[Congressional Record Volume 157, Number 23 (Monday, February 14, 2011)]
[Senate]
[Pages S688-S695]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. BINGAMAN (for himself and Ms. Murkowski):
  S. 343. A bill to amend Title I of PL 99-658 regarding the Compact of 
Free Association between the Government of the United States of America 
and the Government of Palau, to approve the results of the 15-year 
review of the Compact, including the Agreement Between the Government 
of the United States of America and the Government of the Republic of 
Palau. Following the Compact of Free Association Section 432 Review, 
and to appropriate funds for the purposes of the amended PL 99-658 for 
fiscal years ending on or before September 30, 2024, to carry out the 
agreements resulting from that review; to the Committee on Energy and 
Natural Resources.
  Mr. BINGAMAN. Mr. President, I am pleased to join with my colleague 
and the Ranking Member of the Committee on Energy and Natural 
Resources, Lisa Murkowski, in introducing legislation to strengthen the 
relationship between the United States and the Republic of Palau--one 
of our closest and most reliable allies. This legislation, if enacted, 
would implement the recommendations of the 15-year review called for 
under the Compact of Free Association between our two nations.
  Palau is one of the world's smallest nations, located in the western 
Pacific about 800 miles south of Guam and 500 miles east of the 
Philippines. It has a total land area of 177 square miles with a 
population of about 21,000. The close ties between the U.S. and Palau 
date from World War II, when Japanese forces were defeated in the 
Battle of Peleliu. In 1947, the islands became a District in the United 
Nations Trust Territory of the Pacific Islands. The United States was 
appointed Administrating Authority of the Trust Territory with the 
responsibility to promote economic and political development. Because 
of the United States' strategic interest in this region, the Trust 
Territory was established as the only U.N. ``Strategic'' Trust under 
the authority of the U.N. Security Council, as opposed to the U.N. 
General Assembly.
  In the 1970s, talks on future political status were undertaken with 
the United States. The Northern Mariana Islands voted to become a U.S. 
territory, and the districts of Palau and the Marshall Islands chose to 
separate from the remaining Trust Territory districts. In 1982, Palau 
signed a 50-year Compact of Free Association that was approved by the 
U.S. in 1986, P.L. 99-658. The Compact went into effect on October 1, 
1994, and the U.N. Trusteeship was subsequently terminated, making 
Palau a sovereign, self-governing state in free association with the 
United States. The U.S. entered into similar Compacts of Free 
Association with the Marshall Islands and the remaining districts of 
the Trust Territory, now known as the Federated States of Micronesia, 
in 1986, P.L. 99-239.
  The U.S.-Palau Compact consists of four parts:

       Title One, ``Government Relations,'' provides for 
     government-to-government relations including the privilege 
     for Palau citizens to enter the U.S. to work and reside as 
     non-immigrants, and for U.S. citizens to do the same in 
     Palau.
       Title Two, ``Economic Relations,'' provided for a total of 
     $560 million in U.S. assistance from fiscal year 1995-2009, 
     including operational support of about $13 million annually, 
     $149 million for road construction, and $70 million for 
     capitalization of a Trust Fund to provide funds after the end 
     of direct U.S. financial assistance.
       Title Three, ``Security and Defense Relations,'' closed 
     Palauan territory to the military forces of any nation except 
     the U.S., so-called ``Strategic Denial,'' and provides that 
     the U.S. may establish defense sites, although none exist at 
     this time or are planned.
       Title Four, ``General Provisions,'' among other things, 
     Section 432 requires that there be a formal bilateral review 
     of the relationship on the 15th, 30th and 40th anniversaries 
     of the compact's entry into force, and that both parties 
     commit themselves to take specific actions based on the 
     conclusions of the review.

  The U.S. and Palau completed this formal 15th anniversary review and, 
on September 10, 2010, signed an agreement setting forth amendments to 
the compact based on the conclusions and recommendation of the review. 
The bill being introduced today would approve this agreement and its 
appendices and incorporate them into the law which originally 
established the compact.
  First, the legislation would extend financial assistance for another 
14-year

[[Page S691]]

term, until 2024, for operations, construction, maintenance and trust 
fund contributions totaling $229 million, or an average of $16.4 
million annually. This is a substantial reduction from the average of 
$37.3 million annually that was provided in the first 15-year term. 
Second, the legislation significantly enhances accountability of U.S. 
financial assistance by requiring Palau to undertake financial and 
management reforms, and the U.S. is authorized to withhold funds if the 
U.S. determines that Palau ``has not made significant progress in 
implementing meaningful reforms.'' Third, the bill would require any 
Palauan entering the U.S. to have a Palau passport. This would be the 
same requirement that was imposed on citizens of Micronesia and the 
Marshall Islands when their compacts were reviewed and amended in 2003.
  I believe this Agreement and legislation reaffirm and strengthen the 
special ties between the U.S. and Palau. Together we will continue our 
commitment to regional security. The United States will continue to be 
responsible for the security and defense of Palau, and the U.S. is 
honored to have the continued service of the men and women of Palau in 
the U.S. armed services. Strategic denial and the associated base 
rights provided for under the compact were originally designed to 
counter the Cold War threat in the Pacific. While the Cold War has 
ended, the U.S. will continue to face new challenges in the region.
  Another indicator of the close relationship between the U.S. and 
Palau is evidenced by comparing votes in the United Nations. Palau and 
the U.S. vote together consistently. The most recent issue of the State 
Department's report, ``Voting Practices in the United Nations 2009,'' 
shows that Palau's voting coincidence with the United States in 2009 on 
12 important issues was 100 percent. This is the highest voting 
coincidence of any country and indicates that Palau is a trusted and 
reliable ally at the U.N.
  In 2003, the U.S. determined that a number of Chinese Uighurs who had 
been arrested in the war on terrorism and were sent to Guantanamo were 
not terrorists. The Bush Administration sought new homes for them, 
knowing that they would likely be persecuted if they were returned to 
China. Plans to send them to a Uighur community in Virginia were 
dropped because of Congressional opposition. Nearly every nation in the 
world was asked to assist in their resettlement, but Palau was the 
first to agree. Six Uighurs were resettled there. Palau has taken more 
detainees from Guantanamo than any other nation except Albania not 
counting those who were repatriated to their home countries.
  It is important to note that this legislation is time-sensitive. The 
first 15-year term of compact financial assistance ended with fiscal 
year 2009. Fiscal Year 2010 funding for Palau was provided through 
enactment of a 1-year extension in the fiscal year 2010 Omnibus 
Appropriations bill, and the first few months of fiscal year 2011 
funding is made available by the recent continuing resolutions. It is 
important that the next CR include continued financial support for 
Palau through the end of this fiscal year, to allow time for Congress 
to consider and pass this legislation. I understand that the 
administration's fiscal year 2012 budget will assume enactment of the 
bill before October 1, leaving the Congress a relatively short period 
of time to do its work.
  I look forward to working with Ranking Member Murkowski and our 
colleagues on the Committee in moving this bill promptly. I anticipate 
reaching out to our colleagues on the Foreign Relations and Armed 
Services Committees because of the important role Palau plays in U.S. 
foreign and defense policy. Finally, I look forward to working with 
officials in the administration and in Palau who conducted the compact 
Review and concluded this important Agreement. I urge my colleagues to 
join with me and Senator Murkowski in approving this agreement and 
assuring the continued strength of this historic partnership.
  Mr. President, I ask unanimous consent that the text of the bill and 
a letter of support be printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                 S. 343

