the Republic of the Marshall Islands reiterates that 
Compact funding is not provided under the Foreign Assistance Act of 
1961, as amended, codified in Title 22 of the U.S. code but defined 
under Historical and Statutory Notes in Section 1681, Title 48 of the 
U.S. Code. Compact funding is therefore not included in the budget of 
the State Department or the Agency for International Development (AID). 
Rather, it is provided through the ``850 Account'' for domestic 
programs including those administered by the Department of the 
Interior.
---------------------------------------------------------------------------
    \1\ General Accounting Office. Foreign Relations: Better 
Accountability Needed Over U.S. Assistance to Micronesia and the 
Marshall Islands. May 2000.

 ``Compact ended U.S. administration of the Federated States of 
---------------------------------------------------------------------------
Micronesia and the Republic of the Marshall Islands'' (Page 18).

    As the Administering Power under the trusteeship the United States 
exercised plenary powers of government, including all legislative, 
executive and judicial functions. These powers were based not upon the 
direct exercise of U.S. national sovereignty as in the case of the 
states of the union or the U.S. territories, but from a treaty between 
the U.N. as an international organization and the U.S. as a member 
state. The entry into force of the Compact ended the role of the U.S. 
as Administering Power under the trusteeship treaty between the U.S. 
and the U.N. as a multilateral body, and replaced it with the 
multilateral compact between three sovereign nations, which actually 
defines two separate bilateral relationships within a multilateral 
framework.
    Under the Compact, approved by a Joint Resolution of Congress with 
the full force and effect of U.S. law, the U.S. has retained without 
cessation or interruption plenary powers of government with respect to 
security and defense, and also carries out major functions of 
government, based on the mutually agreed terms of the treaty. The 
retained powers of the U.S. in the FSM and RMI are the result of a 
delegation of those powers by the governments of the Freely Associated 
States, just as the plenary powers under the trusteeship were delegated 
to the U.S. by the U.N. before the Compact was approved. This 
arrangement continues the relationship established under the 
trusteeship, but does so on the basis of self-determination and self-
government for the peoples concerned in fulfillment of the purposes of 
the trusteeship system and U.S. policy.
    In this context, Compact assistance and U.S. federal programs and 
services in the FAS were intended to operate as alternative to the 
system for managing the cost of government and administering government 
funding provided to the states and territories under U.S. sovereignty. 
In this way, the role of the U.S. in administering the functions of 
government in the FAS is carried out directly in many respects and 
through the FAS governments in other respects. However, the funding and 
costs associated with this arrangement should be seen as the 
alternative to both domestic spending for government in the states and 
territories, and also as the alternative to foreign assistance and aid 
for nations where the U.S. does not retain direct powers of 
administration or perform functions of government.
    The hybrid features of the Compact in this regard were proposed and 
in some cases insisted upon by the U.S. in light of the estimated cost 
of administering the FAS as U.S. territories. If the Compact had not 
been structured to make free association sufficiently attractive to the 
voting populations in the trust territory, the alternative for the U.S. 
and the peoples concerned was territorial status. In that case, the 
inhabitants of the islands would have voted for and in all likelihood 
would have been granted U.S. nationality. In that event, the U.S. would 
have been required to embark on a program to bring the islands into the 
national economic and political system on a trajectory aimed at 
convergence with the U.S. territories.
    The investment that would have been required to accomplish 
integration of the trusteeship islands into the nation would have far 
exceeded the cost of governing the islands under free association, 
which along with the aspirations of the peoples concerned for separate 
national sovereignty and citizenship is one reason why the U.S. 
proposed and the FAS agreed to the arrangements under the Compact. Any 
attempt to analyze in the year 2000 the cost of government under the 
Compact must take into consideration these realities.

 ``Substantial Compact funds were used to support general 
government operations that have, among other things, maintained high 
level of public sector employment and have acted as a disincentive to 
private sector growth'' (Page 48).

    First, it is important to note that the domestic private sector, 
especially in the retail and construction areas, have greatly benefited 
from Compact funds. Since the Compact went into effect, the number of 
domestic businesses has doubled and many existing businesses have grown 
exponentially. With the exception of Guam and Saipan, the RMI's capital 
of Majuro holds some of the largest retail and wholesale businesses 
throughout the Micronesia.
    Regarding the future growth of the private sector, it is important 
to note the significant steps the RMI has taken to improve its business 
environment. These steps include meeting necessary infrastructure 
needs, reducing the public sector, and offering clear incentives for 
foreign investment in the RMI. These measures stand in stark contrast 
to the closed and stagnant economic environment inherited by the RMI 
from the Trusteeship Administration.
    It has been the policy of the government to strengthen the economy 
by continuing reforms in public sector and improving the environment 
for private sector development. A recent of example of these efforts is 
evidenced in the parliamentary approval of amendments to the Foreign 
Investment Business Act transferring the responsibility of registering 
foreign companies from the Cabinet to the duly appointed Registrar of 
Corporations. The registration process is thus depoliticized as well as 
more efficient for potential investors. The Nitijela has passed and is 
currently reviewing a number of similar legislation focused on 
improving constraints in the RMI business environment related to land 
leases, alternate dispute resolution, bankruptcy and more.

 ``In the case of RMI, the evaluation found that momentum for 
reform has been lost partly due to the considerable confidence within 
the government that external aid could be increased. The sources of 
this aid would be the Republic of China, which RMI recognized in late 
1998, and successful renegotiations of the Compact.'' (Page 49).

    The above statement is completely inaccurate. The RMI Government 
has met most of the conditions it first set with the Asian Development 
Bank when undertaking the reform program. The ``momentum for reform'' 
was slightly delayed after the passing of the late President Amata 
Kabua who initiated the reform policy, and not because of external aid 
or optimism in renegotiating the Compact. After the transitional 
period, RMI recently reached the target level of reducing the public 
sector work force from 2,200 to present 1,450 employees. Furthermore 
subsidies to public enterprises significantly went down from $10 
million in 1994 to $1.25 million in 1999. The momentum for reform may 
have been delayed; it was certainly not lost.
    The external aid mentioned is a matter between the RMI and ROC as 
two sovereign nations joining in mutual benefits. As to Compact 
renegotiations, this process is yet to commence which makes it 
difficult to project an outcome much less comment on any level of 
optimism as to its result.

 ``Targeted Compact Funds Spent on Physical and Social 
Infrastructure Have Not Directly Contributed to Economic Growth''

``The FSM and RMI have spent at least $255 million in Compact funds for 
        physical infrastructure improvements and operations. Both 
        nations viewed this area as critical to improving the quality 
        of life creating an environment attractive to private 
        businesses. While these improvements have enhanced the quality 
        of life, they have not contributed directly to the economic 
        growth of the countries'' (Page 50).

    Once more the RMI wishes to state its disagreement with the above 
GAO claim. Updated physical and social infrastructure is essential for 
the basic operational necessities of a private sector that needs to 
grow. The decision to expend funds on infrastructure is a direct result 
of the woefully inadequate system of infrastructure left by the Trust 
Territory Administration. A case in point is the passing reference made 
by the report to the tuna processing plant due to the dependable 
electricity there. Additional results for direct infrastructure 
improvement include commercial banks, private clinic, hotels, 
restaurants, real estates, office rental, and much more.

 Full Description of the Government Business Ventures (Page 60-
76)

    The Government of the Republic of the Marshall Islands is also 
extremely concerned with the incomplete information presented by the 
GAO regarding contextual factors that provide the necessary background 
to the success and failure of government business ventures. The 
following information addresses these inaccuracies.
    Confined by the remoteness, natural landscape, highly rigid 
environment, and young private sector, the RMI Government boldly 
undertook ambitious investment ventures by contracting out or forming 
partnerships with the private sector. As in any business, the RMI took 
some calculated risks based on advice given--at times by the United 
States Government--and learned many valuable lessons in the process. It 
is important that the project outcome be understood in context of the 
process that took place.
1. Garment Factory
    The RMI and the People's Republic of China (PRC) went into a joint 
venture in the garment factory operation. Prior to the initial 
manufacturing stage of the operation, an internal dispute amongst the 
PRC stakeholders divided the management and directly ended the business 
enterprise. This was an incident RMI never have foreseen. Numerous 
garment companies from abroad continue to submit proposals to revamp 
the operation indicating that the initial investment was not poorly 
made. However, the Government currently plans to transform the facility 
into school buildings to replace the older school facility in Laura.
2. Resort Hotel (Page 66)
    Tourism is a potential source of revenue for the economy. In the 
early 1990s, Majuro offered a limited number of hotel rooms, 
particularly with premium services. Recognizing this need, the 
Government built a resort hotel and contracted a hotel management firm 
to run the daily tasks. The 150 room resort has managed to attract 
large groups to hold their seminars, conferences and special 
international meetings in Majuro. With anticipated revenue increase, 
the hotel will eventually cease to receive Government subsidy. It also 
continues to provide job opportunity and excellent training to 
Marshallese employees.
3. Dry Dock (Page 66)
    The statement about the dry dock present status ``According to an 
official at the U.S. embassy, the facility is currently not operable . 
. .'' (Page 66) is not accurate. It is fully operational and continues 
to provide shipping services to the Government and private shipping 
enterprises.
4. Ebeye Causeway (Page 68)
    Construction is soon to resume from the generous capital fund 
provided by the Republic of China (Taiwan). Development and the 
relocating residents from the crowded Ebeye to Gugeegue is expected to 
follow upon the causeway completion.
Public Enterprises
    Another important issue is the GAO's failure to show the overall 
reduction in Government subsidies. The Government has taken number of 
steps to reduce its annual subsidies to government's owned agencies. 
The RMI Government has aggressively pursued increased private sector 
participation in all government agency boards, appointing commercially 
oriented management, and selling off Government shares. This process 
has been taken a step further with the establishment of the Private 
Sector Unit to implement the overview process to commercialize or 
privatize Government owned enterprises. Currently the Office is 
reviewing the utility agency Kwajalein Atoll Joint Utility Authority in 
Ebeye, and has successfully transferred and granted all its functions 
to a private management firm. Institutional strengthening and a more 
efficient collection system have now generated steady increase in 
revenue, which will eventually no longer require subsidy from the RMI. 
A similar process is to follow with the Air Marshall Islands, Outrigger 
Marshall Islands Resort. Tobolar Processing Plant, and many others.
                          Part III: Conclusion
    Due to time constraint, RMI has been not able to fully respond to 
the context the GAO has provided but nevertheless we hope our comments 
have provided a more complete picture for the RMI. As Honorable 
Benjamin A. Gilman of New York once stated about the bilateral 
relationship between the U.S. and RMI:

          This is a special relationship which we cannot allow to be 
        neglected or unduly diminished as a result of ill-conceived 
        policies which do not take into account the legacy of the past 
        and prospects for the future. Narrow thinking based on short-
        term priorities should not control the determination of how 
        this relationship will be managed as the first term of the 
        Compact of Free Association comes to an end.

