    [Senate Hearing 116-331]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 116-331

          THE UNITED STATES' INTERESTS IN THE FREELY ASSOCIATED STATES

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

                                    HEARING

                                   BEFORE THE

                                  COMMITTEE ON
                          ENERGY AND NATURAL RESOURCES
                              UNITED STATES SENATE

                         ONE HUNDRED SIXTEENTH CONGRESS

                                 FIRST SESSION

                                   __________

                                 JULY 23, 2019

                                   __________

     [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                           Printed for the use of the
                   Committee on Energy and Natural Resources

            Available via the World Wide Web: http://www.govinfo.gov

                                ______

                 U.S. GOVERNMENT PUBLISHING OFFICE
    37-812                WASHINGTON : 2021

                   COMMITTEE ON ENERGY AND NATURAL RESOURCES

                        LISA MURKOWSKI, Alaska, Chairman
    JOHN BARRASSO, Wyoming               JOE MANCHIN III, West Virginia
    JAMES E. RISCH, Idaho                RON WYDEN, Oregon
    MIKE LEE, Utah                       MARIA CANTWELL, Washington
    STEVE DAINES, Montana                BERNARD SANDERS, Vermont
    BILL CASSIDY, Louisiana              DEBBIE STABENOW, Michigan
    CORY GARDNER, Colorado               MARTIN HEINRICH, New Mexico
    CINDY HYDE-SMITH, Mississippi        MAZIE K. HIRONO, Hawaii
    MARTHA McSALLY, Arizona              ANGUS S. KING, JR., Maine
    LAMAR ALEXANDER, Tennessee           CATHERINE CORTEZ MASTO, Nevada
    JOHN HOEVEN, North Dakota

                          Brian Hughes, Staff Director
                         Kellie Donnelly, Chief Counsel
                         Isaac Edwards, Special Counsel
                    Sarah Venuto, Democratic Staff Director
                    Sam E. Fowler, Democratic Chief Counsel
            Bryan Petit, Democratic Senior Professional Staff Member

                                C O N T E N T S

                                  ----------

                               OPENING STATEMENTS

                                                                       Page
    Murkowski, Hon. Lisa, Chairman and a U.S. Senator from Alaska....     1
    Manchin III, Hon. Joe, Ranking Member and a U.S. Senator from
      West Virginia..................................................     2

                                   WITNESSES

    Domenech, Hon. Douglas, Assistant Secretary, Insular and
      International Affairs, U.S. Department of the Interior.........     4
    Schriver, Hon. Randall G., Assistant Secretary of Defense for
      Indo-Pacific Security Affairs, U.S. Department of Defense......    13
    Oudkirk, Sandra, Deputy Assistant Secretary for Australia, New
      Zealand, and Pacific Islands, Bureau of East Asian and Pacific
      Affairs, U.S. Department of State..............................    23
    Gootnick, Dr. David, Director, International Affairs and Trade,
      U.S. Government Accountability Office..........................    30

              ALPHABETICAL LISTING AND APPENDIX MATERIAL SUBMITTED

    Domenech, Hon. Douglas:
        Opening Statement............................................     4
        Written Testimony............................................     6
    Gootnick, Dr. David:
        Opening Statement............................................    30
        Written Testimony............................................    32
    Manchin III, Hon. Joe:
        Opening Statement............................................     2
        Map of First and Second Island Chains........................    74
        Article by Cao Desheng in the China Daily entitled
          ``President hails ties with Micronesia in greetings'' dated
          5/21/2019..................................................    76
    Murkowski, Hon. Lisa:
        Opening Statement............................................     1
    Oudkirk, Sandra:
        Opening Statement............................................    23
        Written Testimony............................................    25
        Responses to Questions for the Record........................    95
    Schriver, Hon. Randall G.:
        Opening Statement............................................    13
        Written Testimony............................................    15
        Responses to Questions for the Record........................    93

          THE UNITED STATES' INTERESTS IN THE FREELY ASSOCIATED STATES

                                  ----------

                             TUESDAY, JULY 23, 2019

                                           U.S. Senate,
                     Committee on Energy and Natural Resources,
                                                        Washington, DC.
        The Committee met, pursuant to notice, at 10:10 a.m. in
    Room SD-366, Dirksen Senate Office Building, Hon. Lisa
    Murkowski, Chairman of the Committee, presiding.

      OPENING STATEMENT OF HON. LISA MURKOWSKI, U.S. SENATOR FROM
                                 ALASKA

        The Chairman. The Committee will come to order as we meet
    this morning to review the United States' interests in the
    Freely Associated States, which include the Republic of the
    Marshall Islands, the Federated States of Micronesia, as well
    as the Republic of Palau.
        The United States has a unique relationship with these
    nations through our Compacts of Free Association, through which
    we provide for their national defense, and their citizens have
    the right to live, to work and go to school in the United
    States without the need for a visa. And in return, the U.S. has
    access to their lands and waters for strategic purposes and,
    just as importantly, the ability to deny other nations that
    same access.
        To understand our Committee's interest and role in the
    Freely Associated States, we really have to go back to the end
    of the Second World War when the islands, along with the
    Northern Marianas, became a Trust Territory of the United
    Nations, to be administered by the United States.
        The administration of the islands was initially led by the
    U.S. Navy but was turned over to the Department of the Interior
    back in 1951. That administration ended when the Freely
    Associated States chose to become sovereign nations, but the
    Department of the Interior continues to be the pipeline for
    U.S. financial assistance to the nations through the Compacts
    of Free Association.
        I think it is also worth noting that in 1946, the
    predecessors to this Committee, the Committee on Public Lands
    and the Committee on Territories and Insular Possessions,
    merged to form the Committee on Interior and Insular Affairs.
    So there is a longstanding history and a connection between
    this Committee and U.S.-affiliated islands.
        I think sometimes people look and say well wait, it is the
    Energy and Natural Resources Committee, how do insular affairs
    fit in? So I think it is important to remind us of that
    history.
        Of primary interest today is U.S. financial assistance,
    which is set to expire in the Marshall Islands and Federated
    States of Micronesia at the end of Fiscal Year 2023 and then in
    Palau at the end of Fiscal Year 2024, and how that might impact
    the United States' interests in the region and whether it would
    create a leadership void that other nations might seek to fill.
        We must also be mindful of the United States' nuclear
    legacy in the Marshall Islands, after conducting 67 nuclear
    tests between 1946 and 1958 at Bikini and Enewetak, and their
    impact on those and the surrounding atolls and their
    inhabitants.
        In today's world of bad actors, we don't spend nearly
    enough time engaging with our friends and hearing out their
    concerns. The Freely Associated States nations are truly our
    friends and they are allies. Their citizens are part of our
    Armed Forces. They vote with the United States on important
    votes in the United Nations (U.N.) more often than perhaps any
    other nation except Israel, and they live and work in each of
    our 50 states, making a positive contribution to our nation.
        I think we have a good panel here this morning, very
    knowledgeable and impactful, with witnesses from the Department
    of Defense, the Department of State, the Department of the
    Interior, as well as a witness from the Government
    Accountability Office. Hopefully, you can all help tie these
    interests together with the discussions that we will have.
        I look forward to hearing from each of you.
        I now turn to my Ranking Member, Senator Manchin.

