:report/by the U.S. General Accounting Office. United States.General Accounting Office. [Washington, D.C.] :The Office,1985. United States Territories and possessions. United States Insular possessions. REPORT BY THE U, S. General Accounting Office 'cj@Asta@ Zone "Information GenW Issues Affecting U.S. Territory And Insular Policy The United States faces a complex set of I'c is ues with its principal territories-- S _Rericas@namoa, Guam, the Northern Mariana Islands, the Virgin Islands, and Puerto Rico. The issues involve political, economic, and organizational relationships between the federal government and the territories in such areas as political status; treatment under federal policies, laws, and programs; economic and financial assist- ance; and representation and oversight. GAO believes federal policymakers in the Congress and executive branch will likely be challenged to further clarify policy toward COASTAL ZONE the territorie3 and to enhance federal- territorial relations. GAO is providing infor- INFORMATION CENTER mation and views which are intended to contribute to the debate on whether further policy guidance is needed. ID S 7,A U H C GAO/NSIAD-85-44 109 FEBRUARY 7,1985 .U58 -94 1985 CCOUN Request for copies of GAO reports should be sent to: U.S. Goneral Accounting Office Docurneia Handling and Information Services Facility P.O. Box 6015 Gaithensburq, Md. 10760 Telephone (202) 275-6241 The first five copies of individual reports are free of charge. Additional copies of bound audit reports are $3.25 each. Additional copies of unbound report (i.e., letter reports) and most other publications are $1.00 each. There will be a 25% discount on all orders for 100 or more copies mailed to a single address. Sales orders must be prepaid on a cash, check, or money order basis. Check should be made out to !he "Su-perintendent of Documents". UNITED STATES GENERAL ACCOUNTING OFFICE WASHINGTON, D.C. 20548 NATIONAL SECURITY AND property of CSC Library INTERNATIONAL AFFAIRS DIVISION B-217276 U DEPARTMENT OF COMMERCE NOAA COASTAL SERVICES CENTER ;0 rb'Z'Z9'ao'1a 2234 SOUTH HOBSON AVENUE CHARLESTON SC 29405-2413 The Honorable James 1. McClure Chairman, Committee on Energy and Natural Resources United States Senate The Honorable Morris K. Udall Chairman, Committee on Interior and Insular Affairs House of Representatives As requested by your letters of March 25, 1983 and June 20, 1983, respectively, we have examined certain issues surrounding U.S. policies toward its territories. This report provides information and viewpoints on the cur- rent state of affairs in federal-territorial relations in terms of federal policies, laws, programs, and organization. Copies of this report are being provided to the Departments of Interior and State and to other interested parties. 'L 0, Frank C. Conahan Director cm S7, REPORT BY THE ISSUES AFFECTING U.S. U.S. GENERAL ACCOUNTING OFFICE TERRITORY AND INSULAR POLICY D I G E S T Because ultimate political status has not yet been determined by each* territory or estab- lished by Congress, territorial political, social, and economic development follows an unclear path which complicates federal- territorial relations. Many territory offi- cials believe U.S. policy should be more clearly defined, particularly for economic development and treatment of territories under federal laws and programs. At the request of the Senate Committee on Energy and Natural Resources and the House Com- mittee on Interior and Insular Affairs, GAO reviewed (1) the background and history of U.S. territorial and insular policy, (2) the extent to which U.S. foreign and domestic policies consider the potential impact on the territo- ries, (3) whether federal policies, laws, and programs are meeting U.S. policy objectives and territorial needs, and (4) whether the present federal orqanization for program and policy responsibilities in the territories is adequate to coordinate and provide consistent federal administration for territorial matters. This report includes information on these issues in the context of U.S. policy and relations toward its territories. GAO does not attempt to determine what U.S. policy should be nor prescribe how relations between the federal government and the territories should be handled. GAO found the issues involving federal- territorial relations, such as appropriate levels of representation, treatment under fed- eral laws and programs, and economic and social development strategies, are becoming increas- ingly complex with no simple or ready-made solutions. GAO believes they are likely to require greater congressional attention and to stimulate debate on whether further policy guidance is needed to clarify and strengthen federal-territorial relations. Tear Sheet i GAO/NSIAD-85-44 FEBRUARY 7,1985 ULTIMATE STATUS OF U.S. TERRITORIES IS UNCLEAR Prior to the acquisition of offshore territo- ries beginning at the turn of the century the United States, under the framework of the Northwest Ordinance of 1787, established a tra- ditional policy objective of eventually grant- ing statehood to its contiguous territories. The current policy objective toward offshore territories--encouraging self-determined polit- ical, economic, and social development--is less clear. The Congress, under Article IV of the Constitution, establishes federal policy for U.S. territories--Puerto Rico, American Samoa, Guam, the Virgin Islands, and the Northern Mariana Islands. The ultimate political status of these offshore territories has not yet been determined. (See ch. 2.) TERRITORIES ACHIEVE GREATER SELF-GOVERNMENT AND LOCAL AUTONOMY BUT STATUS REMAINS AN ISSUE The U.S. policy of self-determination has resulted in freely chosen but different types of political status in each territory. Each has attained greater self-government and local autonomy, which in turn has complicated rela- tions with the federal government. Many terri- tory officials support the principle of self- determination but believe political status is a major unresolved issue in federal-territorial relations. All the territories want more representation in Congress and greater voice within the federal establishment. Some, such as Guam and the Virgin Islands, are re-examining their political status with the United States. Many believe that federal policy direction is unclear because it offers little specific guidance on how the territories can achieve economic self-reliance and social development. (See ch. 3.) COMPACT OF FREE ASSOCIATION COULD INFLUENCE U.S.-TERRITORIAL RELATIONS Under U.N. supervision, the United States administers the Trust Territory of the Pacific Islands, commonly known as Micronesia. In ii March 1984, the Compact of Free Association, a proposed political status agreement among the Federated States of Micronesia, the Marshall Islands, and the United States, was submitted to Congress for approval. The Compact repre- sents a unique status arrangement which GAO believes could influence U.S. future relations with its territories, especially those in the Pacific. The Compact, the culmination of 15 years of negotiation, is a highly detailed and complex legal agreement which will grant the Microne- sian states virtual control of all internal and external matters, except for security and defense which will remain under U.S. control. With some limited exceptions, U.S. laws will no longer apply and the Micronesian states can negotiate bilateral agreements or Join inter- national organizations. The Compact provides for a,15-year economic assistance commitment by the United States at an estimated cost of $2.2 billion. Because of their geographic proximity and simi- lar economic and social problems, the U.S. territories in the Pacific are likely to scru-* tinize closely the new arrangement between the freely associated states of Micronesia and the U.S. government. Their officials have already raised concerns about the potential impact of the Compact on them, particularly in economic and social areas. Because of the Compact, GAO believes that policymakers will face hew chal- lenges to improve federal-territorial rela- tions. (See ch. 4.) ECONOMIC AND SOCIAL DEVELOPMENT AFFECTED BY FEDERAL POLICIES, LAWS, AND PROGRAMS The United States has es'tablished a policy of encouraging economic self-reliance and social development in its territories. Financial and technical assistance and other incentives to each 'territory have provided some economic growth and improved the standard of living of the residents. The United States has helped to finance and build schools, hospitals, housing, roads, utilities, and other infrastructure and provided health, educational, and other social services which have enhanced the well-being of Tear Sheet iii territorial residents. Notwithstanding these efforts, most of the territories have made lit- tle progress toward becoming economically self- reliant and remain highly dependent on federal assistance. Most of the territories face many indigenous cons tra ints-- such as geographic isolation from U.S. and world markets, limited natural and manpower resources, small land areas, limited infrastructure to support development and attract investment, and large public sectors-- which make economic self-reliance an unlikely prospect for the foreseeable future. (See pp. 23 to 25.) FEDERAL CONSTRAINTS RELATE TO INCONSISTENT TREATMENT IN FORMULATING AND EXTENDING POLICIES, LAWS, AND PROGRAMS GAO found that there is no federal policy which details how the territories should be treated in formulating and extending laws and programs. Territory officials identified instances when federal policies, laws, and programs have con- strained economic and social development because they were inconsistently applied, insensitive to unique territorial circumstances and needs, or inappropriate for local condi- tions. Examples cited included the Caribbean Basin Initiative provisions affecting the rum industry and the tuna industry in the Virgin Islands and American Samoa, respectively; Department of the Treasury rulings preventing the use of tax exempt bonds; legislation to eliminate important tax benefits to Puerto Rico; and shipping, tax, immigration, and environmental laws which constrain development initiatives. Congress and the executive branch have acknowl- edged many of the problems identified by the territories and have initiated several actions meant to remedy many of the problems. For example, a laws commission was established for the Northern Mariana Islands in 1980 and the Department of Interior began a review of fed- eral laws affecting the territories in 1981. Congress has enacted legislation, such as Title V of Public Law 95-134, which authorized fed- eral agencies to consolidate grants to the iv territories to minimize administrative burdens. In addition, federal agencies have become more responsive to the territories' needs and, in most instances, have established good working relations with territorial program adminis- trators. Waivers and exemptions to program regulations, technical assistance, and other mechanisms to relieve administrative burdens were cited as examples of the better working relationship. Nevertheless, many territory officials believe that federal policy is not well defined, caus- ing disenchantment and uncertainty about their future relationship with the United States. They believe the United States should establish a policy framework which specifies how territo- ries should be treated within the federal sys- tem and provides a basis for them to achieve greater economic self-reliance and social development. In 1980, the results of an interagency task force on the territories led to a statement by President Carter to establish a policy frame- work for the territories. Some initiatives, such as elevating the role of the Department of Interior's office of Territorial and Inter- national Affairs, were implemented after the Carter policy pronouncement; however, they did not relieve many territory concerns. GAO believes policymakers in Congress and the exec- utive branch are likely to face greater pres- sure from the territories to establish a policy framework which addresses these issues. (See pp. 36 to 39.) ISSUES RELATED TO ORGANIZATION As the territories have attained greater self- government and autonomy over their local affairs, questions have been raised about the federal-territorial organizational relation- ships, such as: Is the federal government effectively coordinating -its administrative and policy efforts? Is the Department of the Inte*- rior effectively addressing territorial con- cerns and meeting its responsibilities? Is a new federal structure needed to meet territory concerns and carry out U.S. policy objectives? Tear Sheet v The trend in federal involvement in the terri- tories is marked by (1) a significant increase in the number of federal agencies involved in programs and making decisions affecting the territories and (2) a shift in the traditional role of Interior from direct territorial admin- istrative authority to limited oversight, ter- ritory advocate, and assistance provider. Ter- ritory officials are generally satisfied with the current decentralized approach to program administration provided by individual federal agencies and indicated that good working rela- tionships have been established with most agen- cies. However, they believe better federal policy coordination is needed to systematically address development needs when formulating individual agency policies. Many territory officials also criticize the institutional capacity of the Department of Interior to meet their needs. For example, they believe Interior does not have sufficient influence to represent them in the budget pro- cess or in policy matters involving other fed- eral agencies. Within Interior, there is some disagreement on its role vis-a-vis the territo- ries in terms of federal oversight, program and policy coordination, and territory advocacy. (See pp. 44 to 49.) Several proposals have been made to change federal organizational responsibility for the territories. The options range from a more centralized, interaqency organization to a decentralized approach with no single federal agency responsible, as currently exists for Puerto Rico. No clear consensus exists in the territories on what approach is best suited to their needs. Many territorial leaders see no need to make major changes in the current federal approach in administering programs. /However, many sup- port the concept of a high-level interagency group to handle policy-related matters and address major territorial concerns. The ter- ritories agreed that the federal government should be more responsive to their needs, regardless of the organization arrangement. In GAO's view, a change in organizational responsibility for territorial affairs might vi remedy some of the territories' concerns. Establishment of a formal interagency policy group authorized to address major policy mat- ters in a comprehensive fashion or a legisla- tively authorized office attached to the White House, might provide the representative focal point wanted by many territorial leaders. Al- though an organizational change may not enhance or resolve U.S. territorial relations without a corresponding clarification of U.S. policy toward such issues as political status, eco- nomic and financial assistance and relations, the degree of federal oversight over territo- rial affairs and treatment under federal laws. and programs, it could provide the impetus for addressing these issues. AGENCY COMMENTS The Departments of Interior and State and the governors of American Samoa, Guam, Northern Mariana Islands, Puerto Rico, and the Virgin Islands commented on GAO's report. (See apps. I through VII.) Interior supports GAO's conclusion that its role as a direct authority over territorial government has diminished, and that its role is primarily as a provider of technical assistance and territory advocate. -State said organizational options for the federal-territorial relationship should reflect the direction of the relationship--greater ter- ritorial autonomy within the context of self- determination. State also said greater federal centralization over territorial affairs would be perceived by the territories as a reversal of this direction. However, State also recog- nized the need for better policy and program coordination and said an interagency coordinat- ing committee for the.territories could fulfill this role. The governor of the Virgin Islands recommended that the Congress enact a law giving the terri- tories authority to develop a federal policy compact to include economic assistance and political status. Tear Sheet vii The governor of American Samoa also supported the idea of developing a long-term economic development and financial assistance agreement. He also recommended establishment of an organi- zation within the Office of the President or a separate organization to handle territorial affairs. The governor of Guam said that the United States should adopt a flexible stance which recognizes each territory's distinctive and separate needs. For Guam, he indicated the creation of commonwealth status as proposed by the government of Guam will resolve many of the issues addressed in the GAO report. The governor of the Northern Mariana Islands said the United States has honored its pledge guaranteeing self-government, and that for the most part, relations between the federal gov- ernment and the Northern Mariana Islands have been excellent. The governor of Puerto Rico pointed out that Puerto Rico for the most part is not at all similar to the other territories and therefore should not be judged in the same context as the other territories. (See pp. 50 and 51.) viii C o n t e n t s Page DIGEST CHAPTER INTRODUCTION Micronesian status negotiations 2 objectives, scope,. and methodology 2 2 U.S. TERRITORIAL POLICY: A HISTORICAL PERSPECTIVE 4 1787 Northwest Ordinance: genesis of traditional territorial policy 4 1898 Spanish American War alters tradi- tional territorial policy 5 The Insular Cases: The Supreme Court established a new territorial doctrine 7 Current policy advocates self- determination 7 3 POLITICAL DEVELOPMENT LEADS TO GREATER SELF-GOVERNMENT BUT POLICY QUESTIONS PERSIST 9 Self-determination permits flexible approach to political development 9 Political status remains an issue 11 Recent federal efforts to clarify territorial policy 14 Conclusion 15 4 COMPACT OF FREE ASSOCIATION ESTABLISHES A NEW STATUS FOR PARTS OF MICRONESIA 16 U.S. policy in the Trust Territory 16 Status negotiations culminate in Compact of Free Association 17 What the compact provides 18 Potential issues related to the Compact 20 Conclusion 21 5 ISSUES AFFECTING TERRITORIAL ECONOMIC AND SOCIAL DEVELOPMENT 22 Territories are heavily reliant on fed- eral assistance 23 Problems with federal policies 25 Problems with federal laws 30 Federal efforts to address law problems 32 Federal assistance programs 35 Page 5 The federal government recognizes problems and has taken some cor- rective action 37 Conclusion 38 6 THE FEDERAL ADMINISTRATION OF TERRITORIES SHOULD REFLECT U.S. TERRITORIAL POLICY 40 Overview of territorial administration 40 Trends in federal involvement 41 Diminished role of Interior raises policy and organization questions 44 Oversight role: a reflection of uncertainty in the federal- territorial relationship . 46 Organizational options should reflect the direction of federal-territorial relationship 47 Territories want to be represented by an effective organization 48 Conclusion 48 7 SUMMARY OF AGENCY AND TERRITORY COMMENTS 50 APPENDIX Letter dated November 11, 1984, from American Samoa 52 II Letter dated November 19, 1984, from the Department of State 56 III Letter dated November-21, 1984, from the Northern Mariana Islands 59 IV Letter dated November 23, 1984, from the Department of the Interior 64 V Letter dated November 28, 1984, from the Virgin Islands 73 VI Letter dated November 28, 1984, from Puerto Rico 74 VII Letter dated December 20, 1984, from Guam 92 VIII Description of U.S. territories and insular areas 93 Ix Listing of GAO and other reports related to territories and insular areas 96 ABBREVIATIONS FAS Freely Associated States FSM Federated States of Micronesia GAO General Accounting Office IRC Internal Reve nue Code NMFS National Marine Fisheries Service NMI Northern Mariana Islands OTIA Office of Territorial and International Affairs OMB Office of Management and Budget CHAPTER 1 INTRODUCTION The principal U.S. territories are Puerto Rico and the Virgin Islands in the Eastern Caribbean, and American Samoa and Guam in the Pacific. These territories, sometimes known as the flag territories, are under U.S. sovereiqnty and generally sub- ject to U.S. laws. Although each enjoys a different type of governmental status--Puerto Rico is a commonwealth; Guam and the Virgin Islands are governed by organic acts and American Samoa by its local constitution--all are part of the United States. The U.S. also exercises sovereignty over a number of largely uninhabited islands, including Wake, Midway, Palmyra, Navassa Johnston Atoll, Kingman Reef, Baker, Jarvis, and HowlanO These smaller U.S. possessions are for the most part within the administrative responsibility of the Department of the Interior but some are administered either by the Department of Defense, or the U.S. Coast Guard. A general description of the territo- ries and insular areas is found in appendix VIII. The other major insular areas currently under U.S. admini- stration are part of the Trust Territory of the Pacific. Under a 1947 United Nations (U.N.) agreement, the United States became the administering authority for the islands known as Micronesia. Today the Trust Territory is composed of four local governments: the Commonwealth of Northern Mariana Islands (NMI),2 the Republic of'Palau, the Federated States of Micronesia (FSM), and the Republic of the Marshall Islands. These Micronesian states are not under U.S. sovereignty. Nevertheless, the United States has administered these insular areas in a manner similar to its flag territories. The Pacific and Caribbean territorial and insular areas play an important role in representing U.S. national security interests. Some territories such as Puerto Rico, Guam, American Samoa, and the Virgin Islands have represented American security interests as members in the armed forces for almost a century. In addition, defense installations in Puerto Rico, Guam, and some of the Micronesian islands are important to U.S. defense and security in the Caribbean, Asia, and the Pacific. 1This report addresses 'policy and organizational issues sur- rounding the major territories and insular areas. These smal- ler possessions are not included in our analysis. 2The NMI is included in our analysis as a flag territory although technically it is still part of the Trust Territory. MICRONESIAN STATUS NEGOTIATIONS In 1969, the United States and Micronesian political lead- ers of the Trust Territory began negotiations to change their political status, which would in turn lead to termination of the U.N. trusteeship arrangement. Negotiations were successfully completed with the Northern Mariana Islands, which chose to become a U.S. territory. The Covenant with the Northern Mariana Islands was approved by a joint resolution of Congress in 1976. However, until the trusteeship is terminated, the NMI remains a part of it. The United States and the Federated States of Micronesia and the Republic of Marshall islands have reached final agree- ment on a new type of political status--free association. The free association relationship is defined in the Compact of Free Association, under which the Micronesian states will exercise sovereignty over their internal and foreign affairs, while the United States will retain full responsibility and authority for security and defense matters. The Compact, currently with Con- gress for approval, represents a final step in the process to end the U.N. trusteeship. The Compact contains several unique provisions defining the relationship between the United States and each freely associated state (FAS). It also is influencing the ongoing debate among many of the flag territories about the meaning of U.S. policy toward them and the future of U.S. terri- torial relationships. (See ch. 4). OBJECTIVES, SCOPE, AND METHODOLOGY At the request of the Chairmen of the Senate Committee on Energy and Natural Resources and House Committee on Interior and Insular Affairs, we reviewed U.S. policy for its territories and insular areas. Our objectives were to address (1) the back- ground and history of U.S. territorial and insular policy, (2) the extent to which the territories and insular areas have been considered in the formulation and conduct of U.S. foreign and domestic policy, (3) whether policies, laws, and programs designed with stateside objectives in mind consider the effect on the political, social, and economic development of the terri- tories, and (4) whether the present federal organization is ade- quate to coordinate the delivery of federal programs and serv- ices to these areas, and provide a consistent basis for policy, including treatment under U.S. laws. To accomplish these objectives, we conducted a literature search on past and current territorial policy and related mat- ters. We relied heavily on previous studies and reports, including many made by GAO, to determine the political, econo- mic, and social conditions in each territory and insular area. (See app. IX.) 2 Our review was conducted from June 1983 to April 1984 at each territorial government and at numerous federal agencies in Washington, D.C., including the Departments of Interior, State, Treasury, and Defense. We also met with White House officials, congressional representatives and committee staff responsible for oversight and administration of the territories. We interviewed key territorial leaders, including the Governors of each territory and the Presidents of each Microne- sian government. We met with key executive branch officials involved in administration and policy-making for the territories and insular areas. We also met with the U.S. Ambassador for the Micronesian Status Negotiations to discuss the terms and poten- tial impact of the' Compact of Free Association on federal- territorial. relations. We also talked with government and private sector representatives in each territory to gain a per- spective on how U.S.. policy and laws affect economic develop- ment. our review was conducted in accordance with generally accepted government audit standards. We obtained the views and comments of the Department of Interior and state and the gov- ernments of Puerto Rico, American Samoa, Guam, the Virgin Islands, and the Northern Mariana Islands on a draft of this report. These comments are included in appendixes I through VII. This report discusses the nature of the problems, real and perceived, with current U.S. policy, and U.S. territorial rela- tions. We did not attempt to determine what U.S. policy should be, nor did we make an in-depth analysis and evaluation of all the issues and problems of the territories and insular areas. 