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled, Title I 
     of PL 99-658 is hereby amended by inserting a new section 105 
     as follows:

     ``SEC. 105. RESULTS OF COMPACT REVIEW.

       ``(a) The Agreement between the Government of the United 
     States of America and the Government of the Republic of Palau 
     Following the Compact of Free Association Section 432 Review 
     set forth in subsection (b) of this section, is hereby 
     approved.
       ``(b)

                        ``AGREEMENT BETWEEN THE

                           GOVERNMENT OF THE

                        UNITED STATES OF AMERICA

                                AND THE

                  GOVERNMENT OF THE REPUBLIC OF PALAU

               FOLLOWING THE COMPACT OF FREE ASSOCIATION

                           SECTION 432 REVIEW

     ``In recognition of the ties that were developed between the 
     United States of America and Palau during World War Two, and 
     the subsequent half century of United States administration 
     of Palau and the continuing close relationship between the 
     Governments of the United States and Palau under the Compact 
     of Free Association (`Compact'), following the fifteenth 
     anniversary review of the relationship conducted pursuant to 
     Section 432 of the Compact (which provides: `Upon the 
     fifteenth and thirtieth and fortieth anniversaries of the 
     effective date of this Compact, the Government of the United 
     States and the Government of Palau shall formally review the 
     terms of this Compact and its related agreements and shall 
     consider the overall nature and development of their 
     relationship. In these formal reviews, the governments shall 
     consider the operating requirements of the Government of 
     Palau and its progress in meeting the development objectives 
     set forth in the plan referred to in Section 231(a). The 
     governments commit themselves to take specific measures in 
     relation to the findings of conclusions resulting from the 
     review. Any alteration to the terms of this Compact or its 
     related agreements shall be made by mutual agreement, the 
     terms of this Compact and its related agreements shall remain 
     in force until otherwise amended or terminated pursuant to 
     Title Four of this Compact'), and in light of the desire of 
     the United States of America and the Republic of Palau to 
     deepen their relationship, now, therefore, the Government of 
     the United States of America and the Government of the 
     Republic of Palau agree as follows:
       ``1. Compact Section 211(f) Fund

     ``The Government of the United States of America (the 
     `Government of the United States') shall contribute $30.25 
     million to the Fund referred to in Section 211(f) of the 
     Compact in accordance with the following schedule: $3 million 
     annually for ten years beginning with Fiscal Year 2013 
     through Fiscal Year 2022, and $250,000 in Fiscal Year 2023.
       ``2. Infrastructure Maintenance Fund

     ``(a) The Government of the United States shall provide a 
     grant of $2 million annually from the beginning of Fiscal 
     Year 2011 through Fiscal Year 2024 to create a trust fund 
     (the `Infrastructure Maintenance Fund') to be used for the 
     routine and periodic maintenance of major capital improvement 
     projects financed by funds provided by the United States. The 
     Government of the Republic of Palau (the `Government of 
     Palau') will match the contributions made by the United 
     States by making contributions of $150,000 to the 
     Infrastructure Maintenance Fund on a quarterly basis from the 
     beginning of Fiscal Year 2011 through Fiscal Year 2024. 
     Implementation of this subsection shall be carried out in 
     accordance with the provisions of Appendix A to this 
     Agreement.

     ``(b) The $3 million owed to the Government of the United 
     States under paragraph 3(d) of Article V of the Agreement 
     Concerning Special Programs Related to the Entry Into Force 
     of the Compact of Free Association Between the Government of 
     the United States and the Government of the Republic of Palau 
     (the Guam Accords) done at Guam, May 26, 1989, plus 
     accumulated interest, shall be paid into the Infrastructure 
     Maintenance Fund. The $3 million shall remain in the 
     Infrastructure Maintenance Fund and not be expended for any 
     purpose. All past and future income generated by the $3 
     million shall be used exclusively for the routine maintenance 
     of the Compact Road provided by the United States under 
     Section 212 of the Compact.
       ``3. Fiscal Consolidation Fund

     ``The Government of the United States shall provide the 
     Government of Palau $5 million in Fiscal Year 2011 and $5 
     million in Fiscal Year 2012 for deposit in an interest 
     bearing account to be used to reduce government payment 
     arrears of Palau. Implementation of this section shall be 
     carried out in accordance with the provisions of Appendix B 
     to this Agreement.
       ``4. Direct Economic Assistance

