An Emerging Arena of Strategic Competition

Over the past decade, the People’s Republic of China has become the leading trade and investment partner of the Pacific Island nations and a major provider of foreign assistance and loans, including through the Belt and Road Initiative, China’s global infrastructure development strategy, which now has projects in 10 countries in the region. On the diplomatic front, China has increased its footprint in regional organizations, stepped up high-level visits, increased the professional diplomatic staff at its embassies, and deepened law enforcement and security partnerships. The COVID-19 pandemic provided China an opportunity to build additional goodwill by donating vaccines and personal protective equipment and financing economic recovery efforts.

Chinese officials have not stated publicly that the Pacific Islands region is an area of heightened strategic interest, but the benefits for Beijing of increased engagement with the region are clear. Perhaps to a greater extent than any other geographic area, the Pacific Islands offer China a low-investment, high-reward opportunity to score symbolic, strategic, and tactical victories in pursuit of its global agenda. The generally low levels of economic development among Pacific nations and the limited engagement, often perceived in local capitals as neglect, that they have received from other regional powers—including Australia, Japan, New Zealand, and the United States—have created a geostrategic void that China has sought to fill using the playbook it has honed elsewhere in the world: foreign assistance, private-sector investment and loans, sustained and high-level diplomacy, and in some cases tools of elite capture such as corruption and economic coercion. These tools have allowed China to make progress on key lines of geostrategic effort in the Pacific that have proven more difficult to pursue in other, more contested regions.

China’s growing influence in the Pacific Islands poses a challenge to US interests, one that should be viewed with concern but not alarm. The United States enjoys a strategically advantageous position in the region thanks to its forward presence and long history of engagement with local partners. In addition to the state of Hawaii and territories of American Samoa, Guam, and the Northern Mariana Islands, the United States also maintains special relationships with three sovereign countries in the northern Pacific—the Federated States of Micronesia (FSM), the Republic of Palau, and the Republic of the Marshall Islands (RMI). 

In the 1980s, the United States negotiated Compacts of Free Association (COFA) with each of these countries, now called the Freely Associated States (FAS). The Compacts established each FAS as a sovereign state with the right to self-determination and self-governance. All three assign the United States full responsibility for the security and defense of the FAS, which includes strategic denial over land, airspace, and territorial seas; this is the right to deny third countries access to or use of the FAS territories for military purposes and the right to establish US bases and defense facilities in the FAS. In exchange for the substantial strategic security and military value that the security provisions afford, the FAS receive key benefits, such as the right to move freely and work in the United States and its territories, as well as economic assistance and access to some US federal program services. 

This mutually beneficial set of obligations and responsibilities anchors US-FAS ties and has created an interdependence, but that does not mean the Compact relationships are purely transactional. To the contrary, FAS societies have become deeply entwined with US society through decades of economic, educational, and interpersonal linkages, which include a high proportion of FAS citizens serving in the US military. These close connections help explain the durability and reinforcing nature of the free association model at the heart of the Compacts, the economic portions of which are in the process of being renegotiated and renewed before their expirations in 2023 and 2024.

Today, the US-FAS relationship provides substantial benefits to the United States and has the potential to deliver far more. Despite their small landmass, the FAS play an important role in US defense planning, force posture, maritime operations, and power projection in the Indo-Pacific region and beyond. The vast FAS territorial seas, which span much of the northern Pacific, are an important strategic buffer between US defense assets in Guam and Hawaii and East Asian littoral waters. The US right of strategic denial in the FAS territorial seas knits together US forward presence in the region and functions as a beachhead for US engagement with other Pacific nations. In addition, the US missile-defense test range at Kwajalein Atoll in the Marshall Islands is critical to US space and missile-defense capabilities. As the US military expands its force posture in the region, US defense rights in the FAS present unique opportunities for new facilities and dual-use ports and airfields development. Strong US-FAS connections mean that a deterioration in FAS economic or security conditions would have spillover effects into US states and territories. Finally, two of the three FAS, Palau and the Marshall Islands, maintain diplomatic ties with Taipei, fortifying Taiwan’s international space at a time when it is under relentless pressure from Beijing.