3 CHAPTER 2 U.S. TERRITORIAL POLICY: A HISTORICAL PERSPECTIVE The U.S. Constitution does not specify in detail the poli- cies to be followed by the federal government in administering the territories. Article IV, section 3 of the Constitution states "The Congress shall have Power to dispose of and make all needful Rul,es and Regulations respecting the Territory or other Property belonging to the United States... ." The courts have interpreted the territorial clause of the Constitution to permi't broad congressional discretion in deciding questions of territorial status. As a result, the Congress is largely responsible for the policies under which the U.S. territories are administered. Although the Trust Territory of the Pacific Islands is administered under a 1947 U.N. Trusteeship Agreement, the Congress exercises general legislative jurisdiction over this area's political future as well. Historically, U.S. territorial policy has evolved to accom modate changing national objectives. The initial thrust of the policy, which emerged against a background of rapidly expanding frontiers, emphasized statehood as the ultimate objective for the contiguous territories. The 1787 Northwest ordinance was the nucleus of this traditional policy. The U.S. Congress, which has complete authority over the territories, established general requirements for evaluating whether a territory was ready for statehood. Statehood, as contemplated in the Ordi- nance and recognized by Congress, was the common denominator which bonded traditional territorial policy. , The acquisition of offshore territories at the turn of the 20th century altered traditional policy. The newly acquired insular areas, which possessed unique geographic and cultural characteristics, were valued primarily for their strategic importance. They did not fit the traditional mold of states. In a series of decisions rendered by the U.S. Supreme Court in the early 1900s, the offshore territories, except for Hawaii, were classified as unincorporated, a term distinct from previous territories destined to become states. 1787 NORTHWEST ORDINANCE: GENESIS OF TRADITIONAL TERRITORIAL POLICY The matter of U.S. territories first surfaced following the American Revolution. Upon conclusion of the War in 1783, 13 independent states were created, bound loosely through the Arti- cles of Confederation. States which had land claims to terri- torial areas not included in their boundaries ceded them to the new central government. To organize and administer these terri- tories (the current states of Ohio, Indiana, Illinois, Michigan, and Wisconsin), the Congress of the Confederation passed the 4 Northwest Ordinance of 1787. The Ordinance, reaffirmed by Congress in 1789 following ratification of the U.S. Constitu- tion, established the framework for developing future territo- ries and admitting new states. The Ordinance represented a statement of the federal government's general attitude toward and policy for the territories' ultimate status. It.established the precedent that the territorial system's long-range objective was to admit new 'states. To prepare the territory for the transition to statehood, residents were subject to the same federal laws and taxation as the existing states. The Ordinance assumed that the limits on democratic government were temporary, and increased measures of self-government were extended as the territory matured. It' insured -that territorial residents received the full protection of their constitutional rights and that the territory would be admitted into the union on an equal footing with the or.iginal states. Although the Northwest Ordinance established the basis for a cohesive territorial system,' it did 'not -prescribe detailed admission procedures. The U.S. Constitution empowers Congress to admit new states. In the absence of specific criteria, the Congress has generally measured whether a territory was ready for statehood agai.nst three standards. 1. The inhabitants of the proposed new state are imbued with and sympathetic toward the principles of democracy as exemplified in the American form.of government. 2. A majority of the electorate desire statehood. The proposed new state has sufficient population and re- sources to support state government and to provide its share of the cost of the federal government. While'statehood deliberations have resulted in some trends, the broad authority of Congress and the diversity of new states led to many variations in admission procedures, statehood condi- tions, and time frames for achieving statehood.1 The various factors affecting these patterns, including population size and composition, geographic location, economic development and his- torical circumstances, have all affected these trends. 1898 SPANISH-AMERICAN WAR ALTERS TRADITIONAL TERRITORIAL POLICY The 1898 Span i sh-Arfier i can War marked a turning point for U.S. territorial policy. under the Treaty of Paris, Spain ceded the Philippines, Puerto Rico, and Guam to the United States. lTre'nds and variations in statehood admission procedures were analyzed in our March 1980 report, Experience of Past Terri- tories Can Assist Puerto Rico Status Deliberations (GGD-80-26). 5 These islands represented unique acquisitions, because they were not geographically connected to the North American continent; previous territories had all been contiguous to, or located on the continent. Cultural distinction further separated these islands from traditional acquisitions. Treaty of Paris highlights direction of changed policy Congress had to determine the ceded islands political status and the inhabitant's civil rights. For the first time in its history, the United States had acquired territory without promising citizenship. Further, the Treaty of Paris did not hold the promise, actual or implied, of statehood. Congress debated the policy implications of the treaty dur- ing the ratification process in early 1899. During the ensuing debate, Congress examined the propriety of acquiring territories without defining their legal status. Supporters of the treaty maintained that the United States had a sovereign right to acquire and govern territories. As such, the United States was responsible for establishing suitable forms of government for the territories and preparing them for eventual self-government. Opponents of the treaty declared that the federal government had no power to hold territories indefinitely as colonies, because doing so was contrary to democratic principles. The debate also raised questions regarding possible state- hood for the newly acquired territories. In February 1899, a joint resolution introduced in the Senate stated in part: "l. That the acquisition by the U.S., through conquest, treaty, or otherwise, of terri- tory not adjacent to and geographically part of the Continent of North America carries with it no constitutional or moral obligation to admit said territory, or any portion thereof, into the Federal Union as a State or States." "2. That it is against the policy, traditions and interests of the American people to admit states erected out of such non- American territories, or portions thereof into our Union . . . at any time or under any conditions." The resolution was not adopted and thus the possibility of even- tual statehood for offshore territories was not ruled out. On February 6, 1899, the Senate ratified the treaty by a narrow margin, but the issue of status was left unresolved. 6 THE INSULAR CASES: THE SUPREME COURT ESTABLISHED A NEW TERRITORIAL DOCTRINE In a series of decisions known as the Insular Cases (1901- 1922)2, the U.S. Supreme Court had a major role in establishing a territorial doctrine which influenced the subsequent direction of territorial policy. The Insular Cases established the doc- trine of incorporation which distinguished between unincorpor- ated:territories which were partially protected by the Constitu- tion and incorporated territories which were guaranteed full protection of the Constitution. As a result, incorporated ter- ritories had an inherent right to be considered for statehood but an unincorporated territory did not. In, separate decisions, the Court declared Puerto Rico and the Philippines as unincorporated territories; Alaska and Hawaii were defined as incorporated and eventually became states. All the current flag territories are unincorporated. The Insular Cases reaffirmed Congress' complete authority over the territories, and the new doctrine of incorporation enabled it to exercise authority in the offshore territories significantly different from that for the contiguous territo- ries. In effect, unincorporated territories were accorded a lesser status than incorporated territories, since they were not granted full rights under the Constitution. The f undamental distinction between the two types of territorial status placed the offshore territories in a legal "holding pattern" which implied that they would have to undergo an indefinite period of development before final status was resolved. CURRENT POLICY ADVOCATES SELF-DETERMINATION The United States currently advocates a policy of self- determined political, economic and social development toward its territories and insular areas. The principle of self- determination has remained a fundamental U.S. policy objective since the end of World War II, and has been reaffirmed by all 21n the principal case (Downes V. Bidwell, 182, ' U.S. 244,287 (1901)) the Court had to determine if Puerto Rico's Organic Act of 1900, which imposed temporary duties on exports, conflicted with the constitution's uniformity clause. This clause required that ". . . all Duties, Imports, and Excises should be uniform throughout the United States." Because the Treaty of Paris, unlike all previous territorial acts, did not contain provisions for incorporation, Puerto Rico was held to be unin- corporated and thus the Congress was not bound by the uniform- ity clause. 7 recent U.S. administrations. The federal establishment, led by the Department of the Interior, is attempting to carry out these broad policy objectives. The impact and problems associated with the broad policy of self-determination are discussed in chapters 3 through 6. 8 CHAPTER 3 POLITICAL DEVELOPMENT LEADS TO GREATER SELF-GOVERNMENT BUT POLICY QUESTIONS PERSIST The United States has shown flexibility in the political development process for each territory under its administration. As a result, the territories have freely chosen different forms of political status based on their unique characteristics and needs. The general trend has been toward greater autonomy and self-government. Despite the strides in political development, many territories believe the meaning of self-determination as a policy is unclear because it offers little specific guidance for attaining greater economic self-reliance. Several Federal and territory officials believe U.S. policy must be translated into comprehensive terms which address economic, social, and politi- cal development concerns. This chapter discusses political development of the flag territories and the NMI. Chapter 4 covers recent political developments in the Micronesian states under the Trust Terri- tory of the Pacific. SELF-DETERMINATION PERMITS FLEXIBLE APPROACH TO POLITICAL DEVELOPMENT In 1962, President Kennedy summarized the federal govern- ment's attitude to the territories' political development. "Local self-government is among the most cherished of American democratic traditions. This nation is committed to the principle of self-determination and will continue to sup- port and encourage responsible self-rule throughout the world and particularly in those territories under the jurisdiction of the United States." President Carter's 1980 statement on the territories, the most recent effort to address U.S. policy, also endorsed the funda- mental principle of self-determination, noting that all status options should be open to the people of the insular areas. The current administration continues to support the policy of self- determination. In adhering to the principle of self -determination, the United States has generally acceded to the wishes of the terri- tories with respect to status. In 1946, independence was gran- ted to the Philippines. In 1952 commonwealth status was granted to Puerto Rico, and in 1976, the Congress approved the covenant with the Northern Mariana Islands which grants commonwealth 9 status once the trusteeship is terminated. In Guam, the Virgin Islands, and American Samoa, a number of different governmental arrangements have been supported and further efforts toward self-government encouraged. Currently, the United States is working with Guam in its effort to examine its status and rela- tionship with the federal government. Self-government has .been an important part of political development one commonality linking all the territories is their gra- dual move toward greater self-government. While the early years of U.S. stewardship of the territories were characterized by military administration and relatively few advances in self- government, the post-World War II period marked a change. In- habitants of the territories, who for decades had sought more autonomy, found support in the Congress and executive branch. Table 1 summarizes the territories' strides in the past several decades. Table I Trends in Self-Government American The Virgin Northern Mar- Guam Puerto Rico Samoa Islands iana Islands Upon term- Ination of Acquired by United States 1898 1898 1900 1917 trusteeship First Organic Act passeda 1950 1900 none 1936 none Received nonvoting dele- gate In U.S. House of Representatives 1972 1900 1980 1972 none Elected first local legisla- ture with full or substan- tial legislative authority 1950 1900 1960 1936 1977 -Residents are Upon term- Mostly U.S. Ination of Granted U.S. citizenship 1950 1917 nationalsb 1927 trusteeship Elected first governor 1970 1948 1977 1970 1977 Rejected Rejected by voters by voters Granted constitution in 1979 1952 1960 in 1979 1977 aOrganic acts were passed by Congress to establish the local legal framework for governing each territory. Guam and the Virgin Islands continue to be governed under their respective organic acts, while Puerto Rico Is now a constitutional government. bA national Is defined as a person who Is either a citizen or noncitizen of the United States, owing permanent allegiance to the United States. In general, U.S. nationals enjoy the same protection and many of the same rights as U.S. citizens. The trend toward greater self-government has provided a high degree of local autonomy in each territory and has led to a 10 lessened federal level of control and authority. For example, the Department of the Interior, the primary administrative agency for the territories, has undergone a significant shift in responsibility as the territories have progressed. This shift is discussed in greater detail in chapter 6. The implication of this trend in the future political relationship between the territories and the United States is not clear; however, the territories are pressing for greater voice and representation within the federal system and are seeking greater clarification of their political and economic relationship with the United States. Territories want greater representation Voting representation in the Congress is constitutionally guaranteed only to state residents. The territories, except NMI, have some representation through nonvoting delegates who serve in the U.S. House of Representatives. These delegates serve on and may vote in committee. However, the territories are not represented in the U.S. Senate, and its residents may not vote in presidential elections. More representation in Congress and voting rights are issues in U.S.-territory relations. For example, advocates for Puerto Rico's statehood believe that only statehood status would, 11give Puerto Ricans political and economic equality, including full participation in the U.S. Congress and the right to vote in presidential elections." The other territories believe their current representation does not fully ensure that their concerns are heard. In 1981, the delegates from the Virgin Islands, American Samoa, and Guam introduced legislation to provide a Presidential vote for their territories. In addition, several bills have been introduced to provide full voting representation in the House of Representatives. So far, none of these legis- lative proposals have been enacted. POLITICAL STATUS REMAINS AN ISSUE While the U.S. policy of self-determination has helped the territories to develop politically, it provides no specific guidance on ultimate status or goals and milestones for economic and social development. As a result, several territories are reexamining their political status with the United States in search for a more clearly defined relationship. Puerto Rico Of all the current territories, Puerto Rico has had the longest history of self-government. Even before attaining com- monwealth status in 1952, Puerto Rico's residents have debated political status with the United States. Public opinion is 11 divided on whether to continue or modify the current common- wealth arrangement or to seek statehood or independence. The debate illustrates the problem of the U.S. policy - of self- determination with no ultimate status signal. Since the mid-1970s, a number of status proposals have been put forward. In 1975, a modified commonwealth proposal, the "Compact of Permanent Union Between Puerto Rico and the United States," was introduced to Congress but was never reported out of committee. In 1976, President Ford proposed statehood for Puerto Rico, but no action was taken. In 1978 and 1981, Presi- dents Carter and Reagan, respectively, supported statehood as an option if the Puerto Rican people expressed such a desire in a plebiscite. The status options remain a subject of great debate, permeating the political scene in Puerto Rico.1 They have sparked debate on whether.the United States should take the initiative by specifying conditions which would have to be met before Puerto Rico can become a state. Some Puerto Rican leaders believe the policy of self-determination does not 'ade- quately address Puerto Rican concerns over future status. They believe the United States should indicate what it would permit on such issues as allowing Puerto Rico to retain Spanish as its main language under statehood, whether a gradual reduction in its current federal income tax exemption is permissible, and other important issues unique to Puerto Rico. Other leaders in Puerto Rico believe future status is a local responsibility and that the people must decide for them- selves what their future relationship with the United States should be, a view currently supported by the Reagan Administra- tion. Guam Better defining its relationship with the federal govern- ment through political status is one of Guam's highest priori- ties. Discussions to change status were most recently initiated in a 1982 referendum in which Guamanians voted overwhelmingly for commonwealth status. In December 1983, Guam officials and congressional representatives held a formal meeting to discuss Guam's commonwealth proposal. Guam is currently refining a draft commonwealth proposal which it intends to submit to the Congress.- Guam's efforts to establish a new political status illu- strate the evolving relationship between the territories and the lFor a comprehensive discussion of status issues, see our March 1981 report, Puerto Rico's Political Future: A Divisive Issue- With Many Dimensions (GGD-81-48). 12 federal government. While Guam's efforts are an act of self- determination to upgrade its political status, they are also an attempt to resolve a number of problems which Guam has been dis- cussing with the federal government for several years. Many of these problems center on Guam's view that federal constraints are hampering economic development efforts. In the context of status talks, Guam is tailoring a political status which addres- ses constraints such as the application of federal laws to Guam, Guam's treatment under federal assistance programs, Guam's par- ticipation in regional and foreign activities, and control of federal land on Guam. Guam also hopes to e stablish formal parameters for its relationship with the United States in a commonwealth agreement. In a. statement to a congressional delegation in *Guam in 1983, the Governor of Guam said the ambiguity surrounding Guam's relationship with the federal government "is at the root of virtually every other issue of concern between the federal and territorial governments. " Guam's legislative leaders told. us a commonwealth agreement can help eliminate the uncertainties inherent in Guam's current relationship, and better define Guam's status in the American family. The Virgin Islands For several years, the Virgin Islands' political develop- ment efforts centered on replacing its Organic Act with a con- stitution. More recently, however, priority has shifted to political status discussions, attempting to rectify problems which some territorial leaders claim have resulted from an ambi- guous U.S. territorial policy. Since 1980, the Virgin Islands has initiated two political status commissions. The first was charged with examining the territory's present relationship with the United States and sug- gesting status options for the voters to consider in a referen- dum. Although the commission's final report identified and examined a number of status alternatives, no final status recom- mendation was made. According to members of that commission, the. effort became encumbered by partisan politics and lack of interest, and thus did not accomplish its objectives. The second and ongoing effort was initiated by the Virgin- Islands legislature. In February 1984, it created a Select Committee on Status on Federal Relations to determine the status of the Virgin Islands and propose a "Compact of Federal Rela- tions" between the Virgin Islands and the United States. The Committee will address "the entire range of the (federal-territory) relationship, including the applicability of federal laws and programs to the Virgin 13 Islands, federal and congressional oversight and authority in local matters, and repre- sentation of the people of the Virgin Islands in the U.S. Congress." Virgin Island leaders do not view the current status ini- tiative strictly as a means of political evolution. They see the legislature's efforts as a means to address constraints to the islands' economic development. The proposed "Compact of Federal Relations" is intended to maintain existing economic benefits and to secure others. Thus, the Virgin Islands is seeking a way to resolve outstanding problems and remove the degree of uncertainty in its relationship with the U.S. govern- ment. American Samoa and NMI American Samoa and the NMI are not seeking to change their political relationship with the United States. American Samoa currently supports its status as an unincorporated, unorganized territory. Its leaders said their primary political objective is to preserve and maintain the Samoan way of life and land tenure system, which they believe could be threatened by changes in political status with the United States. The NMI will formally be granted commonwealth status under terms of its negotiated covenant with the United States when the trusteeship is ended. The covenant establishes a more defined relationship with the United States, including a financial and economic assistance package and creation of a laws commission to study U.S. laws to determine whether they should apply to the NMI. NMI officials are generally satisfied with this arrange- ment and are currently negotiating with the U.S. over new finan- cial arrangements once the initial 7-year agreement ends in 1985. However, they expressed hope that the new status and the NMI laws commission will help resolve some outstanding problems with the federal government, especially in tax and economic areas. (See ch. 5.) RECENT FEDERAL EFFORTS TO CLARIFY TERRITORIAL POLICY In 1979, the Carter administration began a study of U.S. territory policy. Its objective was to identify major problems in federal-territorial relations, and to set forth a series of actions to remedy them. The study resulted in a February 1980 presidential statement which reaffirmed the basic principle of self-determination and established a policy framework to improve the federal-territory relationship. The 1980 policy statement was criticized by some because it did not include Puerto Rico or adequately convey many terri- torial concerns. Nevertheless, the statement pointed out that 14 prior to then, a policy framework for the territories was lacking and concluded that "Over the past several years, the federal government has attempted to rectify many pressing problems facing the territories. In many cases, however, the piecemeal solutions devised have failed to clear up the underly- ing causes of those problems. While some federal actions have contributed to the development of the territories, others have not promoted the greater self-sufficiency to which they justly aspire." Some specific initiatives in the policy statement were implemented. For example, the Department of Interior's Office of Territorial Affairs was reorganized and headed by an Assis- tant Secretary to provide a stronger voice within Interior. in addition, Interior was established as the focal point for political status discussions. Most other initiatives were never fully carried out, including multi-year economic planning, establishment of a federal laws commission, and full extension of the Internal Revenue Code to the territories. Since 1980, no comprehensive effort has been made to estab- lish a more clearly defined and consistent policy for the terri- tories. Territory officials believe that federal relations with the territories have improved but that policy direction is lacking, particularly for economic development. Many officials believe federal policy is haphazardly applied to the territories in such areas as federal laws, programs, and policies and that a more comprehensive, defined approach is needed for the territor- ies to develop their economies, become more financially self-, sufficient, and establish a more permanent status with the United States. (See ch. 5.) CONCLUSION The trend in political development of U.S. territories is clearly toward greater self-government and responsibility for local affairs. Many of the territories continue to press for clarification in their relationship with the federal government; some, such as Guam are doing so through political status discus-, si6ns. The terms of discussion focus heavily on economic and representation issues. In addition, many territory officials are calling for a more clearly defined federal policy to better. address their economic, political, and social concerns. As noted in chapter 2, until the Congress chooses to exercise its constitutional prerogative to establish an ultimate status for the territories, it is likely that federal-territory relations will continue to be ambiguous and somewhat contentious. 