                  STATEMENT OF HON. JOE MANCHIN III,
                    U.S. SENATOR FROM WEST VIRGINIA

        Senator Manchin. Thank you, Madam Chairman. Thank you all
    for being here.
        I want to thank you for having the hearing today and for
    your foresight last year in asking the Government
    Accountability Office (GAO) to prepare its report on the issues
    facing us as the compact assistance grants to the Islands come
    to an end. The GAO report helps inform our discussions today
    which we will be talking about.
        The United States has a longstanding and special
    relationship with the people of the Freely Associated States.
    The relationship began during World War II when their islands
    were the scene of some of the fiercest fighting in the Pacific
    theater. America has not forgotten the price paid by the people
    of the islands during the war or by our armed forces in
    liberating the Pacific Islands.
        With that in mind, the United Nations designated the
    Pacific Islands as a strategic area and placed them in a
    special trusteeship with the United States as a trustee shortly
    after the war. Recognizing the strategic importance of the
    Pacific Islands, the U.N. trust agreement directed the United
    States to ensure that the trust territory played its part in
    the maintenance of international peace and security. The
    agreement expressly authorizes the United States to establish
    naval, military and air bases on the islands and to station
    armed forces on them in order to deter future aggression and
    help keep world peace.
        Today, the U.S. relationship with the Freely Associated
    States is more important than ever as we see growing Chinese
    influence in this region. Geographically, China is closer than
    the United States is to many of the islands. Palau is only
    2,500 miles from Beijing compared to 4,700 miles from Hawaii
    and 6,600 miles from San Francisco. China is actively trying to
    project its power influence ever further into the Pacific
    region.
        Earlier this year Admiral Philip Davidson, Commander of the
    U.S. Indo-Pacific Command, testified in the Armed Services
    Committee that China represents the greatest, long-term
    strategic threat to a free and open Indo-Pacific and to the
    United States. He explained how China is leveraging its
    economic power to undermine the autonomy of countries
    throughout the Pacific region by offering easy money and then
    applying coercive economic policies.
        The Freely Associated States are threatened by China's
    economic pressure. The Marshall Islands are one of China's top
    export recipients, and China is the second largest source of
    foreign aid to Micronesia after the United States. We cannot
    afford to abandon the Freely Associated States which have long
    been our loyal allies to China's increasing pressure.
        Equally important though, the Trust Agreement obligated the
    United States to foster in self-government and the self-
    sufficiency of the islands to promote the economic, educational
    and social development of their people and to protect their
    health and freedom. Given the opportunity to determine their
    own destinies half a century ago, the people of the Northern
    Mariana Islands chose to become a commonwealth under U.S.
    sovereignty and the remainder of the Pacific Trust territory
    chose to form three separate and independent nations. The
    United States entered into compacts of free associations with
    each of these three new nations ending the U.N. trusteeship.
    The compacts have allowed us to maintain our defense
    installations in the islands, including the Ronald Reagan
    Ballistic Missile Defense Test Site.
        In addition, the compacts committed us to continue to
    assist the Freely Associated States in their efforts to advance
    their economic self-sufficiency and the welfare of their
    people. All three Freely Associated States continue to depend
    on many key services provided under the compact, services that
    could end in 2023 in the Marshall Islands and Micronesia and in
    2024 in Palau. But our interest in maintaining strong and close
    relationships with the Freely Associated States, our defense
    interest and our interest in deterring Chinese expansion in the
    Pacific will remain which is why it is imperative that we take
    action to extend these payments and services.
        Plainly we have a national interest in preserving our
    special relationship with the Freely Associated States beyond
    the terms of the compacts, and this Committee has a special
    responsibility to look ahead to the problems that may arise as
    the financial assistance afforded by the compacts comes to an
    end.
        So again, I want to thank the Chair in scheduling this
    hearing and thank all of you for being here.
        The Chairman. Thank you, Senator Manchin.
        We will now turn to our panel.
        I would ask that you try to limit your comments to about
    five minutes. Your full statements will be included as part of
    the record, and we will have an opportunity for questions back
    and forth.
        We are joined this morning by the Honorable Douglas
    Domenech, who is the Assistant Secretary for Insular and
    International Affairs at the Department of the Interior. It is
    good to see you here.
        Mr. Randall Schriver is the Assistant Secretary of Defense
    for Indo-Pacific Security Affairs at the U.S. Department of
    Defense. It will be very interesting to listen to your comments
    this morning as well as Senator Manchin's comments about the
    impact and influence of China in this region. We look forward
    to that discussion.
        Ms. Sandra Oudkirk is the Deputy Assistant Secretary for
    Australia, New Zealand and the Pacific Islands at the Bureau of
    East Asian and Pacific Affairs at the U.S. State Department.
    Very important to have you with us this morning. We welcome
    you.
        And Dr. David Gootnick, who is the Director of
    International Affairs and Trade for the U.S. Government
    Accountability Office, GAO. We appreciate all your
    contributions at the agency there.
        Assistant Secretary Domenech, if you would like to lead
    off, please?
        Welcome.

       STATEMENT OF HON. DOUGLAS DOMENECH, ASSISTANT SECRETARY,
       INSULAR AND INTERNATIONAL AFFAIRS, U.S. DEPARTMENT OF THE
                                INTERIOR

        Mr. Domenech. Chairman Murkowski, Ranking Member Manchin,
    members of the Committee, I am Doug Domenech, Assistant
    Secretary, Insular and International Affairs at the Department
    of the Interior. I appreciate this opportunity to provide
    Interior's views on this important matter.
        Having traveled to each of these countries multiple times,
    I would like to emphasize that the Pacific Islands that we are
    discussing and the 180,000 people who live there each share a
    unique and special relationship with the United States under a
    Compact of Free Association.
        My colleagues from the Departments of State and Defense
    will discuss the diplomatic and military importance of the U.S.
    relationship with the Freely Associated States. I will focus on
    the financial assistance provided by Congress through the
    Interior Department.
        Interior has partnered with the people of the former trust
    territory of the Pacific Islands since 1951 when the Navy
    transferred civil administration to Interior. Beginning in
    1986, the Federated States of Micronesia (FSM), the Republic of
    the Marshall Islands (RMI) and the Republic of Palau (Palau)
    transitioned to compact relationships with the United States.
    Given Interior's historic role, Congress determined then that
    compact funding would flow through Interior and that continues
    today.
        This compact framework has successfully ended their trustee
    status and restored stable, sovereign and democratic self-
    governance to the peoples of the FSM, RMI and Palau. The
    Compact allows citizens of the Freely Associated States the
    right to enter the United States, visa free, as legal, non-
    immigrants to live, to work and study here for an unlimited
    period of time.
        The financial assistance included in the compacts for the
    FSM and RMI support education, health, the environment, public
    sector capacity building, private sector development and
    infrastructure. The compacts also establish trust funds for the
    FSM and RMI.
        The U.S. compact relationship with Palau is similar.
    Financial assistance to Palau supports government operations,
    infrastructure projects and a trust fund.
        The U.S. did not intend for any of the compact agreements
    to underwrite the entire economies or the full operations of
    each country. Rather, the U.S. saw the compacts as an economic
    springboard making available the resources to allow FSM, RMI
    and Palau to improve essential government services and
    infrastructure while they reform their business climate, fiscal
    policies and their capacities to govern.
        The U.S. has provided the FSM and RMI approximately $3
    billion in financial assistance over Fiscal Year 2004 to 2019,
    primarily supporting the delivery of health and education
    services and infrastructure development such as hospitals,
    health centers, roads, utilities and schools.
        From 1994 to 2009, Palau benefited from U.S. assistance
    totaling $560 million. Under the 2010 Palau Compact Review
    Agreement passed by Congress in 2018, an additional $229
    million was made available to Palau.
        Compact grant assistance and payments to the trust funds
    for the FSM and RMI expire in 2023 and for Palau in 2024.
        The Office of Insular Affairs provides training, support
    and advice on accountability and fiscal governance to these
    island governments, and performance measures in the use of
    compact funding, including single audits, have improved
    markedly over the last decade.
        In addition, the Joint Economic Management Committees
    established under the compacts with FSM and RMI provide an
    additional accountability mechanism. As currently structured,
    post 2023, '24, the trust funds provide a transition away from
    direct U.S. grant assistance and toward further economic self-
    sufficiency.
        At the end of FY18 the balance of the FSM trust fund was
    $636 million, RMI's was $402 million and Palau's was $286
    million.
        While the trust funds have performed well, concerns remain
    about the expected distributions after 2023, '24.
        In conclusion, even with their trust funds, if funding
    under the compacts is not extended after '23, '24, the FSM, RMI
    and Palau are likely to experience significant economic shock
    with detrimental disruptions to health, education and
    government operations.
        Thank you, and I'm happy to answer any questions.
        [The prepared statement of Mr. Domenech follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        The Chairman. Thank you, Assistant Secretary.
        Assistant Secretary Schriver, welcome.

     STATEMENT OF HON. RANDALL G. SCHRIVER, ASSISTANT SECRETARY OF
     DEFENSE FOR INDO-PACIFIC SECURITY AFFAIRS, U.S. DEPARTMENT OF
                                DEFENSE