     ``(a) In addition to the $13.25 million in economic 
     assistance provided to the Government of Palau by the 
     Government of the United States in Fiscal Year 2010, and 
     unless otherwise specified in this Agreement or in an 
     Appendix to this Agreement, the Government of the United 
     States shall provide the

[[Page S692]]

     Government of Palau $107.5 million in economic assistance as 
     follows: $13 million in Fiscal Year 2011; $12.75 million in 
     Fiscal Year 2012; $12.5 million in Fiscal Year 2013; $12 
     million in Fiscal Year 2014; $11.5 million in Fiscal Year 
     2015; $10 million in Fiscal Year 2016; $8.5 million in Fiscal 
     Year 2017; $7.25 million in Fiscal Year 2018; $6 million in 
     Fiscal Year 2019; $5 million in Fiscal Year 2020; $4 million 
     in Fiscal Year 2021; $3 million in Fiscal Year 2022; and $2 
     million in Fiscal Year 2023. The funds provided in any fiscal 
     year under this subsection shall be provided in four (4) 
     quarterly payments (30 percent) in the first quarter, 30 
     percent in the second quarter, 20 percent in the third 
     quarter, and 20 percent in the fourth quarter) unless 
     otherwise specified in this Agreement or in an Appendix to 
     this Agreement.

     ``(b) Notwithstanding the provisions of Compact section 
     211(f) and the Agreement Between the Government of the United 
     States and the Government of Palau Regarding Economic 
     Assistance Concluded Pursuant to Section 211(f) of the 
     Compact of Free Association, with respect to Fiscal Years 
     2011 through Fiscal Year 2023 and except as otherwise agreed 
     by the Government of the United States and the Government of 
     Palau, the Government of Palau agrees not to exceed the 
     following distributions from the Section 211(f) Fund: $5 
     million annually beginning in Fiscal Year 2011 through Fiscal 
     Year 2013; $5.25 million in Fiscal Year 2014; $5.5 million in 
     Fiscal Year 2015; $6.75 million in Fiscal Year 2016; $8 
     million in Fiscal Year 2017; $9 million in Fiscal Year 2018; 
     $10 million in Fiscal Year 2019; $10.5 million in Fiscal Year 
     2020; $11 million in Fiscal Year 2021; $12 million in Fiscal 
     Year 2022; and $13 million in Fiscal Year 2023.

     ``(c) No portion of the funds provided to the Government of 
     Palau under this section, including the funds distributed 
     from the Section 211(f) Fund, shall be used, directly or 
     indirectly, to fund state block grants, or the activities of 
     the Office of the President of Palau, of the Olbiil Era 
     Kelulau (the Palau National Congress), or of the Palau 
     Judiciary. Annually, $15 million of the funds provided to the 
     Government of Palau under this section, including the funds 
     distributed from the Section 211(f) Fund, shall be used 
     exclusively for purposes related to education, health, and 
     the administration of justice and public safety, recognizing 
     that these funds are subject to the provisions of subsection 
     4(h) herein.

     ``(d) In order to increase the long term economic stability 
     of Palau and to maximize the benefits of the economic 
     assistance provided by the Government of the United States, 
     the Government of Palau shall undertake economic, 
     legislative, financial, and management reforms, and shall 
     give due consideration to reforms such as those described in 
     the International Monetary Fund's (IMF) Country Report No. 
     08/162, Republic of Palau: Selected Issues and Statistical 
     Appendix, (May 2008), and the Asian Development Bank's (ADB) 
     Strategy and Program Assessment, Palau: Policies for 
     Sustainable Growth, A Private Sector Assessment (July 2007) 
     and any other similar subsequent and future reports and 
     recommendations issued by the IMF, the ADB, and other 
     credible institutions, organizations or professional firms. 
     To the extent that anticipated fiscal and economic reforms 
     require substantial financial resources to design, implement, 
     or mitigate negative impacts, the Government of Palau may 
     propose and the two governments may agree to the use of 
     additional funds from the Section 211(f) Fund, provided that 
     the two governments agree in writing that the additional 
     withdrawals from the Section 211(f) Fund will not impair the 
     ability of the fund to provide $15 million annually from 
     Fiscal Year 2024 through Fiscal Year 2044, and that the 
     proposed reforms are a necessary and prudent use of the 
     funds. Government to government communications shall be 
     through diplomatic channels.

     ``(e) The Government of the United States and the Government 
     of Palau shall establish, effective on the day this Agreement 
     enters into force, an Advisory Group on Economic Reform (the 
     `Advisory Group'). The purpose of the Advisory Group is to 
     contribute to the long-term economic sustainability of Palau 
     by recommending economic, financial, and management reforms. 
     The Advisory Group shall be composed of five (5) members, two 
     (2) of whom shall be designated by the President of Palau and 
     two (2) of whom shall be designated by the Government of the 
     United States, the fifth of whom shall be chosen by the 
     Government of the United States from a list of not fewer than 
     three (3) persons not residents of Palau submitted by the 
     President of Palau. In the event the Government of the United 
     States rejects the persons enumerated in the list submitted 
     by the President of Palau, then the fifth member shall be 
     chosen by the President of Palau from a list of not fewer 
     than three (3) persons submitted by the Government of the 
     United States. In making their designations, the President 
     and the Government of the United States shall give 
     consideration to the mix of expertise that would be most 
     beneficial to the work of the Advisory Group. The Advisory 
     Group will be chaired by a member chosen by the members from 
     among their number. Its meetings will be held once a year in 
     Palau and once a year in Hawaii, unless otherwise agreed by 
     the members. Each government shall provide the necessary 
     support for its designated representatives on the Advisory 
     Group. Support for the fifth member shall be borne by the 
     government that recommended the member. Unless otherwise 
     agreed by the two governments the Advisory Group shall 
     terminate at the end of Fiscal Year 2023.