The unique relationship between the United States and the FAS, grounded in the Compacts, gives Washington a valuable strategic advantage in the Pacific Islands region. As China seeks to expand its influence into the Indo-Pacific and develop into a great maritime power capable of force projection far beyond Asian littoral waters, the United States should seek to leverage its relationships with the FAS to meet rising Chinese assertiveness. To that end, Washington has an important opportunity in the ongoing Compact negotiations to strengthen its bilateral ties with the FAS and demonstrate a commitment to addressing their core interests to further US national interests and peace and security across the region. 

Findings

Beijing sees Pacific Island nations as a low-investment, high-reward opportunity for China to score both symbolic and tactical victories in its global agenda. Over the past several years, evidence has accumulated that China views the Pacific Islands as an area of significant strategic interest. Beijing has increased its diplomatic and economic engagement and demonstrated more ambitious efforts to play a more meaningful security role in the region. In April 2022, China and Solomon Islands signed a secret agreement—which was leaked to regional press—establishing a security partnership that could open the door to a Chinese military presence in the South Pacific country. Foreign Minister Wang Yi traveled to the Pacific Islands in May and June. In addition to strengthening China’s bilateral ties in the region, he proposed a sweeping security and economic pact that affirmed China’s regional ambitions. The proposal was withdrawn because most Pacific Island countries did not sign it, but China’s desire to play a more central role is clear.

In deepening its engagement and influence with the Pacific Islands, Beijing is positioning itself to advance a number of its foreign policy objectives, many of which are counter to US interests: 

• enhancing power projection in the Indo-Pacific through strategic access to ports and Exclusive Economic Zones;
• cultivating supporters with voting rights in international institutions and increasing the number of voices sympathetic to its position in international disputes;
• constraining Taiwan’s international space and reducing the number of Taipei’s formal diplomatic partners;
• building soft power and promoting the Chinese model of political and economic development;
• enhancing access to export markets and diversifying supply chains in key commodities;
• advancing the Belt and Road Initiative and protecting Chinese workers and assets in the region;
• deepening trade relations;
• frustrating efforts by the United States and its allies to project military power in the Western Pacific; and
• increasing its intelligence gathering and surveillance capabilities across a wider geographic range, with a particular eye on the US military.

As Beijing seeks to expand its influence among Pacific nations, strengthening the US-FAS relationship will be essential to securing US interests in the region. Chinese strategists have asserted that the deployment of new People’s Liberation Army Navy aircraft carriers means that the first island chain—referring to the first line of major archipelagos out from the continental mainland coast, which includes Japan, Taiwan, and the northern Philippines—is no longer a meaningful constraint on China’s maritime power, signaling China’s ambition to project force beyond Asian littoral waters. As Beijing seeks to develop a true blue water navy (one capable of operating globally), the US right of strategic denial in FAS territorial seas and the forward presence enabled by US defense facilities in and adjacent to FAS territories will grow more important in constraining China’s force projection and maintaining free and open maritime corridors in the Indo-Pacific. Furthermore, although the three Freely Associated States have different outlooks on China, they share with Washington a desire to avoid excessive Chinese influence in the region in a way that supplants the role of traditional international partners, and they represent an important check against Beijing’s efforts to create an alternative regional architecture favorable to its geopolitical agenda. 

The Compact relationships are rooted not only in shared respect and deep cultural and economic ties between the FAS and United States but also in mutually recognized benefits and obligations. The ties are multifaceted and complex. Through the Compacts and the long history preceding them, the United States and FAS have developed societal connections that are a key reason for the durability of the free association model at the heart of the Compacts, which should not be viewed as purely transactional arrangements but instead as expressions of shared democratic values and decades of history. Today, many FAS citizens have close personal and economic ties to the United States, including family members who live and work in US states and territories. FAS citizens enlist in the US armed forces at a higher rate than US citizens and are more likely to pursue educational opportunities in the United States than in any other country. FAS citizens also overwhelmingly consume American media and buy American brands. 

