[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

                               __________
                               
                               
                               
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               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:]
    
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    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:]
    
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    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:]
    
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    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.]
    
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    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.]
    
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    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.]

                      APPENDIX MATERIAL SUBMITTED

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