15 CHAPTER 4 COMPACT OF FREE ASSOCIATION ESTABLISHES A NEW STATUS FOR PARTS OF MICRONESIA Since 1947 the United States, under a U.N. agreement, has administered the Trust Territory of the Pacific Islands--an area of over 3 million square miles commonly known as Micronesia. Currently, there are four governments still under the trustee- ship, NMI, Palau, the Federated States of Micronesia (FSM), and the Marshall Islands. The NMI has chosen to become part of the United States as a territory, and Palau is currently attempting to resolve internal constitutional problems before joining the people of the FSM and the Marshall Islands in entering into a new relationship with the United States. The Compact of Free Association, which defines this new relationship, may pose new challenges for U.S. policymakers in defining and maintaining federal-territorial relations. Some issues, such as foreign economic assistance, fishing rights, immigration, and economic competition, have already been raised. At the end of World War II the fate of the islands of Micronesia was the subject of much debate in the federal govern- ment. The United States wanted to insure that the islands would never again be used by unfriendly powers to threaten U.S. secur- ity. However, absorption into the United States was not an acceptable alternative because it conflicted with U.S. and allied policy, which opposed territorial expansion. Instead, the United States proposed to administer Micronesia under the U.N. international trusteeship system. As administering author- ity, the the United States was charged with promoting the polit- ical, economic, social, and educational development of the Trust Territory. To protect its security interests, the United States proposed a special arrangement calling for a U.N. Strategic Trusteeship, under which it was committed to the same general development objectives as the flag territories but was given additional authority to establish bases on the islands and to foreclose Micronesia to third countries for military purposes. U.S. POLICY IN THE TRUST TERRITORY Unlike the flag territories, the Trust Territory is not under U.S. sovereignty, or subject to the U.S. Constitution. Its residents are citizens of the Trust Territory, not the United States. While U.S. policy for the flag territories does not specifically outline ultimate status, the Trusteeship Agree- ment is not intended to be a permanent status arrangement. 16 Under the agreement, the U.S. is committed to promote self- government and to allow the local people to choose their own status arrangement such as territorial status, independence, or an arrangement like free association. U.S. policy objectives in the administration of Micronesia are quite similar to those for the U.S. territories, especially for social and economic development. Micronesian residents face many of the same development constraints as their flag territory neighbors. For example, as discussed in chapter 5 the finan-cial dependency on the United States and indigenous and federal con- straints to development in Guam, American Samoa, and the-NMI are also present in Micronesia. In recent years, the federal gov- ernment has directed its efforts at strengthening the local economies and correcting deficiencies in financial management, health-care, and educational systems. Advances in political development lead to status negotiations Like the U.S. territories, the Micronesian states have made important advances in political development. In 1965, the Con- gress of Micronesia was created as the legislative authority for the Trust Territory. Executive responsibilities remained with the U.S. High Commissioner,,who was appointed by the President. However,in 1979, the Department of the Interior delegated execu- tive, legislative, and judicial responsibility, within specified limits, to the governments of the FSM, Palau, and the Marshall Islands. This was done in recognition of Micronesian desire to manage their own affairs. The FSM, the Marshall Islands, and Palau adopted their own constitutions in 1978, 1979, and 1980, respectively. The Secretary of Interior will represent U.S. interests in the'Trust Territory until the trusteeship is termi- nated. STATUS NEGOTIATIONS CULMINATE IN COMPACT OF FREE ASSOCIATION In 1969, the Congress of Micronesia formed the Future Poli- tical Status Commission, which began to consider the Micronesian status issue and eventually recommended "a self-governing Micro- nesia in free association with the United States." Negotiations have been long and difficult and so far have culminated in two different status arrangements. The NMI, which had long expressed its desire for closer ties with the United States, began separate negotiations in 1972 for commonwealth status, which culminated in the covenant agreement approved by the Congress in 1976. The FSM, Marshall Islands, and Palau con- tinued negotiations for free association throughout the 1970s. 17 In 1982, representatives from the United States and the govern- ments signed the Compact of Free Association, which defines the precise terms of the new status. This was followed by public education campaigns and plebiscites in each district. The Com- pact received the requisite approval in the FSM and the Marshall Islands, and in March 1984, was formally submitted to the United States for approval. The people of Palau are 'attempting to resolve their prob- lems with certain defense and security provisions of the Com- pact. As of December 1984, officials from the U.S. Office for Micronesian Status Negotiation were optimistic that the problems would be resolved. WHAT THE COMPACT PROVIDES The Compact of Free Association is a unique status arrange- ment between the United States and the FSM and Marshall Islands. The Compact and its subsidiary agreements comprise a highly detailed set of broadly based legal documents. The FSM and the Marshall Islands as freely associated states (FAS) will be com- pletely self-governing entities. Unlike the U.S. territories, the FAS will be sovereign states governed largely by laws of their own making. When the Compact goes into effect, U.S. laws, in general, will not apply to them. Their autonomy will include the ability to conduct their own foreign affairs, except for defense and security-related matters. They will be able to con- clude commercial and fishery agreements, to seek membership in regional and international organizations, and, in general, to act on a bilateral basis with other nations. The FAS will also have control over their future political status. The Compact states that either party to the agreement-- the United States or one of the Micronesian governments--may unilaterally terminate the political relationship. Therefore, free association can last as long as it continues to be in the interest of the United States and the FSM and Marshall Islands. Economic assistance The Compact recognizes that the FAS are not yet ready to assume complete economic independence from the United. States. over a period of 15 years, the United States will provide direct cash assistance currently estimated at $2.2 billion.1 By approving the Compact, the Congress will authorize 15 years of economic assistance. Although Congress is to appropriate the Compact funds on an annual basis, the 15-year authorization is a commitment to provide a guaranteed level of assistance, which is lActual assistance is tied to an inflation type index, 18 meant to remove the uncertainty surrounding the annual budget cycle and to facilitate long-term economic planning. Economic assistance is also intended to help the FAS undertake economic development activities and provide essential public services. They must prepare national development plans outlining activities to which they plan to.commit the resources. The plans, which must receive the concurrence of the U.S. gov- ernment, will establish goals for the various sectors of the economies in an effort to lessen dependence on outside resources and to approach economic self-reliance. The United States will also provide weather and postal services and the services of the Federal Emergency Management Agency and the Federal Aviation Administration. In. addition, the FAS may apply for technical assistance from any authorized federal agency. Under the Trusteeship, the FSM and the Marshall Islands are eligible for and participate in many federal grant programs. Once the Compact goes into effect, their participation in such programs will essentially cease,. and they will be permitted to design programs to meet the specific needs of their citizens. The Compact acknow ledges that additional financial and pro- gram assistance may be required, so the FAS may request the Congress to provide assistance above the amount provided in the Compact. Defense and security Free association is distinguished from independence by the reliance of one state on another for security and defense. The United States, under the Compact, will have full authority in defense and security-related matters, including the --obligation to defend the Micronesians from attack; --option to establish and use military areas and facilities subject to the terms of the specific bilateral agree- ments; and --option to foreclose or "deny" access to any third country for military purposes. To enable the United States to exercise its defense author- ity, the Micronesians must refrain from any actions which the United States determines conflicts with its defense-related responsibilities. While the political relationship of free association may be terminated at any time, certain related provisions are subject 19 to their own time frames. For example, the U.S. will retain the right to deny access to Micronesia for security reasons regard- less of whether the Compact is terminated. In addition, the U.S. obligation to defend Micronesia against attack will remain in force as long as the United States exercises its foreclosure or denial right. POTENTIAL ISSUES RELATED TO THE COMPACT Because of their geographic proximity and similar economic and social problems, the Pacific flag territories (American Samoa, Guam, and the NMI) will probably watch the new relation- ship between neighboring Micronesia and the United States close- ly. Some provisions in the Compact, such as foreign affairs, economic assistance, and increased local autonomy, have already generated some interest and concern. While the impact of the Compact on the U.S. flag territories is not fully known, we believe it could cause the territories to re-examine their status relationship with the United States. Foreign affairs autonomy Under the Compact, the FSM and the Marshall Islands will have significant independence in foreign affairs activities. They will be eligible for economic assistance from bilateral and multilateral donors, can negotiate treaties and agreements of a non-defense nature with foreign countries, and will be eligible to apply for membership in some international organizations. None of these rights are enjoyed by the flag territories. Territory officials from Guam, the NMI, and American Samoa have shown interest in receiving some of these benefits and are concerned about the potential impact these benefits might have on them. For example, territory officials have expressed interest in joining the Asian Development Bank, a multilateral lending institution which provides economic assistance to devel- oping countries. They believe membership in the Bank will enable them to become more closely integrated with Pacific neighbors, as well as make them eligible for low interest loans. Currently, U.S. flag territories are not eligible for membership in the Asian Development Bank or most other international or regional organizations. Economic and local autonomy Some of the principal economic and domestic provisions in the Compact may also attract interest in the territories. For example, the long-term economic assistance commitment, currently only enjoyed by the NMI, may prove of particular interest. Guam has recently expressed interest in developing a long-term eco- nomic assistance program for capital improvements, which it 20 believes wi 11 obviate many current problems caused by the annual budget process, which it claims. disrupts effective economic planning. In their comments on this report, the governors of American Samoa and the Virgin Islands also supported the estab-' lishment of a long-term economic development and financial assistance agreement with the federal government. The general exemption from federal laws called for in the Compact is another potential area of interest to the terri- tories. The application of federal laws is a major issue-in the territories, (see ch. 5.) and the fact that the FAS will be exempt from most federal laws has already raised some concerns. For example, Guam-officials are concerned that because the FSM and the Marshall Islands will be exempt from U.S. immigration laws and its residents will have free access into the United States and its territories, an influx of immigrants to Guam might occur, causing economic and social problems. Guam offi- cials would like to control their own immigration,laws, a right currently enjoyed by the NMI. If granted such authority, Guam could conceivably remedy any future possible immigration prob- lems from the FAS. The exemption from federal laws may also give the Microne- sian states a competitive advantage because they will no longer face the same federal and regulatory constraints as the U.S. territories. For e'xample, although the FAS already establish their own wage and tax laws, under the Compact they will be-able to establish new investment and economic incentives to attract Asian and U.S. industries which could compete with the flag ter- ritories. The FSM and the Marshall Islands will have equal access to the U.S. market with the other U.S. territories. For example, with the removal of federal regulations and establish- ment of economic incentives, they could become more competitive with the tuna industry in American Samoa. CONCLUSION The Compact of Free Association represents a unique status arrangement between the United States and the Micronesian states of the FSM and the Marshall Islands. If approved, it will establish a political relationship markedly different, than the relationship between the United States and its flag territories. Under the Compact, the FAS will enjoy their own sovereignty and, except for defense and security matters will be largely inde,- pendent, self-governing bodies. ., IThe key provisions 'of the Compact--economic assistance, foreign affairs, and domestic authority--are likely to attract the interest of the flag territories because they address areas of current concern to them. We believe U.S. policymakers will face new challenges to improve U.S.-territory relations as a result of the Compact. 21 CHAPTER 5 ISSUES AFFECTING TERRITORIAL ECONOMIC AND SOCIAL DEVELOPMENT The United States has helped to improve the standard of living and well-being of territorial residents and tried to help them become more economically self-reliant. It has provided substantial financial and some technical assistance to each territory as well as numerous incentives to help achieve these broad objectives. Yet, the U.S. goal of establishing greater economic self-reliance has not been achieved, and all of the territories remain heavily reliant on federal assistance to support their local economies. We found that progress in meeting territorial needs is often tied into federal recognition of the unique circumstances of each territory. Formulating and extending federal laws, pro- grams, and policies without considering unique territorial needs has caused some problems and disenchantment in the territories. Many territory and some federal officials attribute this to lack of a clearly defined and understood set of economic and social objectives with a corresponding means to carry them out, and to unclear federal policy on how the territories should be treated within the federal family. According to territory officials, the federal government in recent years has improved its efforts to recognize territorial problems and has sought to overcome them. Nevertheless, the officials identified instances of insensitive, inconsistent, and inappropriate federal policies, laws, and programs which they claim have hampered development. We categorized concerns raised by territorial officials as follows. --Instances when the territories believe their needs were not adequately addressed in the formulation of U.S. foreign and domestic policies. Examples cited include the effects of the Caribbean Basin Initiative, Department of Treasury rulinqs against investment bond initiatives, and a congressional proposal to eliminate corporate tax incentives for U.S. firms operating in Puerto Rico. --Instances when federal laws were inconsistently applied or were extended to the territories without adequate con- sideration of local conditions. Some examples cited include shipping laws, such as the Jones Act, environ- mental laws, and tax and immigration laws. 22 --Instances when federal programs were unevenly extended, did not recognize local conditions, or established an administrative burden not anticipated for the territo- ries. Some examples cited included programs for the elderly, food stamps, and welfare. TERRITORIESARE HEAVILY RELIANT ON FEDERAL ASSISTANCE The United States has spent millions to build an economic base in each territory and to promote economic development. Infrastructure projects, such as schools, hospitals, roads, utilities, and other facilities, have been provided. In addition to cash and program grants and loan guarantees, the U.S. has given the territories special tax treatment and provided various trade incentives, such as duty free access of many goods into the United States to support internal develop- ment and achieve greater economic self-sufficiency. Residents of the territories are generally exempt from federal taxation. Many corporations also receive generous tax benefits. Some ter- ritories receive other tax advantages which increase their rev- enue base. For example, federal excise taxes collected on rum and other selected goods produced in Puerto Rico and the Virgin Islands are returned to the local governments--$ 279 million and $35 million in fiscal year 1983, respectively. In Guam, federal income taxes paid by U.S. military personnel are returned to the -local treasury. In fiscal year 1983, about $21 million was rebated to Guam. Despite these efforts the territories remain heavily dependent on federal financial assistance. As shown in table 2, except for Puerto Rico, federal assistance as a percentage of total revenues in fiscal year 1983 ranged from 33 percent in the Virgin Islands to 72 percent in the NMI. The other Micronesian states of the Trust Territory were even more reliant on federal funding--85 percent 'in fiscal year 1983. If territorial taxes paid in lieu of federal income taxes are considered an indirect subsidy, the degree of assistance is even higher than the table indicates. 23 Table 2 Federal Assistance to Territorial Governments and Local Revenues, FY 1981-1983 ($ millions) U.S. federal General fund Federal assistance to local revenues assistance territorial (local tax and as percent qovernmentsa nontax revenue)b Total of total American Samoa 1981 $ 40.9 S 17.3 $ 58.2 70 1982 37.8 17.4 55.2 68 1983 42.5 17.9 60.4 70 Guam 1981 93.8 123.0 216.8 43 1982 99.2 115.8 215.0 46 1983 72.2 117.0 189.2 38 Northern Mariana Islands 1981 38.4 10.7 49.1 78 1982 37.8 17.3 55.1 69 1983 47.9 18.7 66.6 72 Virgin Islands 1981 135.9 195.4 331.3 41 1982 122.7 201.4 324.1 38 1983 103.7 213.7 317.4 33 aincludes continuing and adhoc Department of the Interior grants-in-aid and grants by other federal agencies, and excise and federal income taxes collected by the Treasury Department and returned to the Virgin Islands and Guam. bIncludes locally generated income taxes, other local taxes and fees. It does not include revenues generated by autonomous local government agencies. Although not as heavily reliant as the other territories, Puerto Rico, nevertheless, obtains substantial federal assist- ance. According to the Department of Commerce's Federal ExEen- ditures by State For Fiscal Year 1983 ', Puerto Rico received about $4.4 billion in grants and direct payments to individuals. Puerto Rican officials acknowledge that federal support is higher than that received by most states but, in their view, is not out of proportion given Puerto Rico's per capita income and relative poverty. Constraints to developing more self-sufficient economies To varying degrees, most of the territories face a number of constraints which hamper economic and social development. 24 For example, Puerto Rico is more economically developed than others, which face such constraints as --geographic isolation from major world markets and the mainland United States; --Small land areas and populations; --limited natural resources, especially petroleum; --infrastructure and facilities inadequate to support the expansion of local - industry and to attract significant outside investment; --limited skilled labor forces and managerial and entre- preneurial skills; and --large public sectors, which tend to drain resources needed for private sector development.1 In addition to these largely indigenous constraints, ter- ritory officials also cite a number of federal constraints to development, primarily caused by inconsistent and sometimes insensitive treatment in formulating and applying federal poli- cies, laws, and programs. PROBLEMS WITH FEDERAL POLICIES The United States has no overall strategy for encouraging economic development or promoting in a comprehensive and con- sistent fashion the private sectors in most of its territories. With the possible exception of an economic program in Puerto Rico in the late 1940s, known as Operation Bootstrap, no long- term development efforts were pursued for the territories. Instead, the federal government has tended to pursue remedies to individual development problems outside the cohtext,of any con- certed policy or plan. Interior officials believe the federal government ought not dictate such strategy, , but allow the territories to determine their own individual strategies. Many territorial officials believe the United States con- tinues to pursue a generally i.nconsistent, uncoordinated, and sometimes insensitive policy to the: territories. The f ormer governor of Guam, in a December 1980 presentation before the incoming Reagan Administration, noted that: lAppendix IX provides a listing of GAO and other reports and studies which detail many of the development constraints facing each territory. 25 "National policies often neglect to consider our interest at all , or do so only as an afterthought (e.g. by adding "and the Terri- tories" to pieces of legislation.) Policies developed specifically for the Territories are too often developed without proper input from the affected island governments and peo- ple. Furthermore, these policies have tended to lack a strong sense of direction, have had varying degrees of commitment from President to President and Congress to Congress, and have often lacked the necessary understanding of what it is like to live and work in an American territory in the Pacific or Carib- bean, thousands of miles away from Washing- ton, D. C. Correspondingly, there has never been a good understanding of the role, if any, that the Territories should play in national policy. As a result, policies for the Territories have been haphazardly devel- oped. There have been piecemeal responses to problems. For example, laws have been applied to some Territories but not others without apparent reason, or have conflicted with the intent and letter of earlier enacted legislation, or, are simply irrelevant or outdated. The lack of input from the Terri- tories and the inconsistent development of policies are two aspects of the same prob- lem." Territory officials identified examples of foreign, econo- mic, and domestic policies which in their view did not ade- quately consider the territories' interests and needs, and adversely impacted economic development. The most prominent examples were the Caribbean Basin Initiative (CBI) and foreign relations, Treasury rulings on investment bonds and a legisla- tive attempt to eliminate a corporate tax incentive in Puerto Rico. The CBI and territory interest in foreign relations All the territories are becoming more active in foreign and regional activities, in some cases as representatives for the U.S. government. In addition, many of the territories are interested in expanding foreign and regional relations to enhance economic development and attract investment. However, officials from some of the territories believe that the United States has not adequately considered their potential role or has formulated policies which could adversely affect them. 26 officials from the Virgin Islands and American Samoa cited the CBI as a case in point. The CBI is a foreign policy initia- tive meant to stimulate economic growth, trade, and development in the Central American and Caribbean region. It provides tax and trade incentives and development assistance to foreign coun- tries in this region. Virgin Islands officials believe the tax and trade provi- sions of the CBI, particularly entry of duty-free rum from other Caribbean countries into the United States, could harm their local rum industry. They also complained that although some "safeguards" were provided in the legislation, the potential impact the CBI could have on the Virgin Islands was not consid- ered until the territory raised the issue. The governor of American Samoa said he was not notified by any federal officials about a proposed provision in the CBI to allow canned tuna from foreign sources to enter the United States duty-free. He said he learned of the provision from the local tuna industry. Since American Samoa's tuna canneries are the largest private industry in the territory, such a provision could have had an adverse competitive impact on them. Although the tuna provision was eventually eliminated from the CBI, Amer- ican Samoan officials believe they should have been involved in formulating the legislation to ensure that their views were ade- quately considered. Federal officials involved in the formulation of the CBI said the territories were adequately considered and that their input was sought early in the process. They also pointed out that the CBI was primarily a U.S. foreign policy objective to enhance U.S. relations in the Caribbean and that the U.S. terri- tories were not initially singled out for special consideration. According to administration officials, once input was received from the territories, some changes to the CBI were made to pro- vide some safeguards to them, including rebating excise taxes to the Virgin Islands and Puerto Rico, which were collected on foreign rum entering the United States. In short, federal offi- cials believe the territories were fairly treated in the formu- lation of the CBI. Federal officials also acknowledge the territories increas- ing interest in becoming more involved in regional and foreign activities. State Department officials said territory involve- ment in regional organizations, such as the South Pacific Com- mission, comprised of island nations in the Pacific, has been encouraged. However, they also said that greater territorial involvement in foreign activities must be assessed by the federal government on a case-by-case basis. Department of State officials said the flag territories are part of the United States and therefore are generally subject to the same foreign policy restrictions as states. 