[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
COMPACT OF FREE ASSOCIATION WITH THE
REPUBLIC OF PALAU: ASSESSING THE
SUBCOMMITTEE ON ASIA AND THE PACIFIC
COMMITTEE ON FOREIGN AFFAIRS
HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
NOVEMBER 30, 2011
Serial No. 112-84
Printed for the use of the Committee on Foreign Affairs
Available via the World Wide Web: http://www.foreignaffairs.house.gov/
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COMMITTEE ON FOREIGN AFFAIRS
ILEANA ROS-LEHTINEN, Florida, Chairman
CHRISTOPHER H. SMITH, New Jersey HOWARD L. BERMAN, California
DAN BURTON, Indiana GARY L. ACKERMAN, New York
ELTON GALLEGLY, California ENI F.H. FALEOMAVAEGA, American
DANA ROHRABACHER, California Samoa
DONALD A. MANZULLO, Illinois DONALD M. PAYNE, New Jersey
EDWARD R. ROYCE, California BRAD SHERMAN, California
STEVE CHABOT, Ohio ELIOT L. ENGEL, New York
RON PAUL, Texas GREGORY W. MEEKS, New York
MIKE PENCE, Indiana RUSS CARNAHAN, Missouri
JOE WILSON, South Carolina ALBIO SIRES, New Jersey
CONNIE MACK, Florida GERALD E. CONNOLLY, Virginia
JEFF FORTENBERRY, Nebraska THEODORE E. DEUTCH, Florida
MICHAEL T. McCAUL, Texas DENNIS CARDOZA, California
TED POE, Texas BEN CHANDLER, Kentucky
GUS M. BILIRAKIS, Florida BRIAN HIGGINS, New York
JEAN SCHMIDT, Ohio ALLYSON SCHWARTZ, Pennsylvania
BILL JOHNSON, Ohio CHRISTOPHER S. MURPHY, Connecticut
DAVID RIVERA, Florida FREDERICA WILSON, Florida
MIKE KELLY, Pennsylvania KAREN BASS, California
TIM GRIFFIN, Arkansas WILLIAM KEATING, Massachusetts
TOM MARINO, Pennsylvania DAVID CICILLINE, Rhode Island
JEFF DUNCAN, South Carolina
ANN MARIE BUERKLE, New York
RENEE ELLMERS, North Carolina
ROBERT TURNER, New York
Yleem D.S. Poblete, Staff Director
Richard J. Kessler, Democratic Staff Director
Subcommittee on Asia and the Pacific
DONALD A. MANZULLO, Illinois, Chairman
RON PAUL, Texas ENI F.H. FALEOMAVAEGA, American
BILL JOHNSON, Ohio Samoa
DAN BURTON, Indiana FREDERICA WILSON, Florida
EDWARD R. ROYCE, California GARY L. ACKERMAN, New York
STEVE CHABOT, Ohio BRAD SHERMAN, California
MIKE KELLY, Pennsylvania GREGORY W. MEEKS, New York
JEFF DUNCAN, South Carolina DENNIS CARDOZA, California
C O N T E N T S
Mr. James L. Loi, Deputy Assistant Secretary, Bureau of East
Asian and Pacific Affairs, U.S. Department of State............ 14
Mr. Thomas Bussanich, Director of Budget, Office of Insular
Affairs, U.S. Department of the Interior....................... 24
Brigadier General Richard L. Simcock, II, Principal Director,
South and Southeast Asia, Office of the Deputy Under Secretary
of Defense, U.S. Department of Defense......................... 31
Mr. David B. Gootnick, Director, International Affairs and Trade,
U.S. Government Accountability Office.......................... 38
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
The Honorable Donald A. Manzullo, a Representative in Congress
from the State of Illinois, and chairman, Subcommittee on Asia
and the Pacific: Prepared statement............................ 3
The Honorable Eni F.H. Faleomavaega, a Representative in Congress
from American Samoa: Prepared statement........................ 8
Mr. James L. Loi: Prepared statement............................. 16
Mr. Thomas Bussanich: Prepared statement......................... 26
Brigadier General Richard L. Simcock, II: Prepared statement..... 33
Mr. David B. Gootnick: Prepared statement........................ 40
Hearing notice................................................... 80
Hearing minutes.................................................. 81
The Honorable Dan Burton, a Representative in Congress from the
State of Indiana: Prepared statement........................... 82
The Honorable Eni F.H. Faleomavaega, a Representative in Congress
from American Samoa: Washington Post article dated November 28,
Brigadier General Richard L. Simcock, II: Map.................... 86
Questions submitted for the record by the Honorable Eni F.H.
Faleomavaega and written responses from:
Mr. James L. Loi............................................... 87
Mr. Thomas Bussanich........................................... 90
COMPACT OF FREE ASSOCIATION WITH THE REPUBLIC OF PALAU: ASSESSING THE
WEDNESDAY, NOVEMBER 30, 2011
House of Representatives,
Subcommittee on Asia and the Pacific,
Committee on Foreign Affairs,
The subcommittee met, pursuant to notice, at 11:43 a.m., in
room 2226 Rayburn House Office Building, Hon. Donald A.
Manzullo (chairman of the subcommittee) presiding.
Mr. Manzullo. The subcommittee will come to order.
In 1994, the United States and the Republic of Palau
established a Compact of Free Association ending 49 years of
direct American administration of that country and other island
nations under the auspices of the U.N.'s Trust Territory of the
Palau consists of eight main islands and more than 250
smaller islands, with a total population of approximately
20,000 people. The Compact with Palau was negotiated in the
1980s, at the height of the Cold War, with the goal of
establishing democratic self-governance and economic self-
sufficiency in Palau while preserving strategic control of the
The original Compact of Free Association was completed in
1986 but did not enter into force for another 8 years. The
Compact provided for several types of assistance, including
direct economic assistance for 15 years to the Palau
Government; establishment of a trust fund to provide Palau $15
million in annual payments from 2010 to 2044; infrastructure
investments; and the provision of Federal services such as
postal, weather, and aviation. The Government Accounting
Office, which is represented here today, estimated that Palau
received a total of $852 million between 1995 and 2009.
Under the Compact, citizens of Palau are granted
uninhibited access to reside and work in the United States and
its territories as ``lawful non-immigrants,'' and eligibility
to volunteer for service in the U.S. Armed Forces. It should be
noted that a number of volunteers from Palau have paid the
ultimate sacrifice in service of our nation, and our hearts and
thoughts go out to their families.
Last year, the administration completed a 15-year review of
the Compact, as required under the terms of the agreement, with
a total cost of $215 million. The revised agreement does not
change the fundamental provisions of the original Compact;
however, it does gradually reduce the financial support
provided by the U.S. and extends the life of the agreement to
More importantly, the revised agreement greatly improves
the likelihood of the existing trust fund's ability to sustain
payments through 2044 as originally planned. The revised
agreement also requires visitors from Palau to have a machine-
readable passport to enter the U.S., and it conditions future
financial assistance on Palau's progress in achieving key
Just 2 weeks ago, the President announced a dramatic
expansion of the U.S.-Australia defense relationship in part to
counter China's rapid development of its military forces. Palau
is indeed an important friend in the region. It is one of six
Pacific Island nations to have diplomatic ties with Taiwan,
rather than China. Palau also consistently supports the U.S.
and Israel at the United Nations by voting with us over 90
percent of the time.
The relationship with Palau has evolved into a strong
partnership with people who share American values. It is my
hope that the witnesses today will provide acceptable offsets
for the funding request that accompanies the revised Compact
With our national debt now over $15 trillion, increases in
expenditures must be justified and offsets found to balance the
costs. Funding to Palau is no different.
I thank the witnesses for appearing today. I now recognize
Ranking Member Faleomavaega for his opening remarks.
[The prepared statement of Mr. Manzullo follows:]
Mr. Faleomavaega. Mr. Chairman, thank you for calling this
hearing. I deeply appreciate again your leadership and your
efforts in bringing this important issue before the members of
Thank you for calling the hearing on the 15th Anniversary
Review of the Compact of Free Association with the Republic of
Just as a matter of observation, Mr. Chairman, I have
followed this matter with Palau as well as with the Federated
States of Micronesia and with the Republic of the Marshall
Islands, having served previously as a staff member on the
Committee on International Affairs.
An interesting observation, Mr. Chairman, is that
immediately after World War II, we would just simply grab these
Micronesian islands and say, ``It is ours,'' and we put a fancy
term like ``a strategic trust'' of our country. We didn't even
have to ask permission from the United Nations. We just went
ahead and took them.
And in the process, becoming a strategic trust, we
eventually then placed it before this trusteeship council,
whereby we eventually worked up a very unique political
relationship with these three Micronesian entities.
The Compact of Free Association negotiations actually
started with the Carter administration and was then continued
on by the Reagan administration, which granted the islands
sovereignty but retained military authority for the United
States and in Palau and gave us some base rights for some 50
Programmatic and financial assistance were specified for 15
years. And bilateral reviews of Palau's needs at the 15, 30,
and 40th earmarks were required to determine assistance for the
succeeding periods. Freely associated state citizens were also
given free access, not only to come to the United States but
they could also join the military.