    In joining with Congressman Gilman, the RMI Government continues to 
recognize this special relationship based on mutual respect and common 
objectives. It should be recognized that a return to Trust Territory 
policies and restrictive provisions goes against the objectives of the 
Compact and, in fact, will slow the economic progress already in place. 
We must move forward with a renewed bilateral understanding and put our 
efforts into a mutual commitment to sound and stable economic 
developments over the long-term.
    The Government of the Republic of the Marshall Islands once again 
welcomes the opportunity to discuss these issues. We hope that the 
above details will enhance the understanding of economic development in 
the RMI.
                                 ______
                                 
           Embassy of the Republic of the Marshall Islands,
                                   Washington, DC, August 31, 2001.
Mr. Michael Biggs,
Assistant Director, Residence and Status Services, Office of 
        Adjudications, Immigration and Naturalization Services, 
        Washington, DC.

Reference: INS No. 2047-00

    Dear Mr. Biggs: With respect to the referenced proposed INS rule on 
entry of RMI and other FAS citizens to the U.S. under Section 141 of 
the Compact of Free Association, attached is a legal analysis of issues 
and questions arising from the document that the RMI would wish to 
discuss and have the benefit of a response before commenting further on 
this matter. Please note that while the attached legal analysis 
addresses the effect of the proposed order could have on RMI citizens 
as it would apply to all Free Associated States (FAS) citizens, the RMI 
submits this document on its own behalf without prejudice or any 
presumption as to the views of the governments of the Federated States 
of Micronesia or Palau.
    Thank you very much for your kind attention.
            Sincerely,
                                             Banny de Brum,
                                                        Ambassador.
Legal Analysis of INS Proposed Rule on Entry Requirements for Citizens 
                     of the Free Associated States

  (Federal Register: July 18, 2001, Volume 66, Number 138, pp. 37429-
                                 37432)

    The above referenced proposed rule would have the following 
effects:
    1. The proposed rule would establish categories of persons who are 
citizens of the RMI, FSM or Palau, but who would not be eligible for 
the visa waiver, employment and residence privileges in the U.S. 
otherwise accorded to citizens of those countries under the Compact of 
Free Association. (See, U.S. Public Law 99-239, ``Compact of Free 
Association Act of 1985'', Title One, Article IV, Sections 141-143).
    2. The proposed rule would require citizens of the three Free 
Associated States (FAS) to possess a passport ``or similar travel 
document'' issued by the FAS government concerned in order to establish 
eligibility to enter, reside and be employed in the U.S. pursuant to 
the immigration provisions of the Compact.
                    legal analysis of proposed rule
General Comments
    A detailed examination of legal issues is presented below. Perhaps 
the most important general point to make by way of an overview is that 
the single element which is at the heart of the proposed order--the 
provision purporting to apply visa requirements to FAS citizens 
eligible under applicable federal statutes for entry without a visa--is 
fatally flawed and invalid as a matter of law. The INS does not have 
the authority by regulation to take away a privilege conferred by 
statute.
    Specifically, the proposed rule seeks unilaterally to amend the 
Compact in order to prevent the perceived abuse of the nonimmigrant 
entry privileges under the Compact for purposes of immigration to the 
United States. Fortunately, as a treaty the Compact cannot be amended 
without agreement of the parties (see, Title Four, Article 3, Section 
431-432), and as a federal statute the Compact Act cannot be amended by 
an INS regulation.
    More importantly, the Compact immigration provisions as approved by 
Congress already anticipate and operate to prevent the very abuses and 
conflicts of law the alleged existence of which supposedly make this 
proposed rule necessary. There is no conflict between the operation of 
the Compact immigration provisions and other federal immigration laws, 
and the U.S. and the RMI already have agreed that entry to the U.S. 
under the Compact does not in and of itself entitle FAS citizens to 
permanent resident alien status in the U.S. or naturalization as a U.S. 
citizen.
    Thus, the goal of preventing abuse of the privileges afforded FAS 
citizens can best be realized under the existing immigration provisions 
of the Compact, as well as applicable U.S. immigration laws and 
regulations. There may be no need for further rules or revision of 
regulations in this regard, and even if there are regulatory issues 
that should be addressed, that must be accomplished consistent with the 
laws and treaties that governs these matters.
    The issue of immigration through adoption is one of the pretexts 
for the proposed rule. The RMI has an interest in protecting the 
welfare of adopted children. It may be that application of certain 
procedures followed under U.S. the Immigration and Nationality Act 
regarding foreign adoptions should be reviewed to determine how those 
practices that promote child welfare might be applied in the case of 
the FAS by mutual agreement. However, the proposed rule seeks to 
``legislate by regulation'' the application of the U.S. foreign 
adoption procedures unilaterally and in contravention of the Compact as 
both a treaty and as a federal statute.
    In addition, the proposed rule does not limit the ``exceptions'' to 
the privileges granted under the Compact to adoption cases, or even 
those exceptions arguably consistent with the Compact as approved by 
Congress. Rather, the proposed rule also would impose the result that 
any person who ``seeks'' to be an immigrant in the U.S. should be 
barred from entry under the Compact's visa waiver provisions, and 
instead must first obtain an immigrant visa.
    Clearly, the proposed rule goes too far, and fails to conform its 
proposed remedy for perceived abuses to the governing law. Again, FAS 
citizens and their government must not be distracted by the adoption 
issue from the fact that the proposed rule would not only require visas 
for children who have been or at some point may be adopted in the FAS 
or the United States.
    Unless the INS can offer some other explanation of how this rule 
would operate, it would appear that the effect of the rule is to 
restrict visa waiver entry for all FAS citizens who also may be, or 
seek to become, eligible for naturalization. That notion is totally at 
odds with the clear language of the Compact as approved by Congress in 
P.L. 99-239, and has no legitimacy under the applicable law. Yet, that 
very outcome is precisely what the proposed rule attempts to bring 
about.
    As already stated above and discussed in considerable detail below, 
the Compact immigration provisions state that entry and residence under 
the Compact visa waiver for FAS citizens does not satisfy requirements 
for naturalization. At the same time, the visa waiver clearly is 
without prejudice to the ability of an FAS citizen to ``otherwise'' 
acquire immigrant status as a permanent resident alien status and seek 
naturalization. The effect of the proposed rule would be to make entry 
under the Compact's visa waiver a bar to steps seeking immigrant 
status, and/or it would mean that anyone taking steps to seek immigrant 
status would be barred from entry under the Compact's visa waiver.
    This would mean that FAS citizens who are working in the U.S., 
going to school, serving in the U.S. military, or are engaged in other 
activities authorized under the Compact without a visa, but who may be 
seeking to become ``otherwise'' eligible for immigrant status under the 
U.S. Immigration and Nationality Act, would lose their ability to 
travel back and forth between the U.S. and the FAS without a visa. Such 
open travel while engaged in otherwise lawful activities is precisely 
what the Compact authorizes.
    Thus, the proposed rule is fatally flawed and must be withdrawn or 
scaled back to operate within the bounds of the law.
Fatal Legal Flaw in Proposed Rule
    The mistake of law that undoes the proposed rule appears repeatedly 
through the text as published in the Federal Register notice cited 
above, but is first introduced fully at page 37430 in an explanatory 
passage that reads as follows:

          . . . the rule codifies in 8 CFR 212.1(d)(2) the Compact 
        limitations on the privileges of citizens of the Compact 
        Countries to enter the United States as nonimmigrants. These 
        limitations, found in Section 141(a)(3), (c) and 143 of the 
        Compacts, were inadvertently omitted from 8 CFR 212.1(d) when 
        that regulation was first issued. These exceptions to the 
        privileges of section 141(a) are briefly . . .

    The proposed rule then goes on to list four of what alternately are 
referred to as both ``limitations'' and ``exceptions'' to the privilege 
to enter under the Compact visa waiver provisions in Article III of 
Title One of the Compact, Sections 141-143.
    The first three such provisions can accurately be described 
exceptions that properly should be understood as operating to bar an 
FAS citizen from entry under the Compact visa waiver if applicable:

          The first legitimate ``exception'' is the Section 141(a)(3) 
        restriction which prevents third country nationals from abusing 
        the visa waiver by requiring physical presence in the FAS for 
        85% of a five year period after naturalization in an FAS, as 
        well as documentation of compliance.
          The second ``exception'' arises under Section 143(a), under 
        which FAS citizens who take steps to acquire third country 
        nationality thereby lose eligibility for the visa waiver, thus 
        precluding those who want to become third country nationals 
        from also benefiting from a privilege intended only for those 
        who have and seek no nationality other than that of the FAS or 
        United States.
          The third actual ``exception'' is the Section 143(b) 
        requirement that any FAS citizen who already has a third 
        country nationality other than FAS or U.S. nationality must 
        renounce it or lose Compact visa waiver privileges.

    It is in the inclusion of the fourth so-called ``exception'' that 
the proposed rule exceeds the bounds of the law and attempts to re-
write Section 141(a), thereby ``amending'' the meaning of the Compact, 
and converting the visa waiver provision into a visa screening process 
for an FAS citizen who may ultimately seek U.S. citizenship. 
Specifically, the fourth ``exception'' which would trigger 
ineligibility for visa waiver entry is described at page 37430 as 
follows:

          (iv) Citizens of a Compact country who seek to obtain a 
        residence status leading to naturalization (Section 141(c) of 
        the Compact).

    The incorrect and misleading assertion that Section 141(c) operates 
as an ``exception'' or ``limitation'' on the Compact's visa waiver for 
FAS citizens is repeated in the actual operative provisions of the 
proposed rule at page 37432, in the proposed revision to 8 CFR 
212.1(d), by inclusion of the following provision:

          (2) Exceptions. The following citizens of the Compact 
        countries are not eligible for the privileges described in 
        paragraph (1)(d) of this section and must follow standard 
        procedures for obtaining immigrant or nonimmigrant visa, as 
        appropriate, for entry into the United States, its territories 
        and possessions . . .