        Mr. Schriver. Thank you.
        Good morning, Madam Chair, and thank you for the
    opportunity to be here to discuss our important relationships
    with the Freely Associated States.
        Our relationships with the Freely Associated States are
    critical for our policy of trying to advance a free and open
    Indo-Pacific which are based on what we see as enduring
    principles--for example, respect for sovereignty and
    independence of every nation, no matter its size; peaceful
    dispute resolution without coercion; free, fair and reciprocal
    trade and investment; and, adherence to international law and
    international norms.
        As a Pacific nation ourselves, the United States views the
    Pacific Islands as critical to our strategy because of our
    shared values, interests, commitments, including the U.S.
    security guarantee to the Freely Associated States.
        Our shared interests with the Pacific Islands underscore
    four important components to this special region. First, our
    shared history as you both mentioned in your opening statements
    from the Committee. Our commitments are borne from shared
    experiences over many years and most notably, during World War
    II and that compels us to renew our commitments. Second, we
    believe strongly and respect for a safe, secure, prosperous and
    free and open Indo-Pacific region that must preserve the
    sovereignty of even the smallest states. Third, in line with
    the 2018 Boe Declaration, we aim to help build capacity and
    resilience to address maritime security challenges. And fourth,
    we're committed to continued engagement in the region by
    reaffirming and renewing partnerships.
        We face a number of challenges in the Indo-Pacific
    alongside our partners in the Freely Associated States,
    continuing maligned behavior from Russia, dangerous and rogue
    behavior from North Korea, persistent and evolving threats from
    non-state actors, emerging threats across a range of domains
    such as cyber and of particular interest, I think, in the
    Pacific Islands, the non-traditional, transnational threats
    such as natural disasters, illegal and reported unregulated
    fishing, piracy, drug trafficking, and the impact of climate
    change.
        But we are, of course, very focused on the challenges
    presented by China, as again, was mentioned in opening
    statements. China is increasingly assertive and more willing to
    accept friction in pursuit of its interests. Given our strong
    relationships with the Freely Associated States, we're
    particularly concerned with China's use of coercive tools to
    attempt to erode their sovereignty and induce them to behave in
    accordance with Chinese interests. For example, in recent years
    China has reapplied pressure on Taiwan's diplomatic partners as
    seen in 2018 when China effectively banned tourists from
    visiting Palau, draining Palau's tourism industry in an attempt
    to pressure that country into switching its diplomatic
    recognition.
        Our policy response at the Department of Defense is through
    the implementation of our national defense strategy and the
    Freely Associated States feature prominently there. And that
    strategy includes three lines of effort.
        The first is building a more lethal and resilient joint
    force. An example of how we work in the region is found in the
    Marshall Islands in the investments we've made as was mentioned
    in the Ronald Reagan Ballistic Missile Test Site Facility which
    is key for much of the innovative work we're doing in the
    Department.
        The second line of effort is strengthening alliances and
    partnerships. These networks are critical to our ability to
    protect our partners and develop capabilities for partners to
    defend themselves and contribute to upholding a regional order.
    In this context, the Freely Associated States are part of our
    long-term strategy as they grant us access and support
    international fora. They also contribute to our mutual defense
    by the servicemembers who do serve in our armed forces and
    their citizens have made the ultimate sacrifice, including lost
    lives in Iraq and Afghanistan. The Freely Associated States
    contribute to our pressure campaign against North Korea and are
    valuable partners in a range of security issues, as I
    mentioned.
        The third line of effort is reforming our Department for
    greater performance in affordability. The Freely Associated
    States play a key part here as well. I would mention the work
    in Palau to provide radar equipment and technical support. This
    radar will enhance our ability to compete effectively with
    China and the aforementioned work in the Marshall Islands at
    Kwajalein is granting us opportunities to test and improve our
    most important capabilities including hypersonics.
        We are increasing our engagement in the Pacific Islands and
    have had many high-level visits to Oceania, including from our
    Indo-Pacific command and our own Department, and we look
    forward to keeping these relationships strong. We will work
    with our interagency partners and this Committee and members of
    Congress to ensure that our relationships are in the best
    possible position, post compact, whether that's a renewal or
    some other approach that keeps these very strategic
    partnerships strong.
        Thank you, and I look forward to your questions.
        [The prepared statement of Mr. Schriver follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        The Chairman. Thank you very much, Assistant Secretary.
        Let's next hear from our Deputy Assistant Secretary, Ms.
    Oudkirk. Welcome.

      STATEMENT OF SANDRA OUDKIRK, DEPUTY ASSISTANT SECRETARY FOR
      AUSTRALIA, NEW ZEALAND, AND PACIFIC ISLANDS, BUREAU OF EAST
          ASIAN AND PACIFIC AFFAIRS, U.S. DEPARTMENT OF STATE

        Ms. Oudkirk. Chairman Murkowski, Ranking Member Manchin,
    thank you for the opportunity to appear before you today to
    testify on the importance to the United States of the Freely
    Associated States.
        The Indo-Pacific is the most populous and economically
    dynamic region of the world. The U.S. interest in a free and
    open Indo-Pacific dates back to the earliest days of our
    Republic. Our relationships with the Republic of the Marshall
    Islands, the Federated States of Micronesia and the Republic of
    Palau, collectively referred to as the Freely Associated
    States, have, since World War II, contributed to a secure,
    stable and prosperous Indo-Pacific region. Together these three
    countries form a strategic bridge stretching from Hawaii to the
    Philippines, a span equivalent to the breadth of the
    continental United States.
        We have full responsibility and authority for security and
    defense matters in or relating to these three countries. We can
    deny other countries' militaries access to these three
    countries, and these three countries consult closely with us on
    their foreign policies.
        The Freely Associated States hold strong to their core
    democratic values. This bedrock underpins our strong
    relationships and our close cooperation. Palau and the Marshall
    Islands are two of the only 17 countries that publicly state
    that they maintain diplomatic relations with Taiwan.
        The Marshall Islands, the Federated States of Micronesia
    and Palau are historically among the United States' strongest
    supporters at the United Nations.
        The Freely Associated States stand with us to combat anti-
    Israel bias and stood with us on the Jerusalem vote.
        We work closely with all three countries on the full range
    of law enforcement issues. We conduct law enforcement training
    in all three countries, conduct joint maritime law enforcement
    patrols and cooperate on law enforcement investigations.
        Eligible citizens of all three countries, as was noted
    earlier, can travel without visas to live, work and study in
    the United States, and citizens of the Freely Associated States
    serve in the U.S. Armed Forces at rates higher than most U.S.
    states and 18 have lost their lives in combat.
        The United States must continue to deepen our engagement
    with the Freely Associated States, especially at a time that
    increasing competition from China, Russia and other countries
    seeking to exert greater influence in the Pacific region.
        While our compact relationships, overall, don't have an end
    date, with the scheduled end of U.S. assistance fast
    approaching, now is not the time to leave these countries
    vulnerable to the predations of larger countries.
        For example, China has significantly increased its
    engagement with the Pacific Islands over the last decade. China
    has provided $1.8 billion in assistance to the Pacific Islands
    since 2006, mostly for infrastructure, putting China third
    behind Australia at $7.7 billion and the United States at $1.9
    billion.
        China's engagement is still growing. Over the past decade,
    dozens of senior leaders from China have visited the region. In
    March 2017, President Xi hosted then Federated States of
    Micronesia President Christian for a state visit. China also
    provided $724 million in assistance between 2011 and 2016 to
    the Federated States of Micronesia. In Palau, Chinese tourists
    and investment in the tourism sector dominate the market.
        We remain a top trading partner in the Freely Associated
    States, but China's trade relationship is also growing.
        Against this backdrop of growing competition, there is
    uncertainty about the United States' willingness and ability to
    sustain our robust forward presence that has contributed to
    peace, stability and prosperity in the region. Our allies,
    partners and other Pacific Island countries see our
    relationships with the Freely Associated States as a
    bellwether, as a signal of our commitment to the Indo-Pacific.
        Thank you for working to fulfill our commitment to Palau
    under the 2010 U.S.-Palau Compact Review Agreement and for the
    leadership of this Committee in making that possible. This
    action clearly delivered a message to the region, and
    especially to Palau, that the United States follows through on
    its commitments.
        President Trump's historic May meeting with the presidents
    of the Freely Associated States illustrates the importance that
    this Administration attaches to these relationships.
        The Department of State welcomes the opportunity to work
    with Congress to secure long-term U.S. strategic interests in
    this vital region, including by working collaboratively to
    explore ways in which we might further strengthen the
    relationship after the economic assistance expires under the
    current terms of the three Compacts of Free Association.
        Chairman Murkowski, Ranking Member Manchin, thank you for
    the opportunity to appear before you today. We look forward to
    working closely with Congress to ensure that the United States
    can effectively secure U.S. interests in the Indo-Pacific.
        [The prepared statement of Ms. Oudkirk follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        The Chairman. Thank you, Ms. Oudkirk. We appreciate that.
        Dr. Gootnick, welcome.

       STATEMENT OF DR. DAVID GOOTNICK, DIRECTOR, INTERNATIONAL
        AFFAIRS AND TRADE, U.S. GOVERNMENT ACCOUNTABILITY OFFICE

        Dr. Gootnick. Thank you.
        Chairman Murkowski, Ranking Member Manchin and members of
    the Committee, thank you for asking GAO to participate in this
    hearing.
        As has been said, under the amended compacts with
    Micronesia and the Marshall Islands, sector grants and special
    education grants, known as the SEG, are scheduled to end and
    trust fund disbursements to begin after 2023.
        In my remarks today I will focus on two key issues
    associated with this transition. First, the extent to which the
    two countries rely on U.S. assistance. And second, the status
    of the trust funds.
        First on the role of U.S. assistance. Sector grants and the
    SEG continue to support a substantial portion of government
    resources in both countries. In the FSM for 2016, these grants
    were roughly one-third of all government expenditures and
    nearly one-half, if you add in the other grants, programs and
    services which I'll get to in a minute. In the FSM reliance on
    these grants varies by state. Chuuk, with the largest
    population and the lowest per capita GDP, is most reliant on
    these grants. These sector grants in the SEG in Chuuk support
    about 85 percent of the health sector and 95 percent of the
    educational system.
        The Marshall Islands is somewhat less reliant on these
    grants. Overall, they support about one-quarter of government
    expenditures in 2016, yet they also represent about a third of
    the health sector and two-thirds of the educational system.
        Both countries are also facing a transition in the
    availability of U.S. programs and services provided for by the
    compacts and their implementing legislation. After 2023, some
    are set to continue and some are not. For example, based on
    current U.S. law and the assessment of agency officials, FEMA
    funding for disaster relief and U.S. Postal Service will end
    after 2023. According to agency officials, the FDIC will no
    longer have the authority to ensure deposits in the Bank of
    Micronesia. Other programs and services such as FAA Civil
    Aviation, U.S. Aid Disaster Response and others may continue
    under other authorities. Still other programs and services may
    continue without change. So, for example, eligibility for PELL
    grants, special education grants and numerous public health
    services, public health programs will continue.
        An addendum to my written statement provides an analysis of
    the status of most U.S. programs and services after 2023. I
    think it's a useful reference on this complex topic.
        Regarding the trust funds. At GAO we recently ran 10,000
    simulations of the trust funds under a range of scenarios.
    Under their current structure, the trust funds are unlikely to
    provide annual disbursements at the level of sector grants and
    may provide no disbursements at all in some years. These risks
    increase significantly over time.
        So for example, in our analysis the FSM faces a 41 percent
    likelihood of zero disbursements in one or more years in the
    first decade after 2023 and a 92 percent risk if you run the
    analysis out 40 years. For RMI the results are somewhat lower.
    It's 15 percent in the first decade and more than 50 percent,
    just over 50 percent, over the 40-year period. These results
    are consistent with those of the Asian Development Bank, the
    IMF and analyses funded by Interior.
        These risks have been known for some time and there are
    proposals to mitigate the shortfalls. A number of these
    proposals rely on changing the constraints that currently exist
    on disbursement, constraints that are built into the trust fund
    agreements. However, absent the reduction in planned
    disbursements or an increase in contributions, these changes,
    in and of themselves, do not resolve the shortfall in trust
    fund balances.
        Additionally, some of the proposals represent changes in
    the trust fund agreements, and on the U.S. side this would
    require an act of Congress.
        Finally, migration under the compacts is set to continue
    after 2023. The most recent enumeration shows roughly 38,000
    compact citizens residing in Hawaii, Guam and the Marshall
    Islands. Compact nation citizens have been recruited by U.S.
    firms, and migrant communities in the continental United States
    are growing.
        Our ongoing work for this Committee will add to knowledge
    on the demographics of compact migration and on key issues
    faced by migrants in the affected jurisdictions.
        Madam Chair, this completes my remarks. I'm happy to answer
    your questions.
        [The prepared statement of Dr. Gootnick follows:]