     ``(f) The Advisory Group shall recommend economic, financial 
     and management reforms and the schedule on which the reforms 
     should be implemented. The Advisory Group shall report 
     annually not less than thirty (30) days prior to the annual 
     bilateral economic consultations to be held on or about June 
     1 every year on the Government of Palau's progress in 
     implementing reforms recommended by the Advisory Group or 
     other reforms taken by the Government of Palau. The two 
     governments are committed to these annual economic 
     consultations being meaningful, substantive, and 
     comprehensive.

     ``(g) The Government of Palau's progress in achieving reforms 
     shall be reviewed at the annual bilateral economic 
     consultations. Examples of significant progress in a fiscal 
     year would be, but are not limited to: meaningful 
     improvements in fiscal management, including the elimination 
     and prevention of operating deficits; a meaningful reduction 
     in the national operating budget from the previous fiscal 
     year; a meaningful reduction in the number of government 
     employees from the level the previous fiscal year; a 
     meaningful reduction in the annual amount of the national 
     operating budget dedicated to government salaries from the 
     previous fiscal year; demonstrable reduction of government 
     subsidization of utilities, and meaningful tax reform.

     ``(h) If the Government of' the United States determines 
     after the annual bilateral economic consultations that the 
     Government of Palau has not made significant progress in 
     implementing meaningful reforms, then, after direct 
     consultation with the President of Palau, the Government of 
     the United States may, after ninety (90) days notice to the 
     Government of Palau, delay payment of economic assistance 
     under this section. The Government of the United States shall 
     determine the amount of the economic assistance to be 
     delayed. Any assistance delayed shall be held and released 
     when the Government of the United States determines that 
     Palau has made sufficient progress on the reforms.
       ``5. Infrastructure Projects

     ``The Government of the United States shall provide grants 
     totaling $40 million to the Government of Palau as follows: 
     $8 million annually in Fiscal Years 2011 through Fiscal Year 
     2013; $6 million in Fiscal Year 2014; and $5 million annually 
     in Fiscal Years 2015 and 2016; towards one or more mutually 
     agreed infrastructure projects in accordance with the 
     provisions of Appendix C to this Agreement.
       ``6. Reporting and Auditing

     ``Palau shall resolve all deficiencies in the Annual Single 
     Audit such that by 2018 no deficiency or recommendation dates 
     from before Fiscal Year 2016. By the first day of the fourth 
     quarter of each fiscal year or as soon as practicable 
     thereafter, in the annual report it submits under Section 
     231(b) of the Compact, the Government of Palau shall report 
     on the status and use of all funds provided under this 
     Agreement. The status and use of all funds provided under 
     this Agreement shall also be discussed in the annual 
     bilateral economic consultations. The financial information 
     relating to this funding shall conform to the standards of 
     the Government Accounting Standards Board. All funds provided 
     under this Agreement shall be subject to a financial and 
     compliance audit and other requirements in accordance with 
     the provisions of Appendix D to this Agreement.
       ``7. Federal Programs and Services

     ``The Government of the United States shall make available to 
     Palau through Fiscal Year 2024, in accordance with and to the 
     extent provided through amendments to the Federal Programs 
     and Services Agreement Concluded Pursuant to Article II of 
     Title Two and Section 232 of the Compact of Free Association, 
     signed at Palau on January 10, 1986, the services and related 
     programs covered in that agreement as amended herein. The 
     amendments to that agreement constitute Appendix E to this 
     Agreement.
       ``8. Telecommunication Services

     ``The Agreement Regarding the Provision of Telecommunication 
     Services by the Government of the United States to Palau 
     Concluded Pursuant to Section 131 of the Compact of Free 
     Association, signed at Koror, Republic of Palau, January 10, 
     1986 and the Agreement Regarding the Operation of 
     Telecommunication Services of the Government of the United 
     States in Palau Concluded Pursuant to Section 132 of the 
     Compact of Free Association, signed at Koror, Republic of 
     Palau, January 10, 1986 are amended and these amended 
     agreements constitute Appendix F to this Agreement.
       ``9. Passport Requirement

     ``Section 141 of Article IV of Title One of the Compact shall 
     be construed and applied as if it read as follows:

     `Section 141
       `(a) Any person in the following categories may be admitted 
     to, lawfully engage in occupations, and establish residence 
     as a noninimigrant in the United States and its territories 
     and possessions without regard to paragraphs (5) or 
     (7)(B)(i)(II) of section 212(a) of the Immigration and 
     Nationality Act, 8 U.S.C. Sec.  1182(a)(5) or 
     (a)(7)(B)(i)(II), provided that the passport presented to 
     satisfy section 212(a)(7)(B)(i)(I) of such Act is a valid 
     unexpired machine-readable passport that

[[Page S693]]

     satisfies the internationally accepted standard for machine 
     readability:
       `(1) a person who, on September 30, 1994, was a citizen of 
     the Trust Territory of the Pacific Islands, as defined in 
     Title 53 of the Trust Territory Code in force on January 1, 
     1979, and has become and remains a citizen of Palau;
       `(2) a person who acquires the citizenship of Palau, at 
     birth, on or after the effective date of the Constitution of 
     Palau; or
       `(3) a naturalized citizen of Palau, who has been an actual 
     resident of Palau for not less than five years after 
     attaining such naturalization and who holds a certificate of 
     actual residence.

     `Such persons shall be considered to have the permission of 
     the Secretary of Homeland Security of the United States to 
     accept employment in the United States.
       `(b) The right of such persons to establish habitual 
     residence in a territory or possession of the United States 
     may, however, be subjected to non-discriminatory limitations 
     provided for:
       `(1) in statutes or regulations of the United States; or
       `(2) in those statutes or regulations of the territory or 
     possession concerned which are authorized by the laws of the 
     United States.
       `(c) Section 141(a) does not confer on a citizen of Palau 
     the right to establish the residence necessary for 
     naturalization under the Immigration and Nationality Act, or 
     to petition for benefits for alien relatives under that Act. 
     Section 141(a), however, shall not prevent a citizen of Palau 
     from otherwise acquiring such rights or lawful permanent 
     resident alien status in the United States.'.
       ``10. Effective Date, Amendment, and Duration
       ``(a) This Agreement, including its Appendices, shall enter 
     into force on the date of the last note of an exchange of 
     diplomatic notes by which the Government of the United States 
     and the Government of Palau inform each other that all 
     internal procedures necessary for its entry into force have 
     been fulfilled.
       ``(b) This Agreement may be amended at any time by the 
     mutual written consent of the Government of the United States 
     and the Government of Palau.
       ``(c) This Agreement shall remain in full force and effect 
     until terminated by mutual written consent, or until 
     termination of the Compact, whichever occurs first.