The extent of U.S. military authority in Palau raised
questions there and at the United Nations. Palau has finally
approved the Compact a few years after the Federated States of
Micronesia and the Republic of the Marshall Islands gave
approval of their own Compacts with our Government.
The U.N. Security Council in 1994 finally left the
trusteeship terminated. And this is where we are now.
The Bush administration negotiated a revised Compact with
the other two Micronesian entities: FSM and the RMI after their
first 15-year periods were approved by Congress in the year
2003, increasing financial assistance to 83 percent in one
case, and the other one by a 47 percent increase for both FSM
as well as RMI or the Republic of the Marshall Islands.
In 2008, before the 15-year mark, the Bush administration
began the review with Palau to ensure a seamless transition.
However, there were a number of delays in the review on the
U.S. side, but it finally produced an agreement that was signed
15 months ago by the President of Palau and an authorized
representative of our Government.
The State Department says this agreement was sent to
Congress in January of this year but the last I heard, it still
had not been received by the Speaker's office. So I don't know
where this document is, Mr. Chairman, but we really need to
follow up on this.
At the insistence of the current administration, the
agreement would provide 62 percent less financial assistance
than during the first period of free association and would
phase out these decisions before the next review in Fiscal Year
2024. This will require cuts in Palau's budget, decrease in its
revenues, and reduce GDP in the short term.
This is shortsighted in my opinion, Mr. Chairman, in light
of the stakes involved. The record will show that the levels of
assistance are arbitrary and, in my humble opinion, without
The agreement would also amend the Compact for U.S. border
security and revise seven agreement subsidiaries to the Compact
in response to U.S. requests concerning civil aviation, Weather
and Postal Service operations, as well as telecommunications.
The stakes are primarily that Palau gives the U.S. military
control over our military strategic interests in this part of
The Pentagon had stated for the record that this ``security
arrangement'' is ``very critical and irreplaceable'' for ``the
United States in an increasingly contested region.'' Ever since
we left Suvla Bay and Clark Air Force Base in Guam, the other
Micronesian islands have now become very, very key and
important parts of our strategic overall defense system in this
part of the Pacific.
I just want to give my colleagues a little sense of where
Palau is located, Mr. Chairman. I brought a little map here.
This is Palau. I know it doesn't show it, but it is the same
size as the State of Texas if we take the dimensions of the
people, 20,000 population, but this is the capacity in terms of
their EEZs or their zones that make them as the Republic of
This is why these islands are so important, Mr. Chairman, I
don't know how else to say it but it is very, very critical
that we not do the things that we are doing, especially in our
current process of negotiating in good faith. I would hope that
we are doing this in good faith with the leaders and the people
I will come back to the map again when I finish my opening
statement, Mr. Chairman. And I thank you for this.
Year after year, the State Department reports that Palau
votes with the U.S. more than any other country, including on
issues we are often isolated, such as Israel, Cuba, and even
the Uyghurs. I am very, very curious to find out where we are
with the Uyghurs given the effort the President of Palau made,
despite all of the criticisms that they received on that.
In my opinion, Palauans have become very Americanized in
half a century. Despite our relationship with this important
ally, they are becoming discouraged at the time the review and
the agreements have taken. A few of the people of Palau and
their leaders are wondering whether Palau should become more
independent and benefit from the desires of China and other
countries that are not necessarily friendly, but are interested
in this part of the world.
So yes, you mentioned earlier, Mr. Chairman, that we need
to look at the offset that seems to be the crucial issue that
we are going to be discussing here. The fact that this issue
covers the jurisdictions of three committees, the Foreign
Affairs Committee, the House Resources Committee, the Armed
Services Committee, my gosh, you cannot have a more complicated
issue than this. If it was possible in the 1970s and '80s to
work out an agreement, the fact of the matter is, it was the
arguments made by the Department of Defense in the 1970s that
made these Micronesian entities a very, very critical part of
our strategic and overall importance to our defense system.
Mr. Manzullo. You are at 7 minutes.
Mr. Faleomavaega. I am on 7 minutes already, Mr. Chairman?
I will wait for my 5 minutes, then. Thank you for giving me a
couple of more minutes.
I look forward to hearing from our witnesses this afternoon
and hope that this hearing will produce some good results.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Faleomavaega follows:]
Mr. Manzullo. Without objection, Mr. Rohrabacher is welcome
to join the subcommittee.
Mr. Rohrabacher. Thank you very much. Thank you very much
for allowing me to sit in on your hearing today. I am here.
I want to make sure that I express a deep-felt appreciation
that I have for Palau. My father was a Marine during the second
world war. And he landed in Palau many times. And the Marines
paid a very heavy price for these islands. And you might say
that they implanted the American spirit there. And we should
never ever take that for granted, that sacrifice and the
friendship that that sacrifice bought for our country.
It has been 15 years since we signed, last signed. And it
is the last element of the Compact of Free Association. And I
think that the free association has served us well.
And now that we are entering a time when we face an
economic crisis in our country and a potential threat and a
gathering storm with China entering the Pacific in a very, very
dramatic way, it pays us to maintain that friendship and that
relationship with Palau, both on economic terms in the long
run, having such a relationship with the country there in the
vast Pacific, which I see as a tremendous economic resource as
well as the expansion of the Chinese military. If we have Palau
on our side, we are a safer country. So those things taken for
granted are taken into consideration.
I think that I appreciate this hearing and hope that we do
justice by this relationship.
Mr. Manzullo. Thank you.
Mr. Sablan. Thank you very much, Mr. Chairman and Ranking
Member Faleomavaega, for the opportunity to join you and other
members of the subcommittee on Asia and the Pacific in
assessing the 15-year review of the Compact of Free Association
with the Republic of Palau.
The Compact of Free Association with Palau was originally
negotiated by the Reagan administration because of the
strategic importance of the western Pacific. The Compact gives
the United States military control of an area as large as, as
Congressman Faleomavaega said, the State of Texas. The Pentagon
says that this security arrangement provides a foundation for
the United States in an increasingly contested region, allowing
critical access, influence, and a strategic position.
The relationship between the United States and the Republic
of Palau will only grow in importance. Together with our
partnership with the other freely associated states and in
conjunction with the U.S. Territory of Guam and the
Commonwealth of the Northern Mariana Islands, which I
represent, we have built a network of strategic alignments here
in the western Pacific. This gives the United States presence
and position in an area of the world that is more and more a
center of commerce and a source of economic resource.
The Compact the Reagan administration negotiated promised
assistance to Palau for 50 years. It specified programs and
grants for the first 15 years and required periodic bilateral
review to assess the relationship and to determine future
assistance. Talks initiated under President George W. Bush
produced an agreement which was finally sent to Congress this
year that phases non-financial assistance during the current
15-year period. This period ends with Fiscal Year 2024 and
reduces assistance to Palau by 62 percent.
This hearing comes at a critical time. Delays in approving
the agreement negotiated by the Bush administration and the
proposed cuts in assistance are causing some in Palau to
question their relationship with the United States.
The Palauan people are a very patient people, but, as we
all know, patience sometimes has its limits.
The present Government of Palau stands firm in wanting to
maintain these strategic ties, but we in Congress need to be
aware that other voices are asking whether Palau should be more
independent and develop relationships with other powers in the
region. This would be a very dangerous outcome.
As our Department of Defense has advised, failure to follow
through on our commitments to Palau, as reflected in the
agreement under consideration today, would jeopardize our
The Natural Resources Committee Subcommittee on Fisheries,
Wildlife, Oceans, and Insular Affairs, of which I am ranking
member, shares jurisdiction with respect to the Compact with
In addition, the relationship with Palau is very close to
my heart because the islands that I represent in Congress were
once part of the United Nations trust territory of the Pacific
islands, along with Palau. And, to this day, the Northern
Marianas is home to many citizens of Palau. And, to this day, I
am the only Micronesian Member of Congress, of which Palau is a
So as someone who knows Palau and the western Pacific and
understands the history and strategic importance of our region,
I strongly urge the Subcommittee on Asia and the Pacific to
approve the agreement now before us.
Again, thank you, Mr. Chairman, Mr. Faleomavaega, and other
members of the committee, for the courtesy extended to me in
allowing me to be part of today's hearing. I look forward to
the testimony of the witnesses. Thank you.
Mr. Manzullo. Thank you, Mr. Sablan.
Mr. Duncan. Thank you, Mr. Chairman.
Reading through some of the opening statements and whatnot,
in listening to the gentleman's from California comments, it
sparked something that I am interested in hearing about. And
that is the fact that some of the detainees from Guantanamo Bay
have been repatriated here. And I would love to hear how that
is working out, how those gentlemen are adapting to the
society. If somebody could just throw that in at some point in
time during your testimony, it would be great. Thanks.
Mr. Manzullo. Thank you.