27 Treasury rulings on investment bonds Recently the Department of Treasury restricted Guam and some of the other territories from issuing certain types. of tax- exempt investment bonds, or from establishing tax havens for foreign investors and U.S., corporations. These proposed revenue enhancing initiativez and the federal response to them illus- trate the problem caused when the goal of greater self- sufficiency for the territories clashes with U.S. tax and fiscal policy. Some insular officials claim that these actions contri- bute to -growing uncertainty of the overall objective of U.S. policy to the territories. The examples also raise questions whether the territories should receive special treatment, dif- ferent than states, under U.S..tax and fiscal policies. Arbitrage bonds.. I*n late 1983, Guam attempted to issue $850 million worth of tax-exempt securities known as arbitrage bonds. Guam hoped to earn revenue from the interest earned when the tax exempt bonds are reinvested at higher rates of interest. Treasury blocked the issuance of the bonds and announced that it was recommending immediate legislation to end these bonds' tax free status. A Treasury official said that since the states have been prohib- ited from marketing these bonds since 1969, the action was taken to prevent the territories from taking further advantage of a tax loophole which the Congress was seeking to remove. Guam officials argued that Treasury's action was 'contrary to the U.S. objective to encourage economic self-reliance. They pointed out that just prior to-the Treasury announcement, Puerto Rico. had marketed a $450 million bond issue. According to the Governor of Guam, Treasury's decision cost Guam $91 million in potential equity capital. . The Governor and other Guamanian officials cited Treasury's action as an example of a federal policy contradicting a, U.S. objective to allow the territories to become more self-reliant., Tax havens .''Another example cited by Guam.was a December 1982 Treasury decision to prevent Guam's proposal, to become an international finance center. @ Guam wanted to establish itself as a finance center by enhancing U.S. corporations' access to international capital markets @by offering tax free securities, such as Euro- bonds, to foreign investors,. At the time, the Netherlands Antilles, under tax treaty with the United States, served as a bond center for mainland companies seeking to tap foreign sources of@capital., Treasury opposed Guam's attempt to obtain a similar advantage, citing its general opposition to tax havens. A Treasury official said that such arrangements are a drain on 28 the U.S. treasury because no taxes are withheld, creating the opportunity for tax avoidance or evasion. Treasury also. cited its general opposition to this method of gaining access to for- eign capital markets. While Treasury supported the general objective of insular economic development, it stated that Guam should not serve as a conduit for transitory,foreign investment, and should not receive a benefit not available to the states. The Congress later affirmed*Treasury's position with the passage of the Tax Reform Act of 1984 which effectively eliminated potential benefits of establishing an intermediary to handle these types of financial transactions. Guam officials said that this is another example of a federal policy action to 'prevent the territory from achieving greater self reliance. The Governor of Guam, in his February 1984 testimony before the House Interior and Insular Affairs Committee, called Treasury's action inconsistent because at the time it granted foreign citizens a privilege denied to U.S. citizens residing in Guam. According to the Governor, Guam would have realized about $50 million in annual revenue had its investment strategy been implemented. Guam officials said if Guam had been allowed to sell arbi- trage bonds and establish itself as an international finance center, it would have become. completely self-reliant and- would no longer have to depend on federal assistance,. Congressional proposal to eliminate an important tax benefit to Puerto Rico Puerto Rico officials cited a 1982 congressional proposal to eliminate an important tax benefit as an example of U.S. insensitivity to Puerto Rican development needs. The proposal entailed a change to section 936 of the Internal Revenue Code, which provides a federal 'tax exemption on profits earned by U.S. firms operating in Puerto Rico. Section 936 is an 'important incentive in Puerto Rico's ability to attract industry and capital to the island. The proposed change would have eliminated the tax advantage, thereby adversely impacting Puerto Rico's economy. According to Puerto Rico officials, they were not consulted about the proposed legislative,change and had to lobby the White House and Conqress to obtain a compromise which protected the tax benefit for firms operating in Puerto Rico. Th ey cited this example as a case where national tax policy was being formulated without their input, which, could have had adverse effects on their economy. Puerto Rico officials said the uncertainty created by the proposed. change hurt new investment in Puerto Rico, as some firms cancelled or postponed investment actions. 29 PROBLEMS WITH FEDERAL LAWS There is no federal policy which details how the territo- ries should be treated in formulating and extending laws. As a result, some laws apply to some territories but not others. Many territory officials believe that some federal laws are extended without adequate consideration of local conditions and that they constrain local development efforts. The federal government acknowledged the problems created by federal laws as early as 1950 and 1954 when temporary laws com- missions were created for Guam and the Virgin Islands, respec- tively. Since 1980, several efforts have been initiated to help remedy the problem, includinq the creation of a laws commission for the Northern Mariana Islands in 1980 and a Department of Interior study of federal laws begun in 1981. Both efforts are ongoing. In addition, at least one area of concern to the Pacific territories--fishing--has been studied by the Department of Commerce National Marine Fisheries Service. Inconsistent application of federal laws Table 3 illustrates some categories of laws which are inconsistently applied. Territorial officials cite these laws and others as constraints to economic development because they do not provide benefits received by other territories, do not recognize a unique local condition, are costly to implement, or deprive the territory of a means to generate revenue. Federal officials involved in examining the legal questions believe that, for the most part, the territories are added to legislation with little consideration of the potential impact on them and must fend for themselves when a law or program causes a problem. Table 3 Examples of Inconsistent Application of Federal Laws Puerto Virgin American Rico Islands Samoa Guam NMI Jones Act Applies Exempt Exempt Applies Exempt in part Immigration and Nationality.Act (INA) Applies Applies Exempt Applies Exempt Internal Revenue Code Exempt Applies Exempt Applies Appliesa aEffective January 1, 1985 30 Jones Act Guam claims that the Merchant Marine Act of 1920, commonly known as the Jones Act, inhibits its ability to establish a tuna transshipment industry because foreign flag vessels may not be used in the transportation of merchandise, in this case tuna, between two points in the United States. Some Guam officials believe the Jones Act should not apply to Guam because of its geographic distance from the U.S. mainland and because both American Samoa and the neighboring NMI are exempt. Puerto Rico officials said the Jones Act hurt tourism because cruise ships, mostly foreign owned, were not allowed to off-load passengers for more than 24 hours. The officials said this restriction drove away tourist dollars and gave an unfair advantage to neighboring Virgin Islands and other Caribbean locations. We noted that this prohibition should now be eliminated with the enactment on October 30, 1984, of Public Law 98-583, which allows foreign passenger ships to travel one way between Puerto Rico and U.S. ports. Officials from American Samoa, the NMI, and the Virqin Islands cite the exemption from the Jones Act as a economic benefit. Immigration and Nationality Act (INA) Control over immigration is another area where some terri- tories believe federal law caused economic and social disloca- tion. Virgin Island and Guam officials said the INA has hurt development because the local governments could not control the influx of alien workers who competed with local residents for jobs. Although this problem was eventually remedied, they claim other aspects of the INA continue to hamper development. For example, until Guam was provided an exemption under the 1984 Omnibus Territories Act, Public Law 98-454, October 1984, the Guam Chamber of Commerce and other Guam officials said immigra- tion laws hindered tourism because of temporary visa require- ments placed on tourists and business visitors to Guam. Accord- ing to the Chamber, foreign visitors, mainly from Japan, had to obtain visas from a U.S. consulate before they could enter Guam. The visa requirement was a hindrance which hurt the territory's largest private sector indus try-- tour ism. This put Guam at a competitive disadvantage with its Pacific neighbors, including the NMI, which controls its own immigration and therefore did not face similar constraints. The Chamber estimated that elimi- nating visa requirements for Japanese tourists would have gen- erated an additional $2.5 million in tourist expenditures in 1981. 31 Internal Revenue Code (IRC) Guam and the Virgin Islands tax ' systems mirror the IRC, that is, all provisions of the IRC are applied to them. Each time a change in the tax code occurs, it has a potential finan- cial impact on these territories. For example, the Virgin Islands reported a potential loss of about $13 million in fiscal year 1982 and an estimated $25 million in fiscal year 1983 due to changes in federal tax rates and regulations. Guam business officials reported in 1982 that the mirror tax system has "sad- dled Guam with an overly complex, inadequate revenue generating capacity which imposes non-competitive tax rates which hinder efforts to attract foreign and U.S. corporations to Guam." They believe the IRC places Guam at competitive disadvantage with Pacific-Asian neighbors with lower tax rates, and that Guam should be allowed to adopt its own income tax system. Similar concerns were voiced by NMI officials, who believe the IRC is inappropriate for their local -situation The NMI has success- fully deferred implementation of IRC provisions until Januarv 1, 198.5. At the time of our review, the Department of Treasury was studyin.g.tax treatment of these territories to develop a mutual- ly,pAtisfactory tax system. other problems A government of Guam Planning Office analysis in 1982 iden- tified 38 different federal laws and regulations, including labor and wages, tax, communication, and others, as constraining Guam's economic development. Guam and NMI also cited the Clean Air Act as an example of a federal law which was based on state- side conditions which are not appropriate for a small island with. prevailinq tradewinds. Guam faced costly decisions to either burn expensive low sulfur fuel or to install $20-million scrubbers on its power plants. After years of arguing its case, Guam received a temporary exemption from the Clean Air Act under provisions of the 1983 Territory Omnibus Act (Public Law 98-213). FEDERAL EFFORTS TO ADDRESS LAW PROBLEMS In the early 1950s, Congress authorized separate laws com- missions for Guam and the Virgin Islands to identify federal laws hampering their development. Both commissions were short- lived, but some law changes resulted from their recommendations. Since 1980, effort s to remedy problems with federal laws include" --creation of the Northern Mariana Islands Laws Commission in 1980; 32 --proposals to establish a congressionally authorized laws commission for all the territories; --a Department of Interior review of federal laws begun in late 1981; --a study by the National Marine Fisheries Service (NMFS) on the impact of federal fishing laws on the Pacific territories; and --passage of the 1983 and 1984 omnibus Territories Acts provided some legislative remedies to particular law problems, such as a temporary exemption to Guam of provi- sions of the Clean Air Act. Many territorial officials acknowledge these efforts to remedy the problems and indicated that greater awareness of the territories' unique circumstances can help to overcome many of the constraints to development. These officials believe they should be given greater voice in formulating federal laws in order to avoid the types of problems Pxperienced in the past. They also believe the federal government must continue to address federal constraints to the territories' quest to become more economically self-reliant. NMI laws commission In 1980 the Northern Mariana Islands Laws Commission was established, pursuant to the 1976 covenant agreement between the NMI and the United States, to survey all U.S. laws and determine whether they should apply to the NMI. The Commission has recom- mended several changes to existing laws, including exemptions from some provisions of the Clean Air Act, extending certain rights and privileges of citizenship to NMI residents, and clarifying the applicability of federal torts claims to NMI residents. The Commission is continuing,to review laws and has been positively received by both the NMI and the Congress. Proposal for congressionally '@i@uthorized laws commission In February 1980, President Carter proposed legislation to establish a federal commission to survey the applicability of all federal laws to Guam, the Virgin Islands, and American Samoa. The President believed a broad-based review was neces- sary to "make sense out of the somewhat confused pattern of fed- eral laws that now apply or fail to apply to the territories." The proposed commission failed to receive sufficien 't congres- sional support. Other attempts have been made to create such a commission, including legislation introduced in 1982 and 1983. According to a 1983 House Committee on Interior and Insular 33 Af fairs report, the proposed commission was to help Congress develop a "rational legal framework from the current inconsistent and inappropriate coverage of the insular areas in Federal laws which inhibits economic expansion, creates inequi- ties, denies otherwise recognized Federal responsibilities and frustrates the objec- tives of well intentioned federal and insular programs." So far, none of these proposals have been enacted. Department of Interior review of laws In late 1981, when it became apparent that a comprehensive federal laws commission was not obtaining sufficient support, Interior's Office of the Solicitor began a study of the applica- bility of laws to the U.S. territories and Trust Territory. According to the study leader, a former Director of the Office of Territorial Affairs, Puerto Rico is not included in the pre- sent analysis because it is outside Interior's jurisdiction. However, she said that Interior plans to prepare an addendum after its current study is completed which will detail the application of federal laws to Puerto Rico. The objective of the study is to examine all federal laws and provide a legal analysis of the respective statutes, includ- ing what the statute does, where it is applicable, and any par- ticular problems it presents. As of August 1984, 10 legal areas involving fishing, shipping, transportation, bankruptcy and banking had been studied. The results of the analyses have been circulated to the territorial governments and cognizant federal agencies for comment. It is anticipated that legislative propo- sals will be submitted to Congress based on the results of the analysis. Interior believes the review may be completed by October 1986. National Marine Fisheries Te--rvice study In response to concerns raised by officials from the Paci- fic territories, NMFS conducted a review of federal laws that adversely affected fisheries development in the Pacific terri- tories. NMFS reported that most federal laws concerning fisher- ies and fisheries development were 11 . . . mainland laws and as such are insen- sitive to special Island needs. Island lead- ers wish either to be exempt from such laws 34 or have such laws tailored to the realities of Island conditions and their specialized needs." In late 1983, NMFS completed its study and developed legislative and. administrative recommendations designed to remove legal impediments to fisheries development. For example, NMFS sup- ported legislation to liberalize federal vessel documentation laws which hindered the promotion of fisheries' development in the Pacific territories. Under the then existing NMFS' loan guarantee program, financing was limited to vessels of more than 5 tons. Since most territories could not afford such large ves- sels, NMFS proposed modifying regulations to expand loan guaran- tees for smaller fishing vessels owned by. residents from Guam, American Samoa and the NMI. An American Samoan official said NMFS' recommended action would provide relief and potentially expand the local fishing fleet by 50 percent. The 1984 omnibus Territories Act provided relief from vessel documentation laws for all the territories. FEDERAL ASSISTANCE PROGRAMS The United States has contributed to the social.development of its territories through the extension of Federal assistance programs. Schools, hospitals, housing, and other infrastructure projects have been heavily, supported. In addition, grant pro- grams provide resources which enable the territories to deliver various social services. Territorial officials agree that the United States has enhanced the general well-being of territorial residents and raised their standard of living. Despite these advances, the territories have experienced problems with federal programs, including --adverse effects on traditional cultural values, --burdensome rules and regulations, --funding ceilings, matching requirements, and --exclusion from specific programs available to the states. The problems center on the ways the territories are treated in formulating, extending, and implementing. federal programs. Essentially, these problems-- s imi lar to those identified with the applicability of federal laws--are attributed to instances when programs are developed to meet stateside needs without fully considering the potential impact on the territories. They also call into question whether U.S. social objectives for its territories are well defined. 35 Cultural values Some of the territories, particularly in the Pacific region, identified programs which have not been appropriate. For example, Guam officials said the territory has participated in programs that have disrupted the local culture, such as those sponsored under the Older American Act of 1965, which has altered the traditional responsibilities of the extended family by shifting care for the elderly from the family to the qovern- ment. American Samoan officials said that they recognize that the local culture is sometimes threatened by well-intentioned fed- eral programs. As a result, Samoa selectively applies for pro- grams; for,example, although eligible to do so, it has chosen not to participate in the federal Food Stamp Program, and Aid to Families With Dependent Children because they have a "welfare" connotation that is unacceptable in the Samoan culture. Burdensome. rules and regulations Several territorial officials said that application, reporting, and monitoring procedures for some federal programs are difficult to comply with because of limited local resources. Program officials in Guam said that the medicaid reporting requirements were burdensome for the local agency staff. A Virgin Islands official said that environmental compliance stan- dards tied to grant funding were inappropriate because the local agency did not have the resources or personnel to perform con- tinuous testing. Puerto Rico officials said that reporting regulations should be relaxed for those programs 'in which the Commonwealth does not fully participate, such as medicaid and nutritional assistanCE!. Exclusions and limitations from programs Federal assistance programs are often extended to the ter- ritories by defining them as states, but funding allocation for- mulas often differ from those of the states. Usually, appropri- ation language states that the territories will share in a specified percent of the amount appropriated for the program or it specifi.es a set amount for each territory. For example, the nutritional assistance program which replaced the food stamp program, established an annual ceiling of $825 million in Puerto Rico. No ceiling applies to states under the food stamp pro- gram. Many territorial officials expressed concern about what they consider uneven funding treatment relative to the states. For example, all the territories a re subject to a dollar ceiling 36 on the federal matching share of medicaid costs, a condition not imposed on states. Virgin Island health and social service officials claimed that ceilings are discriminatory and limit the local', government Is ability to 'provide service to territorial residents. They believ,e'the Virgin Islands should be considered as a state for the purpose of program funding. Puerto Rico be- lieve'd that all programs available to, states should.bo fully available to Puerto Rico. Although Puerto Rico does receive statelike treatment for most federal programs, there are some exceptions; it is excluded from the Supplemental Security Income program, as are all other territories except NMI, and receives set. funding levels 'for Aid to Families with Dependent Children, Medicaid, and the Social Services and Nutrition Assistance Block Grants. A consulting firm"under contract wi 'th the Puerto Rican government estimated that Puerto Rico would have gained about $1 billion in federal program benef 'its An fiscal year 1981 by receiving the-same benefits as states. In its comprehensive economic study of Puerto Rico issued in December 1979, the Department of Commerce stated that "There is no apparent consistent rationale underlying the mixture of exclusions, ceil- ingst and differential matching rat*es that ate* curre ntly applied by Congress to Puerto Rico in its Federal program part-icipation." As far as we could determine, the conclusion reached then by the Commerce. study remains true 'today., THE FEDERAL GOVERNMENT RECOGNIZES PROBLEMS AND HAS TAKEN SOME CORRECTIVE ACTION In recent years, the United States has shown greater under- standing and flexibility in dealing with' the territories' unique conditions. Legislation has been passed to provid'e special treatment, such as 'Title V of Public Law 95-134 enacted in 1977 which authorized federal agencies to consolidate certain. grants to the territories'to minimize-administrative burdens created by application and reporting -procedures'. -Under this law, federal agencies may permit a terri.tory to submit. a single application for ' A consolidated grant. Territorial program officials said that-grant'consolidation has significantly eased proqram admini- stration.' The Congress has also recognized the territories' funding limitations; Public Law 96-205 enacted in 1980 directed the Department of the Interior to waive matching requirements for all grants to the territories, and other federal departments were required to waive matching requirements for grants under 37 $100,000 made to American Samoa and the NMI. The matching requirement waiver was raised to $200,000 in 1983 for American Samoa and NMI, and in 1984 for Guain and the Virgin Islands. There is also some evidence that individual programs are being tailored to meet local needs. NMI I s food stamp program and American Samoa's medicaid program implemented in 1982 are two examples. NMI's food stamp program is structured so that 25 percent of the food stamps issued must be used to purchase local food stuffs. According to the NMI Governor, the program pro- vides a needed social service and benefits the local economy. Recognizing American Samoa's unique circumstances, Congress authorized the Department of Health and Human Services great latitude to waive or modify the requirements of Title XIX--the" federal medicaid program. According to the Governor of American Samoa, the flexible medicaid requirements tailored to American Samoan conditions permitted them to design a program which does not disrupt local customs. Waivers relieve some administrative problems In addition to legislation eliminating some administrative burdens, federal agencies have granted waivers to certain regu- lations. Territory officials said that federal agencies have become more receptive to the territories' needs and that admini- strative and program problems are handled directly by the terri- tories and the appropriate federal agencies. The officials said that good working relationships have been established with most of the federal agencies involved in the territories' programs. Because most pro-gram problems tend to be administrative, many territorial leaders see no need to make major changes in the current federal approach in administering programs. How- ever, many believe a mechanism should be put in place to ensure that the territories are made aware of federal programs avail- able to them and that it provide a means for the territories to express their view when unique circumstances call for modifica- tions in the way they are treated in each program. CONCLUSION Despite progress in achieving some economic growth and improving the general well-being of their residents, the terri- tories depend heavily on federal assistance and most are not making much progress toward economic self-reliance. Each terri- tory has unique local constraints to development which preclude complete economic and financial self-reliance in the foreseeable future. However, federal constraints caused by policies, laws, and programs are raising questions about overall U.S. policy objectives for its territories. 