These considerations notwithstanding, the Compacts are also grounded in a mutually cognizable strategic logic in which the United States provides economic assistance and access to domestic programs in exchange for the right to use FAS territories for defense activities and deny competitors access to FAS territorial seas, land, and airspace for military purposes. Acknowledging this strategic logic does not demean the US-FAS relationship but instead reinforces the interdependence between the United States and the FAS. This interdependence has provided tangible and lasting benefits to both sides and offers a compelling rationale for renewing Compact funding on terms seen as fair and reasonable to all parties.

The health of the US-FAS relationship is a crucial barometer of the durability of US alliances and partnerships and regional democratic norms. The range of services and privileges the United States provides FAS citizens has no parallel elsewhere in the world; no other sovereign countries grant Washington as much control and oversight of their defense as the FAS. This interdependence means that the strength of US-FAS ties and the well-being of FAS societies carry outsize significance in foreign assessments of the value and credibility of US commitments. For US treaty allies, especially those in East Asia, a deterioration in US-FAS ties could be seen as an indicator of a lack of US commitment to the region. Island nations in the South Pacific also see the strength of the US-FAS relationship as a bellwether of Washington’s commitment to the Pacific Islands region as a whole. 

The US-FAS relationship is strong, but a failure to reach a mutually satisfactory resolution to Compact negotiations would be a major setback for US interests and regional security. In virtually every domain—from diplomatic relations to economic links to cultural and educational connections—the United States is far and away the most important international partner to the FAS. But the strength of the bond should not be taken as a given. Key provisions of the Compacts are set to expire over the next two years. Were negotiations to stall or yield outcomes that FAS governments consider unfair or disrespectful, the basic logic of the Compact relationship would come into question. FAS governments might be prompted to look to other states, such as China, to make up for the shortfall in funding. A failed negotiation could also lead to the fragmenting of the Federated States of Micronesia—which comprises Chuuk, Kosrae, Pohnpei, and Yap (see map on page 5)—into several smaller states, which would increase opportunities for foreign influence in the region and undermine US efforts to promote peace, security, and stability in the wider Pacific.

China has not focused on the FAS in its influence-building efforts in the Pacific to the degree it has focused on South Pacific nations, but nonetheless is positioning itself to take advantage of any deterioration in US-FAS relations. Over the past decade, China has mounted an aggressive effort to increase its influence in the Pacific Islands region through diplomatic engagement, humanitarian assistance, overseas investment, people-to-people connections, and increased trade. The FAS has not been as great a focus for these efforts as the remainder of the region in large part because Palau and the Marshall Islands continue to recognize Taiwan and because of the close US military and defense relationship, which has helped prevent a significant incursion of Chinese influence. This situation, however, could easily change. Beijing sees US security architecture in the Pacific as a barrier to its development into a major maritime power and would likely seek to exploit a deterioration in US-FAS relations. The risk of Beijing’s securing such a strategic windfall is a key reason Washington should invest in its relationships with FAS governments.

FAS leaders want the United States to put greater emphasis on the issues most important to FAS citizens. They prioritize personal relationships, building consensus through sustained engagement, and gestures of mutual respect. Fairly or not, they worry about US abandonment and neglect and that the United States does not take their concerns seriously. The appointment of a Special Presidential Envoy for Compact Negotiations has been warmly received as a positive step in keeping the US-FAS relationship on track and demonstrating that Washington does indeed take the negotiations seriously. A joint statement by the United States and the Marshall Islands following the special envoy’s first trip to Majuro in June 2022 expressed optimism about a quick conclusion to Compact funding renegotiations, suggesting that this gesture has helped jump-start dialogue. FAS leaders are also seeking affirmation that Washington understands and supports the FAS’s policy priorities, such as climate resilience, addressing the perceived micromanagement of Compact economic assistance, increased foreign direct investment (FDI), and strengthened oversight and economic development of key sectors such as fisheries. The Marshall Islands are also strongly focused on seeking resolution of the legacy of US nuclear testing in Enewetak and Bikini Atolls. The renegotiations of the economic provisions provide an opportunity for Washington to demonstrate its commitment by engaging in conversations about issues of importance to the FAS.