Our witnesses are James Loi, who became Deputy Assistant
Secretary for the Bureau of East Asia and Pacific Affairs at
the U.S. Department of State on July 18, 2011. He is
responsible for relations with Australia, New Zealand, and the
Previously, Mr. Loi served as chief of staff and special
assistant to Dr. Kurt Campbell, Assistant Secretary of State.
He has also served at the National Security Council as Director
for Australia, New Zealand, and Pacific Island Affairs and as
Director for East Asian Economic Affairs.
Prior to the NSC, he was a visiting fellow with the Freeman
Chair in China Studies at the Center for Strategic and
International Studies. From 1986 through 2005, he served in
various capacities with the U.S. Navy in both enlisted and
commissioned officer status and on active and reserve duty,
attaining the rank of Commander.
Thomas Bussanich is the Director of the Budget and Grants,
Management Division of the Department of Interior's Office of
Insular Affairs. His responsibilities include management of the
Compact of Free Association funding to Palau, the Federated
States of Micronesia, and the Marshall Islands, and of capital
improvement programs in the U.S. territories.
Mr. Bussanich has been involved with U.S.-affiliated
Pacific islands since 1978 when he served as a Peace Corps
volunteer in Micronesia. He is a graduate of the University of
Brigadier General Richard Simcock currently serves in the
Office of the Secretary of Defense, Asia and Pacific Security
Affairs, as the Principal Director of South and Southeast Asia.
Prior to that, he served as the legislative assistant to
the Commandant at the U.S. Marine Headquarters. In 2008,
General Simcock served as the director of the Tactical Training
and Exercise Control Group in Palms, California after
relinquishing command of the 6th Marine Regiment.
In 2003, General Simcock graduated from the top-level
school at the Naval War College in Newport, Rhode Island, after
which he reported to the U.S. Marine Corps Headquarters as a
Congressional Liaison Officer to the U.S. House of
He first joined the Marines in 1983 and had a long and
successful career filling a wide variety of positions on bases
in California, Florida, Hawaii, Virginia, and Japan.
David Gootnick has been Director of International Affairs
and Trade at the Government Accountability Office since 2001.
His portfolio includes insular affairs, humanitarian aid,
development assistance, economic assistance, and global health.
From 1994 through 2001, he served as Director of the Office
of Medical Services at the U.S. Peace Corps. Prior to that, he
was a practicing physician and director of the University
Health Services at New York University.
We welcome our witnesses. The lights show 5-minutes for
your testimony. When it turns yellow, you have 1 minute
remaining. When it turns to red, then you supposedly should
stop at that point, although I am not going to throw the gavel
We will start with our first witness, Mr. Loi. Thank you
for coming here.
Mr. Loi. Thank you, Chairman. I do have a----
Mr. Manzullo. Please start. All the witnesses' testimonies,
in written form, will be made part of the record. Eni, this
includes your complete opening statement, which you didn't have
a chance to read.
Mr. Faleomavaega. Thank you, Mr. Chairman.
Mr. Manzullo. Proceed.
STATEMENT OF MR. JAMES L. LOI, DEPUTY ASSISTANT SECRETARY,
BUREAU OF EAST ASIAN AND PACIFIC AFFAIRS, U.S. DEPARTMENT OF
Mr. Loi. Thank you, Mr. Chairman, Ranking Member
Faleomavaega, and members of the subcommittee. Thank you for
the opportunity to appear before you today to discuss the
Pacific, sometimes the overshadowed second part of Asia-Pacific
but, nonetheless, an integral part of the administration's
enhanced focus on and engagement with the Asia-Pacific region.
The vast stretch of the Pacific and the island countries
that reside within it are critical to our national security,
with our close friends and allies like Palau forming a security
arc that stretches from California to the Philippines,
safeguarding our interests in the Pacific as well as critical
sea lines of communication, through which much of our trade
Of our many friends and partners in the region, we have
perhaps none stronger than Palau, a country which paid a dear
price in blood and treasure to liberate in 1944, a country to
which we made a solemn promise to help transition from
trusteeship to independence through our Compact of Free
Association, and a country which provides us strong support,
whether that be in regional fora, multilateral institutions
through the many Palauan sons and daughters that joined the
U.S. military at per capita rates higher than any U.S. state,
or through its voluntary actions, such as the decision in 2009
to accept 6 Guantanamo detainees when few others would step up
to the plate.
And perhaps let me just break here and respond to
Congressman Duncan's question. Sir, from what I understand, a
number of the Uyghurs have adjusted well to life in Palau with
one or two perhaps still struggling to find permanent
employment. I think it is safe to say that most, if not all, of
them, though, are interested in permanently relocated to a
And I know my colleague Ambassador Fried at the State
Department is working that. I also know that there is a
representative from the Palauan Government in Washington this
week who will be meeting with Ambassador Fried to talk about
next steps on the detainees. But beyond that, I don't have much
With respect to foreign policy goals, I think we have two
critical ones with respect to Palau: Firstly, continuity in
reinforcement of our full authority and responsibility for the
security and defense of Palau; and, secondly, ensuring that we
continue to earn and enjoy Palau's strong support in regional
and multilateral fora.
On the first, my colleague General Simcock will speak in
detail, but suffice it to say that Palau does enjoy, as the
ranking member Faleomavaega said, a strategic position in the
western Pacific as part of the so-called Second Island Chain.
Our Compact of Free Association provides the United States
the critical right of strategic denial foreclosing access to
Palau by military forces and personnel of any nation except the
United States. In light of the evolving security climate in the
Asia-Pacific, the relatively modest annual cost associated with
the proposed legislation approving the results of the 15-year
Compact review are worth this rate of strategic denial alone.
With respect to the second goal, Palau is amongst our
strongest supporters in regional and multilateral fora. In the
former, Palau has been an ardent advocate for enhanced U.S.
participation and engagement in the Pacific Islands Forum and a
positive partner as we were to ascend the South Pacific Tuna
Treaty, an agreement that provides access for the U.S. tuna
fleet to the rich waters of the South Pacific and which
supports thousands of tuna industry jobs here in the U.S. and
At the United Nations, Palau's voting confidence with the
United States is about 90 percent. This compares to 67 percent
for the United Kingdom, 66 percent for Canada, 49 percent for
Japan and South Korea. So it is markedly higher.
Despite enticements from others interested in enhancing
their engagement in the region, China, Russia, the Arab League
nations, Palau has not only supported us 100 percent on Israel
and consistently on human rights in Cuba-related votes but has
been at the forefront of actively helping us garner the support
My colleague from the Department of the Interior will
discuss in greater detail the specifics of the Compact and the
legislation the administration has submitted, but let me just
state that over two decades ago, the framers of the Compact
undertook a promise to help this young nation through financial
and other assistance to achieve self-governance and a
sustainable economic development path. They were wise in
recognizing that any plan would require review and its
The 15-year review finds us at a point where the goal of
self-governance is firmly in place but the goal of sustainable
economic development, while progressing well, remains a work in
progress and requires additional financial support.
The tiered nature of the support agreed to in this 15-year
review is designed to ease Palau off dependence on U.S. direct
economic assistance and toward that sustainable reliance and
Importantly, the resulting agreement will require the
Palauan Government to undertake economic and fiscal reforms.
And should the United States believe that progress toward such
reform is adequate, we will be able to withhold assistance.
In closing, members of the subcommittee, since that bloody
battle in Peleliu in 1944, the United States has embarked on a
long road of partnership with the people of Palau, from
liberation to trusteeship and, finally, to independence.
The United States and the American people are admired
around the world for our sense of duty, commitment to the well-
being of others, and integrity in upholding our word. With
Palau, one can see all three of these threads woven into the
fabric of our bilateral relationship.
It was a sense of duty that led thousands of Marines to pay
the ultimate price in freeing Palau from colonialism and
occupation. It was a commitment to Palau's future that led us
to help Palau transition from trusteeship to independence. And
it is our integrity that has driven us and must drive us to
uphold our commitment.
The implementation of the results of the Compact review
will help ensure that our hard-fought investments in this young
country achieve their intended returns. Importantly, as the
generation for which the second world war was a defining
experience passes and other emerging powers seek to increase
their influence in the region, passage of this legislation will
send a reassuring signal to others that the United States is
and will be engaged and remains a faithful friend and ally
through both good and challenging times.
Thank you. I look forward to answering your questions.
[The prepared statement of Mr. Loi follows:]
Mr. Manzullo. Thank you.
Mr. Bussanich. Thank you, Mr. Chairman.
STATEMENT OF MR. THOMAS BUSSANICH, DIRECTOR OF BUDGET, OFFICE
OF INSULAR AFFAIRS, U.S. DEPARTMENT OF THE INTERIOR
Mr. Bussanich. Chairman Manzullo and members of the
subcommittee, thank you. I am pleased to be here today to
discuss the agreement between the United States and Palau
following the Compact of Free Association section 432 review.