38 There is no federal policy which spells out how the terri- tories should be treated when formulating and extending laws and programs. Some laws and programs apply to some territories but not to others. Territory officials identified a number of laws which they believe constrained local development efforts and caused' significant loss of potential revenues. They also com- plained about the unequal treatment received in the extension and application of certain federal programs. In the past 5 years, the Congress and federal agencies have increasingly recognized these problems and have taken several actions to remedy them. For the most part, the initiatives focus on either a single territory, such as the Northern Mari- ana Law Commission, or on single issues, such as the National Marine Fisheries Service study on fishing laws and the temporary exemption@ on the Clean Air Act provided to Guam and NMI in the 1983 Omnibus Territory Act. Thus, some individual laws and programs are being tailored to meet local needs. It appears that economic and social development in the ter- ritories revolve around two central issues: (1 ) whether an economic development strategy can be developed to overcome or ameliorate indigenous and federal constraints and (2) whether the United States and territories can find common ground on how the territories should be treated in the formulation, extension, and application of federal policies, laws, and programs. While territory officials agree that the federal government has in recent years made progress in recognizing many territory needs and concerns, many believe U.S. policy does not adequately address these two issues. As the territories strive for greater autonomy and self-reliance, U.S. policymakers in Congress and the executive branch are likely to face greater pressure to establish a policy framework which addresses these issues. 39 CHAPTER 6 FEDERAL ADMINISTRATION OF TERRITORIES SHOULD REFLECT U.S. TERRITORIAL POLICY In the past 15 years, the Pacific territories and the Virgin Islands have assumed increased autonomy and greater control for managing their own affairs. The federal presence and influence have lessened to the point where the federal- territorial organ i zat ional relationship, particularly in policy matters, is raising such questions as: --Is the federal government effectively coordinating its administrative and policy efforts to meet the broad objectives of encouraging political, economic and social development? --is the Department of the Interior, which is primarily responsible for territorial affairs, except Puerto Rico, effectively addressing territorial and federal concerns? --Is a new federal organizational structure needed to bet- ter address territorial concerns and implement U.S. pol- icy objectives? OVERVIEW OF TERRITORIAL ADMINISTRATION Because U.S. interests in territorial acquisition at the turn of the century were largely strategic and defense-oriented, early administration was vested in the military. The terri- tories, except for Puerto Rico which was under military control for only 2 years, were administered by the Navy--for 14 years in the Virgin Islands and nearly 50 years in Guam and American Samoa. Military administration set the stage for federal rela- tions with its territories, a period marked by direct supervi- sory control and limited self-government. With no congressional framework for territorial government, all authority was vested in the naval governors who administered the island's internal affairs. Military governors generally concentrated their efforts in the areas of public works, sanita- tion, health, and education. Little effort was made to foster local self-government or economic development. Early civilian administrators continued direct control over territorial affairs By the early 1950s, the United States had transferred administration of the territories to civilian control under the 40 Department of the Interior. The transfer occurred in recogni- tion that territorial problems were largely economic and social in nature. By 19,51, Interior had jurisdiction over Puerto Rico, the Virgin Islands, Guam, American Samoa, and the Trust Terri- tory of the Pacific Islands. Centralized federal authority in the territories remained constant, however, and Interior's role included many supervisory functions, including --appointing territorial governors in American Samoa; --managing territorial qovernment operations through the governors; and --administering and coordinating federal assistance and programs in the territories. Puerto Rico's move toward self-government marks the beginning of decreased direct federal involvement in territorial administration When Puerto Rico achieved commonwealth status in 1952, it was removed from Interior's jurisdiction and assumed responsi- bility for its own internal affairs. No single federal agency was directed to replace Interior, and Puerto Rico has continued its singularly unique relationship to the federal government since that time. In 1961, a presidential memorandum directed that matters pertaining to Puerto Rico were to be referred to "The Office of the President." The White House continues to have responsibility for Puerto Rico, and, according to an admin- istration official, arbitrates problems involving Puerto Rico and federal agencies. He said the White House tries to ensure that the Commonwealth's administrative and policy concerns are adequately presented, and that high-level attention is given to Puerto Rico by federal agencies. Other territories move toward greater autonomy As discussed in chapters 3 and 4, the other territories and insular areas have acquired or are moving toward increased local autonomy--largely self-governing entities. Their political development, resulting from a series of specific legislative and administrative actions by the Congress and the executive branch, has contributed to the U..S. government's reduced administrative authority and presence in the territories. TRENDS IN FEDERAL INVOLVEMENT As the territories and insular areas became increasingly self-governing, federal administration has been marked by (1) a 41 significant increase in the number of federal agencies involved in programs and decision-making affecting the territories and (2) a shift in the role of the Department of the Interior from a direct administrative authority to a posture of providing assis- tance, limited oversight, and attempting to advocate territorial views. This trend toward a more decentralized, reactive ap- proach has met with partial approval by some territorial offi- cials who believe the federal government should no longer be directly involved in territorial administration. However, these two events have also generated some criticism from the territor- ies concerning overall federal effectiveness in meeting terri- torial needs. Territorial governments have increasingly used federal pro- grams to facilitate their economic and social development. This has decentralized the U.S. government's role in the territories and further complicated the practical aspects of single agency management. According to a Department of Commerce publication, at least 15 agencies provided direct financial assistance to the U.S. territories and the Trust Territory in fiscal year 1983. .Statistics compiled by Commerce show that about $2.5 billion in grants were provided to the insular governments in that same year. About $2.1 billion, or 84 percent, went to Puerto Rico. The many federal agencies involved in formulating and imple- menting policies and programs for the territories, have made it difficult for the government to coordinate economic and social development activities. A 1979 interagency task force formed to study U.S. territory policy identified this lack of coordination as a significant organizational deficiency. The task force indicated that the territories received numerous federal grant programs which were approved unilaterally by individual federal agencies; it concluded that this process was "devoid of any apparent or deliberate policy thrust." Attempts have been made to strengthen the existing federal organization to enhance greater program coordination. The Secretary of the Interior created a Committee of Interagency Territorial Assistance in 1976. It was apparently not com- pletely effective, however, since President Carter's 1980 terri- torial policy statement called for increased federal program coordination. The President stated that the administration would issue a directive requiring all federal agencies to keep Interior informed of all grant applications and decisions affecting the territories. A proposed executive.order to imple- ment this requirement was sent to the office of Management and Budget (OMB) in November 1980 but was not issued. Current efforts to coordinate programs and policies Federal officials continue to recognize the need for improved territorial program and policy coordination. Several 42 informal interagency committees have been established in recent years to foster coordination of territorial and insular affairs. The White House Task Force on Puerto Rico represents the Common- wealth in policy and administrative matters. Interior and the White House co-chair an informal interagency committee to address and resolve issues affecting the territories. This committee meets irregularly, and generally only when issues or problems arise. It does not address major policy matters such as political-status. A third interagency body handles matters associated with the Micronesian status negotiations. In 1983, Interior established separate interagency subgroups to address health and economic issues. According to the Assistant Secre- tary for Territorial and International Affairs, the committees were formed to "get the federal family moving in the same direc- tion." He indicated that these groups have improved communica- tion among high-level agency officials and improved the quality of programs and services available to insular area governments. Territory officials provided a mixed response to federal agency involvement in program administration and policy. The officials generally are satisfied with the current multiple agency involvement in grant and assistance programs and said they have learned to work with individual agencies which have become more attentive and sympathetic to territorial problems. Most were strongly opposed to centralizing program and grant administration under one agency. Territory officials said a move to create a bureaucratic layer or "middleman", to ensure coordination and program review is unnecessaryt counter- productive, and contrary to the territories' desire for in- creased local autonomy. Puerto Rico officials particularly oppose any change in the current decentralized federal approach for program administration. In contrast, many territorial officials express the need for better federal policy coordination. As noted in chapter 5, the territories have expressed dissatisfaction with various pol- icies made by different federal agencies which have directly affected them and constrained development efforts. Questions on tax policy are handled by Treasury, environmental policy by the Environmental Protection Agency, immigration policy by the Immi- gration and Naturalization Service, and so forth. Territory officials believe the current organizational framework involving many federal agencies is not effectively addressing their policy concerns, especially economic development, because their needs are not considered in a systematic fashion based on an overall development strategy. 43 DIMINISHED ROLE OF INTERIOR RAISES POLICY AND ORGANIZATION QUESTIONS The Department of Interior has undergone a significant shift in responsibilities as the primary federal administrator of the territories. Its current role is primarily limited to budget support, technical assistance, representing territorial views to the federal establishment, and oversight of government expenditures and operations. According to many territory offi- cials, Interior's overall effectiveness in these areas is limi- ted by institutional constraints and organizational influence within the executive branch. officials from several territories believe a change in federal organization is needed. Constraints and perceived lack of influence The Office for Territorial and International Affairs (OTIA) is a small component of the Department of the Interior. In fis- cal year 1984, OTIA was authorized a staff of 66, including 15 under the High Commissioner for the Trust Territory, with a bud- get of about $4.3 million for administration and technical assistance. OTIA will oversee the approximately $213 million requested in fiscal year 1985 for the territories and Trust Ter- ritory, less than 3 percent of Interior's overall fiscal year budget request of $6.5 billion. Recognizing the limited influence exerted by such a small office, the President directed that the head of OTIA be elevated to Assistant Secretary level in 1980. Nevertheless, territorial officials have criticized OTIA as institutionally incapable of meeting its stated mission of providing effective assistance and promoting territorial interests to the rest of the federal establishment, particularly in budget and policy related mat- ters. Budget supp2rt All the territories, except Puerto Rico, have received funds for government operations and capital improvements through Interior grants. As noted in chapter 5, these funds combined with other indirect federal assistance, such as tax rebates to Guam and the Virgin Islands, comprise the substantial portion of revenues available to the local governments. According to several territory officials, a key institu- tional constraint is OTIA's inability to fully support territo- rial budget requests. Faced with administration budget objectives and internal budget competition within Interior, OTIA is often placed in a difficult position of trying to sup- port higher territorial budget requests than the administration 44 will accept. Territory officials believe OTIA is too small to argue persuasively the territories' case within Interior and with OMB. As a result, the territories frequently submit budget requests directly to Congress. The recent 1985 fiscal year budget requests from Guam and the Virgin Islands illustrate the problem. Guam submitted a $211 million request to Interior which OTIA pared down to $2 million. However, OMB eliminated the entire request. Guam sub- sequently requested $62 million -directly from Congress. The Congress approved $5.7 million for Guam for fiscal year 1985. In February 1984, the Virgin Islands asked a House Commit- tee for $18 million for fiscal year 1985. No formal budget request was submitted to Interior. The budget director for the Virgin Island government-said there was no reason to involve Interior in the process because it is ineffective in getting budget requests through to Congress.. In general, territory officials believe their funding needs are not being adequately addressed by Interior, even though OTIA is usually sympathetic to them. Some believe territory budgets should be submitted directly to OMB and Congress to eliminate . the institutional barriers within Interior. Some Interior officials acknowledge that constraints exist in the budget process and that at times the territories receive low priority. They said OTIA must compete with other Interior offices as well as conform to budget targets established by OMB. OTIA's budget officer said that territories might be bet- ter off if they were part of an independent agency which did not have to compete with many other offices. Interior officials also point out that part of OTIA's role is to insure fiscal accountability and therefore to scrutinize the territories' budget requests to insure they are legitimate. OTIA officials acknowledge that conflict exists between an advo- cacy role and fiscal accountability. However, they believe that some of the territories@ set unrealistic expectations in their budget requests and then blame Interior for not having them realized. The Assistant Secretary for OTIA said territory budg- ets should not be "rubber stamped" but should go through a review process like those of any other requestor of federal funds. Advocacy role questioned many territory officials believe Interior is not influen- tial enough to adequately represent their interests with the rest of the federal establishment, especially in policy-related matters. They believe Interior does not have much "clout" in areas outside its jurisdiction. For example, Guam officials 45 cited Interior's inability to forcefully represent Guam's case in Treasury decisions on arbitrage bonds and other tax policies. Some territory officials believe Interior is no longer well suited to meet their needs, especially economic development needs. They cite Interior's main areas of interest--land man- agement, parks, and minerals as inappropriate for the territo- ries. Others said Interior represents the "colonial" past when the federal government was in direct control of the territories. They believe a new organization is needed to erase this past image and to establish a more forward-looking approach to the territories. Interior trying to develop a partnership relationsFl'p with the territories Interior officials recognize that their authority is some- what limited in dealing with other federal agencies. Nonethe- less, they believe they can keep lines of communication open between the territories and the federal establishment and faci- litate territorial needs through technical assistance, economic development initiatives, and advocating the removal of legisla- tive and program constraints. They believe that Interior is the best agency to deal with overall territorial matters because of its record of experience and expertise built up over the years. OVERSIGHT ROLE: A REFLECTION OF UNCERTAINTY fN THE FEDERAL- TERRITORIAL RELATIONSHIP Interior, through its office of Inspector General, performs an audit function for all the territories except Puerto Rico. This role in relation to Interior's overall administrative re- sponsibility has led to questions about the appropriate degree of federal oversight in light of increased territorial autonomy. Officials from the office of Inspector General believe Interi- or's responsibility for financial and program oversight is not well defined. At issue is Interior's authority to enforce actions by the territorial governments in response to audits, to ensure that the governments spend monies according to federal guidelines, and to improve management of local and federal pro- grams. These officials believe that OTIA is not exercising an effective oversight role due in part to an inability to enforce compliance with audit recommendations by the territories. Inte- rior Inspector General officials believe a conflict exists between exercising oversight versus supporting greater autonomy for the territorial governments. Interior officials believe that the level of federal over- sight is a policy question which should be addressed by the Congress and that more definitive guidance is needed to specify 46 the level of federal administrative management of territory activities. They believe that Interior is placed in a dilemma of supporting greater territorial autonomy while at the same time exerting oversight over federal activities and government operations in the territories. ORGANIZATIONAL OPTIONS SHOULD REFLECT THE DIRECTION OF FEDERAL-TERRITORIAL RELATIONSHIP Given the territories' general dissatisfaction with Inte- rior, a number of changes have been considered in the past 5 years. A 1979 interagency task force on the territories addressed this issue and offered several options. One of the options, elevating the territorial responsibility within Inte- rior, was implemented by the Carter administration. Despite this effort, many territorial officials and some in Congre ss continue to call for change. Should the Congress decide to con- sider organizational changes, we believe that it should first address whether the current level of federal oversight and presence in the territories is adequate. The amount of over- sight exercised by the government is critical to addressing the organization question. A significant increase in oversight would require greater federal presence in local affairs, which appears to be contrary to the trend toward increased self- government and the U.S. principle of self-determination. Centralization or decentralization- Another organizational question related to territorial pol- icy is whether the federal government should move toward greater centralization or decentralization of territorial affairs. The coordination of federal activities, particularly for policy mat- ters, - is another element to be considered in addressing organi- zational options. If the Congress believes that greater coordi- nation of policy and program issues is needed, a centralized organization merits consideration. This could be accomplished by placing all the territories and insular areas, including Puerto Rico and the Trust Territory, in one agency. Some have suggested an interagency body, drawing expertise from many parts of the federal establishment for this function. This office. could be independent or could be part of the White House. A centralized organization reporting to the White House, for example, might have the potential for better coordination and greater institutional influence than an executive branch agency, like Interior. A decentralized approach might be considered if the Congress wants the territories' administrative relationship to resemble federal-state intergovernmental relations. Puerto Rico's relationship to the federal government would serve as a 47 model for this approach. A disadvantage in this approach' would be the lack of strong coordination and oversight over programs and policies. TERRITORIES WANT TO BE REPRESENTED BY AN EFFECTIVE ORGANIZATION We solicited the territories'-Views on organizational-. structure but found no clear consensus. Many officials favored placing oversight responsibility for all the U.S. territories in the White House, similar to Puerto Rico. They believe doing so would elevate territorial concerns and provide more influence. Puerto Rican officials, however, do not want the Commonwealth included in an organization with the other territories. A high- level Puerto Rico official said this would be viewed as a set- back for Puerto Rico and a "colonial" act by the United States. Some officials believe that the territories may not need formal agency representation because the local governments now deal directly with the federal establishment in ma -ny admin- istrative areas. An NMI official said the territory might not require single agency oversight because it could deal directly with the Congress on budget matters. American Samoa's delegate to Congress and other officials suggested that there may not be a need for any federal administering'agency. Despite the disparity of their views, territorial officials agreed that they want the government to be more responsive to their needs. A Virgin Islands official summarized many of the comments we received when he said that organizational issues should not be analyzed in terms of agency placement. The most important question to be addressed is influence. Any organiza- tion representing the territories within the federal government should have the legislative support to ensure that it can con- sistently provide meaningful assistance. CONCLUSION organizational options represent one dimension in the com- plex relationship between the federal government and its terri- tories. Territorial officials are primarily concerned that their views are heard at the highest possible level within the federal system. Many believe the Department of the Interior's Office of Territorial and International Affairs is not institu- tionally suited to meet this need, however, no clear consensus exists on what type of organizational arrangement is needed. We believe a change in organizational responsibility for territorial affairs might remedy some of the territories' con- cerns. Establishment of a formal interagency policy group, authorized to address high-level policy or territorial issues 48 in a comprehensive fashion, or a legislatively authorized office attached to the White House, might provide the representative focal point wanted by many territorial leaders. Although an organizational change may not enhance or resolve U.S. terri- torial relations without a corresponding clarification of U.S. policy toward such issues as political status, economic and financial assistance and relations, the degree of federal over- sight over territorial affairs, and treatment under federal laws and programs, it could provide the impetus to addressing these issues. 