    Here the proposed rule once again presents a list of categories of 
FAS citizens who purportedly are not eligible for the Compact visa 
waiver. This second list of ``exceptions'' to appear in the proposed 
rule includes the first three categories of ineligible FAS citizens 
based on the three actual legally valid statutory exceptions already 
reviewed above, as well as the assertion of the fourth ``exception'' 
that would appear at 8 CFR 212.1(d)(2)(v), triggering denial of visa 
waiver for FAS citizens seeking permanent resident status leading to 
U.S. citizenship, again incorrectly citing Section 141(c) of the 
Compact.
    Because the proposed rule misleadingly cites Section 141(c) as the 
authority for the ``exception'' triggering denial of Compact 
immigration provisions, it is important to review the contents of 
Section 141(c) of the Compact, which reads as follows:

          Section 141(a) does not confer on a citizen of the Marshall 
        Islands or the Federated States of Micronesia the right to 
        establish residence necessary for naturalization under the 
        Immigration and Nationality Act, or to petition for benefits 
        for alien relatives under that Act. Section 141(a), however, 
        shall not prevent a citizens of the Marshall Islands or the 
        Federated States of Micronesia from otherwise acquiring such 
        rights or lawful permanent resident status in the United 
        States.

    A plain reading of Section 141(c) leaves no room for debate as to 
its clear effect. Explicitly, in unambiguous and unequivocal terms, 
this provision prescribes the relationship between the immigration 
provisions of the Compact and the applicable provisions of the U.S. 
Immigration and Nationality Act.
    The clear intent and effect of the first sentence in Section 141(c) 
is to prevent the immigration policy established by Congress under the 
Compact from intruding on standard procedures for obtaining visas and 
immigrant status under the U.S. Immigration and Nationality Act. It 
states that FAS citizens cannot rely upon entry or residence under the 
Compact visa waiver and related residency provisions in order to seek 
or establish eligibility for immigrant status or naturalization.
    Equally clear is the intent and effect of the second and last 
sentence in Section 141(c), which employs the qualifying term 
``however'' to limit the effect of the first sentence, preventing the 
standard procedures for obtaining visas and immigrant status under the 
U.S. Immigration and Nationality Act from intruding upon immigration 
policy established separately by Congress under the Compact. Indeed, 
the very purpose of the second sentence is to make it absolutely and 
unmistakably clear that the enjoyment of the privilege to enter, reside 
and work in the U.S. without a visa under Section 141(a) would not 
limit, restrict, prejudice or encumber the ability of any person 
eligible for the visa waiver from ``otherwise'' acquiring the right to 
become an immigrant.
    The second sentence of Section 141(c) would be meaningless if FAS 
citizens are prevented by INS regulations from seeking and otherwise 
qualifying for immigrant status while contemporaneously enjoying the 
visa waiver and nonimmigrant residence allowed under Section 141(c). 
The idea that an FAS citizen who is entitled to the visa waiver under 
one U.S. statute can be deprived of that entitlement under another more 
general federal statute might be open to debate if it were not for the 
fact that Congress precluded that very result by providing in Section 
141(c) for bifurcation of the Compact immigration regime from the 
standard procedures for applying for visas under the U.S. Immigration 
and Nationality Act.
    In that regard, the visa waiver for FAS citizens under Section 
141(c) is a more recent and much more specific statutory requirement 
than the visa provisions of the U.S. Immigration and Nationality Act, 
particularly as applied to FAS citizens. Even in the absence of the 
second sentence of Section 141(c) the visa waiver provisions of Section 
141(a) would be interpreted under standard rules of statutory 
construction as superseding provisions of federal law. The second 
sentence of Section 141(c) makes that argument unnecessary.
    Similarly, it defies logic to suggest that an FAS citizen could 
come to the U.S. as a nonimmigrant under the Compact, and thereupon 
engage in lawful activities (i.e. marriage, adoption, military service, 
relation to a U.S. citizens child, etc.) which would otherwise make him 
or her eligible to seek immigrant status, as expressly authorized under 
Section 141(c), only to then be denied the ability to travel freely 
back and forth between the U.S. and the FAS. This in essence penalizes 
the FAS citizen for otherwise qualifying for immigration and 
naturalization, which is manifestly what Congress sought to prevent in 
the second sentence of Section 141(c).
    The proposed order would be entirely consistent with the Compact if 
it codified ``exceptions'' based on the three statutory provisions 
relating to third country nationality (see, discussion of Section 
141(a)(3) and Section 143(a) and (b), above). However, this order is 
nothing less than an attempt to convert Section 141(c) from a firewall 
between the visa waiver and nonimmigrant residence privileges and 
immigrant visa procedures under the U.S. Immigration and Nationality 
Act into a mandate for the INS to selectively impose the U.S. INA visa 
requirements on those categories of FAS citizens for which the INS 
determines that to be ``necessary'' in order to ``prevent abuse'' and 
``clarify'' and ``codify'' what it determines to be ``exceptions'' and 
``limitations'' on the visa waiver as conferred by Congress.
    In addition, it must be pointed out that the ``exceptions'' to the 
visa waiver in the proposed rule which are valid under Section 143 of 
the Compact are based on a policy decision by Congress that FAS 
citizens should not enjoy the visa waiver, residence and employment 
privileges if they seek or acquire third country nationality and 
citizenship. Yet, both subsections of Section 143 explicitly state that 
FAS citizens will not lose their Section 141(a) privileges if the 
citizenship they are seeking other than FAS citizenship is U.S. 
citizenship:
    This feature of Section 143 preserving the Section 141(a) 
privileges for FAS citizens seeking U.S. citizenship, perhaps more than 
all the other arguments set forth above, makes clear the intent of 
Congress that seeking U.S. citizenship is permissible for FAS citizens 
enjoying the Compact immigration privileges under Section 141(a). This 
statutory mandate is impossible to reconcile with the statutory theory 
at the core of the proposed rule, which is that Section 141(c) allows 
the pursuit of U.S. citizenship to be used as a basis to deny an FAS 
citizen Section 141(a) privileges. Yet, the so-called ``exception'' 
based on that unsupportable theory is the linchpin of the proposed 
rule, and with it falls the house of cards that the proposed rule turns 
out to be.
    As an additional consideration, it should be noted that the 
proposed rule is not a regulation of the United States with regard to 
right of habitual residence in the U.S. territories, as authorized 
under Section 141(b) of the Compact. Rather, the proposed rule is an 
attempt to impose by regulation a so-called ``exception'' to the right 
to enter any part of the U.S. as accorded all FAS citizens Section 
141(a), subject only to the restrictions set forth in Section 
141(a)(3), and Section 143. The ``exception'' purporting to nullify the 
visa waiver privilege to enter the U.S. for FAS citizens seeking U.S. 
citizenship is not authorized by Congress as are United States 
regulations regarding habitual residence in the territories, and would 
directly contravene Section 141(c).
    Consequently, it is incontrovertible that the so-called 
``exception'' from Section 141(a) visa waivers proposed as a revision 
to 8 CFR 121.1(d)(2)(v) would breach the Compact as an international 
agreement, conflict with Section 141(c) as a federal statute, and give 
the INS the power to exclude persons from entry to the U.S. who are 
entitled by federal law to enter and reside in the U.S. as 
nonimmigrants even while seeking immigrant status.
Additional ``Exception'' for Adopted FAS Citizens Also Legally Invalid
    Added to the second proposed ``exceptions'' list appearing at page 
37432 of the Federal Register notice cited above is the additional 
category of FAS citizens who have been adopted by U.S. citizens, who 
then seek to enter the U.S. and reside with their adopted child in the 
United States, presumably intending to apply for immigrant status on 
behalf of their child. Unlike the other four ``exceptions'', this new 
exception for adopted children is the only one based not on the Compact 
provisions approved by Congress under P.L. 99-239, but rather on the 
provisions of the U.S. Immigration and Nationality Act governing entry 
of adopted children of U.S. citizens from third countries which are not 
parties to the Compact of Free Association.
    This additional so-called ``exception'' to the Compact visa waiver 
for adopted FAS citizens suffers from the same legal infirmity as the 
``exception'' for persons seeking immigrant status under Section 
141(c). Specifically, the attempt by the INS to apply in the case of 
adopted FAS citizens the ``standard procedures for obtaining immigrant 
or nonimmigrant visas, as appropriate, for entry into the United 
States, its territories and possessions'' would violate the federal law 
and policy embodied in Section 141(c) as reviewed above.
    In addition, it is understood to be common for adult citizens of 
the FAS who have entered under the Compact to petition for a change of 
status upon becoming eligible for naturalization through marriage to a 
U.S. citizen. The proposed rule would establish by regulation a 
different procedure in the case of an FAS citizen in the U.S. under the 
Compact who is a minor and becomes eligible for naturalization through 
adoption.
    Specifically, the proposed rule would codify at 8 CFR 
212.1(d)(2)(i) the ineligibility for Compact immigration privileges of 
any FAS child adopted by a U.S. citizen, unless a visa is obtained 
under the U.S. Immigration and Nationality Act. The statutory authority 
for this proposed regulation is cited in the proposed order as Section 
101(b)(1)(F) and Section 204(d) of the U.S. Immigration and Nationality 
Act.
    However, the proposed rule cites no provision of the P.L. 99-239 or 
the U.S. Immigration and Nationality Act that provides for the 
application of the domestic law of the U.S. regarding foreign adoptions 
in a manner which conditions or limits the visa waiver or other 
immigration privileges conferred under Section 141(c) of the Compact. 
Thus, the proposed rule requires the Compact's immigration provisions 
to be read as inconsistent with the foreign adoption procedures of the 
U.S. Immigration and Nationality Act in order to justify the proposed 
rule.
    The proposed rule has the confusing effect of distracting attention 
to the adoption issue on one hand, while the visa procedures in the 
U.S. Immigration and Nationality Act are inserted into the Compact 
immigration process for all FAS citizens seeking immigrant status on 
the other hand, giving rise to anomalies of legal interpretation and 
creating the illusion of a conflict of law where there is none. Thus, 
the explanation of the ``clarification'' and the ``exceptions'' in the 
proposed rule are presented as necessary to prevent FAS citizens who 
seek naturalization and adoptive parents from being able to ``evade, as 
a matter of law, the statutory mandates'' that are assumed under the 
terms of the proposed rule to apply.
    The problem is that the proposed rule appears to be wrong. The 
provisions of the U.S. INA regarding foreign adoptions that the INS may 
be familiar and comfortable with do not apply as asserted in the 
proposed rule, because Congress has spoken and set forth other 
statutory mandates that redeem the U.S. national interest and achieve 
important national policy purposes through measures other than those 
provided in the U.S. INA provisions cited in the proposed rule. Section 
141(a) of the Compact as approved by Congress is the statutory mandate 
that as a matter of law governs the entry of FAS citizens, and it is 
the proposed rule that would operate in a manner that would enable the 
INS to deviate from the rule of law under P.L. 99-239.
    Under Section 141(a), there is no need to apply for or obtain a 
visa that complies with the foreign adoption or other standard 
procedures under the INA to obtain a visa. Foreign adoptions from third 
countries are not adoptions under the Compact, and only in the case of 
an FAS citizens adoption is the entry of the FAS citizen within the 
scope of the visa waiver privilege granted by Section 141(a).
    In this sense the proposed rule seeks to prevent abuses and 
reconcile a conflict of laws that the rule itself conjures up to 
justify the measures proposed to prevent abuses and reconcile the laws. 
Only there is no conflict in the applicable law and the abuses defined 
by the proposed rule are based on a misapplication of the laws. That is 
not to say there are no issues and problems in the Compact 
implementation process that should be addressed, but the proposed rule 
would only make improved implementation impossible and create disarray 
in the carefully ordered statutory scheme for separation of INA and 
Compact immigration procedures that Congress created under Section 
141(c).
    Indeed, by approving Section 141(a) and Section 141(c) Congress 
precluded and preempted the very situation in which the provisions of 
the U.S. Immigration and Nationality Act that are triggered by a visa 
application, including the foreign adoption procedures, would apply in 
the case of an FAS citizen entering the United States. Congress did 
this by waiving the visa requirement for FAS citizens (as long as they 
did not become ineligible under the third country principles of Section 
141(a)(3) and Section 143).
    Nevertheless, there are reports that in some cases INS has made 
people with children adopted in the FAS, as well as where the FAS 
citizen child was adopted, or was to be adopted, in the states, leave 
the country and re-enter with an immigrant visa for the baby. In other 
cases, more flexible INS agents have allowed a petition for change of 
status to be filed without leaving the country.
    The practice of making an FAS citizen who has entered with an I-94 
under the Compact, and who is a minor lawfully in the custody of adults 
who have adopted or intend to adopt the child, leave the country and 
re-enter with a visa issued under the foreign adoption provisions of 
the U.S. Immigration and Nationality Act seems clearly to be taking 
away something Congress has granted. What it amounts to, in effect, is 
requiring a visa screening process to determine the purpose for which 
the FAS citizen is entering the country.
    The whole purpose of Section 141 is to allow FAS citizens to enter 
without having to comply with visa requirements that go to the purpose 
and intent of entry. Section 141 establishes an objective criteria for 
entry, i.e. FAS citizenship. We see no authority under Section 141 for 
the INS to begin classifying FAS citizens according to their subjective 
intent.
    Section 141(b) authorizes federal and local regulations regarding 
habitual residence in U.S. territories, but not exclusion, and not even 
the type of regulation authorized for the territories in the case of 
FAS citizens entering the States.
    In fairness to the INS, it can be argued that the Compact 
authorizes only nonimmigrant entry, that is, people are not entering 
for the purpose of naturalization (i.e. immigrants). The INS would 
presumably argue that in the case of adoption it is using the Compact 
to bring in a baby that is entering for the purpose of becoming an 
immigrant through naturalization, and that this converts the visa 
waiver for non-immigrants into a visa waiver for immigrants.
    However, Section 141(c) expressly states that while entry under 
Section 141(a) of the Compact does not create rights to naturalization, 
``Section 141(a) shall not prevent a citizen of the Marshall Islands or 
the Federated States of Micronesia from otherwise acquiring such rights 
or lawful permanent resident alien status in the United States.''
    So the question is this: Does the recognition by Congress in 
Section 141(c) that FAS are not prevented from becoming lawful 
immigrants under Section 141(a) mean that an FAS citizen who has 
entered under the Compact must return to the FAS and get an immigrant 
visa in order to ``otherwise acquire'' the right to be naturalized? 
Wouldn't a petition for change of status to permanent resident alien be 
more in order so that the person who thinks he or she is eligible for 
naturalization can apply?
    Again, there are cases in which FAS citizens who marry U.S. 
citizens simply petition for change of status to permanent resident 
alien and then apply for naturalization. So then the question is 
whether FAS citizens who are minors in the custody of adults who have 
adopted or intend to adopt should be treated differently than adults 
who come here and then get married. The INS may argue that there is an 
even stronger case for acquiring a visa as an immigrant when it is the 
intent of the adults, whether the FAS citizen parents or the adoptive 
parents, at the time of entry that the child will be adopted and apply 
for naturalization.
    The thinking would be that it is one thing for an FAS citizen 
already in the U.S. who becomes eligible for naturalization and 
petitions for a change of status from non-immigrant with an I-94 
visitor's status to a permanent resident alien with the intent applying 
for naturalization, but quite another thing when entry is with the 
intent and purpose of immigration and naturalization.
    The problem with this anticipated INS argument is that Section 141 
does not allow the INS to treat FAS citizens differently based on their 
intent or the purpose of entry. If it did, then it could exclude people 
from the FAS who intend to get married and seek permanent residence, or 
who intend to apply for permanent resident status on any other basis. 
That is why Section 141(c) explicitly states that Section 141 does not 
operate to prevent an FAS citizen from ``otherwise'' acquiring 
immigrant status and rights under other provisions of the Immigration 
and Nationality Act.
    The clear intent of Congress is that in addition to rights under 
Section 141, an FAS citizen may otherwise acquire immigrant rights 
under other provisions of the INA. I do not think one needs to look 
behind the clear meaning of the statute. However, the question remains 
whether a person properly can be required to leave the country and get 
a visa for the baby and not allowed to petition for a change of status.
    That would mean that entry under the Compact in effect disqualifies 
an FAS citizen from otherwise acquiring the right to naturalization 
while in the U.S. under Section 141. That seems contrary to Section 
141(c), and if there is an INS regulation or policy that purports to 
authorize exclusion of FAS citizens based on their intent to attempt to 
otherwise acquire a right of naturalization, then it appears to be 
without statutory basis.
    Attached is a document provided by the U.S. Department of State in 
response to a request for guidance on Section 141 in 1994. At paragraph 
8 this document states, ``If already in the United States, citizens of 
the FSM or RMI, if married to a U.S. citizen or permanent resident 
alien or otherwise qualifying under conditions for any other immigrant 
status, may apply for adjustment of status at any INS office with 
jurisdiction over their place of residence.'' (emphasis added)
    This is consistent with the view that Section 141 does not require 
exclusion of FAS citizens who enter under the Compact in order for them 
to change to an immigrant status. The fact that an FAS citizen enters 
with the intention to marry or for the purpose of adoption does not 
extinguish the right Congress created to enter under Section 141.
    Marriage or adoption of a minor child are just two of many purposes 
FAS citizens may have in taking advantage of the rights created by 
Section 141. Certainly, two FAS parents could bring their own children 
to the U.S. with the intention to meet with prospective adoptive 
parents, and could not be excluded by the INS simply because that is 
their subjective state of mind.
    Marriage and adoption are simply inchoate possibilities that may or 
may not be realized, and even if likely to be realized, Section 141 
does not give the INS the authority to inquire into these matters in 
the same manner as if FAS citizens were applying for a non-immigrant 
visitor's visa or an immigrant visa. As the above-cited 1994 State 
Department document states, ``Citizens of the FSM and RMI . . . have 
unrestricted access to the United States to live, work, study and 
assume ``habitual residence'' with no U.S. visa requirement . . .''
    Thus, an FAS citizen who hopes or intends to marry a U.S. citizen 
or who is being brought here lawfully for adoption has a right to enter 
and reside here without restriction based on the intentions of the 
individuals involved, and even if the adoption or marriage never takes 
place. If it does take place, it creates a right to petition for change 
of status and naturalization. This constitutes ``otherwise acquired'' 
rights as expressly contemplated by Section 141(c).
    The proposed rule attempts to graft onto the Compact immigration 
provisions the foreign adoption procedures of the U.S. Immigration and 
Nationality Act. That is prohibited by Congress under Section 141(c) of 
the Compact, as approved under P.L. 99-239.
    A final additional question raised by the proposed rule is whether 
upon petitioning for a change of status for immigration and 
naturalization the FAS citizen married to or adopted by a U.S. citizen 
would cease to be eligible to enjoy the Compact immigration privileges 
while waiting INS disposition of that petition. If the proposed rule is 
adopted that would be the apparent result, thereby frustrating the 
purpose of the Compact immigration provisions.
Passport Issue
    This element of the proposed rule is consistent with current 
practices of the FAS. Those FAS citizens who do not have passports are 
generally able to obtain a travel document. The statutory requirement 
is FAS citizenship, and this can be established with birth certificates 
as well as travel documents. Nevertheless, requiring passports or 
travel documents does not seem unduly onerous.
    However, this passport proposal is tainted by its inclusion in an 
otherwise fatally flawed proposed rule. Specifically, there are some 
grounds for concern that the combination of ``exceptions'' to the 
Compact immigration privileges and a requirement for passports was not 
a coincidence. For requiring a passport for entry would facilitate 
enforcement of procedures to exclude those FAS citizens who fall within 
the overly broad and legally flawed ``exceptions'' in the proposed 
order.
    Assuming the proposed order is withdrawn or modified to comply with 
applicable law, the passport proposal would appear less menacing.
                                 ______
                                 