My statement today will focus on financial assistance for
The Compact of Free Association has proven to be a very
successful framework for United States-Palau relations. The
goals of the first 15 years of the Compact have been met: The
trusteeship was terminated; Palau's self-government was
restored; a stable democratic state was established; third
countries were denied military influence in the region; and the
United States financial assistance provided a base for economic
The United States, through the Department of the Interior,
has provided $600 million in assistance to Palau, including
$149 million for a road system, in the capitalization of the
Compact trust fund.
The Compact trust fund was an important feature of U.S.
assistance. Capitalized at $70 million, the objective was to
produce $15 million annually as revenue for Palau's Government
operations from 2010 through 2044.
Palau has made economic gains under the Compact of Free
Association. Its growth, in real terms, has averaged just over
2 percent per year. Palau's governmental services are meeting
the needs of its community. And the country has taken control
of its destiny and is moving in the right direction.
As the United States and Palau began the section 432
review, both countries agreed that prospects for economic
growth relied on four key factors: The viability of the trust
fund to return $15 million a year; the implementation of fiscal
reform; increased foreign investment and private sector growth;
and, the continuation of some United States assistance and
For the United States, the viability of the Compact trust
fund was of paramount concern. As the 15-year review began,
Palau's trust fund, which had earned roughly 9 percent annually
since its inception, had suffered significant losses. As GAO
reported in 2008, it was uncertain that the trust fund could
meet its goal of providing $15 million annually through 2044.
The condition of the trust fund, fiscal and economic
reforms, and private sector growth became the focus of the
bilateral review. The agreement that arose from the 15-year
review will address these concerns, maintain stability, and
promote economic growth.
The agreement extends United States assistance, in
declining annual amounts, through Fiscal Year 2024. The total
of direct financial assistance to Palau under the agreement is
over $200 million. The declining amount of assistance is
intended to provide an incentive for Palau to develop other
sources of revenue and serves notice that the Palau has agreed
to make systemic adjustments to its government.
The agreement contains five categories of financial
assistance: First, direct economic assistance for education,
health, public safety, and justice in amounts starting at $13
million, declining to $2 million, the last payment, in 2023.
The timing of payments is conditioned on Palau's making certain
Second, infrastructure projects are provided in the amount
of $40 million spread over 6 years.
Third, the agreement creates an infrastructure maintenance
fund using annual grants of $2 million to protect crucial
United States investments in Palau that significantly
contribute to economic development. Palau will contribute
matching funds of $150,000 annually to this fund.
Fourth, a fiscal consolidation fund of $10 million to help
Palau reduce its debt. The United States creditors must receive
Fifth, the trust fund. The agreement aims to bolster the
viability of the trust fund to yield payments of up to $15
million annually through 2044. The United States will
contribute $3 million from 2013 through 2022 and contribute
$250,000 in 2023.
Palau will delay withdrawals from the fund, drawing only $5
million annually through 2013, and gradually increasing
withdrawals to $13 million in 2023. From 2024 through 2044,
Palau is expected to withdraw up to $15 million annually, as
Withdrawals from the trust fund may only be used for
education, health, and administration of justice and public
The United States and Palau will work cooperatively on
economic, financial, and management reforms. Palau will be
judged on the elimination of operating deficits, reductions in
its annual budgets, reducing the number of government
employees, implementing meaningful tax reform, and reducing
subsidies to public utilities. If the United States has
determined that Palau has not made significant progress on
reforms, the United States may delay payment of economic
The Palau Compact legislative proposal does have PAYGO
costs. These costs are included in the President's budget along
with a number of legislative proposals with PAYGO savings. The
offset proposals include: Net receipt sharing, termination of
payments for reclaiming abandoned coal mines, and production
incentives, fees on non-producing Federal oil and gas leases.
The administration looks forward to continuing our
partnership with Palau. The Department of the Interior is proud
of the positive advancements our assistance to Palau has
provided over the last 15 years and looks forward to the
progress that we anticipate will be made over the next 15
[The prepared statement of Mr. Bussanich follows:]
Mr. Manzullo. Thank you.
STATEMENT OF BRIGADIER GENERAL RICHARD L. SIMCOCK, II,
PRINCIPAL DIRECTOR, SOUTH AND SOUTHEAST ASIA, OFFICE OF THE
DEPUTY UNDER SECRETARY OF DEFENSE, U.S. DEPARTMENT OF DEFENSE
General Simcock. Chairman Manzullo, Congressman
Faleomavaega, other members of the subcommittee, thank you for
the opportunity to talk with you today.
It is obvious from the comments I have heard already that
there is an in-depth knowledge about Palau today. I think with
a lot of stories, it is difficult to start a book in a middle
chapter. And there is a history of Palau from a security
perspective that I would like to talk about just a little bit
today, if I may.
Sir, I also brought a map with me using technology you can
see on that one. If I could ask you to think about today. Let's
say today is 30 November 1940. And I am talking to Members of
Congress about Palau. I feel pretty confident that none of the
members would know where Palau is. I wouldn't have the benefit
of having two Pacific island nation representatives here.
So, even if I brought a map and pointed it to it, most of
the members would say, ``General, so what?'' I would basically
be told, ``Thank you for your interest in national defense. We
here on Capitol Hill have more pressing issues. In 1940 fiscal
considerations at that time are more important. Please go back
to the Pentagon and do what you do.''
Now, gentlemen, if I can roll the clock forward to 7
December 1941 and the attack, the empire Japan on Pearl Harbor.
All of a sudden, we started paying attention to the Pacific
region. And we watched Japan occupy large areas within the
Pacific region. Islands that we had never heard of were all of
a sudden were on headlines throughout papers throughout this
Now I ask you to roll the clock forward one more time to
September 1944, when the United States paid the price of 10,000
casualties, U.S. Marines and sailors, to liberate Peleliu,
modern-day Palau, from the empire of Japan. Everyone knew where
Peleliu was at that time.
The strategy that the empire Japan had at that time was to
cripple our fleet and to set up a defense-in-depth for the
purpose of securing resources, resources that Japan did not
have and could not get through peaceful means. So they took by
force. The empire of Japan misread the United States in our
will to fight through that defense-in-depth and liberate those
islands and actually defeat the aggression of Japan.
Now, Mark Twain said that history doesn't repeat, but it
certainly rhymes. I ask you now to roll the clock forward to 30
November this year and why is Palau important.
The map behind me depicts two island chains. The first
island chain is the island chain closest to mainland Asia.
Second island chain is the one moving eastward, further out in
the Pacific. Palau is part of that second island chain.
Today China is securing resources around the globe. And I
know you members are very familiar with that. But the physical
characteristics of the Pacific Ocean have not changed. It will
be used by China the same way that the Japanese used it 60
years ago, as a way to bring resources back to the homeland.
And China is very concerned about that.
The map behind me was not produced at the Pentagon. That is
not my map. That map was produced in China by an organization I
can loosely affiliate to a think tank.
What the Chinese are concerned about when they look at the
map, are those island chains and a defense-in-depth, if you
will, in reverse because they look at those lines are ways of
stopping them from getting the resources around the world that
they are purchasing today back to mainland China. And they are
very, very concerned about that.
So when I talk to the defense attache from China, he talks
to me about Cold War strategies and strategies of containment
that our country is trying to do to their country. And it is an
issue that he brings up with me on a daily basis when I see
So I would say to you that when you look at Palau and the
strategic importance from a security aspect, I think you can
use the strategy of 60 years ago. And it is very applicable
today in what one of the countries in the region is trying to
And the last thing I would just say, sir--and that is to
Congressman Rohrabacher and your father--when we liberated
Palau, as I said, it was 10,000 Marines and sailors. Jim Loi
and I were there about 4 or 5 months ago. And you talk about,
sir, a homecoming. And it wasn't because it was Rich Simcock.
It was because a U.S. Marine was coming to Palau. And you want
to talk about being treated like royalty, very similar to what
the chairman talked about with the Ambassador from South Korea.
I have never had to be on the receiving end of being
liberated from occupation, but the South Koreans understand it.
And I am here to tell you, sir, that the Palauans understand
it. And they pay off that type of response to our nation.
Approximately 500 Palauans serve in the military today. That is
how they say thank you. So there is tremendous strategic
importance to Palau.
Gentlemen, I look forward to your questions. Thank you.
[The prepared statement of General Simcock follows:]
Mr. Manzullo. Thank you, General.
Mr. Gootnick. Thank you, Mr. Chairman.
STATEMENT OF MR. DAVID B. GOOTNICK, DIRECTOR, INTERNATIONAL
AFFAIRS AND TRADE, U.S. GOVERNMENT ACCOUNTABILITY OFFICE
Mr. Gootnick. It is a remarkable parable that Brigadier
General Simcock has put forward. I am going to return to some
of the much more mundane aspects of the economic provisions
under the Compact. And thank you for asking GAO to participate
in this hearing.
As has been stated, the 1994 Compact provided 15 years of
economic assistance; established the trust fund; built the
Compact road; provided for postal, weather, and aviation; and,
importantly, established the basis for discretionary U.S.