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        The Chairman. Thank you, Dr. Gootnick, and thank all of you
    for your testimony this morning.
        A lot to talk about here this morning, but I want to start
    off with just a focus on where we are with the financial
    assistance. I appreciate your reminder to the Committee, Ms.
    Oudkirk, in terms of how these commitments that the United
    States has made with these compacts, how that is viewed in
    these insular areas.
        I had an opportunity to be in Palau right after we passed
    the agreement to extend the financial assistance to Palau. We
    recognize that we reached the agreement in 2010, but then it
    took an additional eight years to pass it because we were
    arguing over where we were going to get the offset from. And at
    that point in time, the PAYGO rules were not--well, no, PAYGO
    was in place and that was our problem. And so this is where
    this fight ended.
        Anyway, long story. I go over to Palau just literally days
    after this has been signed into law, and I am thinking there is
    going to be a ticker tape parade--and it was met with a ``well,
    it's about darn time.''
        It was very important for me to be there at that time and
    to hear very specifically from leaders and individuals out in
    the region who had said, you know, we were not entirely sure
    that the United States was going to ever make good on its
    promise, on its commitment. And if you don't make good on your
    commitment here, what does it mean to the others who are also
    waiting for fulfillment of that commitment?
        Then where we are right now with RMI and FSM. The PAYGO
    rules were not in place when financial assistance was extended
    for the RMI and the FSM in 2003. During that time, we had the
    same three departments before this Committee. We asked how the
    financial assistance was going to be paid for and everybody was
    pointing down to you, pointing to the Department of the
    Interior.
        I guess the question to everyone this morning is, if we are
    to extend financial assistance to RMI and FSM, we know that
    this is going to be a pretty significant amount, significantly
    higher than the $216 million for Palau over 15 years. We might
    reach that amount in one year here. What plans are being made
    right now to find a way to pay for any potential expansion? And
    the question to State, to Interior and to Defense is, will you
    all be a part of that funding source? If you can, give me an
    update as to what we are looking for with regards to financial
    assistance for RMI and FSM from each of you.
        See, look at this everyone. You go first.
        [Laughter.]
        Let's start with State.
        Ms. Oudkirk. Okay, so, thank you very much, Chairman
    Murkowski.
        What I can say here in this venue is that we have already
    started consulting on this question, but we don't yet have an
    answer.
        And so----
        The Chairman. What would you need for the answer? Do you
    need the funding source?
        I mean, when you say you are consulting, in whose budget
    does it come from? Give me a little----
        Ms. Oudkirk. Whose budget will it come from will be a key
    part of the question, but I think also, the points that Dr.
    Gootnick brought up, figuring out the magnitude, figuring out
    what the funds need to be used for? That's a key question here.
        And how we go forward when the direct economic assistance
    ends is still a question that we're, sort of, deliberating on
    internally within the interagency.
        The Chairman. Okay.
        Mr. Schriver or Mr. Domenech, do you want to add further to
    that?
        Mr. Domenech. I don't have that much more to add except
    that, you know, per the letter that you wrote to the three
    Secretaries encouraging us to put together an interagency group
    to begin addressing the post compact timing and, in your
    letter, encouraged us to have a viable pathway for funding it.
    We have been meeting. So the interagency that the Assistant
    Secretary mentioned is active, and we've been talking about it
    and working through the dynamics of what that might look like.
    It's an active discussion with us and with OMB and we just have
    not come to a resolution quite yet.
        The Chairman. Okay.
        I know around here looking at a date of 2023-2024, to folks
    on the outside that might seem like a long ways away, but we
    know how quickly it creeps up on us and then we are on it. And
    so, I would just, again, urge that this level of consult within
    the three departments not only be ongoing but really be
    stepping it up.
        Let me ask one more quick question.
        Unlike the compacts with the RMI and FSM, which are going
    to continue indefinitely, the compact with Palau has a 50-year
    expiration so that takes us to 2044. That is a longer way out,
    25 years. But are there any plans that you are aware of, Ms.
    Oudkirk, with the prospect of pursuing an extension? Has Palau
    expressed any interest in extending that? Do you know where we
    are on that?
        Ms. Oudkirk. Thank you very much, Senator Murkowski.
        To the best of my knowledge, we have not discussed
    extension beyond 2044.
        The Chairman. Okay, that is consistent with what everybody
    else knows.
        Let me turn to my colleague, Senator Manchin.
        Senator Manchin. I really don't know where to start. There
    is so much I want to ask about what is going on.
        I am going to put this map up for everybody to see.
        [Map is displayed.]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Senator Manchin. This is how we understand what is going on
    in this part of the world. Everything inside of this first row
    of red dots shows, pretty much, China's domination and
    everything in this circle here shows their intentions. Is that
    accurate? Okay.
        And I am understanding that Palau, Micronesia, and the
    Marshall Islands, I guess I would want to know and I know there
    are people in the audience representing those areas, but from
    you all. What is the atmosphere there? Are they just waiting
    for this 2023 and 2024 to move on? Do they have any intentions
    of signing on? Is there a generation that does not understand
    all the sacrifices that were made by their ancestors before
    them through wars and what we had done and the sacrifices we
    made as a country to liberate them? Is there any intentions or
    is it, basically, is it just dollars and cents? If China comes
    in with more money, they are going to eventually have control
    over these areas.
        Those would be my questions in some form. I don't know if
    it is a funeral, if it is a losing cause, but I would say this
    is so geopolitically important for us. And I know they are
    trying to expand fueling stations and everything else they want
    to do in agreements.
        I guess I would like to hear because, I mean, I have a deep
    concern of what is going on and the approach that China has
    systematically taken to be very much involved and control and
    be dominant in that part of the world.
        Ms. Oudkirk. So, if it's possible, sir, I'll take the
    foreign policy side of this and defer on defense to my
    colleague.
        It is clear that China has, is moving aggressively to
    expand its influence within both Southeast Asia and the
    Pacific.
        I will say though, to your question of is this a dollar and
    cents issue to the Pacific Island States, that we share far,
    far more with the Pacific Island States than merely a
    transactional, economic relationship. We share bedrock values
    of democracy. We share values related to military service.
        The question that you had about whether the sacrifices of
    the World War II era generation have been forgotten by the new
    generation, I will say that is absolutely not the case. As I
    noted in my testimony, citizens of these three countries serve
    in the U.S. Armed Forces at a rate far in excess of most U.S.
    states. And they're very, very small populations so that
    service is reflected out in every town, every family.
        Senator Manchin. I hate to interrupt you. I just want to
    because our time is--well, there are three of us now.
        Dr. Gootnick explained to us substantial portions of the
    budgets of the Associated States come from our financial
    assistance.
        In May there was an article published in the Chinese
    government-owned newspaper, China Daily, that said China's
    president considers relations in Micronesia as highly important
    and it went on to say that China stands ready to bring the
    relationship of Micronesia to a new level.
        Chairman, I want to submit this. I think you all probably
    have seen this.
        [China Daily newspaper article follows.]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Senator Manchin. I would assume that means in their
    financial assistance.
        China has a way of moving in areas that seems like they are
    benevolent movements and then, all of a sudden, they have
    strings attached to where they come in and take over. We have
    seen this in different parts of the world.
        Has there been any experiences in those three countries
    that we have seen that, that activity, the way they would have
    pause of understanding what China's real claims are?
        Ms. Oudkirk. I think that we saw Chinese economic coercion
    most clearly in the example of tourism in Palau. So tourism is
    a mainstay of the economy there and when China----
        Senator Manchin. Did the Palau officials push back on that?
        Ms. Oudkirk. Well, I think it was, the Chinese economic
    coercion, whether it is against Palau or against Korea or Japan
    or the Philippines, tends to be a very blunt, very visible
    tool. It's not subtle. It's very direct, and it's meant to be
    seen, which is why it is so important that the United States
    remain involved, keep our economic relationship with these
    countries strong, diverse, non-coercive, free, reciprocal and
    sovereign.
        I think it is so important that the United States is part
    of our Indo-Pacific strategy, stresses the importance of
    sovereignty for big countries like the United States and for
    small countries like the Freely Associated States. That bedrock
    principle of sovereignty for us is really important when we
    speak to our foreign partners many of which are much, much
    smaller than us, because that's not necessarily how other
    economic actors treat those countries.
        Senator Manchin. Mr. Schriver, do you have anything to add
    to that?
        Mr. Schriver. Well, we're quite aware of Chinese ambitions
    and that's why our national defense strategy is relearning our
    entire enterprise toward strategic competition with near pair
    competitors like China.
        It is a particular challenge in this region because, as my
    colleague said, these are small and somewhat vulnerable states.
    We find a lot of enthusiasm for the defense relationship in the
    Freely Associated States. It's already been mentioned the rate
    at which they join the military.
        We also help patrol their EEZs through our naval
    cooperation and our Coast Guard. We do training and exercising