           Embassy of the Republic of the Marshall Islands,
                                 Washington, DC, September 4, 2001.
Mr. Loren Yager,
Director, International Affairs & Trade, U.S. General Accounting 
        Office, Washington, DC.
    Dear Mr. Yager: Thank you for your letter to President Note of 
August 10, 2001, inviting the RMI to review and comment on the draft 
GAO report regarding implementation of the immigration provisions of 
the Compact of Free Association. Attached are the RMI's comments on the 
draft report, as well as recommendations for revisions which my 
government believes would enhance the value of the report for Congress 
and all those in the U.S. and RMI who will have the benefit of the 
information it provides.
    While the RMI's views on the draft report are set forth in the 
attachment, please allow me to add that in my view the GAO has done an 
important service for both the U.S. and the RMI by gathering and 
presenting the information contained in the draft report. While the RMI 
does not concur with every statement or recommendation in the report, 
the conscientious professional effort clearly made in preparing this 
document reflects admirably on the GAO.
    If open and accurate information is essential to the success of 
democracy, this report is an example of how facts can be gathered and 
shared to give political leaders and the public the knowledge needed 
for informed self-government. What we do with this information and 
additional facts that should also be considered remains to be seen, but 
the presentation of important factual information in this draft report 
is certainly consistent with GAO principles of accountability, 
integrity and reliability.
            Sincerely,
                                             Banny de Brum,
                                                        Ambassador.
         RMI Comments on Draft GAO Report Regarding Migration 
                   Under Compact of Free Association
General Comments
    The national government of the Republic of the Marshall Islands 
welcomes the focused attention that the United States General 
Accounting Office has brought to bear on the effects in the RMI and the 
U.S. of the immigration provisions of Title One, Article IV of the 
Compact of Free Association. The overall effect of the draft GAO report 
is to remind us that the Compact does not embody a simple exchange of 
U.S. military rights for economic assistance. Rather, free association 
between the RMI and the U.S. involves complex elements of the 
historical, strategic, social, political, moral and economic 
relationships that exist between our nations and our peoples.
    Thus, the GAO draft report's examination of the issue of migration 
illuminates as well a larger truth. It is that in order to sustain the 
success of free association as a political status model Compact 
implementation policies must both recognize the separate national 
interests of the U.S. and the RMI, and at the same time respect, 
preserve and promote the complex and carefully woven fabric of mutual 
interests embodied in the Compact.
    The GAO's draft report addresses some of the legal, fiscal and 
administrative issues of concern to the national and local governments 
in both our nations arising from implementation of the immigration 
provisions of the Compact. The issues identified by the GAO are among 
those that most immediately and directly affect individual citizens of 
both nations as they rightfully and properly engage in activities that 
are authorized by the Compact and beneficial to both nations. Like our 
governments themselves, the Compact exists to serve the people of our 
nations and ensure their ability to exercise their rights and 
privileges under applicable laws and treaties. For the private 
enterprises and civic endeavors of individual citizens are at the heart 
of the political, economic and social association created under the 
Compact.
    The political, economic and social activities in which our peoples 
engage under the Compact include:

   Increasing levels of commerce between RMI businesses and 
        businesses in the U.S. territories and states;
   Enjoyment of special travel, residence and employment rights 
        for RMI citizens in the U.S. under the Compact;
   Business, governmental, social and educational activities of 
        U.S. citizens who come to live and be employed in the RMI;
   Cross-cultural relationships form in the U.S. and in the RMI 
        in connection with RMI-U.S. marriages, adoptions, business 
        partnerships and inter-family visitation;
   Service by RMI citizens in the U.S. military;
   Presence of U.S. military, Defense Department and other 
        federal personnel in the RMI;
   Frequent travel and prolonged residence in the U.S. by 
        increasing numbers of RMI citizens, including nuclear test 
        survivors and their caregivers, for medical care not available 
        in the RMI;
   Religious worship and faith-based social activism of U.S. 
        citizens in the RMI and RMI citizens in the U.S.;
   Dual RMI-U.S. citizenship resulting from marriage, birth of 
        children of RMI citizens in the United States and vice versa, 
        RMI citizen service in the U.S. armed forces;
   Joint RMI and U.S. military, diplomatic and other 
        governmental activities in the region and globally;
   Bonds formed due to presence of U.S. teachers in RMI schools 
        and experience of RMI students and teachers in the U.S.;
   Formation of RMI and U.S. corporations and capital base for 
        RMI-U.S. enterprises.

    The political, economic and social activities and relationships 
described above are sufficiently complex when conducted between U.S. 
citizens in the U.S., or RMI citizens in the RMI, under our respective 
legal and political systems. As headlines remind us every day, some of 
the same as well as much greater migration related problems than those 
reviewed by the GAO report arise from the conduct of the same complex 
relationships involving citizen and corporate nationals of third 
countries outside the special framework of free association.
    At least where third countries are involved the ground rules for 
operation of the legal and political process governing more 
conventional international immigration policies are well defined and 
well established. In contrast, the mutually agreed special relationship 
of free association, including the immigration policy it established, 
perhaps inevitably has given rise to some of the unique issues 
identified in the GAO draft report. The report makes a good case that 
the RMI and the U.S. should work out additional measures to deal with 
some of the anomalies and burdens arising from the overall success of 
free association.
    Mutually agreed upon measures by both the RMI and U.S. to address 
the issues identified in the GAO draft report may well be appropriate 
in order for free association to continue to evolve as a political 
status model, as the RMI and U.S. intended under the terms of the 
Compact. Effective response to the GAO report will help prevent the 
success of the Compact as a unique combination of foreign and domestic 
policy measures based on the free association model from being impeded. 
The draft GAO report is a call to action by both governments 
affirmatively to adopt measures to improve upon the association so that 
it will grow stronger and become even more beneficial than it already 
has proven to be, and better serve the national interests of both the 
RMI and the United States.
Compact as Historical and Political Framework for Understanding 
        Immigration Issues
    If the RMI has a thematic criticism of the GAO draft report, it 
would be that the document tends to focus on the admittedly difficult 
but manageable problems facing the RMI and U.S. as partners in the 
strategic alliance and its inter-societal mechanisms, without 
adequately placing those issues into the larger context of the mutually 
beneficial, and by the most important criteria extremely successful, 
features of free association. However, the thoroughness and 
professionalism of the draft report invite a constructive rather than 
simply critical response by the RMI in this regard, and the RMI views 
the draft report as so important, revealing and useful to policy-makers 
in both the RMI and U.S. governments that it must be taken very 
seriously and even improved so that its value is enhanced. In short, 
commenting on and recommending revisions to the report appears 
worthwhile because the report merits a serious response.
    That having been said, and without belaboring the point, the RMI is 
compelled to state for the record that applying U.S. standards for 
classifying people as, for example, ``impoverished'' or ``uneducated'' 
requires further explanation and qualification. Without taking offense 
where we believe none was intended, these terms may be hurtful and 
evoke painful feelings and memories among our people. However, the GAO 
report itself is a testimonial of sorts to the fact that the Compact is 
the instrumentality through which the people of the U.S.--the most 
powerful, prosperous and enlightened nation in the history of 
civilization--is redeeming its own national values, honor and 
obligations with regard to an ally nation which only recently in 
historical terms was a hunting and gathering society. As a result of 
U.S. exercise of plenary powers over the RMI for thirty years under the 
trusteeship, and the resulting close relationship continued under the 
Compact for the last fifteen years, the U.S. and the RMI now have a 
shared social, political, legal and economic legacy going back into the 
first half of the last century.
    Against this backdrop, the GAO report must be understood, like the 
Compact itself, in the context of the historical facts in order to have 
legitimacy. Those facts include that the people of the Marshall Islands 
were well adapted to their environment and had a self-sustaining and 
culturally rich traditional way of life before the U.S. used its 
international political, diplomatic, economic and military power to 
assert and persuade the international community formally and legally to 
endorse U.S. assumption of control over--and responsibility for--
nothing less than the very destiny of our people. While the people of 
the RMI were and remain largely unprepared to cope with the full 
burdens of the alliance that was formed by and with the U.S., true to 
the principles and precepts of the American system of government and 
law the U.S. also promoted self-determination. Thus, by agreement 
between our democratically instituted governments we adopted free 
association as a political status model that allows the people of the 
RMI to gradually assume greater and more effective control over our 
destiny, sustained by an alliance with the U.S. from which both nations 
benefit. There is dignity in free association because in return U.S. 
global leadership in preserving international peace is sustained in a 
small but special and important way by its alliance with the RMI.
    This political status model was freely chosen by our people over 
the U.S. offer of full independence and autonomy, as well as the offer 
of territorial annexation and political union, for the very reason that 
in offering terms for free association the U.S. promised that it would 
not walk away from its commitments and obligations after decades of 
imposing a political, social and economic order that served U.S. 
interests. The U.S. proposed the terms of free association that form 
the core of the Compact, and this was the beginning of a process for 
defining mutually agreed special relations under the Compact as 
approved by our nations in 1986.
    The immigration provisions of the Compact that are the subject of 
the GAO report were critical to the viability of the free association 
political status model as proposed by the U.S. and negotiated by our 
governments. Without the immigration terms developed in the Compact 
negotiations the RMI may not have been able to accept the free 
association model.
    The alternative might have been full independence, but perhaps only 
after many more years of trusteeship, possibly long after the U.S. 
asked the RMI to support early resolution of the status issue and 
termination of the trusteeship. In addition, independence probably 
would have come many years after the U.S. asked the RMI to support its 
desire to secure long-term rights to use Kwajalein missile range, and 
then only after political and legal processes to address the nuclear 
test claims had run their course in the U.S. and RMI courts without the 
benefit of the Compact's claims settlement provisions.
    Or, without the immigration provisions and other features of free 
association that assured future close relations between our peoples, 
the RMI might have opted to accept the offer of commonwealth status in 
political union under the U.S. federal constitution. This would have 
required health care, education and federal programs to be brought up 
to the same standards as the U.S. territories and added the RMI to the 
domestic U.S. political system as an unincorporated territory.
    The options of independence and commonwealth status were offered by 
the U.S., and were part of the self-determination education process 
prior to the U.N. observed status plebiscite in the RMI. This is 
history that the GAO report does not mention, but which needs to be 
recalled in order to understand the issues raised by the draft report.
    Instead of simple independence or commonwealth status, the RMI 
accepted the U.S. offer of free association, including the immigration 
provisions that are the focus of the GAO report. Here is not the place 
to resolve this question, but in commenting on the draft report the RMI 
would note that to date U.S. has been unwilling to address, in the 
current Compact negotiations on expiring economic provisions, issues of 
concern to the RMI such as the need for additional measures to address 
the nuclear test claims as contemplated by the Section 177 nuclear 
claims settlement. At the same time, the U.S. unilaterally has made the 
non-expiring and technically non-economic immigration provisions an 
item on the agenda of those negotiations.
    This selective tolerance for adding some items arising under non-
expiring Compact provisions to the negotiating agenda, while declining 
to add other matters outside the immediate scope of expiring economic 
provisions at the request of the RMI, not only defies logic and simple 
fairness, it ignores one of the central realities of which the GAO 
report reminds us. That reality is that all the political, social and 
economic elements of the Compact are too closely inter-related to be 
understood and addressed separately or in isolation from one another.
    The GAO report makes a compelling case that the immigration 
provisions of the Compact are too closely related to the economic 
relationship to be viewed in a vacuum of legal and procedural law and 
policy. Reform of INS policy for implementing Section 141 of the 
Compact alone is not the problem or the solution. The results of the 
immigration provisions of the Compact in the RMI and the U.S. are 
closely related to how successful our governments are in working 
together to deliver appropriate health care in the RMI within available 
resources, achieve sufficient economic stability to enable family 
providers to stay home rather than going to Honolulu, sustain progress 
in the RMI schools that began during the trusteeship and must continue 
under the Compact, and respond to the changing circumstances of the 
nuclear test survivors.
    The connections between strategic, political, economic and social 
aspects of the relationship between the U.S. and the RMI is the basis 
for the Compact and its related agreements implementing the negotiated 
relationship, including the strategic relations agreement referred to 
in Section 462(k) of the Compact, Article V of which includes the 
following provision:

          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.
Managing Immigration Issues
    Contrary to what the GAO report implies, the RMI government does 
not as a matter of official policy view migration to the U.S. as a 
solution to the economic and social challenges facing our nation and 
our people. The immigration provisions of the Compact were accepted by 
the U.S. and RMI in the status negotiations because of the recognition 
that the U.S. had for decades implemented a policy of encouraging and 
even requiring RMI citizens to come to the U.S. for education and 
health care. In the case of health care, this was due to the fact that 
the U.S. acknowledged that its nuclear testing program had contributed 
to and caused the most serious and widespread health problems of the 
people in the RMI.
    While travel to the U.S. for education and employment is a positive 
experience that the RMI encourages, the RMI government hopes that its 
citizens will not just send money home, but will come home with new 
skills, new ideas, new ambitions and new enterprises to help build our 
nation. The notion of viewing migration of our population to the U.S. 
as a means of dealing with economic challenges in our homeland is 
nothing new to anyone familiar with these issues. Indeed, policies 
encouraging migration of islanders to the U.S. were more pronounced 
during the trusteeship than they are today. Any discussion of these 
matters in the policy development process aside, the RMI has not 
adopted a social engineering theory based on the export of population 
for purposes of alleviating economic problems at home. Our people are 
the RMI's most valuable resource, not just as wage earners, but as 
family and community members.
    Similarly, instead of sending people to Honolulu for medical care, 
the RMI government also would like to improve health care so the 
significant travel of patients and family in connection with costly 
referrals to Honolulu can be reduced. If the RMI could, for example, 
afford to maintain permanent, high quality and widely available kidney 
dialysis in Majuro, the exodus of RMI citizens associated with that 
disease alone could be significantly reduced.
    Similarly, the desire and motivation of the RMI to identify, treat 
and eradicate leprosy among our people is far greater in Majuro than in 
Honolulu. This is an example of an issue on which the RMI would be 
quite willing to work with the U.S. to adopt new procedures to address 
the concerns raised in the GAO report.
    The GAO report also reminds us that it was a U.S. government policy 
during the status negotiations that RMI citizens could become U.S. 
citizens if they chose territorial commonwealth status instead of free 
association, but the U.S. supported free association as proposed in the 
Compact because it would enable the RMI to have its own nationality, 
sovereignty and citizenship, while still enjoying special immigration 
rights not available to any other nations. This special immigration 
policy was viewed as part of the unique alliance that gave the U.S. the 
same military operating rights in the RMI as it has in the territories 
and states, and so it was the U.S. position that it was fitting to 
offer freedom of cross-border travel, residence and employment rights 
effectively more similar to the treatment given to U.S. citizens in 
territories and the states than to foreign countries.
    In offering open immigration, the U.S. was quite aware that it 
would make less difficult the decision to reject territorial status and 
chose separate sovereignty, nationality and citizenship. The RMI 
believes the national government and the people of the RMI made the 
right choice. However, we cannot pretend that the U.S. did not intend 
and benefit from the awareness by the RMI and its citizens that open 
immigration would mean access to the U.S. would not be cut off in the 
future under the Compact.
    In this context, the GAO report properly and quite powerfully poses 
the question: By what standard will the federal, state and territorial 
government now treat the RMI citizens to whom the U.S. offered--and by 
approval of the Compact provided--open immigration? The Compact 
negotiators did their best, but could not have contemplated precisely 
the problems that have arisen from the implementation of the 
immigration provisions of the Compact. Now we have a successful 
political status association, and it demands that we adapt and address 
the implementation challenges.
    In a sense, the migration problems identified by the GAO draft 
report mean we are facing the consequences of our success under the 
Compact. So it is important that the GAO report not become the occasion 
for another round of confusion and selective memory about how these 
problems came about. Instead, the RMI hopes the GAO report will remind 
all concerned of the special relationship that Congress created in its 
exercise of its powers over the trust territory, leading to treatment 
of the RMI under the Compact as a unique ally with some of the features 
of a domestic territory, but with full sovereignty, nationality and 
citizenship in its own name and right.
    In its discussion of the status of RMI residents in the U.S. under 
federal and state social programs, the GAO report raises important 
questions about how the Compact's immigration provisions can and should 
be implemented in the future. For RMI citizens must not be included in 
American society for some purposes, only to be excluded from the norms 
of civilized and humane treatment of all persons legally enjoying long 
term or ``habitual'' residence and employment rights in the U.S.
    The RMI is very concerned and interested in helping to address the 
problems that the local governments in the states and territories are 
experiencing. The RMI does not want its citizens to be perceived only 
as a dependent population, when in fact they are contributing to both 
capital and labor resources making possible economic growth in the U.S. 
territories and the mainland. The commerce between the RMI and both 
Hawaii and Guam is significant, and RMI citizens are participating in 
the economy at the middle and high end of the economy, as well as at 
the entry level.
    The more fundamental question is whether RMI citizens, as non-
immigrant aliens lawfully in the U.S. for indefinite periods of time, 
are to be treated the same as immigrant aliens for purposes of federal, 
state and local programs. In a sense, the Compact immigration 
provisions arguably create within the U.S. immigration system a sub-
category of aliens somewhere in between immigrant aliens with permanent 
resident status and non-immigrant aliens with a visa. However, because 
migrants under the Compact do not have to meet visa criteria does not 
mean they can or should be treated as if they were legal aliens with 
only temporary residence rights, much less as illegal aliens.
    Rather, RMI citizens should be allowed to enjoy the immigration 
rights agreed to by the U.S. under conditions and policies the 
recognize them as citizens of an ally nation who have a special right 
to be in the U.S. and enjoy a status most closely analogous to that of 
permanent resident aliens.
    At the same time, the RMI recognizes that the absence of visa 
screening of RMI citizens who remain non-immigrant aliens represents a 
unique challenge for the INS and federal, state and local authorities. 
Thus, the RMI is prepared to review the issues raised by the GAO report 
further and cooperate with the U.S. is determining how these matters 
can be addressed in a mutually agreed manner consistent with the 
Compact for Free Association.
    The RMI's specific comments on the contents of the draft report are 
attached.
             RMI Proposals for Revision of GAO Draft Report
    The following suggestions are of a technical nature and do not 
address policy matters presented in the GAO draft report. Rather, these 
are editorial revisions that the RMI views as necessary to produce a 
more accurate and informative final report. RMI policy relating to how 
the recommendations of the GAO report should be addressed in the 
Compact negotiations or otherwise will be determined by the RMI in due 
course.
    1. Title page, delete ``Foreign Assistance'' heading and sub-
heading that follows, and in lieu thereof insert ``Free Association: 
Legal Migration Under Compact with Micronesian Nations Has Had 
Significant Impact on U.S. Island Areas''.
    Explanation: The Compact and assistance to the RMI under it is not 
part of the U.S. foreign assistance program or foreign assistance 
budget. Compact funding is not authorized or appropriated under the 
Foreign Assistance Act of 1961, as amended, nor as part of the State 
Department budget account. Compact assistance is appropriated under the 
Department of the Interior budget account and is implemented under 
federal statutes and executive policy instruments which recognize the 
historical role of DOI, as well as the role of the State Department and 
Congress in managing the free association relationship. This results 
from the fact that free association is a separate field of federal 
policy distinct from foreign assistance for non-associated nations, as 
well as domestic territorial affairs. In addition, the specific issue 
of Micronesian and Marshallese migration should not be confused. with 
general subject of cross border migration between non-associated 
nations that often involves illegal migration. Normally the RMI prefers 
not to be referred in a political context by the geographic term 
``Micronesia'', but rather than unduly complicate this matter the RMI 
would accept and support as more accurate the heading suggested above.
    2. Page 1, first line, sentence of letter to Members, after 
``United States'' delete ``has international agreements, referred to as 
Compacts of Free Association, that grant'' and in lieu thereof insert 
``is party to international agreements, in the form of Compacts of Free 
Association, that include provisions under which''. Explanation: The 
compacts are not merely ``referred to'' as compacts, but rather 
``Compact of Free Association'' is the name and term of art under these 
particular international agreements agreed to and promulgated on behalf 
of the United States by the President and Congress.
    3. Page 1, footnote, first sentence, between ``and'' and 
``defense'' insert ``certain of the Compact''. Explanation: Not all 
defense obligations expire, including Kwajalein missile defense systems 
base rights and strategic denial powers of U.S. over third country 
military access to waters, airspace or territory of the RMI.
    4. Page 1, footnote, second sentence, after ``provisions'' delete 
all after ``can'' and in lieu thereof insert ``continue from the 2001 
expiration date to 2003 as provided in the Compact while negotiations 
are underway but not completed''. Explanation: This would be a more 
accurate characterization of Section 231 of the Compact.
    5. Page 3, last sentence, before ``Government'' insert, ``In an 
anecdotal context rather than as a statement of official policy,'', and 
after comma change ``g'' in word ``Government'' to smaller case. 
Explanation: The RMI acknowledges that GAO may have been told this as 
an informal view, but it is not official policy of RMI.
    6. Page 3, last sentence, after ``''limited'' insert ``education, 
health care and''. Explanation: The RMI believes the GAO and those who 
gathered the statistical and polling data relied upon in the report 
underestimate the extent to which travel, particularly to Honolulu, is 
motivated by health care needs, including for nuclear test survivors. 
As a result of nuclear testing legacy RMI citizens tend to be very 
health conscious and concerned about diagnosis and treatment of 
disease. Many of those who come and go to school or work in Honolulu 
and elsewhere originally come for health reasons, but often patients 
and family members stay and work to be near care services and to avoid 
costly travel back and forth between Honolulu and Majuro for on-going 
treatment for themselves or relatives.
    7. Page 6, delete paragraph from beginning at the top of page and 
end deletion before the sentence beginning ``The Department of the 
Interior's Office of Insular affairs (OIA) . . .'', and in lieu of 
deleted material insert:

          In accordance with provisions of Chapter XII of the Charter 
        of the United Nations regarding the international trusteeship 
        system for administration of non-self-governing areas, in 1947 
        the United States and the Security Council entered into a 
        Trusteeship Agreement under which the U.S. governed the Trust 
        Territory of the Pacific Islands (TTPI) until the Compact of 
        Free Association entered into force in 1986. The TTPI comprised 
        the islands which under the Compact are within the national 
        borders of the FSM, RMI, Palau, as well as the islands under 
        U.S. sovereignty in the Commonwealth of the Northern Mariana 
        Islands, which became an unincorporated U.S. territory under a 
        political status agreement approved in 1976 and fully 
        implemented with the Compact for the RMI and FSM in 1986. 
        [footnote 7]. The TTPI was the only U.N. trusteeship recognized 
        as ``strategic'' and placed under Security Council rather than 
        General Assembly oversight pursuant to Article 83 of the U.N. 
        Charter. This reflected, among other things, that in 1946 the 
        U.S. had begun, and at the time the trusteeship was established 
        was continuing, a program of atmospheric nuclear testing in the 
        Marshall Islands. As Administering Authority under the 
        trusteeship, the U.S. exercised all executive, legislative and 
        judicial powers of government, including plenary powers with 
        respect to military operations and use of the islands, as well 
        as financial and administrative responsibility for the social, 
        political and economic advancement of the inhabitants. In 
        accordance with self-determination procedures prescribed by the 
        Secretary of the Interior, limited civilian government 
        authorities devolved upon the Federated States of Micronesia 
        upon adoption of its local constitution, following its 
        ratification by the voters of Pohnpei, Chuuck, Yap and Kosrae 
        in a 1978 referendum. The Marshall Islands established its 
        constitutional government and declared itself a republic in 
        1979, but both the FSM and the RMI remained subject to the 
        authority of the Secretary of the Interior under the U.N. 
        trusteeship until the Compact of Free Association entered into 
        force in 1986 and the U.S. recognized both as sovereign nations 
        with the political status of free association with the United 
        States. In addition to the political and strategic provisions 
        of the Compact that define the political status of free 
        association and relations between the parties until it is 
        terminated or amended in accordance with its terms, under 
        financial terms of the Compact that expire after the first 
        fifteen years the U.S. has been providing substantial direct 
        economic assistance to the free associated states. These 
        economic assistance provisions and some of the defense 
        authority of the U.S. are subject to renegotiations as already 
        noted.

    Explanation: The U.N. did not unilaterally create the TTPI. The 
islands concerned were simply categorized as the ``formerly Japanese 
mandated islands'' under U.S. occupation until the terms for 
trusteeship proposed by the U.S. were accepted and included in the 
trusteeship agreement which prescribed the terms for both creation of 
the TTPI and designation of the U.S. as the Administering Authority. 
Similarly, the FSM did not vote to become independent in 1978, nor did 
the RMI vote to be a Republic per se in 1979. Those U.N. observed votes 
were to establish constitutional government competent to represent the 
peoples concerned in political status negotiation with the U.S. that 
produced the Compact of Free Association in 1986. The description of 
this history suggested above is far more accurate and informative for 
Congress than the version prepared by GAO. The RMI would not expect the 
GAO staff to be entirely familiar with details of the events set forth 
above, but given the extremely high quality of the other material 
presented in the draft report, the RMI has made this effort to offer 
what we view as an objective and neutral version of those events.
                                 ______
                                 