Federal programs, including Head Start, Community Health
Centers, Pell grants, airport improvements, Special Education,
and numerous others.
Taken together, Compact and U.S. program assistance is
valued at more than $850 million, of which U.S. program
assistance was nearly a third.
My statement, which I will briefly summarize, describes
first the economic provisions of the agreement; second, the
impact of the agreement on Palau's trust fund; and, third
projected Palau Government revenues under the agreement.
First, as Mr. Bussanich has well-covered and well-stated,
the agreement would provide $215 million in assistance, with a
steady annual decrement from roughly $28 million in 2011 to $2
million in 2024. If you have the graphic in the GAO testimony
statement, the cover page or page 11 has a nice display and
shows you that annual decrement.
It shows that $107 million, roughly half of this
assistance, would support government operations and that the
agreement also provides $40 million for infrastructure
projects, $28 million in the maintenance fund, $10 million to
debt relief, and adds $30 million to the trust fund. And,
importantly, the agreement extends postal, weather, and
aviation, and the authority to continue discretionary Federal
The agreement puts certain conditions on the $215 million
package. For example, economic assistance is directed to
specific sectors, such as health, education, and public safety.
Also, an advisory group would be appointed and tasked to make
recommendations for fiscal and management reforms. And the U.S.
may delay funding conditioned on the progress of reforms.
For the infrastructure funds, a project must have a land
title and a certified scope of work to get funding and the
maintenance funds primarily for U.S.-financed projects, in
particular the Compact road and the international airport.
Debt relief prioritizes U.S. creditors, requires U.S.
concurrence on debts to be paid.
Second, regarding the trust fund, the proposed U.S.
contributions and the $89 million delay in scheduled
withdrawals would markedly improve the fund's prospects. In
2009, we reported that the trust fund would require an annual
return above 10 percent to yield its proposed schedule through
2044. However, under the agreement, as of the end of Fiscal
Year '11, the trust fund would need only 5.5 percent return to
yield its new scheduled withdrawals. And this is well below the
7.4 percent it has earned to date.
Lastly, Mr. Chairman, to offset the steady decline in
budget support through 2024, estimates prepared for the
Government of Palau project a growing reliance on trust fund
withdrawals and domestic revenue as well as steady access to
U.S. Federal programs. Specifically, the estimates project a
steep rise in domestic revenue from roughly 40 to nearly 60
percent of total government revenues by 2024.
And the estimates project that discretionary Federal
programs will grow at roughly the rate of inflation. And they
are projected at half of all U.S. assistance over the next 15
As you know, Mr. Chairman, unlike other components of this
agreement, these programs, U.S. Federal programs, depend on
In summary, the economic provisions of the agreement extend
and gradually reduce Compact assistance through 2024, establish
new conditions for the use of U.S. funds, and reset the trust
fund to significantly improve its long-term prospects. Palau
has employed projections of its long-term fiscal condition that
rely on increased domestic revenue and the continuation of U.S.
This completes my remarks. I am happy to answer any
[The prepared statement of Mr. Gootnick follows:]
Mr. Manzullo. Thank you so much.
Mr. Faleomavaega, you are recognized for 5 minutes.
Mr. Faleomavaega. Thank you, Mr. Chairman.
I want to thank the members of the panel for their most
eloquent statements. I would like to pose some questions that
hopefully will give us a little better understanding of the
situation that we currently face concerning Palau.
Correct me if I am wrong on this because it seems that the
basis that we dealt with these island entities immediately
following the second world war, given the fact that there was
no question about the importance of these islands when we
entered in the war against Japan, when they invaded us in 1941.
I do want to thank General Simcock for his testimony
because it appears to me that we have three agencies involved.
We have the Interior Department, the State Department and the
Defense Department, all involved in some way or another not
only with the administration but also have political ties with
the Republic of Palau.
And let me ask General Simcock, would it be fair to say our
number one priority and the very reason why we have this
relationship with the island entities is because of our
strategic and military interest in this part of the world.
Could that be considered the number one reason why we are
Put it another way. Is Palau important as part of our
overall strategic importance in this part of the Pacific?
Because here is another problem I am faced with, General. There
is no way you can talk about Palau without discussing the
Federated States of Micronesia, without discussing the Republic
of the Marshall Islands, why we conducted 67 nuclear test bombs
that we dropped in those island entities and the fact that Guam
is now about a $40 billion military presence there in terms of
its importance strategically when we look at Asia, if that is
where the potential danger is posed and, of course, the
Northern Mariana Islands. My good friend Mr. Sablan represents
that important island group.
General Simcock, is it fair for me to say that this is the
very reason why we are there in the first place, because Palau
is a very important part of our overall strategic military
interest in this part of the Pacific? We are the size of Texas,
even though 20,000 people there are scattered all over the
General Simcock. Congressman Faleomavaega, you are
absolutely right. The quick answer to your question, yes. I
would just expand on one more point. And I would just say that
it always starts with security. Everything builds from
security. If you don't have security, all of the other
interests, be they economic, diplomatic, whichever you want to
talk about, sir, they go away. But you are absolutely right.
But today the scope is narrow on Palau, but Asia-Pacific region
is very, very vast.
Mr. Faleomavaega. I want to also note as a matter of
interest--and correct me, General, if I am wrong on this--I
read the summary reports that we currently have 700 military
installations in and outside the United States. When I asked
how many military bases does China have outside of China, the
response I got was zero. Is that correct? We currently have
well over 700 military installations in and outside the United
States currently right now?
General Simcock. Sir, I don't know the exact figure.
Mr. Faleomavaega. Can you provide that for the record?
General Simcock. Yes, sir.
Mr. Faleomavaega. It is a very interesting situation. We
currently have a $700 billion budget to defend our country for
1 year, provide enough resources for our Navy, Army, Air Force
for 1 year's time schedule?
Would it be correct also for me to say that if there is any
agency that should be part of the overall providing the
necessary resources that we deal with, Palau should also be
with the Department of Defense?
Here is a problem that I am faced with. The State
Department does the negotiations. Defense Department says it is
very critical to our needs for national survival. Yet, the
results of the negotiations totally does not match in terms of
the importance of Palau.
And, yet, the essence of what we are giving Palau, a 62
percent decrease in funding. It just blows my mind. And, yet,
in negotiations, renegotiations of the two contacts with the
Republic of the Marshall Islands and the Federated States of
Micronesia, the increases are 47 percent for one and 63 percent
for the other. And we are decreasing Palau's needs by 62
Maybe Mr. Loi can help us with this. Can you give us a
sense of why the discrepancy or is this a discrepancy on my
part? Please correct me on that.
Mr. Loi. Congressman, I am not--I don't know the specifics
of the discrepancy. I mean, all I can say is this agreement was
reached between two sovereign countries, negotiators agreeing
on the specifics. You know, I was not in this position when the
review agreement was----
Mr. Faleomavaega. Mr. Secretary, I fully understand that
and I don't want to blame you for this. Could you provide for
the record why we had this problem?
Here is another problem I would like to add on to my----
Mr. Manzullo. You are at 6 minutes now. We can come back.
Mr. Faleomavaega. Okay. I will wait for the second round. I
am sorry. Thank you, Mr. Chairman.
Mr. Manzullo. Do you have questions, Mr. Duncan?
Mr. Duncan. According to Wikianswers, there are 761 U.S.
military bases around the world, 156 countries.
Anyway, recently I was in the Philippines. And we were
talking with Filipinos about China's extension of their
territorial waters and the Spratly Islands actively staking
claim to some areas that historically were areas claimed by the
Philippines. And so we see this growing extension of China into
these waters. So, General, I know that the U.S. Coast Guard
plays a role in patrolling the waters in and around Palau.
Given this growing assertion, assertiveness of China within
the Pacific theatre and really around the world when you get
right down to it with them gobbling up control of resources,
are we planning on increasing U.S. naval presence in and around
the waters around Palau? I mean, what is our plan there to
General Simcock. Sir, thank you for the question. Again the
quick answer is yes. I mean, our national leadership has stated
the vital interest within this region to the United States. As
such, we are taking appropriate plans and actions to use our
military to support U.S. interests in that region.
In fact, the chairman mentioned in his statement we have
concluded agreements with Australia to have rotational forces
go through Australia. It is an increase, if you will, of forces
in the region of southeast Asia conducting a rotational
presence, training within that area.
So, sir, yes, the quick answer is we are taking actions to
increase military presence and commitment to the region.
Mr. Duncan. Getting back to the U.S. military presence
around the world, I am fine with that. Protect American
national interests, wherever they may be. A lot of the
countries have asked the United States to station military
personnel there. So I personally don't have a problem with any
For my second question, given the difficulties in
implementing the 2006 base realignment agreement with Japan to
relocate the U.S. Marine Air Base from Okinawa to Guam, is
Palau being considered as a potential location for that or any
other resources, to your knowledge?
General Simcock. To my knowledge, sir, not in the way that
you posed the question that it would be directly tied to Guam
or any other area. The answer would more accurately I think be
that we are looking at all possibilities to increase engagement
and to have ways to facilitate the commitment and presence
within the region.