    related to humanitarian affairs, disaster relief. As part of
    that training, we're building facilities and giving our
    servicemembers the opportunity to have real world experience in
    engineering and that benefits the local population.
        But it's a persistent challenge, and we can't give space
    for the Chinese to crowd us out or change the nature, the
    quality, of our relationship with the Freely Associated States.
    So we've got to be persistent and nimble ourselves and bring in
    other like-minded partners. We have a lot of interest from
    Australia and New Zealand and Japan to also be active in these
    states.
        And so, I think it's something we're quite aware of and
    work on daily.
        The Chairman. Thank you. It really does require a level of
    persistence and presence.
        I am pretty certain that Secretary Bernhardt is going to be
    out in the region in the next month or so which, I think,
    again, is important to not only have the military presence
    there, as you mentioned, the Coast Guard, but those who are
    part of our Cabinet, those who are significant in terms of the
    U.S. leadership presence going out and having a presence on the
    ground because I know for a period of time, it was kind of
    lonely out there in terms of the number of folks who would come
    by for a visit since it is not exactly on the way home for most
    people.
        Mr. Domenech, and then we will turn to Senator Hirono.
        Mr. Domenech. Yes, I just wanted to also say that Secretary
    Wilkie from the VA----
        The Chairman. That is right. He is going out.
        Mr. Domenech. ----is planning to go out for the
    inauguration of the new President of FSM here in a couple of
    weeks, I believe.
        So from the Administration's standpoint, there has been a
    concerted effort to try to have high level presence in the
    region, to support the region. To Senator Manchin's, to answer
    his first question when he started. I would say, not speaking
    for them, that there's great interest amongst these three
    countries to renew the compact. So there's no pushback from any
    of them. They're anxious to see--like your story, Chairman,
    about Palau--whether the United States is going to step up and
    continue this relationship after 2023. So they definitely want
    to be partners.
        The Chairman. Good.
        I think Secretary Wilkie's visit there is very, very key
    given the significant number of those who volunteer to serve,
    and we recognize that they have some very significant issues
    with regard to access to VA services. So his presence there is
    going to be very welcome.
        Senator Hirono.
        Senator Hirono. Thank you, Madam Chair.
        I want to make sure that it is crystal clear how important
    our relationship is in the compacts that we have with the
    Freely Associated States.
        Mr. Schriver, you noted in your testimony that the Compacts
    of Free Association with the Freely Associated States are
    critical to U.S. national security and to maintaining a free
    and open Indo-Pacific. I want to make sure that that is crystal
    clear.
        And then for Secretary Domenech, in your testimony you
    state that eligible citizens of the Freely Associated States
    have the right to enter the United States visa free. That is a
    very important fact to note that they can come visa free and to
    live, work and study here for an unlimited amount of time. If
    FAS citizens are in our country legally, they are legally
    present in our country. Do either one of you, probably
    Assistant Secretary Domenech, do you have numbers on how many
    FAS citizens have come to the United States visa free? Either
    one of you?
        Mr. Domenech. I'm sorry, thank you for the question.
        I would answer it in two ways. One is, we do, at Interior,
    pay the Census Bureau to do an enumeration every five years as
    you're likely aware. We just completed that enumeration and,
    basically, the numbers are about 38,000 folks from the Freely
    Associated States who live in the territories and Hawaii. We
    don't count or we don't enumerate those that are living in
    Arkansas, other places in the United States. So it's about
    38,000.
        Senator Hirono. So the 38,000 live mainly in Guam and
    Hawaii? Is that what you are saying?
        Mr. Domenech. That is correct. It's mainly Guam and Hawaii.
        Senator Hirono. And there are some numbers in Arkansas, for
    example? Do you have any idea what that number is and why don't
    you have that figure?
        Mr. Domenech. That's a good question, I guess. We're only
    allowed to spend money in that enumeration for the territories
    and Hawaii. But I'm sure there's probably a number elsewhere
    that we could try to find. Happy to get that to you afterward.
        Senator Hirono. Yes.
        And when you say 38,000 because the populations of these
    countries are not that high, it is probably, it is a little
    over 130,000, maybe. I mean, you have 38,000 plus there are
    more of them living outside of their country. So we are talking
    about a pretty significant number.
        Now at the same time, yes, many of them do live in Hawaii,
    17,000 or so, and there are large numbers in Guam. And because
    of the responsibility and the mutual relationship that we have
    with them, don't you think it is important that as we deal with
    a compact and whatever provisions of the compact that will be
    subject to any kind of negotiation, that when they do come to
    our country that they are able to live, work and, you know,
    access health care like anyone else who is legally present in
    our country? Wouldn't that be an important thing for us to pay
    attention to?
        Both of you.
        [Mr. Domenech and Mr. Schriver both nod yes.]
        Senator Hirono. Okay, I want the record to reflect that
    they are both nodding yes.
        And the main reason is that way back in 1995, 1996 or so
    when the welfare reform law was enacted and there was a
    definition that, I know it was inadvertent, exclusion of
    citizens from FAS states that prohibited them from being
    eligible for Medicaid coverage. I know that it was inadvertent
    because that section that I am referring to in the Welfare
    Reform bill had to do with services that are available to all
    those who are legally present in our country. And the citizens
    of FAS were not included, even though it is very clear that
    they are legally present in our country.
        I am hopeful that as you proceed with negotiations that
    there is some way that we can pay attention to that they should
    not be discriminated against in services that others who are
    legally present in our country can access.
        I just wanted to put that out there.
        Since I am running out of time, for Under Secretary
    Schriver, your testimony notes the strategic importance of this
    region, and one threat that I am concerned about is biosecurity
    in the region.
        The Department of Navy published their Regional Biosecurity
    Plan for Micronesia and Hawaii in 2015 that included numerous
    recommendations to help mitigate the threat of invasive species
    in the region.
        Will you provide me with an update on where the DoD is
    currently with implementing those recommendations that have to
    do with protecting biosecurity?
        Mr. Schriver. If you'll permit me, I'd like to take that
    question and respond to you a more fulsome answer with
    consulting my colleagues in the Navy.
        Senator Hirono. You also note that there is a concern in
    the region about climate change and that climate change is ``a
    source of concern to our partners in the Pacific Islands.''
        Is climate change a source of concern for the DoD and, if
    so, what steps will the DoD take to mitigate the impacts of
    climate change in the Indo-Pacific region? There is no question
    that island states are seeing the impact of global warming and
    climate change already.
        Thank you.
        Thank you, Madam Chair.
        The Chairman. Thank you, Senator.
        I will just follow up on your point relating to climate
    change.
        When I was out there last year, you can't help but be just
    overwhelmed with the fact that you are on these atolls that are
    flatter than this floor. And significant infrastructure that we
    have invested on Kwajalein, particularly at Roi-Namur.
        So as we look at rising sea level, the threat of the king
    tides, the large waves that can overwash the islands, I don't
    know what you, you can't build that atoll up high enough. But
    again, recognizing, as Senator Hirono points out, the strategic
    location, geographic location that we have there, the assets
    that we have placed there, the men and women. What is the
    Department of Defense doing with any effort to adapt or to
    mitigate to what we are seeing there, this threat of rising sea
    level?
        Mr. Schriver. Thank you.
        Well, at this point all I can say is we've identified this
    as a major challenge. The 2018 DoD report identified the
    general challenge of impact of climate change but also
    identified particular facilities that could be potentially
    threatened--Kwajalein being included in that report. The
    Department of Defense is still formulating a response on how to
    make our facilities more resilient, the adaptation piece, as
    you mentioned, and I don't have anything further to share at
    this time. But it's something we can stay in touch with you on.
        I think as a more general matter, the Department of Defense
    looks at these issues with great concern because it could
    impact our resources in terms of more humanitarian disaster
    relief. It could impact access, training. So it's something
    that we are very concerned about.
        The Chairman. Let me ask on the civilian side to both Mr.
    Domenech and Ms. Oudkirk, is there anything that is underway to
    assist the other Marshallese atolls in adaptation efforts? I
    know, again, you fly over, you are on the ground there and
    there is no high ground. And there are tens of thousands of
    individuals who are seemingly very vulnerable. Can you speak to
    what efforts, if any, are underway?
        Mr. Domenech. Yes, I would just say that it's a significant
    issue for us at Interior. So we have deployed a group of folks
    from the U.S. Geological Survey to help us get the science
    straight. So they've identified things like tide gauges, the
    need for additional tide gauges and other, kind of, helpful
    measurement items.
        We also have worked with the Bureau of Reclamation which
    might seem a little odd, but they're the experts in
    desalination and fresh water supplies. And this summer we're
    deploying a team of technical experts to all the islands, so
    all three countries, to begin the process of giving them
    assistance in identifying islands. They're not all quite the
    same, but identifying islands that have fresh water problems.
    So we are starting to work on those measures together with NOAA
    who is weighing in as well.
        The Chairman. Okay.
        Ms. Oudkirk.
        Ms. Oudkirk. State has nothing to add, thank you.
        The Chairman. Senator Manchin.
        Senator Manchin. Thank you, Madam Chairman.