49 CHAPTER 7 SUMMARY OF AGENCY AND TERRITORY COMMENTS The Departments of Interior and State and the governors of American Samoa, the Northern Mariana Islands, Puerto Rico, the Virgin Islands, and Guam provided written comments on a draft of this report, which are included in appendixes I through VII. Interior's comments support our observation that its role has diminished over time to a point where it no longer exerts much direct influence over the territories. Interior points out that while it is committed to advocating territorial interests, the realities of a massive federal bureaucracy limit federal attention to territorial concerns. In consonance with the con- cept of self-government, Interior believes the individual terri- tories must develop their own priorities and work with Interior to help achieve them. The Department of State said organizational options for the federal-territorial relationship should reflect the direction of that relationship--greater autonomy within the context of self- determination. State said greater centralization of territorial affairs within the federal qovernment could be perceived by the territories as a move to reverse the present direction of U.S. territorial policy. State recognizes the need for better coordination of both policy and program issues and suggests that an interagency coordinating committee fulfill those needs. State opposes establishment of a single committee for both the flag territories and the Micronesian states, preferring a sepa- rate federal interagency organization for each. Finally, State said it is sensitive to the desire of many flag territories to expand foreign and 'regional relations and that it attempts to take these interests into account in formulating foreign policy initiatives, such as the Caribbean Basin Initiative. The governor of the Virgin Islands concluded that our report is comprehensive and informative. He recommended that the Congress promptly enact a law giving the flag territories authority to develop a federal policy compact which encompasses and determines economic and social direction as well as politi- cal status of each territory. The policy should include a sig- nificant economic development, financial assistance package. The governor of American Samoa also said our report compre- hensively presents the issues associated with present U.S. pol- icy on the insular territories. He also supported the concept of developing a long-term economic development and financial assistance agreement between American Samoa and the United States. He said that U.S. policy on the territories needs clearer definition and more effective direction. The governor said that a single federal agency, such as Interior, cannot 50 effectively administer U.S. territorial policy because territo- rial problems are too small to warrant high level federal atten- tion. Therefore, the governor recommends the establishment of an organization within the Office of the President or a separate agency focusing solely on territorial concerns. He also sup- ports State's view that a separate organization is needed for the Micronesian states. The governor of the Northern Mariana Islands commented that while the territories have much in common, goals and aspirations may differ within each. The governor said that in general the NMI has an excellent relationship with Interior and other fed- eral agencies and with the Congress. The governor said the United States has honored its pledge guaranteeing self- government. He also commented that Interior has performed well in providing technical assistance and, in general, supporting territorial interests. The governor suggests that Interior's role in dealing with the territories be expanded to make it more effective in dealing with other federal agencies such as OMB. The governor of Puerto Rico expressed concern that the report emphasizes problems of the Pacific territories and that Puerto Rico is not at all similar to the other territories in terms of history, culture, degree of economic development, popu- lation, and experience with self-qovernment. The governor believes Puerto Rico should not be compared with the other ter- ritories, and that it has more in common with the states than any other territory. The governor also expressed concern that our chapter on the Compact of Free Association not be inter- preted as a model for U.S. policy toward the territories. In particular, he emphasized that Puerto Rico has historically maintained close ties to the United States, and that the Compact is appropriate only for the Micronesian states which are not part of the United States. Finally, the governor commented that Puerto Rico is an active partner with the United States in rep- resenting U.S. national security, and that its citizens serve as members in the U.S. armed services. The governor of Guam commented that the crux of improving federal-territ.orial relations is the need for the federal gov- ernment to respond to each individual territory in a flexible manner. He said that the Congress does not need to establish an ultimate status for each territory, but wants congressional support for legislation to establish commonwealth status for Guam. The governor said commonwealth status will resolve many of the issues addressed in our report. These and other comments from State, Interior, and the ter- ritory governments were incorporated in the body of this report to reflect updated information or to clarify certain points. 51 APPENDIX I APPENDIX I AMERICAN SAMOA GOVERNMENT OFFICE OF THE GOVERNOR PAGO PAGO, AMERICAN SAMOA 96799 Serial 1069 November 11, 1984 Mr. Frank C. Conahan Director National Security and International Affairs Division United States General Accountincr office Washington, D.C. 20548 Dear Mr. Conahan: This is in response to your letter of October 11, 1984 forwarding for review and comment the draft report of the United States General Accounting office (GAO) entitled "Issues Affecting U.S. Territory and Insular Policy." First, I would like to commend GAO and especially the evaluation team which came to American Samoa for excellent research and the preparation of a report which as far as this Territory is concerned presents comprehensively and for the most part fairly the issues associated with present U.S. policy on the insular territories. Next, I would point out two places in the draft report which seem to us to require some clarification. A. Note b in Table I on page 15 attempts to define the term "U.S. national" as it relates to American Samoa. While the definition stated provided is correct so far as it goes, we believe the footnote would be more complete if it also paraphased 8 USC 1101(a)(29) and 1408. The effect of these two provisions is to define a non-citizen national as (i) a person born in American Samoa on or after formal United States acqui.sition (April 17, 1900 for Tutuila and Aunu'u Islands, July 16, 1904 for the Manu'a Islands, and March 4, 1925 for Swains Island), (ii) a person born outside the United States on or after June 27, 1952 of U.S. national parents who had resided in the United States or American Samoa prior to the person's birth, and (iii) a person of unknown parentage and place of birth found in American Samoa while under'the age of five years (at least after reaching the age of 21 years). B. The draft report discusses the economic self-reliance of the territories in Chapter 5. The relationship of federal financial assistance to local revenue efforts is portrayed in Table 2 on page 38. This presentation places American Samoa in a particularly unfavorable light. The figures used in this table would indicate GAO Note: Page number references may not correspond to the page numbers in the final report. 52 APPENDIX I APPENDIX I Mr. Frank C. Conahan 11/11/84 -------------------------------------------------------------------- that in general American Samoa received in excess of 90% of its revenue support from federal sources. The result is derived by c;a-tegorizing local excise and income taxes as "federal". This is misleading to the reader in several ways. First, it pre'supposes that if these taxes were collected and retained by the federal government, we would not impose alternative territorial taxes, such as sales taxes, gross receipts or other income taxes, or tangible property taxes. Secondly, the figures used do not take into account American Samoa's revenue from, the various enterprise activities operated by the territorial. government. When the total generated revenue is presented with the inclusion of the enterprise activities the degree, of average federal participation drops from over 90% to 70% (see Appendix A). If the use of the questionable tax revenue sources are removed from the analysis, not added to the American Samoa tally, but simply eliminated from the comparison, the federal rate drops still further to 61%. A reasonable case can be made that in the absence of the listed tax sources, American Samoa would generate a revenue amount at least equal to half the lost federal yields. In this case the actual federal fiscal participation in American Samoa would be only 53%. This figure is not significantly out of line with present levels of federal participation with some states. This near parity would be achieved without programs such as revenue sharing and.others for which American Samoa is not eligible. Last, I would offer comments and suggestions on several specific areas. 1. Federal organization. The history of the insular territories especially since 1950, demonstrates rather emphatically, in my view, that any federal agency administering U.S. policy on those territories does not function effectively within a major department or other large agency of the U.S. Government. This statement is not intended to be critical of any Secretary of the Interior, present or past, or the head or staff of any territorial organization within the Department of the Interior. Most, if not all, Secretaries have responded postively to their territorial responsibilities. Their territorial organization staffs have been sensitive generally to territorial concerns and have included many dedicated persons. The present staff deserves specialnote in this regard. The program is simply too small to warrant prolonged attention of higher authority in this setting. Accordingly, it is my strong opinion that U.S. territorial policy requires and deserves administration either by a special organizaton within the Office of the President or by a newly established separate agency, serving in both cases, no other purpose. Equally required, 53 APPENDIX I APPENDIX I Nr. Frank C. Conahan 11/11/84 ------------------------------------------------------------------- the administration of U.S. policy on the flag territories and freely associated states to come upon termination of the UN trusteeship of Micronesia must be placed in separate agencies to account adequately for the different issues involved in these relationships. 2. Application of federal laws. American Samoa has been satisfied generally with the ongoing program of the Department of the Interior to study the application of federal laws. The effort is constructive. It is of concern, however, the Department or any other cognizant organization, submit any changes in existing laws proposed by it to us for review and recommendation before submission to the Congress. The impetus for legislation can, of course, come from many sources, but this assurance would at least regularlize the process within official channels. 3. Preemption of territorial laws. There appears to be potential in federal court decisions preempting state laws, or county or municipal ordinances, in favor of federal laws to put territorial attempts at statutory regulation in some jeopardy. For American Samoa, there is particular concern for our communal land tenure and Matai (chief) title system. This could extend to immigration, customs, business regulation and other issues. Thus, in this context, we suggest that the enactment by the Congress of legislation protect,ive Qf special territorial needs should be explored thoroughly. 4. Long-term financial commitments. Presently, direct federal financial assistance to American Samoa is provided on an annual basis through appropriations to the Department of the Interior and the various applicable federal grant programs. This process makes long-term planning for economic development, for example, and other extended programs uncertain, if not precarious. There is a lack of program continuity. Therefore, we think that means of assuring long- term U.S. commitments should be considered for specific areas of economic and social development. This step might be accomplished through a separate agreement, however styled, between the United States and American Samoa. It is my hope that this GAO report will signal the lack of and need for a realistic and sustained U.S. policy on the insular territories. The problem and program needs clearer definition and more effective direction. Sincerely, PE, aRAVaE4MA_Nft Governor of American Samoa 54 APPENDIX I APPENDIX I FEDERAL LOCAL TOTAL FEDERAL ASSISTANCE REVENUE PERCENTAGE As presented in the Table 2 of the GAO draft report: 1981 54 5 59 93% 1982 49 6 55 89 1983 56 5 61 92 When American Samoa's enterprise activities are included for purposes of a more complete presentation. 1981 54 19 73 74% 1982 49 22 71 69 1983 56 26 82 68 When the excise taxes and income taxes categorized as federal are eliminated from the comparison altogether. 1981 37 19 56 66% 1982 32 22 54 59 1983 38 26 64 59 If one-half of questioned taxes by the federal government were in fact collected by American Samoa. 1981 37 27 64 58% 1982 32 30 62 5@ 1983 38 35 73 52 55 Unitea ates Department of State APPENDIX II Comptroller Washington, D. C. 20520 November 19, 1984 Dear Frank: I am replying to your letter of October 11, 1984 to the Secretary which forwarded copies of the draft report: "U.S. Territory and Insular Policy". The enclosed comments on this report were prepared in the Bureau of East Asian and Pacific Affairs. We 'appreciate having had the opportunity to review and comment on the draft report. If I may be of further assistance, I trust you will let me know. ;S * 1 0;iere A@ 44@' g r B. F#Ian Enclosure: As stated. Mr. Frank C. Conahan, Director, National Security and International Affairs Division, U.S. General Accounting office, Washington, D.C. 20548 56 APPENDIX II APPENDIX II Issues Affecting U.S. Territory and Insular Policy The Department of State endorses the GAO report's broad conclusion that organizational options for the Federal- territorial relationship should reflect the present direction of that relationship -- i.e., greater autonomy within the context of self-determination. That evolution accords with long-declared global United States policy on dependent territories. Greater centralization of territorial affairs within the Federal Government in the area of program activities is,likely to be seen in the territories.and abroad as a move .to -reverse the present direction of U.S. territorial policy and as an impediment to more efficient direct access to Federal agencies by the territorial governments. On the other hand, the Department recognizes the need for better coordination of both policy and program issues and suggests that an interagency coordinating committee and.working, groups, as have been u'sed in the.Micronesi.an situation, could fulfill those needs. The Department would oppose establishment of an interagency body that would have jurisdiction over Micronesian as well as territorial affairs. Out.present obligations as an Administering Power on behalf of the United Nations and the nature of our future relationships to the Micronesian states under the Compact of Free Association call for an entirely separate organizational structure for dealing with the freely associated states following termination of the trusteeship.. Any organizational arrangement linking the freely associated states and the flag territories would be seen from abroad as a perpetuation of "colonial status quo' and could only provide fuel for the malicious Soviet charges that the Compact is. nothing but a sham annexation. Presidentially approved policy on the management of our post-trusteeship relations with the Micronesian states calls for a two-level interdepartmental structure consisting of an interdepartmental policy steering committee chaired by the Department of State, with the Departments of Defense, Interior and Justice, and JCS, 014B, and NSC as regular members, and other agencies participating as the subject matter requires, and an interdepartmental professional staff tailored to the requirements of the situation, attached to and headed by a career officer of the Department of State, with deputies from 57 APPENDIX II APPENDIX II the Departments of Defense and Interior and with additional personnel seconded by these and other departments and agencies as needed. The Department is sensitive to the desire of many of the territories to expand foreign and regional relations, especially to enhance economic development and attract investment, and it attempts to take these interests into account in formulating foreign policy initiatives. The report, however, notes the perception of some territorial officials that their interests were not taken fully into account in drafting the legislation associated with the Caribbean Basin Initiative. The possibility of adverse effects on the territories was considered in formulation of the policy and input was sought from the territorial governments early in the process. Once input was received from the territorial governments, changes were made to the initiative to provide safeguards for the territories' interests. The Department believes the territories were fairly treated in the formulation of the Caribbean Basin Initiative and it intends to continue to give special attention to seeking policy input from the territorial governments in cases where their interests might be affected. Paul Wolfo tz Assistant ecretary Bureau of East Asian and Pacific Affairs 58 VNE No 4, 20 Yommoftealtb of tbt godbern :Mariana 3aanb9PPENDIX III Office of the Oobernor $aipan Mariana @slands 96950 (gable Address 0 1P NOV Mr. Frank C. Canahan, Director United States General Accounting Office National Security and International Affairs Division Washington, D.C. 20548 Dear Mr. Canahan: Thank you for providing us with a copy of the draft report entitled "ISSUES AFFECTING U.S. TERRITORIAL AND INSULAR POLICY". It is gratifying to us that an agency of the Federal Government is reviewing problem areas in an effort to improve relationships between the Territories and the United States. The task is enormous when one considers the political, social, cultural and economic diversity of the various flag territo- ries, commonwealths and emerging independent entities who have chosen free association with the United States. While we have much in common, our goals and aspirations may differ greatly from other Micronesia entities and our relationship with the United States may be different. For example, although we are geographically close to the Territory of Guam and share a common culture and language, Guam has been a flag territory since 1898 and has been self-governing for a far greater period of time. In contrast, because the United States never exercised sovereignty over the Northern Mariana Islands, many problems which Guam faces are not relevant to us. For example, the land takings issue and Commonwealth status are not issues which we must deal with, as the Federal Government never seized lands and we have already negotiated Commonwealth status by mutually agreeing to the Covenant. (U.S. Public Law 94-241.) This background information and brief explanation should give you an understanding as to why our areas of concern may differ greatly from other territories and insular possessions. First, as a general statement, we have had excellent relation- ships with the Department of Interior, the Department of State, Congress and the multitude of federal agencies which we have dealt with since January 1978. Obviously, major areas of disagreement have arisen which will be mentioned later but, for the most part, problems have been resolved through negotiations and compromise. Many of these problems involved the fact that 59 APPENDIX III APPENDIX III Mr. Frank C. Canahan, Director many mid-level management officials did-not know that the Northern Mariana Islands had entered into the Covenant and were totally unaware of the'rights-guaranteed under that agreement. Once they'became aware, the problems were usually resolved quickly And to our mutual satisfaction. Other issues required action at the highest level. For,example, President Carter issued a proclamation in order to allow local people to use fishing vessels given to our government by Japan. Other issues which generally involve applicability or inapplicability of federal laws have been the subJect of extensive review and study.by the Commission on Federal Laws. Unlike many other territor'ies and insular-possessions, our Covenant has built-in mechanisms for 'the resolution of disputes. For example, see Section 902, of Public Law 94-241, which requires that special representatives meet.and consider issues affecting our relationship. Although your draft report does not specifically mention the Commonwealth's,relationship with the United States Congress and the committees which have oversight over the territories, we feel an obligation to inform you that we feel that we have been treat'ed.quite fairly. Since 1978, supplemental appropriations have been made 'to fund needed projects such as a new power plant, new hospital and improvements to our water system. Capital improvements funds guaranteed by the Covenant would have been insufficient to fund 'projects of this magnitude and the.United.States Congress, which has plenary authority over us, hag been most responsive to,our requests. it is true, as indicated in your draft report, that, until recently, the United States was-primarily interested in the Trust Territory'of the Pacific islands for strategic purposes. However, in all fairness, the 'United States did honor its pledge guaranteeing self-government. The most serious problem affecting the Northern Mariana Islands is that, on several occasions, attempts to attract more businesses to our island have been thwarted because of positions taken by federal officials.' Although the Department of the Treasury has indicated that the income tax (which is mirrored after that of the United States) is inappropriate .to our needs, both as a revenue measure and as an inducement to do business, the Department of Interior has been most reticent to act as our advocate before the appropriate committees of Congress. Several tax task forces have addressed this problem and we are ready to transmit,draft legislation which would adopt, in a modified form, the Internal Revenue Code (IRC)." I note that the !RC does not apply in either@American Samoa or Puerto Rico. More importantly,'it is not the local income tax in either the 60 APPENDIX III APPENDIX III Mr. Frank C. Canahan, Director Marshalls or the Federated States of Micronesia. Why should the Commonwealth of the Northern Mariana islands be treated differently, particularly when we are specifically given the power to rebate such taxes should we desire to do so? Again, we are hopeful that the issue of taxation can be resolved early next year. However, we,need the support of the Department of Interior. Another pending.problem. best exemplifies our frustrations. Provisions in our Covenantenable us to benefit from Headnote 3(a), which allows us to export goods into the United States duty free provided'certain requirements are met'. Without notice to us, the Department of the Treasury, pursuant to a Presidential Executive Order, promulgated regulations which would effectively deliver a death blow to our infant textile industry. Support from the' Department of Interior has been lukewarm at best.. Opposition forces in Washington, D.C. fail to recognize that we are also members of the American political family and that our citizens will be deprived of their liveli- hood should the regulations.take effect in their present form. Due to the infancy of our textile industry, it has.become necessary to allow the importation of skilled workers. However, every attempt is being made to replace such persons with local people* once they acquire the necessary skills through training. Both of the above examples demonstrate that, when we make a sincere attempt to become self-sufficient, our efforts become frustrated. I do feel that the Office of Territorial and International Affairs in the Department of Interior does a very credible job in providing oversight, in providing us with technical assistance and in acting as our advocate when called upon. Unfortunately, it often lacks the necessary resources and manpower to successfully present our views when serious opposition appears. The territories and insular possessions may be best described as a group of half-brothers or half- sisters who need a strong father figure in Washington who understands our problems, our goals and our aspirations. We in the Northern Marianas have been dominated by foreign powers for approximately four hundred years. We desire, ultimately to be economically independent. At the same time, we recogniz; that we are small and powerless pawns in the hands of foreign,powers other than our chosen ally, the United States. One area where improvement is needed involves our dealings with the various agencies of the federal government. Local govern- mental departments which have a history of dealing with their .federal counterparts have, for the most part, developed close 61 APPENDIX III APPENDIX III Mr. Frank C. Canahan, Director working relationships. However, when there are changes in personnel due to transfers, retirements, etc. or when a new program is established with a federal agency not familiar with the Commonwealth problems do arise. One solution would be for OTIA to act as a clearing house and to educate other federal agencies regarding the territory involved. One area where the OTIA deserves high marks relates to providing technical assistance to the Commonwealth. We appre- ciate that we often lack the necessary expertise to do certain tasks and such assistance is truly needed. The personnel which have been assigned to the Commonwealth have provided such expertise and have demonstrated a willingness to impart their expertise to local people. In many instances, the expert has completed his task and, by training local personnel, has made his position obsolete. Providing technical assistance is far superior to providing funds and, in the long run, the federal government obtains a better return on its investment. We would recommend that this type of assistance be expanded. Provisions in our Covenant require that Special Representatives be appointed to discuss future multi-year financial assistance after the expiration of the seven-year period of guaranteed annual assistance by the United States. President Reagan has ,appointed Assistant Secretary Montoya and the Commonwealth will be represented by Lieutenant Governor Pedro A. Tenorio. We feel that future financial assistance is necessary to our economic and social development and applaud the negotiations and draftsmen of the Covenant for the foresight in providing a method to resolve matters of such importance. We also are of the opinion that Mr. Montoya is an excellent choice as he is a very familiar with our problems as well as our aspirations. Although our government maintains excellent relationships with the United States Government, many of our citizens still experience problems while traveling or residing in the United States. Provisions in our Covenant allow qualified persons to elect to become a U.S. citizens or nationals