Mr. Duncan. I have no further questions.
Mr. Manzullo. Mr. Sablan?
Mr. Sablan. Thank you very much, Mr. Chairman.
I also would like to say thank you to the witnesses for,
you know your testimonies and providing insight into the issue
before us. I would like to think that sometimes, you know, like
any business, for example, banks, they spend a fortune trying
to bring in new customers. And then once they capture the
customer, they charge a $5 monthly fee and lose that customer
after they spent a fortune. It looks like this is something
that we are headed here to.
I have not heard anyone put any less importance to the
relationship between the United States and Palau. It has been
critical for what I hear.
I also understand that the only impediment to approval of
this agreement that any Member of Congress, from what I
understand, has had the need for an offset of the relatively
minor cost, now less than $184 million over 10 years because of
appropriations to date.
The administration has suggested offset proposals that the
bipartisan leaders of the House and Senate Natural Resources
Committees say it will not pass their committees. While one
offset has shown to have support in Congress, the others, and
this one included, seem to be standing at a stalemate.
Either Mr. Loi or Mr. Bussanich, will the administration
propose an offset that is more viable legislatively?
Mr. Bussanich. Well, sir, I have to say that the offsets
that have been proposed by the administration, the three that I
mentioned have been vetted through the Department of the
Interior and the Office of Management and Budget and are
included in the overall budget of the President.
So at this time, this is the recommendation of the
administration to look at, particularly, these three elements,
which are the abandoned mine land payments, the fee on non-
producing leases, and the net revenue receipt sharing on
But the position of Congress, as you have just related to
me, is something that we will make aware, pass back up the
chain as we discuss this. Certainly this is the proposal that
is on the table at this point from the administration's point
Mr. Sablan. So there is a possibility of a more viable,
much acceptable offsets?
Mr. Bussanich. Well, all I can say, sir, is that the
administration is firm in its support of this agreement and the
continuation of the relationship with Palau.
Mr. Sablan. Thank you.
General Simcock, thank you very much for your testimony.
Thank you for your service to our country through the Marines.
That also liberated the Northern Marinas Saipan particularly.
I appreciate your insight, sir, into the national defense
perspective and why this agreement is important for the United
States. You mentioned in your testimony Palau forms a part of
that security zone under the exclusive U.S. control. That
expands the second sort of like border or boundary. That
includes the Northern Marianas and Guam.
So can you give me a better understanding of the role Palau
plays in the security of the Asia-Pacific in relation to the
other islands, such as the Northern Marianas, that chain?
General Simcock. Yes, sir. I think when you are trying to
single out Palau, Palau is important, absolutely, but it plays
a part of the overall regional perspective. And I would say to
you that other locations are also important, but the map that I
showed you, sir, again, that was not my map. That is another
country's map and the way that they are looking at from their
perspective U.S. presence in the region.
And I think that their position is we have a strong
position within the Pacific. And it is a strong position
militarily we need to maintain.
Mr. Sablan. So in their perspective, Palau is part of that
chain that goes up to Guam and Northern Marinas, all the way up
to Okinawa or Iwo Jima, for example?
General Simcock. Yes, sir.
Mr. Sablan. All right. So are you planning on increasing
the U.S. naval engagements in the waters of Palau?
General Simcock. Sir, we don't have plans to do that.
Mr. Sablan. So how does this impact the defense strategy in
relation to the rest of the islands?
General Simcock. An example, sir, part of our training
Pacific partnership, we have ship visits to Palau. We have
small detachments of military personnel that provide
engineering support on Palau. The relationships and the
engagement that we conduct on Palau maintains that relationship
so that we don't lose the position of strength that we enjoy in
the Pacific today.
Mr. Sablan. All right. Mr. Gootnick, I just want, Sir, to
take this moment to thank you for the many things you do for us
in the Northern Marianas and other parts of Micronesia. Thank
you very much.
I yield for now, Mr. Chairman.
Mr. Manzullo. Thank you.
Mr. Kelly. Thank you, Chairman.
And to all of the panel, thank you for being here. General,
I was particularly interested in your comments. I can remember
years ago listening to a tape of General MacArthur's address to
a joint session of Congress in April 1951. And I had asked Mr.
Fong to get me some of that information.
Let me just read back to you because you referenced people
who don't study history. In that address, General MacArthur,
when he talked about the island chain and talked about our
Westernmost defense, said,
``A vast moat to protect us as long as we hold it . . .
[a] protective shield for all of the Americas and all
of the free lands of the Pacific Ocean area, a chain of
islands extending in an arc from the Aleutians to the
Marianas held by us and our free allies, from this
island chain, we can . . . prevent any hostile movement
into the Pacific.''
And not to belabor this, but there is an old saying that an
ounce of prevention is worth a pound of cure. We seem to
always--when a war threat is over, we down-throttle. Then, all
of a sudden, we have to traject way up again.
If you can, if you can articulate because I think it is so
critical that people understand, when I look at that, that
chain of islands, the strategic importance to us as a nation
and to our allies in the Pacific as we look into the future,
the People's Republic of China and Arab states in Palau. So if
we were to vacate that, if we were no longer to have our strong
presence there, if we were to go away from what General
MacArthur told us based on history, loss of life, wealth, and
everything that we have invested in that area, long range,
strategically from a defense standpoint, this is critical for
us to maintain that presence, is it not?
General Simcock. Congressman Kelly, you put me in a
difficult position when you start comparing me to General
MacArthur, probably one of the----[Laughter.]
Mr. Kelly. Well, it is history.
General Simcock [continuing]. Finest military minds that
our nation has produced, sir.
Can I put it in these terms?
Mr. Kelly. Absolutely.
General Simcock. Sir, I am in violent agreement with you.
Everything that you just said is absolutely true. I am a
product of the all-volunteer force. And one of the reasons the
all-volunteer force was developed was so we wouldn't have to go
through the cycle, sir, that you talk about, the deep downturns
in defense, because post-war draw-downs and then just as the
clock moved along be put into a position where we had to build
back up again.
So the all-volunteer force has done, arguably, a very good
job of maintaining a very capable and credible military
worldwide. If you narrow it down, sir, to the region that we
are talking about, the argument is still the same. And, as I
said to Congressman Sablan, we are in a good position now. And
it is not a position that we want to relegate to anyone else.
That's about as best as I can put it, sir.
Mr. Kelly. And I appreciate that. I listened to that tape
several times over and over and over again. And I keep thinking
to myself as I go back. We just don't remember. Our memory
falls short of what has happened to us before. And it kind of
ensures the fact that we can lose it again in the future
because of our refusal to believe what has happened in the
past. And we keep backburnering these things.
And I know the dollars are critical. I understand that. But
my greatest fear is that we continue to believe that these
threats don't exist. That is the part that bothers me.
I really believe that we have lulled ourselves into
believing that we are truly safe and we don't need to keep up a
stronger front. But that western border extends far beyond
California and the Western states. It goes way out beyond
Hawaii, beyond the Aleutians. And that is where that island
chain is so critical for us in defense as it goes forward.
And I do know the People's Republic of China has great
plans. Being a person who has been to Korea many times in the
southern part of the peninsula, I again understand you are
talking about the people from Palau when you stepped there. The
Koreans are so thankful for our commitment in freeing them in
1949 and 1950. So I'm with you on it.
So thank you so much for your service. And all members of
the panel, thank you so much for being here today. Thank you.
Thank you, Mr. Chairman.
Mr. Manzullo. Mr. Kelly, Mr. Loi has retired as a Commander
in the Navy. He might feel slighted if you don't ask him that
same question. [Laughter.]
Mr. Kelly. I don't want to slight anybody that has
performed a service for our country, but I just thought with
the General sitting here today. And I am going to try to find
that CD because if anybody has listened to General MacArthur's
treatise on that and what he saw coming in the future--and his
warning was, his fear was, that we would forget what we had
just been through because time has a way of insulating us from
the pain. And that is the problem that I see happening right
now. We have to really be aware of how much pain that caused
then and it can cause again if we don't keep our guard up. So
And if I offended anybody who served before, I certainly
did not mean to do that.
Mr. Manzullo. I just wondered if Commander Loi wants to
weigh in on it.
Mr. Kelly. Would you, Commander?
Mr. Loi. Congressman, I think the only thing I would add
is, like the General, I violently agree with you. And I think I
am happy to say that I think the administration understands
that. If you read the Secretary's speech, Secretary Clinton's
speech, that she gave in Hawaii a couple of weeks ago in the
piece that she published in Foreign Policy talking about the
pivot as we draw down from Afghanistan and Iraq, that the
question that faces us is, do we do what we have done in the
past after tragic campaigns and withdraw home and kind of tend
to our domestic issues, which obviously are important, or do we
pivot? Do we pivot to the region that is going to shape the
history of this century beyond, and that is the Asia-Pacific?