        Dr. Gootnick, if I could, in your report you concluded the
    trust funds that we established for the Freely Associated
    States are likely not to have the funding needed to be able to
    make their annual payments to these countries. You also
    concluded that the committees that were set to manage these
    funds need to take a number of actions to avoid finding
    themselves in a situation where they are not able to disperse
    fundings from the trust in the future. Can you explain to us
    what specific actions the GAO is recommending that these
    committees do after your findings?
        Dr. Gootnick. Thank you.
        Well, I think the first thing to say is that these funds
    are designed to protect the corpus of the fund and there are
    rules on disbursement that have been established that do that.
    There's a three-fund structure A, B and C fund.
        Senator Manchin. Sure.
        Dr. Gootnick. The corpus of the fund, a distribution
    account and a reservoir fund. And at this point funds are being
    placed into the reservoir account. After 2023 the funds may
    disburse up to a maximum of inflation-adjusted sector grants
    going out. The rules that constrain disbursements really are
    the issue that----
        Senator Manchin. You are saying they might not have funding
    for annual payments as they are now.
        Dr. Gootnick. Right.
        Because what will happen, what is likely to happen, is that
    the reservoir fund will be needed to tap and provide annual
    disbursements at the level of sector grants. Once that
    reservoir fund is depleted, depending on how the fund does in a
    given year, there may or may not be any money available for
    distribution. And so, the distribution framework is really one
    of the key issues. It's also the case that the funds simply are
    not large enough at this point under any sort of analysis to
    consistently provide disbursements at the level of sector
    grants on a long-term basis.
        Senator Manchin. Mr. Domenech, on that, you might want to
    walk us through what would be required to update and
    renegotiate in these compacts, but also making financial
    stability, if you will, and how they are able to be funded and
    how they are able to be disbursed or if that will change in the
    new compact or is that recommended to be changed in the new
    compact?
        Mr. Domenech. Well, Dr. Gootnick is correct in his analysis
    of the current status of the trust funds.
        The one piece that, just to be clear, the compacts never
    actually said that the trust funds would be able to provide the
    funds at the same level as the grants that we do now. So every
    year Congress gives us money and that's divided up between
    contributions to the trust fund and contributions to the sector
    grants, is what they call it. And so, the idea that the trust
    funds would provide the same amount was actually never in the
    compact. It was only said that we, that they would become a
    source of funds for the three countries.
        I would say that our trust fund committees have been
    working on the problems identified by GAO since 2015. It is not
    resolved yet because part of that is a negotiation with the
    three countries and they have an opinion about how it ought to
    work going forward. So that is something that they have been
    working on and the current plan is by next year to have all of
    those disbursement formulas set in place with the agreement of
    the three countries.
        Senator Manchin. One final question to Ms. Oudkirk.
        How much military activity are you all seeing in an area
    that had not had that much from China before moving out toward
    the outer rim, I would say, in the Philippine Sea?
        Ms. Oudkirk. Thank you, Senator. I'd like to defer that to
    my DoD colleague.
        Senator Manchin. Okay.
        I'm sorry.
        Mr. Schriver. We're seeing an increased level of activity
    throughout the Indo-Pacific, primarily the South China Sea,
    East China Sea, but it does certainly extend to the second
    island chain, Senator.
        Senator Manchin. So you are seeing that visibly?
        Mr. Schriver. Yes.
        Senator Manchin. Concerned?
        Mr. Schriver. Absolutely. As I said, we're aware of their
    ambitions. We know this is toward an aim. So this raises the
    importance of working with our partners.
        The Chairman. Senator Hoeven.
        Senator Hoeven. Thank you, Madam Chairman.
        For Secretary Schriver, would we be able to defend the
    second island chain and sustain our requirements across the
    Pacific region if we did not have the cooperation from the
    Freely Associated States?
        Mr. Schriver. I think it would be dramatically more
    difficult for Indo-Pacific command to do that.
        Senator Hoeven. Talk about that.
        Because of our ability to----
        Mr. Schriver. Well, tyranny of time and distance and
    paucity of access, these are critical locations, depending on
    the contingency, but it would be a lot more difficult without
    their cooperation.
        Senator Hoeven. So then, from a DoD perspective, how
    important is the renewal of the Compact of Free Association and
    so forth, I mean?
        Mr. Schriver. The relationships are of strategic importance
    and if the interagency, working with the Congress, decides on
    that track, we'll certainly support it.
        Senator Hoeven. What are you seeing from China in terms of
    how they are approaching our involvement with the Freely
    Associated States and what are we doing to counter it?
        Mr. Schriver. Well, we have a unique relationship with the
    Freely Associated States where defense interests are concerned.
    So we do have a lot of say over China's overt access and
    ability to do things in these three countries.
        The broader Oceania region, the Chinese and the PLA do have
    greater opportunity and latitude because we don't have the same
    sort of control.
        But within the Freely Associated States, I think the
    leverages are primarily economic and, as was mentioned earlier,
    different points of leverage such as tourism are being used and
    these can all combine to subtly erode their sovereignty over
    time.
        Senator Hoeven. Ms. Oudkirk or Secretary Oudkirk, am I
    saying that right?
        Ms. Oudkirk. Yes, sir.
        Senator Hoeven. Talk a little bit about both the energy
    opportunities in the region and what infrastructure needs to be
    developed there for us to do more in the energy sphere.
        Ms. Oudkirk. Thank you very much, Senator.
        I'll have to take that question back. Primarily when we
    focus on energy in the Indo-Pacific, we're looking at Chinese
    resource nationalism in the South China Sea and in areas
    outside the Freely Associated States such as Papua New Guinea
    and East Timor.
        So we can get back to you on that one.
        Senator Hoeven. What are the opportunities then, besides
    tourism in the region?
        Ms. Oudkirk. So in terms of economic drivers, fisheries is
    an enormous economic driver there. Tourism, obviously, is
    another very large one. And we can get back to you with a more
    detailed response on other economic drivers.
        Senator Hoeven. Okay.
        Secretary Domenech, can you discuss how you are working
    with the trust fund committees to ensure the viability of
    funding streams as we make the transition and so forth?
        Mr. Domenech. Thank you, Senator.
        Yes, we have a joint management committee structure for
    each country. They meet twice a year to discuss how the trust,
    how the grants, and funding will work.
        In addition, the trust funds also meet at that same time.
    They're working through different scenarios about how the
    disbursements will be done post-2023 when the compacts end.
    There's a lot of discussion with the countries there about
    that.
        So it's an ongoing discussion at this point in order to
    make those trust funds last as long as possible.
        Senator Hoeven. Can you comment as to relationships that we
    are building with the Freely Associated States beyond the
    defense logistical relationship and tourism? I asked about
    energy. Are there others?
        Mr. Domenech. Fish is the other big natural resource they
    really have. We do lots of work----
        Senator Hoeven. So you are talking about recreational or
    commercial fishery?
        Mr. Domenech. It could be both, but we think there's great
    potential for a fishing industry to grow there because of
    access to large supplies of tuna and other fish that can be
    commercially harvested. And so, that's one area that we're
    looking at.
        But in terms of relationships, we do a lot of relationship
    building with all three countries. We fund training for
    government auditing and other kinds of transparency capacity
    building. We do youth programs, bring youth here to participate
    in learning about good government practices, that kind of
    thing. So we have a long-term, sustained effort to try to build
    that sort of, on the civilian side, relationship with these
    countries.
        Senator Hoeven. What about Japan as far as fishing over
    there? Isn't there a lot of fishing pressure from some of the
    countries in the region? Is there still a lot of opportunity?
    You know, you hear about a lot of existing fishing pressure.
        Mr. Domenech. There is a lot of fishing in the region and
    one of the things that Assistant Secretary Schriver said, there
    is pressure from China in the Freely--in the EEZs of these
    three countries. They've come to us, and mostly to them and the
    Coast Guard, saying we sense that other actors are stealing our
    fish and we need help, technical help, to be able to try to
    deal with this issue. So they've brought to bear with the Coast
    Guard and others, assistance in that way.
        Senator Hoeven. Okay. Thank you.
        Ms. Oudkirk. Senator, if I could add on the issue of
    relationship building?
        In terms of foreign policy at the United Nations and in
    other multilateral institutions, the Freely Associated States,
    we're very strongly aligned in terms of policy priorities,
    issues related to Israel, issues related to retaining a strong
    sanctions regime on North Korea. We're very close partners and
    this is a very important partnership for us.
        The Chairman. Thank you, Senator Hoeven.
        Dr. Gootnick, I wanted to ask about Palau's trust fund
    because you have given us a little bit of a preview of what to
    expect with the trust funds for the RMI and the FSM and the
    concern that you have about greatly reduced, if not zero,
    funding in future years. Do you think the Palau trust fund is
    in a similar situation? They are already drawing down from
    their trust fund now in order to just supplement their annual
    budget. Can you give me some kind of a prognosis on that one?
        Dr. Gootnick. Right.
        I think the 2018 funding of the 2010 agreement has put the
    Palau trust fund in a much better situation than the other two
    compact nations.
        You're right that they have been reducing, that they have
    been pulling funds out, but they've been doing that at a
    somewhat reduced rate in the recent years and are now up to