     IN WITNESS WHEREOF, the undersigned, duly authorized by their 
     respective Governments, have signed this Agreement.

     DONE AT Honolulu, Hawaii, USA, in duplicate, this 3rd day of 
     September 2010, in the English language.


FOR THE GOVERNMENT                   FOR THE GOVERNMENT
OF THE UNITED STATES OF AMERICA:     OF THE REPUBLIC OF PALAU:
                                     ...................................
                                     ...................................
                                     ...................................
Frankie A. Reed                      Johnson Toribiong
[Title]                              [Title]
 

             ``APPENDIX A--INFRASTRUCTURE MAINTENANCE FUND

       ``1. Subject to the terms of this Appendix, the Government 
     of the United States shall provide the grants specified in 
     section 2(a) of the Agreement between the United States of 
     America and the Government of the Republic of Palau following 
     the Compact of Free Association Section 432 Review (the 
     `Agreement') to which this document is an appendix.
       ``2. If, in a given Fiscal Year, the Government of Palau 
     does not make the contributions agreed to in section 2(a) of 
     the Agreement, economic assistance funds to be provided to 
     Palau in the following fiscal year under section 4 of the 
     Agreement will be redirected to the Infrastructure 
     Maintenance Fund to make up the contributions owed by the 
     Government of Palau.
       ``3. Grant funds from the Government of the United States 
     and Government of Palau contributions to the Infrastructure 
     Maintenance Fund shall be deposited in an account established 
     by the Government of Palau. Fiscal control and accounting 
     procedures shall be sufficient to permit the preparation of 
     required reports and to permit the tracing of funds to a 
     level of expenditure adequate to establish that such funds 
     have been used in compliance with this Appendix.
       ``4. Palau shall report, at the annual bilateral economic 
     consultations, the sources of its contributions to the 
     Infrastructure Maintenance Fund.
       ``5. The Infrastructure Maintenance Fund, and any interest 
     accruing thereon, is to be used by the Government of Palau 
     for the maintenance of United States financed capital 
     improvement projects such as the road system (Compact Road) 
     provided by the United States under Section 212 of the 
     Compact and the capital improvements provided by the United 
     States to the Airai International Airport. The Government of 
     Palau may request in writing the use of the Infrastructure 
     Maintenance Fund for maintenance of U.S, financed capital 
     improvement projects other than these two, such as the U.S.-
     financed capital improvements reflected in the Palau national 
     hospital and schools. The Government of the United States 
     shall give due consideration to any such request and shall 
     endeavor to make a determination within sixty (60) days of 
     receipt of the request. Although the primary purpose of the 
     Infrastructure Maintenance Fund is to provide for routine and 
     periodic maintenance, it may be used, when mutually agreed 
     upon in writing, to mitigate damage and make emergency 
     repairs to capital improvement projects funded by the United 
     States.
       ``6. The Government of Palau shall identify to the 
     Government of the United States the Government of Palau 
     official and office responsible for maintenance of the 
     infrastructure with Fund monies. The official shall be 
     responsible for activities necessary to plan and implement 
     annual programs of maintenance of the Compact Road and the 
     International Airport at Airai, and all other public 
     infrastructure. The official shall be responsible for keeping 
     each facility as nearly as possible in its original condition 
     as constructed. The official shall develop an annual 
     maintenance plan and related budget for reactive, preventive, 
     repetitive, non-recurrent, and emergency-generated 
     maintenance of the infrastructure specified in paragraph 5 
     and for all other public infrastructure. The plan will 
     include descriptions and schedules of planned activities and 
     shall identify the related costs. The plan for the 
     infrastructure specified in paragraph 5 shall be submitted to 
     the Government of the United States for its approval no less 
     than sixty (60) days prior to the beginning of each fiscal 
     year.
       ``7. The Government of the United States will base its 
     approval or disapproval of the plan for the infrastructure 
     specified in paragraph 5 on its consideration of the 
     effectiveness of the plan within the bounds of annual 
     resources. Approval by the Government of the United States 
     will be in the form of an annual grant which incorporates the 
     approved maintenance plan and budget. Acceptance of the grant 
     by the Government of the Republic of Palau will obligate the 
     Government of Palau to the implementation of the annual 
     maintenance plan and budget for the infrastructure specified 
     in paragraph 5.
       ``8. The grant, annual maintenance plan, and budget for the 
     infrastructure specified in paragraph 5 may be amended by 
     written mutual agreement.
       ``9. Use of the Fund monies shall be subject to 43 Code of 
     Federal Regulations 12 and all other applicable laws and 
     regulations governing the use of grant funds provided by the 
     Government of the United States. These funds may not be used 
     for any purpose other than that for which they are offered.
       ``10. Any grant funds remaining unexpended at the end of a 
     fiscal year shall remain in the Infrastructure Maintenance 
     Fund and may be included in subsequent annual maintenance 
     plans and budgets.
       ``11. Reporting Requirements:
       ``(a) A Standard Form SF 425 (or successor form) and a 
     narrative project status report shall be submitted quarterly.
       ``(b) Reports are due within thirty (30) days of the end of 
     each quarter. Final reports are due ninety (90) days after 
     the expiration or termination of the award.
       ``(c) All required plans and reports must be submitted to 
     the U.S. Department of the Interior Office of Insular Affairs 
     grant manager for the grant.