And so what we are very focused on--and it is not just the
State Department. It is also other agencies at the table. It
is, how do we pivot? How do we make sure that we don't do what
we have done in the past and that we build up our presence, our
engagements in the Asia-Pacific? And that is what we are trying
to do? And that is why, you know, this agreement is important.
Mr. Kelly. And I appreciate that. And I think it is so
important. I think that one of the things that I have learned
is that sometimes our allies start to wonder about where we
are, when we are with them really strong for a while, and then
we disappear. Geopolitically, we face a great deal of loss
I know in Korea, the southern part of the peninsula, it was
great geopolitical consequences. And the course was very
critical for us to get established for the people of Korea,
southern Korea, to understand that we are still on board with
them and how important they are to us in a geopolitical and
from a defense strategy. So thank you again.
Mr. Manzullo. Thank you, Mr. Kelly.
The problem here is not the fact that Congress does not
understand the strategic----
Mr. Faleomavaega. Will the chairman yield? I just wanted to
compliment Mr. Kelly for his keen insights and observation
about this issue because I have been here 23 years now as a
member of this committee and I have been saying the Pacific has
been totally neglected by Washington for all of these years.
And saying this with all sincerity, we keep saying it is very,
very important. But we just don't match it with actually giving
the proper resources that we need to do this with.
But I want to compliment you, sir, for your observation----
Mr. Loi. Thank you.
Mr. Faleomavaega [continuing]. On what is happening here in
the Pacific. And I thank the chairman for this.
Mr. Manzullo. Okay. The problem is money. That is the
problem with this entire city in these budgetary times.
My question is technical, Mr. Bussanich. The offsets that
you have listed on page 5 come out of the Interior budget. Is
Mr. Bussanich. That is correct, sir.
Mr. Manzullo. Is it necessary for the offsets to come out
of the Interior budget or can they come out of other budgets?
Mr. Bussanich. Well, sir, this issue has certainly been
considered by the administration. And I think by the virtue of
history and the relationship that the Interior Department has
had with all the Pacific islands and the fact that it has been
essentially the lead agency in the Micronesian region,
including for Guam and the Northern Marianas. It has been the
lead agency since the '50s, that that funding relationship is
and remains appropriate.
Mr. Manzullo. But, there are three committees of
jurisdiction. There is State, which is well-known for wasting a
lot of money; and Defense, which has a lot of issues as well.
The Interior budget is a lot smaller--isn't that correct?--than
the other two?
Mr. Bussanich. Yes, sir.
Mr. Manzullo. Maybe, Mr. Gootnick, you can help us on the
technicalities of this. I mean, we really want to get this
thing done. As I said, Congress is in agreement that Palau is
extraordinarily important and the resources have to be there,
but the issue is from--Mr. Gootnick, can you help us? Do you
understand my question?
Mr. Gootnick. Mr. Chairman, I have always had a persnickety
relationship with cutting-edge technology.
Mr. Manzullo. But you are a physician, so you should be
able to figure that out.
Mr. Gootnick. I can't speak directly to the offsets. It is
my general understanding that the offset requirement really
relates to a current rule of budgeting and the Congress.
Mr. Manzullo. Okay.
Mr. Gootnick. And so there would be flexibility to obtain
the offsets wherever you rationally find them.
Mr. Manzullo. So is it your understanding that if Congress
wanted to, it could try to find the offsets in areas besides
Mr. Gootnick. Well, it would be good to get concurrence
from my colleagues at the table, but that is my understanding.
Mr. Manzullo. Well, it could be a legal issue and none of
us has the exact answer at this point. It is something that we
can explore unless anybody is comfortable in trying to answer
The other question is the--I tell you what. Eni, why don't
you go ahead and I will just yield my time to you.
Mr. Faleomavaega. Thank you, Mr. Chairman.
I once read somewhere in the Bible, it says that if I were
to talk between--well, anyway, it talks about Moses, you know,
freeing the Israelites from the bondage from Pharaoh and it
takes only 2 weeks to walk from Egypt to go to the Promised
Land, where Israel is now located. But, in essence, it took the
Israelites 40 years to finally get to the Promised Land.
I want to ask Secretary Loi because I am a little fuzzy
about this. The administration claims that you sent the
agreement to Congress in January of this year. However, we
contacted the Speaker's office, and they never received the
Please, this is not putting you on the spot, Mr. Secretary
Loi but can you follow up on this and find out exactly where
this agreement is between the White House and also here at the
Speaker's office? Where is the agreement? Now, this was in
January. This is almost 12 months.
Mr. Loi. Sir, I mean, I can update you.
Mr. Faleomavaega. Can you?
Mr. Loi. Well, the Speaker's office has acknowledged
receipt. In fact, they acknowledged receipt in January and told
us that it had been sent to the committee in February. We
confirmed that again yesterday. So I don't know----
Mr. Faleomavaega. Okay.
Mr. Loi [continuing]. Where the report is coming from, but
at least what we are being told by the Speaker's office is that
they did acknowledge receipt.
Mr. Faleomavaega. Okay. I have a couple of laundry list
items I would like for you, Secretary Loi, if you could follow
up on this, I really would appreciate it. Again, you are not at
all at fault for what has happened because you just came on
board a couple of months ago so I fully understand your
The cost of conducting audits, for which this continues
with the renegotiating of the two Compacts with the Marshall
Islands and also with the Federated States of Micronesia, you
rejected this to continue with Palau. That is one issue.
The other issue is also dealing with the FCC requirements
dealing with fiber optics, with which Palau really would like
to work, for which was granted also to the Marshall Islands and
the Federated States of Micronesia. And this again was rejected
for Palau's needs. And then also the question of the postal
service, the rates for domestic means of Palau. And this again
is somewhat of a fuzzy situation YAD. This issue was done also
by some way reconciling in the way that FSM and RMI also be
given the same benefit in the uses of the postal service.
And there is also the question of the excessive inflation
if there is, tell me the time when something happens, that this
kicks in and somehow we can work this thing out. Here again
this is another issue that, as I understand, was not part of
the agreement negotiations.
Going back to General Simcock's observation, it is one of
these ironies that the State Department is the primary
negotiator with this agreement, also talking about the funding
in all of this. And, yet, when it comes to the actual funding,
it goes to the Interior Department for the administration.
Do we have other activities like this that go on that State
Department could bless the negotiations; yet, the funding comes
out of Interior and the reason why we can't find an offset
because the Interior budget obviously is much, much less than
the State Department?
And I would like to ask Mr. Bussanich, where does the
Interior Department stand on this?
Mr. Bussanich. Well, sir, actually, we were full partners
in the negotiation. We were at the table on every occasion. In
fact, it was I who was at the table on every occasion. For any
of the discussions that took place with Palau, I was authorized
to participate and was a full partner.
And certainly the discussions going back to the
negotiations and the liaising with the Office of Management and
Budget and other budget officials was done through the
Department and done through my office. So we are fully
apprised. This is not a State Department deal that was done in
the darkness without the Interior part of it, participating in
I can, if you would like, answer I think some of the
questions or at least provide a little information regarding a
couple of the things you just raised----
Mr. Faleomavaega. Sure.
Mr. Bussanich [continuing]. Particularly the question of
audits, the postal service, and inflation. Under the original--
I would like to point out that the Compacts between the
financial provisions of----
Mr. Faleomavaega. You know, I am sorry, Mr. Bussanich, but
my time is running. So could you submit that for the record?
Mr. Bussanich. Absolutely, sir.
Mr. Faleomavaega. I would really like the response from the
Interior Department concerning this issue.
Mr. Bussanich. Very much.
Mr. Faleomavaega. I also would like to have the GAO, Dr.
Gootnick, your observation as to the GAO study that was
conducted, was this before or after the negotiations took
place? I am just curious where the GAO comes into play on this.
Mr. Gootnick. The presentation I have offered you today is
based on our current analysis of the agreement, the September
2010 agreement. Previously we had done work at the request of
Congress on the Compact of Free Association in the run-up to
the 15-year review and reported out in 2008.
Mr. Faleomavaega. Okay. You mentioned something about the
trust fund that seems to have some problems and also seems to
be one of the key issues in the negotiations. Can you elaborate
on this again with the trust fund?
Mr. Gootnick. Right. Well, we initially did an analysis of
the status of the trust fund for our 2008 report and have
updated that now three times. So what we are able to do is take
the trust fund balance, the historic rate of return for the
portfolio that is held by the fund, and run a variety of
statistical simulations which help us understand essentially
the health of the trust fund and are able to determine the rate
or return it will require in order to achieve its projected----
Mr. Faleomavaega. Let me just say, Mr. Chairman, at this
point in the negotiation, what we are doing, in my humble
opinion, the leaders of Palau are not very happy with the way
negotiations are being conducted. And the fact that there seems
to be such a fuzziness going on between the administration and
the Congress, there's interest in trying to approve funding as
part of the negotiations.
General Simcock, many of my relatives are in the Marine
Corps and are very proud of being part of the Marine Corps. But
I think I need to weigh in, Mr. Chairman, as I represent the
Army. I believe it is the most senior of all of the military
agencies represented here.