    their $15 million intended annual distribution.
        The Palau trust fund is only intended to last until 2044
    whereas these other funds, while there's no either specific
    annual disbursement that's stipulated under the implementing
    legislation in the compacts, they are looking to be a source of
    funds indefinitely.
        The 2010 agreement put additional funds into the trust
    fund, our U.S. trust fund contributions, and we have not
    analyzed that recently but going back to some of our prior
    work, this puts them on a very sustainable path.
        The Chairman. So if they manage this well and don't take
    too much from that fund early on, it sounds like you feel that
    they are going to be on a pretty sound footing?
        Dr. Gootnick. Right.
        Under the agreement they are to withdraw $15 million
    annually----
        The Chairman. Right, right.
        Dr. Gootnick. ----which is what was originally designed
    into their compact.
        The Chairman. So that will work going forward to last them
    with the balance.
        Dr. Gootnick. With the reduced withdrawals and the increase
    that's coming with the 2018 funding of the 2020 agreement--2010
    agreement, yes, their fund is in a much more sustainable spot.
        The Chairman. Okay.
        So you are, again, your prognosis or your view of the trust
    funds in the RMI and the FSM trust there, look pretty
    concerning if you will. If you are anticipating that you are
    going to see these resources coming and there is either nothing
    in that fund or it is so greatly reduced, it amounts to very
    little.
        We have talked about the economic pressures that are
    brought to bear for other initiatives. What other countries or
    international assistance might come from, I guess,
    international institutions that the Freely Associated States
    could turn to if the United States does not extend the
    financial assistance beyond 2023-2024? Where would they go?
        Dr. Gootnick. Right.
        Well, in the Marshall Islands there's a close recognition
    of Taiwan and a close relationship with the Taiwanese.
        The Chairman. Right.
        Dr. Gootnick. They have contributed to the Marshallese
    trust fund and----
        The Chairman. In a significant manner?
        Dr. Gootnick. They contributed, I believe it's $30 million.
    I'll have to check that.
        And I think, I know, my understanding is there's been
    discussion about additional contributions.
        The FSM has its own trust fund that's independent of the
    compact trust funds and they have put funds into that. It's
    over $200 million at this point, and they are using the revenue
    that was discussed with fishing fees to balance their budget
    and allow them to put money into their trust fund. I don't know
    that the rules on distribution from that trust fund are
    established, certainly not anything that I'm familiar with.
        The RMI also has a small fund called their D fund that is
    outside of the compact trust funds. This is much smaller.
        The Chairman. And where do they get those funds? Where do
    they get their funds for that?
        Dr. Gootnick. I believe some of that has come from the
    Chinese and some of that, to the best of my knowledge, has come
    from their own revenues.
        I'll have to check on that.
        The Chairman. I am assuming it is fair to say that if the
    United States is not there with the financial assistance that
    they would hope for, they are going to potentially be looking
    to whether it is Taiwan, fair enough, China, gets us a little
    more on edge here, but they will look to others for a level of
    international assistance and support.
        Dr. Gootnick. Right.
        I think if you go to Micronesia you see much more presence
    of the People's Republic of China, and if you go to the
    Marshall Islands, you see much greater presence of the Republic
    of China or the Taiwanese.
        The Chairman. Yes.
        Dr. Gootnick. So they undoubtedly, I mean, first and
    foremost, if there is discussion around economic assistance
    beyond 2023, I suspect that the trust fund would be an
    important topic to deal with.
        And secondly, you're very correct that the compact nations
    would be looking for other sources of funding.
        The Chairman. Let me ask either Assistant Secretary Shriver
    or Ms. Oudkirk then with regards to diplomatic recognition of
    Taiwan.
        How much pressure are the Marshall Islands and Palau under
    to switch recognition from Taiwan to China? I mean, you
    mentioned the tourism threat there. Really, how much pressure
    is brought to bear?
        Mr. Schriver. It's significant and the Chinese are very
    opportunistic. I mean, we look throughout the region out of
    Taiwan, 17 diplomatic relations. I think broader, Southeast
    Asia, Indo-Pacific, I think it's six or seven are in this
    region.
        And there's an upcoming decision in the Solomon Islands,
    for example, and we've weighed in at very senior levels to try
    to encourage them to stay on sides with Taiwan. But in the
    Freely Associated States, again, it's primarily economic and
    it's significant.
        The Chairman. Ms. Oudkirk?
        Ms. Oudkirk. I would agree.
        It's safe to say that the pressure on all of the 17
    countries that recognize Taiwan is intense. It's ongoing, it's
    consistent, and it's across all fora.
        The Chairman. Again, as we are looking forward to the
    significance of these compacts and 2023 and 2024 and where the
    U.S. is, what level of presence we have, whether it is
    financial assistance, economic assistance, just being out in
    the region, seeing and being seen, these can impact and
    implicate relationships such as this.
        I mentioned, or actually it was you, Assistant Secretary
    Domenech, you mentioned that Secretary Wilkie is going to be
    out in the region which is greatly appreciated. I throw this
    out to any of you. What more can we be doing to recognize and
    provide health care for those FAS citizens who have served in
    our armed forces? They go back to their home to live. It is a
    long flight to get to Guam, certainly a longer flight to get to
    Hawaii and very expensive. But right now, these are the only
    alternatives, or the only options, that are available to these
    veterans.
        We have talked about some programs similar to what we have
    in Alaska where you have Alaska natives who have served in our
    armed forces. They are living in remote villages where you
    don't have access to VA facilities. But it is nothing like
    having to travel hundreds and thousands of miles, practically,
    for that level of care. Does anybody have any suggestions that
    you can put out on the table for the Secretary to consider
    before he goes over there?
        Ms. Oudkirk.
        Ms. Oudkirk. Thank you very much.
        I'm going to say this is not a suggestion, but I was able
    to sit in on the meeting that Secretary Wilkie had with both
    the President of the Republic of the Marshall Islands and the
    President of the Republic of Palau. It was a great discussion.
        It focused a lot on this very topic of access to VA
    services. And I will say that the State Department has, like
    DoD, personnel in all of the Freely Associated States and those
    personnel for the State Department are there with their
    families with medical issues, like any other U.S. citizen. And
    it's an issue that we do grapple with, you know, how you access
    care whether care can be accessed via telemedicine or through
    some other remote method is something that is a focus for us
    for our employees as well as it is, I know, for the VA for the
    retired servicemen.
        The Chairman. I was just struck when I was out there and
    talking with some of the servicemembers. Their reality of being
    out in a region where your flight options, again, are very,
    very limited and very expensive. If there is space available
    you might be able to get out, but the reality that you have one
    air carrier that is moving in and out of the islands, does not
    give you much competition and much flexibility at all.
        These are things that--as somebody that comes from a state
    that is not part of the contiguous United States and does deal
    with some restrictions on access, we can certainly understand
    and appreciate the situation that they are in.
        Dr. Gootnick, you mentioned the U.S. Postal Service and how
    the compact financial assistance has helped to defray U.S.
    Postal Service expenses in providing service to the islands,
    and you mentioned that we may be in a situation where we see
    U.S. Postal Service end. You also mentioned FEMA.
        Okay, if I am living out there and you are telling me now
    that I don't have, I have limited ways to get off of the
    island, the support that we have received to ensure just basic
    mail delivery and if we are really going to try to provide
    health benefits to our veterans, more often than not, they are
    receiving their medications through mail order, mail delivery.
    But now, there's a possibility that we are going to suspend or
    end U.S. Postal Service. To me, that doesn't demonstrate much
    of a commitment from the United States if we are really talking
    about an end to Postal Service delivery, an end to FEMA
    support. Can you speak just a little bit more to that? And I
    don't want to hyperinflate something that isn't or couldn't
    happen, but you were the one that mentioned it.
        Dr. Gootnick. Right, sure.
        With respect to the Postal Service, the compact nations
    have their own Postal Services that operate within their
    countries. It is the mail that is to and from the United States
    that has been supported entirely by the U.S. Postal Service.
        If you talk to the Postal Service, what they'll tell you is
    that they expect the two countries to negotiate their way into
    the International Postal Union which is a forum through which
    countries determine the rates and the reimbursements for mail
    transfer around the world.
        The Postal Service will tell you that their cost has been
    about $9 million a year and if they, the compact nations, are
    not able to negotiate a rate within the participation in the
    International Postal Union, the Postal Service would expect
    compensation for any agreement that they have.
        With respect to FEMA. FEMA funding, the direct FEMA
    funding, if a disaster is declared will go away. USAID may
    still provide a response under the general authorities of the
    Foreign Assistance Act in USAIDs operations. There's no
    guaranteed funding or activities there.
        The Chairman. You also mentioned PELL grants. Did you say
    that they were also in jeopardy or not? I wasn't sure how far
    that extended.
        Dr. Gootnick. At this point PELL grants will continue and--
    --
        The Chairman. That is what I thought you said.
        Dr. Gootnick. ----they are a key issue for the two, the
    College of Micronesia and the College of the Marshall Islands.
    Essentially all students qualify for PELL grants.
        The Chairman. Right.
        Dr. Gootnick. And so, it supports a huge percentage of the