                ``APPENDIX B--FISCAL CONSOLIDATION FUND

       ``1. Subject to the terms of this Appendix, the Government 
     of the United States shall provide the Government of Palau 
     the amounts specified in section 3 of the Agreement of the 
     United States of America and the Government of the Republic 
     of Palau following the Compact of Free Association Section 
     432 Review (the `Agreement') to which this document is an 
     appendix. Until disbursed, these funds will be deposited in 
     an interest bearing account and the interest generated shall 
     also be used to reduce Palau's government payment arrears in 
     accordance with the provisions of this Appendix.
       ``2. The purpose of these funds is to allow the Government 
     of Palau to discharge the level of debts accumulated prior to 
     September 30, 2009. None of the principal or interest accrued 
     on these funds may be disbursed to discharge a debt until the 
     governments agree upon a specific list of debts to be paid 
     with each annual contribution. The funds may not be used to 
     pay off debt owed to another government, to pay an 
     international organization, or to pay off debts which are the 
     subject of current or pending litigation. Unless agreed to in 
     writing by the Government of the United States, the funds may 
     not be used to pay any entity owned or controlled by any 
     member of the government, elected or appointed; to pay any 
     entity owned or controlled by any member of the immediate 
     family of any member of the government; to pay any entity 
     from which a member of the government derives income; or to 
     pay any creditor if the creditor owes money to the Government 
     of Palau unless arrangements are made immediately to offset 
     amounts owed to the Government of

[[Page S694]]

     Palau from the funds made available to the creditor. Debts 
     owed to U.S. creditors must receive priority. All debts to be 
     paid with these funds must be properly documented as 
     legitimate debts of the Republic of Palau using generally 
     accepted accounting principles. The total amount of the debt 
     to be paid shall not exceed the general fund deficit 
     established by the Single Audit Report as of September 30, 
     2009.
       ``3. The Government of Palau shall report quarterly to the 
     Government of the United States on the use of these funds 
     until they are expended and, until expended, the status and 
     use of these funds shall be a regular agenda item for annual 
     bilateral economic consultations to be held around June 1 of 
     every year. If eligible debts do not amount to $10 million, 
     upon the request of the Government of Palau, the funds 
     remaining after payment of the eligible debts shall be added 
     to the amounts provided for infrastructure projects in 
     section 5 of the Agreement.

                 ``APPENDIX C--INFRASTRUCTURE PROJECTS

       ``1. Subject to the terms of this Appendix, the Government 
     of the United States shall provide grants towards one or more 
     mutually agreed infrastructure projects as specified in 
     section 5 of the Agreement of the United States of America 
     and the Government of the Republic of Palau following the 
     Compact of Free Association Section 432 Review (the 
     `Agreement') to which this document is an appendix. These 
     infrastructure grants shall be subject to 43 Code of Federal 
     Regulations 12 and all other applicable laws and regulations 
     governing the use of grant funds provided by the Government 
     of the United States. Grant funds may not be used for any 
     purpose other than that for which they are offered.
       ``2. Payment of grant funds shall be made as reimbursement 
     of actual or accrued expenditures, using a format provided by 
     the Government of the United States or as mutually agreed.
       ``3. Prior to requesting reimbursement or payment, the 
     Government of Palau shall, as applicable, provide the 
     following documentation to the Government of the United 
     States:
       ``(a) Evidence of title, leasehold agreement, or other 
     legal authority for use of the land upon which the capital 
     improvement project(s) is (are) to be constructed.
       ``(b) A detailed project budget for each infrastructure 
     project. The budget shall include a breakdown of costs (in-
     house and contract) for planning, engineering and design, 
     real estate, supervision and administration, construction, 
     and construction management and inspection. The Government of 
     Palau and the Government of the United States shall mutually 
     agree to the format of this submission.
       ``(c) A scope of work that describes the work to be 
     performed and the schedule from planning through completion 
     of construction. A certified professional engineer or 
     architect shall sign both the scope of work and budget for 
     each construction project.
       ``4. Prior to disbursing funds requested to reimburse for 
     actual project construction, the Government of the United 
     States may review construction plans and specifications, any 
     revised detailed cost estimate, and a detailed construction 
     schedule.
       ``5. All grant monies shall remain available until 
     expended, unless otherwise provided in this Appendix.
       ``6. Failure to comply with objectives, terms and 
     conditions, or reporting requirements may result in the 
     suspension of grant payments until the deficiency is 
     corrected.
       ``7. Reporting Requirements:
       ``(a) A Standard Form SF 425 (or successor form) and a 
     narrative project status report shall be submitted quarterly.
       ``(b) Reports are due within thirty (30) days of the end of 
     each quarter. Final reports are due ninety (90) days after 
     the expiration or termination of the award.
       ``(c) All required documents and reports must be submitted 
     to the U.S. Department of the Interior Office of Insular 
     Affairs grant manager for the grant.