At any rate, General Simcock, we can talk about us
currently having 11 nuclear super carriers, 21 altogether with
carriers that we have. China only has one. In my opinion, the
Chinese are not stupid, but they do have, what, close to 100
nuclear submarines floating all over the place.
As a very knowledgeable and strategic person, General
Simcock, if you had a choice, would you rather have an aircraft
carrier or a nuclear submarine running around the Pacific?
Mr. Manzullo. You don't have to answer that question.
Mr. Faleomavaega. Okay. You don't have to answer the
question. I know my time is up. I just want to say one thing.
Mr. Manzullo. Especially with the Navy present at the
Mr. Faleomavaega. I just want to say this. We spent almost
$1 trillion when we went against Saddam Hussein. We are
spending over $120 billion a year on the war in Afghanistan.
And I cannot in trying to explain to the leaders of Palau the
$184 million, whatever it is for the 10-year period, that my
Government cannot come up with a solution to this very simple
solution of giving what is proper and what is reasonable in our
relationship that is important, if we really consider Palau
just as important as Guam or the Northern Marianas or even the
State of Hawaii, when it comes to our strategic and military
In my opinion, Mr. Chairman, the way things are going on
now and as a--I am still learning how to speak English, Mr.
Chairman. What do you call that? A hypothetical.
What if the Chinese want to come and set up a marine
submarine base in Palau? Wouldn't that be a good thing for
studying how less important these islands are or maybe----
Mr. Manzullo. On that question, I am going to have to----
Mr. Faleomavaega [continuing]. Or even have Fiji come in,
ask China to come and set up a submarine base. Wouldn't that be
an important part of our national posture looking at how
important these islands are to simply say they are not
important as part of our national forum.
So, with that, Mr. Chairman, I know my time is way, way
Mr. Manzullo. It is over.
Mr. Faleomavaega. I thank you for your patience. And I want
to thank the gentlemen from----
Mr. Manzullo. But this is your area of the world.
Mr. Faleomavaega. Well, thank you, Mr. Chairman.
Mr. Manzullo. Mr. Sablan?
Mr. Sablan. Thank you very much, Mr. Chairman.
This morning I was talking to my staff about the question I
posed earlier. And they inserted the word ``relatively minor
cost,'' not less than $184 million.
I agree with nickel and diming Palau, not just have we done
that to one of our best allies and a very important partner in
the Pacific. We can't seem to find a way to live up to that
commitment we made in that agreement reached between our
Government and the Government of Palau.
And, again, I said earlier that the people of Palau are a
very patient people. And I know them because I grew up with
them. I was 11 years old when I first went to Palau. They are a
very patient people, but patience has its limits. And we have I
think invested a large sum of money in trying to capture Palau
in the sense of and we are going to charge them that $5 bank
fee, and they are going to walk away unless we get to do
We need to find our offsets because we can sit here and
talk and talk until we turn blue, but I don't think this is
going to go anywhere unless we find viable offsets that is
acceptable to Congress. And somebody needs to do that because
we all agree that this is important. And it is enough to nickel
and dime them through the fine work of some of us here in this
I mean, I am not blaming anyone. You are doing your job.
And then we turn around and talk among ourselves that we can't
find the nickel that we need that we agreed 62 percent. Only
Palau can give that kind of bargain, only the good people of
Palau. And now we can't even live up to that commitment. Now,
we should be ashamed of ourselves.
I am not ashamed, but, you know, we should try and work
hard and find a way to do this, Mr. Bussanich. I know Interior
has the smallest pot. I agree with you. Maybe Mr. Loi and the
General. I am not saying that we do, but we need to sit down at
the table again and find something that is acceptable so that
the committee of jurisdiction, Natural Resources, will move
forward with this because I know the objection is already
offset. And please, you know, this is in our interest, not in
Palau's interest. We are talking about the interest of the
And I thank everyone for being here today. I appreciate the
time and the testimony. Chairman Manzullo and Ranking Member
Faleomavaega, thank you, sir, for including me in today's
hearing. I am very grateful. Thank you very much.
Mr. Manzullo. I appreciate that.
Mr. Bussanich, I have a job or a request for you. We are
going to mark this up next year, and I am going to put in the
markup that the money comes from three departments: State,
Defense, and Interior. If you consider yourself to be the point
person to work with our committee on this, or somebody else in
Interior, we want to get this thing done.
It is too critical. It is too important. It is too
strategic for us to have all this work done and then come down
to these offsets which come out of a department that really
doesn't have that much to work with the first place. I can
appreciate the fact that you had to get creative to come up
with these three offsets.
Could you be willing to work with Mr. Su on the
subcommittee and with the other two departments to see if they
are willing to--I mean, I am going to try to put it into
organic legislation that they have to take Palau into
Mr. Bussanich. Well, certainly, sir, I will do that. And I
know that my colleagues here understand what you are saying.
And we will work through the administration to find the most
appropriate offsets for this.
Mr. Manzullo. Okay. Well, thank you for a very enlightened
hearing. Eni, you are correct. We don't spend enough time
talking about what is going on in the Pacific.
Mr. Faleomavaega. No. They are just a bunch of dinky
islands. They are not that important to our overall strategic--
Mr. Manzullo. No. Come on. I have corn in my district, and
you have tuna. You know?
Mr. Faleomavaega. I do want to thank you, Mr. Chairman, for
your initiative. And I really look forward in working with you.
Probably the best way that we can find the offsets is to have
commitments from all three agencies in how best to resolve
I don't consider this problem so complicated from Palau. It
is just that----
Mr. Manzullo. I am sure we will get some feedback.
Mr. Faleomavaega [continuing]. Why do we make it so
complicated? This is what is really puzzling to me. I really
look forward in working with you, Mr. Chairman, on this
Mr. Manzullo. Okay.
Mr. Faleomavaega. If I may, Mr. Chairman, I would like to
submit for the record, unanimous consent, a Washington Post
article dated November 29, 2011. There is an article written by
Mr. Walter Pincus. It is entitled ``Gauging the Asia-Pacific
Region's Defense Levels.'' Very, very important.
Mr. Manzullo. You want to make it for the record?
Mr. Faleomavaega. Yes, for the record.
Mr. Manzullo. For the record----
Mr. Faleomavaega. Like I said, the President has made a
pivot and I don't know if it is because he plays basketball. I
suppose you pivot a lot from Afghanistan and Iraq. And now we
are going to pivot to the Asia-Pacific region as if the Asia-
Pacific region is not important. So I am trying to see if there
is another very, very good----
Mr. Manzullo. Well, we will probably have a hearing, bring
PAYCOM in. That whole area is to the extension of----
Mr. Faleomavaega. Yes.
Mr. Manzullo. China is extending its borders way beyond.
Mr. Faleomavaega. Yes.
Mr. Manzullo. Going into the interior of other countries I
think is quite interesting. And it obviously saw part of this.
Mr. Faleomavaega. Yes.
Mr. Manzullo. General, thank you for coming up with this
very fascinating diagram that demonstrates exactly what
Congressman Kelly was talking about. I want to thank all four
of you witnesses for bringing in material, your testimony. I am
going to leave the record open for 10 days if anybody else
wants to submit any additional testimony or additional remarks.
Eni, did you still want the General to give you the
information on the bases?
Mr. Faleomavaega. I just want to share with the General----
Mr. Manzullo. Well, first of all, did you still want the
Mr. Faleomavaega. Please, by all means.
Mr. Manzullo. Okay.
Mr. Faleomavaega. Yes.
Mr. Manzullo. All right.
Mr. Faleomavaega. I just want to share with the General
that years ago I was privileged to go with the late Senator
Chafee from Rhode Island. We went to Solomon Islands. And the
Congress was appropriated $5 million to build a brand new
parliamentary building for the Government of the Solomon
Islands. As you know, General, this is where Guadalcanal was
when Senator Chafee was a 19-year-old Marine. Let me tell you,
Mr. Chairman, it was a very spiritual experience for me. And
the irony of it all was when we asked who built the
parliamentary building for the Solomon Islands, it was the
Japanese, very ironic of the whole thing that we fought the
Japanese in World War II and that when the bids went out, it
was a Japanese company that built the parliamentary building
for the Government of Solomon Islands.
Guadalcanal, we can go on and on. I cannot say enough about
the valor and the courage of our Marines for what they have
done for our country. For that, General Simcock, you have my
utmost respect for all that you do and all of our men and women
in uniform. Thank you for your services to our country.
Mr. Manzullo. Thank you very much. This subcommittee is
[Whereupon, at 1:14 p.m., the subcommittee was adjourned.]
A P P E N D I X
Material Submitted for the Hearing Record Notice
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Article submitted for the record by the Honorable Eni F.H.
Faleomavaega, a Representative in Congress from American Samoa
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Map submitted for the record by Brigadier General Richard L. Simcock,
II, Principal Director, South and Southeast Asia, Office of the Deputy
Under Secretary of Defense, U.S. Department of Defense
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]