upon termination of the Trusteeship Agreement. It was generally thought that termination would take place in 1981. Recent U.S. Public Laws have given our people-certain privileges granted U.S. citizens but these people do not have sufficient evidence of such status. We would suggest that temporary U.S. passports be granted to persons who would otherwise qualify for U.S. citizenship under the Covenant. Wetake some exception to that portion of the draft which states that the territories have not made much progress in 62 APPENDIX I APPENDIX III F I i C. Mr. ran Canahan, Director becoming economically self-reliant. We in the Northern Mariana Islands have raised taxes and have attempted to attract new businesses in order to broaden our tax base. The additional revenues raised may not be reflected on Table 2 which appears on page 38 of the draft. We are in the process of verifying our statistical data and will advise you accordingly by separate letter. .In closing, we feel that the present system is working well but could be improved. OTIA has been, in our opinion, most responsive to our needs particularly in the areas of technical assistance and infrastructure improvements. If anything, we would suggest that its role in dealing with the territories be expanded so that it could be more effective in dealing with other agencies such as OMB when it presents its recommendations to the Congress or to the President. Thank you for giving us the opportunity to comment and present our views. Sincerely, .PEDRO TENORIO Gove nor PEDRO TENORIO Gove nor 63 ttAT Or NDIX IV APPENDIX IV United States Department of the Interior OFFICE OF THE SECRETARY WASHINGTON, D.C. 20240 1984 NO V 2 Mr. J. Dexter Peach Director Resources, Community, and Economic Development Division U.S. General Accounting Office Washington, D.C. 20548 Dear Mr. Peach: We have reviewed the GAO draft report on issues Affecting U.S. Territorial and Insular Policy, and the following are our comments: Chapter 1 Page 1 In the first paragraph, second sentence, you may wish to substitute "sometimes known" for "commonly known". The usage of "flag territories" is new and not uniformly embraced. Later in the first paragraph, of the nine island areas named, five are by@ Executive order within the administrative responsibility of the Interior Department. It would therefore be more accurate if the second to the last sentence of the paragraph were revised to read: "These smaller U.S. possessions are for the most part within the administrative responsibility of the Department of the Interior but some are administered either by the Coast Guard or by components of the Department of Defense." In the second paragraph, second sentence, it would be desirable to change "became the trustee" to "became the administering authority". The former phrase carries with it substantial possible legal consequences which have been the subject of recent litigation and which may give rise to more. Parte 2 While the United States has strong national security interests in the Pacific and Caribbean Territorial and Insular areas, it should be noted that these territories are also extensions of America, and have been so for almost a century in the case of Puerto Rico, Guam and the Virgin Islands. In the third full paragraph, because in 1969 there were no separate 96governments" in the Trust Territory, it would be well to substitute for "the Micronesian governments of" the words "political leaders in." 64 APPENDIX IV APPENDIX IV Page 3 In the first full sentence, it would be desirable if "U.S. territory" were deleted, and "commonwealth in political union with the United States -- a status approximating that of a U.S. territory" were substituted. Although the Northern Marianas generally concede that they will become a "territory" of the U.S. following termination, the use of "commonwealth" is preferred, so both references seem desirable here. In the last sentence of the paragraph continued from the preceding page, we suggest that instead of "the status of the rest of Micronesia is resolved", there be substituted "the trusteeship is terminated". The suggested language is accurate, and it eliminates the suggestion that Palau may be able to hold the rest of the Trust Territory hostage. The first full paragraph on that page contains a number of statements and terms which are either somewhat misleading or otherwise imprecise. we suggest that the paragraph be revised into the two paragraphs suggested below. We believe the suggested language will meet the purposes intended by the existing paragraph, and will eliminate the difficulties we perceive in it: The United States and two Micronesian states, the Federated States of Micronesia and the Republic of the Marshall Islands, have reached final agreement on a new and unique political relationship and political status -- that of free association -- which will come into full effect upon termination of the trusteeship. The free association relationship is defined in a Compact of Free Association, under which the Micronesian states will exercise sovereignty over their internal and foreign affairs, while the United States will retain full responsibility and authority for all security and defense matters. The Compact has been approved by the governments of the Federated States of Micronesia and the Marshall Islands, and by their peoples in United Nations-observed plebiscites, and it is now before the U.S. Congress for approval. A similar arrangement with Palau is under review after an earlier version did not receive final approval in Palau. This was because the Compact received 62 percent' popular approval in the Palau plebiscite, but Palau's constitution required 75 percent approval in light of the U.S. defense authority. Approval of the Compact of Free Association will provide the basis for termination of the trusteeship with the United Nations, and will open a new chapter in relations between the Federal government and the peoples of areas which seek self-government and political autonomy within the context of a close relationship with the United States. The arrangements contemplated by the Compact have also sparked new debates in the U.S. territories about how their relations with the Federal government can be improved, consistant with U.S. sovereignty. (See Chapter 5). Chapter 2 Paze 11 In the second to the last line of the footnote, in the interest of clarity, it would be helpful to add the words "held to be" before "unincorporated." 65 APPENDIX IV APPENDIX IV Chapter 3 Page 14 This administration, indeed, supports the concept of self-determination and encourages the territories to determine for themselves what is best for them in their relationship with the United States. It should be noted that all territories have expressed at various times their desire for closer ties with the United States. In the first full paragraph, the year "1976" should be changed to "1978", because it was not until the later year that the government of the Horthern Marianas Commonwealth came into being, even though the Covenant received U.S. approval in 1976. Page 15 In Table 1, we offer three suggestions: The final date in the Table (1977, pertaining to "Granted constitution" for the Morthern Marianas) should be 1978, because it was in that year that the Constitution became effective; In Footnote a, instead of "now a constitutional government" (which suggests that prior to 1952 Puerto Rico's government was unconstitutional), insert in lieu of that phrase the words "governed under a constitution locally drafted and approved"; and Add a further footnote, keyed to the Table's use of "Elected first local legislature". In fact all five areas had local legislatures, generally elected, prior to the dates shown, but some had advisory authority only (as in Guam), and others were subject to various but serious constraints upon their authority. To overcome this problem, the footnote might read: "The date given relates to the first elected legislature with either full or substantial legislative authority." Page 16 In the second paragraph, first sentence, it would be desirable to change "guaranteed only" to "limited". As written, the implication is that Citizen residents of the territories, while not "guaranteed" the right to vote in national elections, could still be granted that right. They cannot, without a Constitutional amendment, and the suggested change would make that clear. Pa&e 18 In the first incomplete paragraph, second to the last line, the use of "tax exemption" is not inaccurate, but more meaning would be conveyed if there were substituted for it the words "exemption from the Federal income tax laws". That is the tax about which controversy has swirled, and for which a graduated reduction was proposed by the former Governor. 66 .APPENDIX IV APPENDIX IV Page 19 First three lines should read: "Guam is currently refining a draft commonwealth proposal which it intends to submit to the Congress." No action will be taken during the remainder of 1984, and the final draft may not be ready in 1985. Paxe 21 It should be noted that Assistant Secretary Richard T. Montoya, the President's Special Representative, is currently negotiating with the NMI government on the future:level of Covenant funding. Chapter 4 Paze 25 Negotiations between the United States and Palau are complete and the agreement was signed by the U.S. and Palau representatives in May, 1984. Palau is now attempting to resolve internal constitutional problems in the formal adoption of the document by the legislature and in a plebescite. An election held September 4, 1984, failed to obtain 75 percent approval of a constitutional amendment and was not recognized by the United States. The concept of U.N. "supervision", which appears in the first and the last lines on this page, is not entirely apropos. It would be preferable if on the first line, "under U.N. supervision" were deleted and "pursuant to an agreement with the U.N." were substituted. on the last lines, it would be well to delete "international supervision of the U.N." and substitute "U.N. international." Page 26 At the end of the first full paragraph, you my wish to add: "In addition, the Trusteeship Agreement was thereby entered into with the Security Council of the United Nations, where the U.S. possesses a-veto, instead of with the General Assembly, where it does not. The General Assembly had hitherto been the U.N.'s contracting party for trusteeship agreements." This veto consideration was at least as important a rationale for the strategic trust as were the others stated. In the second full paragraph, first sentence, because the territories are not ..sovereign entities" in the context of international law, it would be desirable to delete "a sovereign entity, subject" and insert "subject to U.S. sovereignty or". At the end of the second full paragraph, you may wish to add: "Rather, the Trusteeship Agreement colm'its the U.S. to promoting "self-government or independence", as the peoples concerned might elect. That could include becoming a U.S. territory, independence, or the type of arrangement defined in the Compact." 67 APPENDIX IV APPENDIX IV Page 27 The High Commissioner is appointed by the President, and not the Secretaryof the Interior.. The statement "The High Commissioner will represent U.S. interests in the Trust Territory until the trusteeship is terminated" is not completely accurate. The authority of the High Commissioner is delegated by the Secretary of the Interior under an executive order. Therefore, with the problems in Palau, it is possible that the operation of the High Commissioner may be phased out prior to formal termination. It would be more appropriate to say the "Secretary of the Interior will represent U.S. interests in the Trust Territory until the trusteeship is terminated." Page 28 Negotiations have been completed between the United States and Palau. We are encouraging Palau to resolve internally its problems with certain defense and security provisions of the agreement. You may wish to insert at the beginning of the first full paragraph: "Even though the people of Palau voted by 62 percent to approve the Compact," In the second full paragraph, you may wish to revise the third sentence to read as follows: "Except for rights retained by the United States in connection with defense and security matters, the Micronesian states will be self-governing entities." In the sentence immediately following, we suggest the deletion of "will be sovereign states" and the substitution of "will approximate sovereign states." Page 30 No decisions have been made as to which federal grant programs the respective Freely Associated States will be allowed to participate in post compact. The Compacts provide specific funds for health and education programs, but this is separate from existing federal grant programs. The first sentence of the second paragraph, we believe, might better read: "The United States will also provide support and certain services through the U.S. Postal Service, Weather Service, Federal Emergency Management Agency, the Federal Aviation Administration, and the Civil Aeronautics Board (or its successors).7 Page 32 Although the Micronesian governments may appear to have a more beneficial relationship with the United States government as a consequence of the Compacts, it should be pointed out that the flag territories are part of the United States whereas the Micronesian entities are not. Economic Benefits should not be the sole consideration. At the end of the first p aragraph, you may wish to add to the end of the first sentence: "and make proposals for reform and reorganization of their legal and policy relations with the Federal goverjpent." t) 15 APPENDIX IV APPENDIX IV Page 33 If, under'ferms: of'the Compacts, the Micronesians will accrue greater benefits, it appears unlikely then that there will be a massive influx of immigrants to Guam and the other territories. Chapter 5 Page 37 The use of the word "rebates", on the sixth line, may be confusing, in light of the Northern Marianas' laws (which were effectively repealed by.th6 U.S. Congress) providing that once the Federal income tax 'law is in effect'there, almost all local taxpayers would receive a 100 percent "rebate" of all of the taxes they had paid. To avoid this problem, you may wish to delete "rebates" and insert "payments to the territorial treasuries." Page 38 In Table 2, Two references for footnote "a" appear. Probably that following "American Samoa" should be deleted. In the "Total" column, the figure shown for Puerto Rico in 1981 appears to be in error. In the'footnote, the problem discussed above concerning the use of the word "rebated" occurs again. Perhaps there might be substituted for it the words "retained by the territories or covered into territorial treasuries". Page 39 and 40 While there may appear to'be-no overall federal strategy for encouraging economic development in a comprehensive and consistent fashion, it must be noted that all territories have popularly elected representatives, both in the territories and in the nation's capital, and the.federal gove rnment ought not to dictate such strategy in consonance with the concept of self- determination. it'should be pointed out also that'the needs and problems of individual territories are not necessarily the same. This administration continues to encourage elected territorial leaders to develop their individual priorities and to work with the Department of Interior, through OTIA, in achieving them. It is presumed that territorial delegates to Congress are in the best posture to identify laws inimical to territorial interests, and,to seek congressional exemption to their application. Page 47 in the second paragraph, the "1950" appearing in the first sentence should be changed to "1950 and 1954", and at the end of the sentence there should be added, "respectively." APPENDIX IV APPENDIX IV Page 48 In the first full paragraph, the second sentence is inaccurate. It is not the Jones Act but instead the Nicholson Act that concerns the off-loading of tuna from foreign vessels. The Nicholson Act, however, does not apply to Guam, pursuant to a 1950 ruling of the Treasury Department. We suggest that the sentence be deleted. In the sentence next following, instead of referring to "Guam officials", you may wish to qualify the reference, perhaps by substituting "Some Guam officials". Many in Guam 'nave in recent years changed their views as to the benefits and burdens of the Jones Act. Page 49 Under the 1984 Omnibus Territories Bill, visa requirements for foreign travel to Guam are waived. Page 53 At the end of the first full paragraph, it would be helpful if you were to add: "Interior plans, however, to prepare at the conclusion of the present study an Addendum that will detail the application of all Federal laws to Puerto Rico." Because Interior has had requests for this work, particularly from Congressional committee staff personnel, it would be desirable to include this sentence, so that the requests that we have had and that we expect to honor will not appear to have been overlooked. Page 59 Under the 1984 Omnibus Territories Bill, waiver of matching grants up to $200,000.00 was extended to the Virgin islands and Guam. Chapter 6 Page 64 Please note that gubernatorial appointments in Guam and the Virgin Islands were made by the President. Governors in American Samoa were appointed by the Secretary of the Interior. In the last sentence of the second full paragraph, we suggest that you delete "most of". In 1951 Interior was given responsibility for all of the Trust Territory. It was in 1952 that that authority was diminished, but it was entirely restored in 1962. In the circumstances and the context, the recommended deletion will serve the interests of accuracy, and it will not be misleading. 70 APPENDIX IV APPENDIX IV Page 65 in the second sentence of the first paragraph, the use of the verb "enjoyed" implies that Puerto Rico was and is content with the lack of Interior oversight. That view has in recent years been contradicted by some Puerto Rican leaders who believe that it was an error for Puerto Rico to have no "home" in the Executive Branch (other than the White House, which has not functioned,very effectively as such and which probably cannot, for organizational reasons). In lieu of "enjoyed", the more neutral "continued" might be substituted. Page 69 and following The Territories and their governments are not instrumentalities of the Department of the Interior. They are self-governing entities whose aspirations and responsibilities are, to a degree, similar to those of state and local governments. With the passage of time, the Department of Interior's role has diminished, and rightly so. On the other hand, DOI's oversight role applies primarily to the disbursement and accountability of federal funds. This applies to all recipients of federal financial assistance and is not exclusive of the territorial governments. Not generally understood.is the multitude of interests bidding for administration and congressional attention and the role the territories play. in the overall scheme of things. While DOI, through OTIA, is committed to , advocate territorial interests, the realities of a massive federal bureaucracy limits federal attention to territorial concerns, irrespective of the departmental or agency organization assigned to pursue territorial objectives. Federal and indigenous constraints can be overcome but they require specific objectives and determination on the part of territorial leaders and the cooperation and assistance of federal officials. Page 71 Second paragraph should show that of the $62 million requested by Guam, $5,725,000 was approved by Congress. During at least the past several years, the Virgin Islands did not submit a budget request through the Department of the Interior.. At the end of page 71, a word has been dropped. Perhaps it should be "better". Page 72 In connection with the first full paragraph, a further area of difficulty might be mentioned, perhaps by the addition at the end of the paragraph of the following: "There is, of course, a further inhibition upon OTIA officials as territorial advocates. They cannot serve as independent advocates of territorial budget requests in light of the Federal budget process, which requires that they, like all Federal officials, must conform to the budget decisions of OMB and the President." 71 APPENDIX IV APPENDIX IV Page 73 Last paragraph should read: "These officials believe that OTIA is not exercising an effective oversight role due in part to an inability to enforce compliance by the territories with audit recommendations. This oversight responsibility conflicts with OTIA's statutory responsibility to support greater autonomy for the territorial governments." It should be noted also that when OTIA disagrees with recommendations made by the I.G., or when the I.G. attempts to make policy decisions outside its area of responsibility, OTIA often sided with the territorial governments, as is appropriate in its role as an advocate for the territories. Page 83 On the last line, the term "retains" would be preferable to "maintains". The. latter implies an active role, and as a factual matter, that is inaccurate Sincerely, Richard T. Montoya Assistant Secretary Territorial and International Affairs 72 APPENDIX V APPENDIX V THE VIRGIN ISLANDS OF THE UNITED STATES OF71CE OF THE GOVERNOR CHARLOTTE AMAtIE,* ST. THOMAS, V. L 00801 November 283, 1984 Mr. Frank C. Conahan Director U.S. General Accounting Office National Security and International Affairs Division Washington, D. C. 20458 Dear Mr. Conahan: After reading the draft report "Issues Affecting U.S. Territory and Insular Policy", I conclude that the report is the most informative.and comprehensive of its kind that I have read. My comment is brief., and is to make the following recommendation: Congress should promptly enact a law giving the Flag Territories the authority to develop a Federal policy compact subject to negotiation and approval by Congress, which encompasses and determines the economic and social direction, as well as the political status of each Territory. The policy should include a significant economic develo-nment financial assistance package for each Terri- tory, After Congress gives its approval on the negotiated compact, then it should be returned and presented, unaltered, for a final referendum vote. I hope that my recommendation will help bring about a solution to the complex problems and issues outlined in your report. Sincer s Juan Luis---- Sinc uan Goveri@y APPENDIX VI APPENDIX VI A151 November 28, 10,84 Mr. Frank C. Conahan Director National Security and International Affairs Division U.S. General Accounting Office Washington, D. C. 20548 Dear Mr. Conahan: Enclosed are my comments on the Draft Report of the General Accounting Office (GAO) Study, Issues Affecting'U.S. Territory and Insular Policy. From the point of view of analysis of organizational problems, the Draft Report appears to be fairly thorough with regard to the Pacific territories. I find, however, that it adds nothing. to previous studies of Puerto Rico. In fact, it is essentially a study of the problems.of the Pacific territories, which, to my knowledge, have not previously received adequate attention. My comments emphasize one main concern: the nature of the re- quest from the Senate and.House was such that GAO had to analyze all of the territories, whereas in terms of history, integra- tion with the United States, citizenship, experience with in- ternal self-government, population, degree of economic develop- ment, social conditions, not to mention culture, Puerto.Rico is not at all similar to the other territories, particularly those '2"-ntH-e F-a-cific. I also find that the Draft Report emphasizes the quasi-sovereign aspects of the Compact of Free Association for Micronesia, with- out taking into account the continued control of the United States over the territory for as long as it is convenient. The 74 APPENDIk'v'i APPENDIX VI Mr. Frank C. Conahan November 28, 1984 Compact may be terminated unilaterally at any time by either the United States or Micronesia; the United States has a perpetual right to deny access to Micronesia for security reasons; and Micronesia is-obligated to prepare national de- velopment plans which must have the approval of Congress. I do not presume to comment on the desirability of this arrange- ment for Micronesia, but this is not "sovereignty" to me.- Thank you for the opportunity to comment on the Draft. Sincerely, @a@rlos Ro Enclosures 75 APPENDIX VI APPENDIX VI COMMENTS OF THE GOVERNOR OF PUERTO RICO, CARLOS ROMERO- BARCELO, ON GENERAL ACCOUNTING OFFICE (GAO) DRAFT REPORT--- ISSUES AFFECTING U. S. TERRITORY AND INSULAR POLICY I.Organizational problems, We agree with the analysis of existing organizational problems, including the inconsistency of federal policy toward the various ter- ritories: the inequitable and inadequate application of federal laws; and the absence of appropriate consulta- tion with the territories. However, much of the Report focuses on the role of the Department of the Interior (as territorial oversight entity, lobbyist, advocate, etc.) and on the enactment of the Omnibus Territories Act in 1984. Within that context, it is not made sufficiently clear that Puerto Rico neither falls under the jurisdiction of the Department of the Interior nor under the provisions of the Omnibus Territories Act. II. Puerto Rico and tha other territories. While the Draft Report represents an understandable attempt on the part of GAO's staff to place the territories within a frame- work of uniformity, the truth*of the matter is that such uniformity simply does not exist in practice. To a degree, Puerto Rico and the other territories do share 76 APPENDIX@@VI APPENbIX VI similar advantages or handicaps, in much the same way as do--for example--large cities, or states within a specific-geographical region. However, we believe that- -in general--the circumstances confronting Puerto Rico are sufficiently different, in nature and/or scope, that they render 'invalid most attempts to compare Puerto Rico's situation directly with those of the other terri- tories. it is as if one were to compare Great Britain .and the Republic of Malagasay as "island societies," without taking into account such factors as history, proximity to other countries, culture, political insti- tutions, education, infrastructure, and economic develop- ment. To a great extent, such an exercise would be like comparing apples with oranges. Our position is that Puerto Rico has more in common with the states as a group than with the other territories as a -group, and that Puerto Rico likewise has much more in common with the states than does any other single territory. The Draft Report, on page 39,, lists a ..number of constraints which hamper economic and social development.. Let us.,examine these constraints as applied to Puerto Rico: 1. "Geographic isolation from major world markets and mainland United States." Though.it is undeniable that virtually- every offshore is-lan.d is to some-extent geog- raphically isolated from major markets, we would like to 77 APPENDIX VI APPENDIX VI point out that Puerto Rico and the Virgin Islands are located about 1000 miles from the mainland U. S., where- as the Pacific territories are situated anywhere from 4000 to 6000 miles from the mainland. Puerto Rico and the Virgin Islands are closer to the mainland than Hawaii and almost all of Alaska. Puerto Rico and the Virgin Islands are situated directly in between two huge world markets: the United States and Latin America. The Report omits any mention of the transportation facilities presently available (in Puerto Rico and else- where) that contribute to surmounting the problem of comparative geographic isolation; in Puerto Rico's case, such facilities include over 3,000 passenger and cargo flights weekly and over 80 weekly ocean sailings to and from the mainland. 