                          Republic of the Marshall Islands,
                                                 November 14, 2001.
Senator Jeff Bingaman,
Chairman, Senate Energy and Natural Resources Committee, Senate Dirksen 
        Office Building, Washington, DC.
    Dear Chairman Bingaman: I have the honor of submitting to you a 
copy of the Changed Circumstances Petition of the Government of the 
Republic of the Marshall Islands (RMI) to the Congress of the United 
States. This petition was submitted to the U.S. Congress in September 
2000. The purpose of the petition is to request expansion of measures 
and remedies provided under the nuclear claims settlement approved by 
Congress under the Compact of Free Association Act of 1985 (P.L. 99-
239, 99 Stat. 1778). This petition was authorized by Congress under 
Section 177 of the Compact of Free Association between our governments, 
and addresses the inadequacy of measures, and the need for funding of 
adjudicated damage and injury awards, related to the effects of 
radiological contamination in the Marshall Islands resulting from the 
U.S. nuclear weapons testing program conducted from 1946-1958.
    During that 12-year period, 67 atmospheric nuclear tests were 
conducted on island and lagoon surfaces in the Marshall Islands, as 
part of the U.S. Cold War era atomic and thermonuclear weapons proving 
program. The federal government conducted those tests, as well as all 
radiological monitoring and remediation measures for four decades after 
the test began, while the Marshall Islands was part of a U.S. 
administered territory. Today, the RMI must continue to rely on U.S. 
funding, and on the Department of Energy technical and scientific 
capabilities to monitor and address the radiological effects of the 
testing program.
    Consequently, under Section 177 of the Compact of Free Association 
ending the trust territory status of the RMI, Congress enacted a 
nuclear claims settlement as U.S. law (P.L. 99-239, 99 Stat. 1778). 
Article IX of the nuclear claims settlement provides that the RMI 
Government has a statutory right to petition Congress directly for 
additional measures and remedies within the framework of the Section 
177 nuclear claims settlement based on the following criteria:
    1. New and additional information about the radiological effects of 
U.S. nuclear weapons testing program on the lands and people of the 
Marshall Islands is discovered;
    2. That this information was not known, or otherwise available, 
when the nuclear claims settlement was being negotiated and later when 
it was ratified by the Marshall Islands and the United States as 
provided for in U.S. Public Law 99-239; and
    3. That this new information renders the provisions of the 177 
Agreement manifestly inadequate to address the full scope of damages 
and injuries resulting from the testing program, including payment of 
awards by the Nuclear Claims Tribunal created as the alternative forum 
of adjudication of additional claims.
    This Changed Circumstances Petition, in my mind, satisfies the 
three requirements listed above. New and additional information about 
the consequences of the testing program is abundant and compelling. In 
1993, the Executive Branch of the U.S. Government began declassifying 
thousands of documents pertaining to the testing program in the 
Marshall Islands. These documents demonstrate that the atolls received 
more radiation than previously understood. Furthermore, atolls received 
cumulative exposure to radiation produced by multiple tests rather than 
a single shot, the Bravo test of March 1, 1954. This alone was a 
significant changed circumstance due to the extremely limited exposure 
data made available by the Department of Energy at the time the 
settlement was approved by Congress and in a U.N. observed plebiscite 
in the Marshall Islands.
    Additionally, radiological science and medicine have progressed 
significantly. As a result of new scientific and medical 
understandings, we now know that lower doses of radiation are more 
dangerous to human beings than was previously understood in the 1982-
1985 period when the settlement was approved. Recognizing that these 
changed circumstances might occur, Congress expressly and explicitly 
authorized this petition process.
    Our requests for assistance in the Changed Circumstances Petition 
focus on the medical needs of the communities most acutely affected by 
radiation exposure and the inability of the Nuclear Claims Tribunal to 
pay for awards that have already been adjudicated. In order to address 
these matters, the RMI Government is requesting that the Congress 
exercise its oversight responsibilities; conduct hearings in the 
committees of jurisdiction, and respond to this petition in accordance 
with the provisions of P.L. 99-239.
    In addition, the RMI Government is also prepared to engage in a 
detailed review of this petition in the context of current negotiations 
between the U.S. and the RMI taking place under Section 231 of the 
Compact of Free Association as approved by Congress under P.L. 99-239, 
particularly for requests number 3, 4, and 5 in the petition. If the 
Executive Branch is willing to include requests 3, 4, and 5 as part of 
our bilateral negotiations to extend certain provisions of the Compact 
of Free Association, then the RMI Government's current request for 
changed circumstances is limited to the need to provide the Nuclear 
Claims Tribunal with the resources to make its awards.
    The RMI has proposed to the Bush Administration that the Executive 
Branch evaluate and develop a position and recommendations for Congress 
regarding disposition of this petition as part of the negotiations 
under the Compact. This entire matter arises pursuant to the Compact as 
a treaty approved by both Houses of Congress in the form of a joint 
resolution signed by the President. Therefore, Executive Branch review 
is constitutionally appropriate and would no doubt assist Congress in 
exercising its oversight responsibilities under the nuclear claims 
settlement enacted into federal law under P.L. 99-239.
    Congress provided funding for the Nuclear Claims Tribunal to make 
personal injury and property damage awards. The funding is insufficient 
to pay awards that have been made on adjudicated claims. The Nuclear 
Claims Tribunal has developed a plan to address current personal injury 
awards, but it does not have adequate funding to pay for its property 
awards. To date, the communities of Enewetak and Bikini have 
adjudicated property claims with the Nuclear Claims Tribunal, but there 
is no means to make payments on these awards due to the inadequacy of 
funds in the Nuclear Claims Trust Fund established by Congress. A 
property award for Rongelap is expected in the next few months, and the 
Utrik property claim will be adjudicated in the near future.
    Since the petition was originally submitted to Congress in 
September 2000, there have been two significant developments in 
relation to the petition. First, the Nuclear Claims Tribunal has taken 
steps to complete payments for personal injury awards within the next 
twelve months using the corpus of the Nuclear Claim's Fund. 
Consequently, the first request in the Changed Circumstances Petition, 
a request for funds to address the personal injury awards made by the 
Nuclear Claims Tribunal is no longer required. While the RMI Government 
is pleased that existing personal injury awardees will receive the full 
amounts of their claims, the decision to use the corpus of the Nuclear 
Claim's Fund means that the Tribunal does not have the means to address 
future awards (including cancers that have a latency period of several 
decades). In place of the first request in the petition, the RMI 
Government hopes that the U.S. Congress will restore the corpus of the 
Nuclear Claim's Fund and provide the Tribunal with the means to address 
future awards. Second, the Nuclear Claims Tribunal made a property 
damage award in March 2001 to the Bikini community for the amount of 
$563.3 million dollars. As the judgment was not complete when the RMI 
Government first submitted the changed circumstances petition to 
Congress last year a summary of the Bikini award is herewith attached.
    As strategic partners and allies of the United States, the RMI is 
pleased to host the Ronald Reagan Ballistic Missile Testing facility on 
Kwajalein Atoll and to have our Marshallese citizens serve in every 
branch of the U.S. armed forces. As a result of our relationship, the 
people of the Marshall Islands believe they played a critical and 
indispensable role in the success of the policy of nuclear deterrence 
that preserved international peace during the Cold War. From World War 
II until the present we have stood by the United States and 
demonstrated our willingness to support U.S. strategic interests, both 
when the Marshall Islands was a U.S. administered trust territory, and 
since the RMI became a free associated state pursuant to the Compact 
with the United States.
    By the same token, we look to the United States to adequately 
address the damages and injuries that have incurred as a result of our 
strategic partnership. The RMI Government seeks equity with comparable 
nuclear sites in the U.S. mainland both in terms of cleanup and 
response to the medical needs of communities.
    The RMI Government looks forward to working with Congress to 
determine the disposition of this petition. The RMI Government also 
looks forward to an Executive Branch evaluation of the proposal. If you 
have any questions about this matter, the Ambassador and staff of the 
RMI Embassy in Washington, D.C. would be pleased to meet with you or 
your staff to provide further information.
            With Best Regards,
                                            Kessai H. Note,
                                                         President.
  Petition Presented to the Congress of the United States of America 
 Regarding Changed Circumstances Arising From U.S. Nuclear Testing in 
                          the Marshall Islands
                           executive summary
Overview
    In 1985, the United States Congress appropriated $150 million to 
address known consequences of the U.S. Nuclear Weapons Testing Program 
in the Republic of the Marshall Islands (RMI) and to establish a 
bilateral political process for continuing to address the legacy of the 
nuclear tests, including any future claims based on new information or 
damages. The $150 million appropriation was politically determined and 
was not intended to represent a comprehensive assessment of damages, a 
legally adjudicated settlement, or a monetary damages award.
    Since 1985, it has become clear that the cumulative levels of 
radiation to which the RMI was exposed caused substantially greater 
injury to people and to property (land, reefs, etc.) than was 
previously known or made public. The Nuclear Claims Tribunal, which was 
created to settle claims as an alternative to judicial means, has been 
awarding claims for personal injury and property damages, including 
$72.6 million in personal injury claims, over $386 million to the 
inhabitants of the Enewetak Atoll, and over $563 million to the people 
of Bikini to compensate for the loss of their land, restoration of the 
atolls, and hardship endured during 33 years of forced resettlement. 
All of the Tribunal's funding has been used to pay for personal injury 
awards. The Tribunal does not have the funding necessary to either make 
awards for already adjudicated property claims, nor the funding for 
expected future personal or property claims--including pending land 
claims from Rongelap and Utrik.
    In addition, the health care system envisioned as part of the 
compensation for the affected communities has proven inadequate to 
handle the growing health care needs of those impacted by the nuclear 
testing program. In fact, those most adversely affected by radiation 
exposure only receive health care for pennies on the dollar of what 
would be given in the United States. Citizens of the Marshall Islands 
who were exposed to radiation deserve nothing less than the level of 
care provided to U.S. citizens--but instead are receiving a great deal 
less.
    Cognizant that circumstances such as these might arise, Congress 
authorized a process under which the RMI could petition Congress for 
additional money to cover the full cost of damages and injuries if new 
information renders the initial $150 million payment as manifestly 
inadequate. Pursuant to this, in September, 2000, the RMI submitted 
this Petition To The Congress Regarding Changed Circumstances Arising 
from U.S. Nuclear Testing in the Marshall Islands (``Changed 
Circumstances Petition''). President Kessai Note resubmitted this 
petition to Congress in November 2001. The November 2001 submission 
includes a summary of the Bikini land claim, and signals the RMI 
Government's willingness to discuss inadequacies in the health care 
system for radiation survivors as part of the ongoing Compact 
negotiations.
Background
            The Law
    In U.S. Public Law 99-239, which enacted as federal law the Compact 
of Free Association and the nuclear claims settlement (``Section 177 
Agreement''), Congress provided that the purpose of the Agreement is to 
``create and maintain, in perpetuity, a means to address past, present, 
and future consequences of the nuclear testing program.''
    Thus, the U.S. recognized at the time of Compact approval that the 
full extent of injuries to persons and damage to property was not yet 
known, or not public due to national security classification, and that 
the initial damage assessments were limited to a ``best effort'' at the 
time of the Compact. Accordingly, Congress authorized a petition for 
continuation of measures and remedies within the framework of the 
Section 177 Agreement where there exists new and additional information 
about the radiological effects of U.S. nuclear weapons testing programs 
on the lands and people of the RMI, not known when the nuclear claims 
settlement was negotiated and ratified by both parties, and where this 
new information renders the provisions of the Section 177 Agreement 
manifestly inadequate to address the full scope of damages resulting 
from the testing program, including payment of awards by the Nuclear 
Claims Tribunal.
Summary of the Petition
    The petition covers four broad areas, as summarized below.
    1. New and Additional Information Not Available at the Time of 
Negotiation and Agreement: In 1993, the U.S. Government declassified 
thousands of documents pertaining to the testing program that 
demonstrated that the atolls of the RMI received far more radiation 
from multiple tests than previously thought. Also, scientific and 
medical advancements have shown that much lower doses of radiation are 
more harmful than the levels thought to be dangerous at the time of the 
Compact.
    2. Personal Injury Awards: The Nuclear Claims Tribunal has awarded 
over $72.6 million for personal injuries to more than 1,600 
individuals, all of whom had medical conditions directly linked to the 
nuclear testing program. More than 600 awardees have died without 
receiving full compensation. Because of the severity of the claims, and 
the sheer number of individuals harmed, the Tribunal has awarded over 
$26.9 million more than the total available for payment during the 
Compact period. The Changed Circumstances Petition asks Congress to 
authorize and appropriate funds so that the Tribunal can make full 
payments to those still living and to the estates of those already 
deceased.
    3. Property Damage Awards: Two communities, Enewetak and Bikini, 
have adjudicated claims with the Tribunal and have been awarded money 
to compensate them for damages. Due to a shortfall in the Nuclear 
Claims Trust Fund, the Tribunal is unable to disperse the awards. The 
Changed Circumstances Petition asks Congress to authorize and 
appropriate funds to settle the two adjudicated claims, as well as to 
settle forthcoming claims based on the criteria used in the Tribunal's 
first two decisions.
    4. Medical Care: The Compact envisioned that the people of the RMI 
would be compensated through a health care program for the impacted 
populations and the awardees of personal injury claims from the 
Tribunal. But the current program has proven manifestly inadequate. The 
program was expected to deliver care through the RMI health 
infrastructure, which was not prepared or equipped to deliver the 
necessary level of care. The funding provided also has proven grossly 
inadequate, with only $2 million appropriated annually and an average 
per patient expenditure of only $14 per month. (This compares with an 
average U.S. expenditure of $230 per person per month for similar 
services.)
    To adequately address the real medical costs associated with the 
nuclear testing program, the Changed Circumstances Petition asks 
Congress to: (1) authorize and appropriate money to cover the initial 
capital costs to build and supply a medical infrastructure that could 
provide adequate primary and secondary care to the affected 
populations; (2) authorize and appropriate $45 million annually for the 
next 50 years to provide a health care program for the affected 
communities and awardees of personal injury claims; and (3) extend the 
U.S. Department of Energy medical monitoring program for exposed 
populations to any groups that can demonstrate high levels of radiation 
exposure.
                        bikini decision summary
    This claim is a class action for and on behalf of the People of 
Bikini for damage to property resulting from the U.S. Nuclear Testing 
Program brought pursuant to Sec. 123 of the Nuclear Claims Tribunal Act 
of 1987, as amended.
    Bikini Atoll is located in the northwestern Marshall Islands and 
was used by the Government of the United States as a testing site for 
nuclear weapons from 1946 to 1958. The People of Bikini were removed 
from Bikini Atoll on March 7, 1946. Subsequently, 23 atomic and 
hydrogen bombs were detonated there over the course of the next 12 
years changing the atoll's topography and leaving it in a highly 
contaminated condition from residual radioactivity.
    Damages arising from the results of those tests have been awarded 
to the people of Bikini in three general categories: loss of use; costs 
to restore; and consequential damages for hardship suffered by the 
Bikinians resulting from their removal.
    The Bikinians have not had use of their atoll since March 7, 1946, 
and this loss of use will continue on into the future until the 
necessary remediation takes place to restore full use and habitability. 
Despite this long period of time, it was never the intention of the 
United States or any governmental authority to permanently preclude the 
Bikinians from returning to their home atoll. Rather, the use of Bikini 
as a nuclear testing site has always been considered ``temporary'' by 
all parties. Accordingly, the Tribunal finds that these facts support a 
``temporary taking'' under applicable case law. Expert appraisal 
witnesses provided reports and gave testimony on the fair market rental 
value of the land for the period of denied use. After setting off prior 
compensation paid to the people of Bikini, the Tribunal has determined 
that the value for loss of use both past and into the future is 
$278,000,000.
    Radiological conditions at Bikini today remain in excess of 
radiation protection standards established by the U.S. Environmental 
Protection Authority applied to severely contaminated sites in the 
United States. Thus, radiological clean up remains necessary so that 
Bikini can support human habitation again with access to and use of the 
atoll's resources. The Tribunal received detailed written reports and 
heard expert testimony with respect to various remediation strategies 
to accomplish the required clean up. Over 20 different strategies were 
considered ranging in cost from $217.7 million to $1.419.6 billion. 
From this list, four strategies were identified which would best 
accomplish the required clean up in a cost effective manner. These four 
remediation strategies were evaluated utilizing U.S. EPA clean-up 
criteria and further assessed and balanced in view of Tribunal 
concerns, which resulted in the final selection of a remediation 
strategy consisting of potassium treatment and soil removal with the 
waste utilized for construction of a causeway. After deducting prior 
compensation received by the people of Bikini, the Tribunal has 
determined that the net award for restoration costs is $251,500,000.
    The people of Bikini have also suffered many hardships through 
their years in exile from Bikini Atoll. These hardships, consisting of 
severe food shortages and hunger, disease, loss of culture and other 
types of pain and discomfort, were more severe at certain times than at 
other times. The period of relocation to Rongerik Atoll from 1946 to 
1947 was the most severe with the Bikini community suffering from 
starvation. The period of habitation in Kili up to 1982 also presented 
severe hardships to the people of Bikini with frequent food shortages 
and no available lagoon resources. Consequently, the Tribunal has 
devised a scheme of compensation based on the level of hardship during 
those two periods on the Bikini community. The total compensation per 
individual for the periods specified is consistent with the parameters 
and compensation paid by the Tribunal under its personal injury 
compensation program and with the award made to the people of Enewetak. 
The Tribunal has awarded the people of Bikini $33,814,500 for 
consequential damages resulting from the Nuclear Testing Program.
    The Tribunal has determined that the total net amount of 
compensation due to claimants in this case for the categories of 
damages described above is $563,315,500.

                                    

      
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