           ``APPENDIX D--AUDIT STANDARDS AND RESPONSIBILITIES

       ``1. The Government of Palau shall perform a financial and 
     compliance audit, within the meaning of the Single Audit Act, 
     as amended (31 U.S.C. 7501 et seq.), of the uses of the 
     funding provided pursuant to the Agreement Between the 
     Government of the United States of America and the Government 
     of the Republic of Palau following the Compact of Free 
     Association Section 432 Review (the `Agreement') for each 
     fiscal year during which the Agreement is in effect. The 
     results of these Audits shall be available not later than the 
     beginning of the fourth fiscal quarter following the end of 
     the fiscal year under review, as required by the Single Audit 
     Act. The costs of these audits are to be borne by the 
     Government of Palau, and may be a recognized expense to funds 
     provided under section 4 of the Agreement. If the Government 
     of the Republic of Palau does not endeavor to perform a 
     Single Audit in any given fiscal year, economic assistance 
     funds to be provided to Palau in the following fiscal year 
     under section 4 of the Agreement shall be redirected to pay 
     for the required Single Audit.
       ``2. In conducting the audits required under this Appendix, 
     the auditors shall take into account relevant laws and 
     regulations of the United States and Palau, including U.S. 
     laws and regulations on the conduct of audits, and Palauan 
     laws and regulations which relate in a material, substantial 
     or direct way to financial statements and operations of the 
     Government of Palau.
       ``3. The authority of the Government of the United States 
     set forth this Appendix shall continue for at least three (3) 
     years after the last Grant or element of assistance by the 
     Government of the United States under this Agreement has been 
     provided and expended.
       ``4. Audit officials or agents of the Government of the 
     United States may perform audits on the use of all funding 
     provided pursuant to this Agreement, including grants and 
     other assistance provided to the Government of Palau. The 
     Government of the United States is responsible for all costs 
     attendant to the discharge of this authority.
       ``5. Audit officials from the Government of the United 
     States are the officials and employees of the Government of 
     the United States who are responsible for the discharge of 
     its audit responsibilities, including those of the 
     Comptroller General of the United States and any Inspector 
     General of an agency of the Government of the United States 
     with programs operating in or otherwise serving the Republic 
     of Palau. While present in the Republic of Palau for the 
     purposes of this Appendix, audit officials from the 
     Government of the United States shall be immune from civil 
     and criminal process relating to words spoken or written and 
     all acts performed by them in their official capacity and 
     falling within their functions, except insofar as such 
     immunity may be expressly waived by the Government of the 
     United States. The Comptroller General and his duly 
     authorized representatives, and other audit officials from 
     the Government of the United States, shall not be liable to 
     arrest or detention pending trial, except in the case of a 
     grave crime and pursuant to a decision by a competent 
     judicial authority, and such persons shall enjoy immunity 
     from seizure of personal property, immigration restrictions, 
     and laws relating to alien registration, fingerprinting, and 
     the registration of foreign agents. Such persons shall enjoy 
     the same taxation exemptions as are set forth in Article 34 
     of the Vienna Convention on Diplomatic Relations. The 
     privileges, exemptions and immunities accorded under this 
     paragraph are not for the personal benefit of the individuals 
     concerned but are to safeguard the independent exercise of 
     their official functions. Without prejudice to those 
     privileges, exemptions and immunities, it is the duty of all 
     such persons to respect the laws and regulations of the 
     Government of the Republic of Palau.
       ``6. Audit officials from the Government of the United 
     States shall provide the Government of Palau with advance 
     notice of the specific dates and nature of their visits prior 
     to entering the Republic of Palau and shall show verifiable 
     identification to officials of the Government of Palau when 
     seeking access to records. In the performance of their 
     responsibilities under this Agreement, audit officials from 
     the Government of the United States shall have due regard for 
     the laws of the Republic of Palau and the duties and 
     responsibilities of the officials of the Government of Palau. 
     Officials of the Government of Palau shall cooperate fully to 
     the extent practicable with the United States audit officials 
     to enable the full discharge of their responsibilities.
       ``7. The Comptroller General of the United States, and 
     officials of the United States Government Accountability 
     Office acting on his or her behalf, shall have coextensive 
     authority with the executive branch of the Government of the 
     United States as provided by this Appendix. The audit 
     officials from the executive branch of the Government of the 
     United States shall avoid duplication between their audit 
     programs and those of the United States Government 
     Accountability Office. The Government of Palau shall 
     cooperate fully to the extent practicable with the 
     Comptroller General of the United States in the conduct of 
     such Audits as the Comptroller General of the United States 
     determines necessary in accordance with this Appendix to 
     enable the full discharge of his responsibilities.
       ``8. The Government of Palau shall provide audit officials 
     from the Government of the United States with access, without 
     cost and during normal working hours, to all records, 
     documents, working papers, automated data, and files which 
     are relevant to the uses of funding received pursuant to the 
     Agreement by the Government of Palau. To the extent that such 
     information is contained in confidential official documents, 
     the Government of Palau shall undertake to extract 
     information that is not of a confidential nature and make it 
     available to the audit officials from the Government of the 
     United States in the same manner as other relevant 
     information or to provide such information from other 
     sources.
       ``9. In order to reduce the level of interference in the 
     daily operation of the activities of the Government of Palau, 
     audit officials from the Government of the United States 
     shall, to the extent practicable, inform the Government of 
     Palau of their need for information, including the type of 
     information and its relation to their annual audit schedule. 
     To the extent practicable, the Government of Palau shall make 
     available the information requested by audit officials from 
     the Government of the United States relevant to Audits and 
     available in a manner consistent with generally accepted 
     accounting procedures that allows for the distinction of the 
     Grants, assistance, and payments provided by the Government 
     of the United States from any other funds of the Government 
     of Palau. Such information shall be used and returned as 
     quickly as accurate audit testing and surveying allow.

[[Page S695]]