2. "Small land areas,, and except for Puerto Rico, populations." The total land area of all of the other territories combined is approximately 1000 square miles, whereas Puerto Rico's land area is some 3435 square miles (larger than the states of Rhode Island and Delaware). The combined population of &U of the other territories is some 250,000, whereas Puerto Rico's population is 3.3 million, including a capital city of over 400,000 with a metropolitan area of more than 1 million inhabitants, plus four other SMSA's of over 100,000 persons each. Puerto Rico's population exceeds 78 APPENDIX VI APPENDIX VI that of at least two dozen of the 50 states. 3. "Limited natural resources, especially petroleum." Puerto Rico possesses substantial (although unexploited) deposits of copper and nickel. Moreover, we would remind the reader that the same thesis also applies to the states: there are "resource-rich" states and ."resource-poor" states. 4. "Infrastructure and facilities inadequate to support the expansion of local industry and to attract significant outside investment." We disagree completely. Puerto Rico's Economic Development Administration maintains offices in ten (10) mainland cities, as well as two (2) European offices and an office in Japan. Over 150 of the "Fortune 1000" manufacturers operate plants in Puerto Rico. In 1984, manufacturing constituted 58 percent of Puerto Rico's GNP. It would be redundant to mention here the infrastructure of roads; airport and port facilities; electric power; water supply; telecom- munication services; available factory, warehouse and commercial space; hospitals; schools; universities; and many others, not found in the quantity or quality of facilities in Puerto Rico. Suffice it to say that Puerto Rico cannot be compared with the other territo- ries with respect to infrastructure and facilities for commerce and industry. 79 APPENDIX VI APP8NDIX.VI 5. "Limited skilled labor forces, and managerial and entre- preneurial skills." Again we disagree completely. See appendix. As an indirect but perhaps persuasive indication, San Juan alone has some 20 employment agencies and/or executive management recruitment firms. Approximately 85% of middle management is Puerto Rican. 6. "Large public sectors, ranging from 24 percent in Puerto Rico to 46% in Guam." Firstr the Draft Report (in Appendix I, page 80) states that the'public sector in the Trust Territory ranges up to 57%. Second, Puerto Rico's public sector employment is not much greater than that of many states. Hawaii, for example, has 21% employment in the public sector. 7. Apart from these "constraints" mentioned in the Report, we include two positive factors which were* not specifically acknowledged. A. Educational System, For details, see Appendix. We would simply state that Puerto Rico has more students in post-graduate institutions than the entire population of any other territory and more students per capita enrolled in institutions of higher education than the U. S. national avera ge. B. manufacturing, commerce, trad e. In 1983, some 58% of Puerto Rico's Gross State Product came from these sectorst which employ 38% of the work force. Also, employment is diversified among the various 80 APPENDIX VI APPENDIX VI manufacturing, financial and construction sectors. Thereforer there is no comparison with the other territories which have virtually no manufacturing sector and/or are almost exclusively dependent on tourism and one other source of non-governmental employment (e.g., American Samoa-tuna canneries; Guam-military.) III. "Economic Self-reliance," The Report emphasizes the lack of "self-sufficiency" and heavy dependence on federal assistance. We assert that "economic self-sufficiency," while a laudable goal, is simiply impossible in today's world _oL trade and commerce. We know of no.-state which does not share economic interdependence with other states and the federal government. Would GAO infer that Hawaii should be economically self-reliant despite its distance from the mainland, geographic isolation, limited population and comparative lack of natural resources? We know of no small nation which is not economic- ally interdependent to a large extent with one or .more major nations. If, by "economically self- reliant," the Report refers to dependence on fed- eral assistance, we disagree sharply with Table 2 on page 38. According to most authorities, federal 81 .APPENDIX VI APPENDIX VI transfer payments from the U. S. constituted 21.4% of Puerto Rico's Gross National Product in 1981, 23.0% in 1982 and 22.6% in 1983. Of these transfer .payments, 59% were earned benefits. While federal assistance to Puerto Rico is higher than to most states, it is not unreasonably out of proportion, given Puerto Rico's per capita income and relative poverty. According to a study by the National Gov- ernors' Association in 1982, federal assistance constituted the largest single source of revenue for aU the states. If the staff of GAO relied on Federal Expenditures .b-y State for FY 1983 for the table on page 39, we would point out one glaring omission. Because of a computer code error by DOD when supplying this information, Defense procurement contracts are stated as $0, whereas actually they totalled $217 million. Defense procurement contracts, like earned benefits, may be a federal expenditure, but are not regarded as federal assistance. IV. "Economic Development Strategvn-.,- Page 39-40. There is an underlying premise in the Draft Report: namely, that the U. S. has no economic development strategy for the territories, except for piecemeal actions such as Operation Bootstrap. We believe that the economic development strategy of the 82 APPENDIX VI APPENDIX VI nation should take into account the situation of the territories as well as that of the states, insofar as possible. For those unfamiliar with federal programs, we believe that there should be some men- tion that, aside from loans, there are few federal grant Programs dedicated to -economic development per a-e (Community Development Block Grants (CDBG), Urban Development Action Grants' (UDAG), and Economic Development Administration (EDA) grants). Concerning these programs, Puerto Rico's allocations have been equitable and respond to Puerto Rican development plans. Also Puerto Rico has an enviable record in UDAGs, which are competitive nationwide among all municipalities, large and small. V. Political Status. 1. We submit that although Puerto Rico now has the same internal powers as a state, the word "commonwealth" itself means nothing when applied to.Puerto Rico,, since the Island possesses none of the attributes or drawbacks of quasi-sovereignty or sovereignty. On the contrary, Puerto Rico is completely subject to the decisions of the Congress of the United States (See Harris v. Santiago-Rosario 446 U. S. 651 (1980)). Puerto Rico is no more a "Commonwealth" (in the sense of Canada within the 83 APPENDIX VI APPENDIX VI British Commonwealth) than is the "Republic" of Palau a Republic (in the sense of the Dominican Republic). 2. Although purportedly the Draft Report does not deal with statusf there is a disquieting emphasis on the "Compact of Free Association for Micronesia," as if this Compact offered a model for U. S. policy toward all the territories. From its context, the Report. appears in this regard to be contemplating only the other Pacific territories; nevertheless, we must note the possibility that many readers will understand it to include Puerto Rico, as well, through ignorance or misinterpretation. We must confess that we feel almost equally ignorant about the Republic of Palau, the Republic of the Marshall Islands and the Federated States of Micronesia. It is not for us to pass judgment on the aspirations and destiny of these 116,000 non-citizens under trusteeship, or on the merits of the present proposed Compact achieved for two of these three entities after 15 years of negotiations, at a cost that would amount to $2.2 billion over the next 15 years. The Compact is an accomplished fact and we hope it will be successful for Micronesia. However, it is apparent to us that the Report (in its present 84 @APPENDIX VI APPENDik*VI form) could be readily exploited by separatists in Puerto Rico as an argument to support a gradual or accelerated move away from political equality with the rest of the nation (U.S.). Those provisions of the Compact which include- the option of unilateral'termination thereof by either the U.S. or Micronesia at.any time; the requirement for -& national. plan which. must -receive--the .concurrence of Congress; the.perpetual4right of@the UO. S., to deny access for security reasons -these aspects will be - downplayed, by- Puerto. @Rico separatists.in favor of stressing-the "free." use.-.of ,a bonanza of.billions of dollars, in-an appeal @to .greed rather than to integrity.- The reacti6n-from other ideologicalsectors will stress the @prospect of losing our close ties'to the U. S. :despite the Aesire -of.no less than .45% of our population: who ,desire equality through statehood.., The adverse consequences of the resulting controversy could very well include a flig ht of capital, the posponement or cancellation of planned investment, and an upsurge in migration to the mainland by experienced and highly productive mem- bers of our professional and managerial sector. b 85 APPENDIX VI APPENDIX VI We fully realize that the formulation of political status options is neither the focus of the Draft Report nor the intent of Senator McClure's request, and that a factual narrative concerning the Compact has nothing to do with the use to be made of the Report thereafter. However, since any discussion of organizational or policy changes will necessarily involve statusf we feel that explicit acknowledgment of the fact that Puerto Rico's situa- tion is completely different from those of the other territories would be more realistic and more in keeping with the purpose and intent of the Report. VI. National Security. We find the emphasis on page 2 (to the effect that U. S. interests focus on national security) to be --if true-- a sad commen- tary on the significance of Puerto Rico's 86-year history as a United States possession. This section reads as if Puerto Rico were a foreign nation which has to be persuaded to continue "close and friendly relations" with the U. S. Puerto Ricans have been U.S. -citizens for almost 70 years. Presently there are some 150,000 Puerto Rican veterans of the U. S. armed forces residing on the Island. Some 2,000,000 Puerto Ricans reside in the 50 states. 86 APPENDIX VI APPENDIX VI This statement constitutes an insult to our loyalty, our integrity, and to our record of participation in the affairs and in the defense of the nation. We might add that it also offers what would readily be construed as federally sanctioned encouragement to radical elements rhose goal is to force Puerto Rico's separation from the U. S. against the will and the democratically expressed desire of the overwhelming majority of the Puerto Rican people. Submitted by: CARLOS ROMERO-BARCELO GOVERNOR OF PUERTO RICO 87 Z F-4 TABLE XIII ENROLLMENT AT UNIVERSITY LEVEL BY INSTITUTIONS, PUERTO RICO: 1976-77 TO 1982-83 Institutions 1976-77 1977-78 1978-79 1979-80 1980-81 1981-82 iq#2-9a Total 111 119,083 126, 19h 130,105 135, 10 139,4 59 IS1,443 University of Puerto RICO so 50,492 50,837 52,680 5 1- 1 S9 _Z7 I Rio Piedras, y Extrimufoo 24.216 23.846 23.531 22.,816 23.37) 21.267 1q.755 'Mayaguez 9,130 8,76-7 8,89§ 8--@9 8,86ti 9.23H 9.24,1 cfencias wedicas : , I 2o 2,835 2.583 2.476 2.01 2 6 2-S 3.1 )1 Cay Iey 2.351 2.601 2,541 2,695 2,8i6 3,455 3.314 HLmacao 3.233 3.343 3,277 3.8bA 3,693 3.307 3...1.14 Raysm6n Col." Univ. Tee. - 3.963 3,967 3.908 4.4,4+ Arecibo Col. Univ.-Tac. 2,863 29821 3. 2.fb 00 00 Ponce Col. Univ. Toe. i.7AS Regional Colleges- 9.175 91100 9.417 6A6qO 4 749 4AB38 Arecibo- 2,369 2,359 2.422 2,467 3/ 3/ Pon c at / '51 5 L 1.922 1,622 1.523 1,515 1.6 Bayam6n 2.763 2.879 3,136 - Aguadilla 1.005 1.036 1,133 1.045 1.0-67 1.160 1,251 .Carolina 1.086 1,204 1.263 1.458 1,614 1,6.44 1.479 Utuado 46@ .10,7 2 2 461 2 86 2.411 21.6 1.42 1 Other Govei@nmental Organizations 'A.' 19 'A._ Private Institutions 111 &6 2 1 66@005 7 3@4-91 83,374 9.Z. 3@q 6 244i -%tidgeport University 290./ - Vniversidad Interkm4ricana 26j379 28-.420 28,.749 )0,226 32. .396 34.479 37.74 LM Z Universidad Cat6lica de P.R. 10,804 110762 11,138 11.648 11,456 12.0h 13.048 0 Fundaci6n Educ. G. Mindez 10,560 12.245 13,093 12.279 12.915 13,307 15.23@Z H ont'd (TABLE XI I I) z Ins'titutions 0 1976-77 1977-78 1978-79 1979-80 1980-81 1981-82 1982-83 I I i i i v 4- rs i d a d, S a K r a do Co r a z6n 3,934 5,051 5,929 6.425 6.588 -7,032 7,275 Ili, I vei s idad- Ceitt ra.1 de Bayam6n 2,019 2,615 2.911 2.704 1.412 1.404 1.724 Iiiiiversidad Mundial 3,795 4,813 4.81) 4,666 4,751 4,536 5,327 An(illian College 248 195 541 732 647 753 788 Caribhean University College 86h 904 1,204 1,591 1.949, 2.197 2.694 Inbilituto Comercial-de P.R. - I . lim) 1 794 1,652 1.472 E.D.P. -College 817 1.044 1,327 1,842 2,334 New York University 229 214 232 251 - 197 Ak@Met I.Cdn College of P.R. 1,313 2,009 2,406 -2.416 3..518 Ramirez College of Business and Technology 660 717 ..688 6 2'3 604 @Cew'rn Car ibeiio de Estudios Post-Graduados .348 367 392 Authorized,Private Ins@itutions .3.505 4,279 Escuel aa de Enfermeras (o) Anestesistas itospital Auxilio Mutuo 20 20 Puerto Rican School For Nurse Anesthetii,ir 35 OD Huerias Business College 337 5@9 Ins t i t uto Ticn ico Cotmerc ial Jun ior Co I I eKe, Inc. 733 643 COIeKiO Un.iVernitario Cristiaso de las Amiiricas N.D. 243 New 11ampabire College 90 140 Caguas City College 774 858 UnLvermidad Polit@cnica de P.R. 407 579- Facultad para las Ciencias Sociales Aplicadas 22 18 Un'ivertii'ty of Phoenix'. Residence Center 215 304 l1nivermidad Central del Caribe, Inc. 423 7 EAcue1a de Medicina San Juan Bautista 156 171 Ponce School of Medicine -150 179 Fordham University 121 208 Puerto Rico Institute of Psychiatry 22 23 Tot.1 included in the total for the University of Puerto Rico. > Conservatory of Music, Institute of Puerto Ki can Culture, Technologjj.cal College for tho Community, Technological Institute for the Cumunity. @z 'Becwie University College in 1IJ80-81. x ThiS Institute ceased operations in Puerto Rico. h,,fcaine Technological University College. SOUI-Ce of Informition: C0UIWii J 01' Highel' EdUCIAt i0l). z TABLE XV _PUMTO.,RIOD:_-- CALENDAR INDUMRIAL GYDR LW. LDYM1Xr ..IN YEARS 1976 to,1982 (In Thousands) Industrial Group .1976. 1977 -1978 1979 1980 1981 1982 700 760 nd.l Industries 690 .730 745 742 704 ;@griculture, Forestry, Fishery 44 39 36 37 41 37 35 ,DWnstruction 44 40 44 43 45 41 32 !-@mufacture 129 139 147 143 141 140 132 Commerce 132 137 140 140 141 141 137 Tiansportation, Cor@nications and Mblic Utilities 45 46 46 47 48 48 46 128 133 119 122 136 135 129 Public Aiministration 158 170 181 177 172 Odier Industries l/ 19 20 20 21 23. 23 21 z 1/ Includes Mining, Finance, Insurance and Real Estate. Note: The amounts do not totaled due to rounding out. Suurce: Ikierto Rico Department of Labor and Human-Besources, Statistics Division APPENDIX VI. APPENDIX VI Corrections .1. page 9. "Treaty of Peace" should.be."Treaty of Paris". ,2. page 17. Before 1952 and after 1952, Puerto Rico's residents haVe debated.political status with the United States. 3. page 48-49. Jones Act. On October 30, 19841 the President' signed into law., H.R. 89, which allows foreign- flag.vessels to operate in the U.'S.-Puerto Rico passenger trade, provided 'U.S. flag service is not available. 91 ENDIX VII APPENDIX,VII TERRITORY OF GUAM G M OFFICE OF THE GOV'ERNOR AGAF4A, GUAM.96910. U. S. A. RICARDO J. BORDALLO GovEuNoR December 20.@ 1984 Mr. Frank C. Conahan Director National Security and International Af f airs Division United States General Accounting Off ice Washino-ton, D.C. 20548' Dear Sir: This letter is in response to your -transmittal of October 11, 1984'- of a draft report on "Issues affecting U.S. Territory and Insular Policy,". I*have no detailed suggestions on the draft re port, but wish to comment in general that -the, crux of improving f e'deral- territorial relations- is the need for a flexible response by Washington to each -individual territory's distinctive and separate needs for self-determination.. There is no need..At this',time for Congress. to establish "an ultimate status 'for the territories." as implied on page 24 of,the draft report. For Guam, what is needed specifically is positive support by all federal, executive agen cie s and Iby the Congress of the "Guam Commonwealth Act," which will -be submitted in 1984 for. Congressional action. The creation of-. Commonwealth status for Guam by that act, will resolve for us many of the issues -addressed in the draft -GAO report while safeguarding U.S. national interests in the Pacific. I appreciate greatly GAO's efforts to alert Congress to the need for greater attention to territorial needs., Sincer yours, RICARDO V@j ORDA ,@R@O Y 92 APPENDIX VIII APPENDIX VIII DESCRIPTION OF U.S. TERRITORIES AND INSULAR AREAS The following describes the geographic location, size, pop- ulation, and certain economic indices of the five principal U.S. territories discussed in this report and the Trust Territory of the Pacific Islands. In addition, descriptions of the smaller island possessions are provided. AMERICAN SAMOA American Samoa's seven islands have a land area of 76 square miles and are about 4,100 miles from the U.S. mainland. Over 96 percent of the land is owned communally. American Samoa's population is about 34,000. In 1982, 38 percent of the work force was employed by the local government. The largest private sector activity, tuna canneries, comprised 22 percent of total employment. In 1982, the unemployment rate was 12 per- cent. GUAM Guam lies about 6,000 miles southwest of San Francisco. It has an area of 209 square miles and a population of about 105,000. Over 20 percent of the population is comprised of military personnel, federal employees and their dependents. Guam's economy is highly dependent on government activities. In 1981, 46 percent of the civilian work force was engaged in public sector employment. Most private sector activities are services catering to the needs of tourists, the military, or local government. Per capita income in 1982 was $7,010. In 1981, 9 percent of the civilian work force were unemployed. NORTHERN MARIANA ISLANDS The Northern Mariana Islands (NMI) consists of 21 islands, with a land area of approximately 185 square miles. Only 6 of the islands are inhabited. The NMI is approximately 6,000 miles from the mainland U.S. The population is estimated at 17,000 with the majority living on the largest island, Saipan. The NMI had a per capita income estimated to be at least $2,700 in 1979. The economy mostly depends on government employment. More than 30 percent of its work force of 6,000 was engaged in public sector activities in 1979. PUERTO RICO Puerto Rico is the largest, most populous U.S. territory. Its land area is about 3,500 square miles. The island is located 885 miles southeast of Florida and has about 3.3 million residents. Manufacturing and trade are important parts of the 93 APPENDIX VIII APPENDIX VIII local economy, comprising about 52 percent of the territory's gross national product in 1983. Puerto Rico is heavily depen- dent, however, on government employment. About 24 percent of the work force was employed by the government in 1983. Per capita income was $3,900 in 1983 and in 1983 the unemployment rate was 23 percent. U.S. VIRGIN ISLANDS The Virgin Islands, which are located in the eastern Carib- bean, 'are 1,400 miles from New York. The principal islands, St. Thomas, St. Croix, and St. John, have a combined land area of 130 square miles. The population of the islands is about 100,000 and,the per capita income in 1982 was $7,078. The local economy depends heavily on government employment and tourism. In 1982, public sector employment accounted for 37 percent of the total work force. Unemployment was 7.8 percent in 1982. TRUST TERRITORY OF THE PACIFIC ISLANDS The Trust Territory of the -Pacific Islands lies in an expanse of the Western Pacific Ocean equal in size to the con- tinental United States. The land area, however, is about one- half the size of Rhode Island. The far western boundary of the area is 500 miles from the Philippines; Hawaii is about 1,800 miles from the eastern border. The Trust Territory's three con- stitutional governments--the Federated States of Micronesia, the Marshall Islands, and the Republic of Palau--have a combined population of about 116,000. All three Micronesian states have large public sector work forces, ranging from 40 to 57 percent. SMALLER INSULAR POSSESSIONS Baker, Howland, and Jarvis Baker, Howland, and Jarvis are all uninhabited Pacific islands. These islands are located about 1,600 miles southwest of Hawaii. Each was placed under the Secretary of the Inter- ior's jurisdictioYi in 1936, and are administered by the Fish and Wildlife Service. JOHNSTON ATOLL Johnston Atoll, which is located about 700 miles southwest of Hawaii, was annexed By the U.S. in 1858. In 1934, Johnston was placed under the Department of the Navy's jurisdiction. Operational control was transferred to the U.S. Air Force in 1948. Presently, the Defense Nuclear Agency administers the island. Approximately 325 U.S. military and civilian personnel are stationed on Johnston. The island has no indigenous popula- tion. 94 APPENDIX VIII APPENDIX VIII KINGMAN REEF Kingman Reef is uninhabited and located about 920 miles south of Hawaii. It was annexed by the U.S. in 1922. In 1934, Kingman Reef was placed under the Department of the Navy's jurisdiction where it remains today. At this time, the Navy is not expending any money to maintain the 10 mile long island. MIDWAY ISLANDS Midway Island, an Atoll located about 1,200 miles northwest of Hawaii, was annexed by the U.S. in 1867. Midway is admin- istered by the Department of the Navy and has no native popula- tion. Currently, Midway is inhabited by a small number of mili- tary.and civilian personnel. NAVASSA ISLAND Navassa Island is located about 30 miles off the west coast of Haiti. The U.S. has claimed and exercised jurisdiction over the island since 1858. The U.S. Coast Guard is responsible for maintaining the navigational light on this small island. PALMYRA ISLAND Palmyra Island, consisting of more that 50 islets, lies about 1,000 miles south of Hawaii. It was annexed to the U.S. with Hawaii in 1898. Palmyra is uninhabited and privately owned. WAKE ISLAND Wake Island is located approximately 2,300 miles west of Hawaii and 1,500 miles northeast of Guam. Wake's total land area is about 2.5 square miles. The island is the site of a U.S. Air Force air field and houses a small number of military and civilian personnel. In 1972, Wake Island's civil adminis- tration was transferred to the Air Force, although Interior for- mally retains jurisdiction. 95 APPENDIX IX,- APPENDIX. SELECTED REPORTS@ AND STUDIES ADDRESSING THE U.S. TERRITORIES.AND THE TRUST TERRITORY OF THE PACIFIC ISLANDS The following is a listing of selected r eports and studies on the, territories prepared. by, GAO and other federal agencies. These reports provide detailed analyses- of many of the policy issues surrounding United States-territorial relations addressed in this report. GAO REPORTS Date. Ways to Reduce the Cost of Medical Referral 08/09/84 Programs in Micronesia and American Samoa (NSIAD-84-139) Fo'llowup of Ouam's'Adminibtration of Its 10/26/83',.- Income Tax Program (GGD-84-11) U.9.'Customs-Service's Collection of Duties 10/@5/83 on Imports to the Virgin Islands (GGD-84-26) 'The Cha'llenge of EnNincing@'Micronesian. 01/25/83 Self-Sufficiency (ID-83-28) -Navyls,-Trans-fer of Power 'System to Finan- 07/02/182'-, cially Troubled Guam Power Authority Has Bee,n-,,De;l.ayed (ID-83-1 The Federal Audit Function in the Territories 03/25./83 Should Be Strengthened (AFMD-82-23) Limited Progress Made in Consolidating Giants 07/10/81 to Insular Areas (GGD-81-61) Puerto Rico's Political Future: A Divisive 03/02/81 Issue with Many Dimensions (GGD-81-48) Experiences of Past Territories Can Assist 03/07/80 Puerto Rico Status Deliberations (GGD-80-26) Problems with New Responsibilities of Self- 03/07/80 Government in the Northern Mariana Islands (ID-80-20) The Government of Guam's Administration of 10/03/79 Its Income Tax Program (GGD-80-3) 96 APPENDIX IX APPENDIX IX American Samoa Needs Effective Aid to Improve 09/22/78 Government Operations and Become a Self- Supporting Territory (CED-78-154) Technical Assistance:' A Way to Promote Better 09/13/77 Management of Guam's Resources and to Increase Its Self-Reliance (GGD-77-80) Proposed Financial Management System for the 04/18/77 Central'Government of the Trust Territory of the Pacific'Islands (FGMSD-77-27) Financial Management of Virgin Islands Gov- 03/02/71 ernment Needs Substantial Improvements (B-114808) AGENCY STUDIES AND REPORTS U.S. Department of Commerce, Economic Study of Puerto Rico, December 1979. U.S. Department of the Interior, The Economy of the Virgf in Islands, June 20, 1979. U.S. Department of the Interior, Report on Infrastructur-e Needs of Guam 1960 through 1990, June 25, 1979. Department of the Treasury, The Operation and Effect of the Possessions Corporation System of Taxation, Annual Report. Department of the Treasury, Territorial Income Tax systems-, October 1979. (472034) 97 AN EQUAL OPPORTUNITY EMPLOYER UNITED STATES POSTAGE AND FEES PAID @ P GENERAL ACCOUNTING OFFICE U. S. GENERAL ACCOUNTING OFFICE WASHINGTON, D.C. 20548 THIRD CLASS OFFICIAL BUSINESS PENALTY FOR PRIVATE USE,$300 3 6668 00001 6941