    budgets of the two colleges. Those grants will continue.
        The Chairman. Those are not threatened then?
        Dr. Gootnick. Under current law those will continue.
        The Chairman. Okay.
        Assistant Secretary Schriver, I asked you about
    infrastructure on Kwajalein and the threat there from rising
    sea level.
        When I was in Palau last year, there was a great deal of
    interest in the radar there on Palau and the installation. Can
    you give me any updates on where we are with that?
        Mr. Schriver. Sure. We're looking at a system of radars
    that would have both maritime awareness capability as well as
    air awareness capability. This would be beneficial to Palau so
    that they could see throughout their EEZ and monitor things
    like illegal, unregulated fishing. We would benefit as well
    from the data with respect to our ongoing competition with
    China.
        The maritime radar system, I believe, we've installed two
    of the planned five radars. The air awareness systems, we are
    making progress on identifying sights and compensating the
    local residents for the land and I think we're close to
    wrapping that up so that we can fully move forward with the
    project. But it does involve some compensation of landowners
    there.
        The Chairman. Is it a matter of determining how much
    compensation is owed then that has not been worked out?
        Mr. Schriver. I think it's a matter of each individual
    landowner and, as I understand it, we may be down to a single
    landowner, but we're making progress.
        The Chairman. Okay, alright, well, good to know.
        I am going to ask one last question of each of you.
        This area reminds me a little bit of the Arctic. You all
    know that I am very focused on the Arctic and very concerned
    that an area that we view as this area of cooperation and
    collaboration, this zone of peace that more often than not is
    just quiet enough that everybody leaves us alone.
        But things are happening up there and we are seeing an
    increased interest from the military perspective, from a
    national security perspective, from an energy security
    perspective, as you are seeing more ocean that is opening up
    access to resources but also maritime activity.
        This is also an area where, from the United States'
    perspective, it is kind of, out of sight, out of mind.
        I mentioned in my opening that you have some folks who just
    don't even understand why this Committee has any jurisdiction
    over this in the first place. How did we get to be involved
    there? And yet, it is a very key, a very critical part of the
    globe for U.S. interests and our participation. Our shared
    history is something that is worthy of relationship building.
        But oftentimes, if things are quiet, if all is calm, we
    just don't work on building up those relationships. We figure
    that they will be there for us. We are friends. They serve in
    our military. Yes, we have these compacts. We will be good for
    it.
        But there is talk that goes on out there about where we are
    and how good a friend we are, and when there is a void there
    will be others that will attempt to step into that void. I am
    very, very interested in this part of the world as part of this
    Committee's level of oversight.
        And while I recognize that today is a busy day, we have a
    budget deal that has been announced. We have a Senate Armed
    Services Executive Committee that is going on. It is something
    that is hard to get a lot of us really focused on this.
        Like the Arctic, it seems now that China and Russia are
    paying much closer attention to what is going on in the U.S.
    Arctic and the Arctic writ large, now everybody is interested.
    Everyone is paying attention.
        It seems like we are getting to that same place with
    regards to those out in these insular properties.
        The question that I would pose to each of you is given
    where we are right now with our relationships with Palau, with
    the Marshall Islands, with the Federated States, what do you
    believe is the biggest threat to our relationship right now? Is
    it on the financial side and our ability to meet commitments?
    Is it economic interests? Is it the military security, national
    security interests? What is the biggest threat to the
    relationship that this Committee should be paying attention to?
        We will start with you, Assistant Secretary Domenech.
        Mr. Domenech. Thank you.
        And I just want to say, for those of us who deal in the
    territories and the Freely Associated States, we know as
    someone who comes from a former territory that you have great
    sensitivity to this issue and we appreciate having a home
    somewhere and we're very happy that it's here.
        I do think the greatest threat, to answer your question, is
    the renewal of the compacts. I think if they were not renewed
    there would be a very significant impact to the economies of
    these three regions and would open themselves up. Of course,
    what's ending in '23 is the money portion of the compact. The
    compact does continue, but it would open the door for
    additional unfriendly competitors in the region to step in. So
    that would be my answer.
        The Chairman. Assistant Secretary Schriver.
        Mr. Schriver. Secretary Mattis used to say, you can lose
    your sovereignty when a soldier holding a bayonet takes your
    ground and holds it. You can lose it through bad economic
    decisions and political decisions.
        And so, I think what we're seeing from China is a very
    aggressive, assertive play to try to gain their own influence
    and ultimately lead to the erosion of their sovereignty. So our
    goal is to stay very engaged. I didn't have a chance to mention
    all our engagement because of the press of time, but I think
    I'm on safe ground saying we've never had such high-level
    attention from the Department of Defense. Admiral Davidson has
    been out. I've been out with an interagency group, Pacific Air
    Forces, Under Secretary of the Navy, and on and on and on.
        But we have to have the content right. It's not just
    visiting and showing the flag, it's showing that we care about
    the issues that they're concerned about, like the fisheries and
    protection of their EEZs. And so, we will be focused on this
    and maintain our persistent attention.
        The Chairman. Great, thank you.
        Assistant Secretary Oudkirk.
        Ms. Oudkirk. So I would agree with both of my fellow
    panelists that the challenges we're facing now have to do with
    maintaining the excellent relationship that we already have
    with the Freely Associated States, maintaining the level of
    access, the alignment of our values and our policies, not just,
    sort of, at home, domestically, but in international fora, like
    the United Nations with regards to recognition of Taiwan and
    other areas.
        But I'll also say that rather than looking at the threat to
    the relationship, I think we have an opportunity here with our
    relationships with the Freely Associated States really to be,
    like I said in my testimony, a bellwether for the rest of the
    Pacific. How we handle this relationship is absolutely crucial
    to how we are perceived across the Pacific. And the threat from
    China, the tantalizing option of, sort of, sweetheart deals,
    concessionary lending, is not just present in the Freely
    Associated States, but it is even more present in other Pacific
    Island countries. And so getting the relationship, getting our
    relationship, civilian, military, with the Freely Associated
    States right is absolutely crucial to getting our relationships
    right across the Pacific.
        And so, if I could underscore anything at all is just how
    important these three countries are as a model and as a signal
    for a whole host of other relationships.
        The Chairman. Well said.
        Dr. Gootnick.
        Dr. Gootnick. I can't speak to the geostrategic issues, but
    I think it's very important to recognize the magnitude of the
    shock to the health and educational systems of these countries
    if U.S. economic assistance is withdrawn, it ends.
        You had asked what the VA Secretary should do when he was
    out there. I would suggest that any official, the VA Secretary,
    any official who goes out there, should go to Chuuk or go to
    Ebeye and walk through, go to Chuuk and walk through the
    hospital, walk through the whole thing and recognize that this
    is the level of development, the level of the healthcare system
    with U.S. assistance. Same with Ebeye, walk through the town,
    walk through the entire thing and get a good feel for what the
    situation there is with U.S. assistance.
        So that would be my thought.
        The Chairman. No, well said.
        In fact, I was on Ebeye and I understand it is the most
    densely populated place on Earth in terms of human population
    per square inch on that tiny, little atoll.
        We have some pretty tough communities in my state, but I
    will tell you, I have not ever seen anything quite like Ebeye
    where you have, again, a very flat island, very small island
    and the mass of humanity scrunched on this small, little island
    and in an area, Kwajalein atoll is extraordinarily beautiful,
    of course, but the trash, the filth that had accumulated there
    because it is so difficult to remove when you have such
    population densities.
        And you think about how you provide for a level of health
    care, how you provide for a level of education.
        Again, I think sometimes when people think of these areas
    and you hear Kwajalein, you think, obviously, this is a
    military installation and that is all it is, and yet, on that
    same atoll, we have that largest concentration of people on one
    small island.
        So it is families that are out there that we worry about
    too. It is their health, their safety, their education, their
    well-being. At the same time that we talk about the United
    States' interests and presence in a place that often too many
    believe is just simply out of sight and out of mind. We have a
    responsibility, we need to maintain a persistent presence, we
    need to be engaged and involved and I appreciate all that you
    have done to highlight that to the Committee here this morning.
        I think part of my challenge is to get colleagues out there
    to the region. It is extraordinarily beautiful but, again, as
    you point out, it is a very real place for so, so many people
    and how we can come to better understand them and the role that
    they play as part of this country is a pretty important part of
    our job.
        We appreciate the discussion here this morning, and we look
    forward to working with you. I will again encourage those at
    Interior, Defense and State to be continuing this level of
    consultation and focus so that we don't get behind our timeline
    when it comes to these compacts that we have facing us.
        I appreciate all your endeavors and the good work of you
    all.
        With that, the Committee stands adjourned.
        [Whereupon, at 11:46 a.m. the hearing was adjourned.]

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