       ``10. The Government of Palau shall maintain records, 
     documents, working papers, automated data, files, and other 
     information regarding each such Grant or other assistance for 
     at least three (3) years after such Grant or assistance was 
     provided.
       ``11. Audit organizations and officials from the Government 
     of the United States, including the Comptroller General of 
     the United States and his duly authorized representatives, 
     shall provide the Government of Palau with at least thirty 
     (30) days to review and comment on draft audit reports prior 
     to the release of the reports. The comments of the Government 
     of Palau shall be included, in full, in the final audit 
     reports. Should a draft audit report be revised based on the 
     comments of the Government of Palau, the Government of Palau 
     shall have an additional period to review and comment on the 
     report prior to its release.''.
       (c) The amendments to the Compact subsidiary agreements 
     referenced in sections 7 and 8 of the Agreement set forth in 
     section 105(b) above are hereby consented to (except for the 
     extension of Article X of the Federal Programs and Services 
     Agreement Concluded Pursuant to Article II of Title Two and 
     Section 232 of the Compact of Free Association).
       (d) There are authorized and appropriated to the Department 
     of the Interior, out of any funds in the Treasury not 
     otherwise appropriated, to remain available until expended, 
     such sums as are necessary to carry out the purposes of 
     sections 1, 2(a), 3, 4(a), and 5 of the Agreement set forth 
     in section 105(b) above.
       (e) If this section 105 and the Agreement set forth in 
     section 105(b) above become effective during fiscal year 
     2011, and if between September 30, 2010, and the date the 
     Agreement set forth in section 105(b) becomes effective, the 
     Government of Palau withdraws more than $5,000,000 from the 
     trust fund established under section 211(f) of the U.S.-Palau 
     Compact, amounts payable under sections 1, 2(a), 3, and 4(a) 
     of the Agreement set forth in section 105(b) above, shall be 
     withheld from the Government of Palau until Palau has 
     reimbursed the trust fund for the amount, above $5,000,000, 
     withdrawn.
       (f) There are authorized to be appropriated to the 
     Departments, agencies, and instrumentalities named in 
     paragraphs 1, 3, and 4 of section 221(a) of the U.S.-Palau 
     Compact, and their successor Departments, agencies, and 
     instrumentalities, such sums as are necessary to carry out 
     the purposes of those paragraphs, to remain available until 
     expended.
       (g) There are authorized to be appropriated to the 
     Department of the Interior $1.5 million annually for 14 
     years--Fiscal Year 2011 through Fiscal Year 2024--to 
     subsidize United States Postal Service (USPS) postal services 
     provided to Palau, the Republic of the Marshall Islands, and 
     the Federated States of Micronesia, to remain available until 
     expended.
       (h) Section 105(f)(1)(B)(ix) of the Compact of Free 
     Association Amendments Act of 2003 (48 U.S.C. 
     1921d(f)(1)(B)(ix)) shall be applied by substituting ``2024'' 
     for ``2009.''
                                  ____

                                                 January 14, 2011.
     Hon. Joseph R. Biden, Jr.,
     President of the Senate,
     Washington, DC.
       Dear Mr. President: Enclosed is a draft bill to amend Title 
     I of Pub. L. No. 99-658, 100 Stat. 3672 (Nov. 14, 1986), 
     regarding the Compact of Free Association between the 
     Government of the United States of America and the Government 
     of Palau. The draft bill would approve the results of the 15-
     year review of the Compact, including the Agreement Between 
     the Government of the United States of America and the 
     Government of the Republic of Palau following the Compact of 
     Free Association Section 432 Review (the Agreement), and 
     appropriate funds to the Department of the Interior for the 
     purposes of the amended Pub. L. No. 99-658 for fiscal years 
     ending on or before September 30, 2024, to carry out the 
     agreements resulting from that review. We strongly urge that 
     the draft bill be introduced, referred appropriately, and 
     enacted at the earliest opportunity.
       Section 432 of the Compact of Free Association between the 
     Government of the United States of America and the Government 
     of Palau (Compact) provides for the two governments formally 
     to review the Compact upon the fifteenth anniversary of its 
     effective date--October 1, 2009. The two governments 
     concluded this review with the signing of the Agreement on 
     September 3, 2010.
       The proposed legislation would amend Pub. L. No. 99-658, 
     the legislation that approved the Compact, to add a section 
     to approve and implement the results of the 15-year review. 
     In particular, the proposed legislation would provide $215.75 
     million beginning in fiscal year 2011 through fiscal year 
     2024 to be administered by the Department of the Interior. 
     Over this 14-year period, $30.25 million would supplement the 
     fund already provided in section 211(f) of the Compact; 
     $107.5 million would be in direct economic assistance to 
     assist Palau in transitioning to the level of assistance that 
     will be provided exclusively by the section 211(f) fund after 
     fiscal year 2024; $40 million would be for infrastructure 
     projects; $28 million would be for maintenance of major 
     infrastructure already provided to Palau (the Compact road 
     and improvements to Palau's international airport); and $10 
     million would enable fiscal consolidation.
       Under the Agreement, Palau is to undertake economic, 
     legislative, financial, and management reforms; economic 
     assistance may be withheld in the absence of significant 
     progress in implementing meaningful reforms. In addition to 
     providing economic assistance and requiring reform, the 
     Agreement would require citizens of Palau entering the United 
     States to have a passport.
       Direct economic assistance is scheduled to end after the 
     expiration of the Continuing Appropriations Act, 2011 (Pub. 
     L. No. 111-242), which is currently March 4, 2011. To ensure 
     continuity of financial assistance for Palau, we are eager to 
     provide Congress whatever information and assistance is 
     necessary to secure early passage of the proposed 
     legislation.
       The Statutory Pay-As-You-Go (PAYGO) Act of 2010 provides 
     that revenue and direct spending legislation cannot, in the 
     aggregate, increase the on-budget deficit. If such 
     legislation increases the on-budget deficit and that increase 
     is not offset by the end of the Congressional session, a 
     sequestration must be ordered. This draft bill would increase 
     mandatory outlays and the on-budget deficit as shown below:

                                                                      FISCAL YEARS
                                                                      [$ Millions]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   2011    2012    2013    2014    2015    2016    2017    2018    2019    2020    Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
Deficit Impact..................................................      28      28      26      23      22      20      14      12      11      10     194
--------------------------------------------------------------------------------------------------------------------------------------------------------

       This proposal would increase direct spending, and it is 
     therefore subject to the Statutory PAYGO Act and should be 
     considered in conjunction with all other proposals that are 
     subject to the Act.
       Enactment of the draft bill would protect United States 
     interests and promote the continued mutual well being of our 
     two countries. Palau is one of our nation's closest and most 
     reliable allies. The legislation will support U.S. national 
     security interests in an important part of the western 
     Pacific where U.S. influence is being challenged. The Office 
     of Management and Budget has advised that enactment of the 
     draft bill would be in accord with the program of the 
     President.
           Sincerely,
     David J. Hayes,
       Deputy Secretary of the Interior.
     James B. Steinbeg,
       Deputy Secretary of State.
                                 ______