Climate change is among the top security concerns for the FAS. China’s status as the world’s largest emitter of greenhouse gases undermines its engagement in the region, but Washington should not be complacent about its own role. As the FAS face rising sea levels, out-migration, particularly to US communities, is likely to increase and exacerbate security, economic, and social issues. China has positioned itself as a responsible global actor in the fight against climate change in its engagement with Pacific Island nations. This strategy, coupled with foreign assistance aimed at building climate resilience, has earned goodwill with regional governments and buoyed Beijing’s efforts to attract Taiwan’s few remaining diplomatic partners in the region. In practice, however, China’s commitments to reducing emissions to meet targets set by the 2015 Paris Agreement on climate change remain insufficient. In addition, China’s global energy and infrastructure investment footprint is heavily weighted toward fossil fuels and carbon-intensive industrial activity. To date, the United States and its partners have largely declined to call out Beijing on its hypocrisy or offer a counternarrative that highlights their climate ambitions.

US engagement with the FAS is currently defined by a sprawling and decentralized set of bureaucratic activities that undermine US national security interests and weaken the bilateral relationships. This situation is in part a result of the scope and complexity of the Compacts, which implicate the operations and responsibilities of numerous US federal agencies. The diffusion of responsibilities and channels of communication has meant that FAS governments often see a lack of any clear or consistent mechanism for engaging the United States on the many issues that affect them. This dynamic places unnecessary strain on bilateral ties at a time when Washington should be seeking to strengthen and elevate the relationships and to work constructively with the FAS to shape the regional security environment in the Pacific Islands.

Recommendations

Elevate US engagement with the FAS and other Pacific Island nations to better reflect the region’s heightened importance while being sensitive to regional concerns about being caught up in great power rivalry. China has made clear its intention to fill what it perceives as a strategic void in the Pacific Islands region. Beijing’s ambition has been facilitated in part by the perceptions of Pacific Island governments that regional actors have deprioritized and neglected them. Such perceptions have some basis in fact: the United States has historically assigned only limited diplomatic resources to the FAS and even less to other Pacific Island nations. By contrast, China has consular staff for and frequent working and senior-level engagement with every Pacific Island nation with which it has diplomatic relations. 

Even a modest increase in diplomatic resources is likely to meet with an enthusiastic reception from regional officials. Further, ongoing travel restrictions for Chinese citizens and onerous quarantine requirements for inbound travelers to China have significantly constrained the scope of Chinese engagement with Pacific Island actors. Washington should take advantage of this opportunity to elevate its profile in the region. 

• The United States should establish a recurring strategic dialogue with the FAS (and potentially other Pacific partners) at a level of seniority that clearly communicates to FAS officials that Washington views them as important partners. The remoteness of the FAS means that extremely high-level engagement is probably not feasible on a recurring basis; at the same time, working-level meetings are likely not enough to counter concerns about deprioritization. To that end, a US-FAS dialogue may be most appropriately staffed at the assistant secretary level (or equivalent) and be conducted virtually, on occasion, if needed. 
• The National Security Council’s new US national strategy on the Pacific Islands should identify US interests in the Pacific Islands region and develop a plan to use diplomatic, defense, and economic tools to secure those interests in conjunction with regional partners and frameworks.
• The White House should commission a National Intelligence Estimate on China’s interests in the Pacific Islands region to inform this effort. The analysis could guide collaboration with other regional and international actors, such as Australia, New Zealand, Japan, and France, to anticipate and take proactive steps to counter Beijing’s efforts to capitalize on regional perceptions of neglect and abandonment. Additional resources should be allocated to ensure close monitoring of China’s increasing activity in the FAS, with a view to ensuring that US and FAS policymakers are apprised of opportunities to invoke rights of strategic denial.
• The United States should not reflexively oppose China’s efforts to help Pacific Island nations grow their economies, control the spread of COVID-19, or meet the challenges of climate change; nor should it provide Pacific Island governments with unsolicited warnings about the dangers of Chinese investment, as such warnings are perceived as condescending. Instead, Washington should work constructively toward providing a meaningful alternative to China’s economic and security assistance that acknowledges the priority concerns of Pacific Islands peoples and emphasizes shared values such as democracy, transparency, and pluralism.
• As the United States takes steps to elevate engagement, it should be cognizant that small investments in time and resources will yield significant dividends. Therefore, it should be understood that increased attention to the Freely Associated States and the Pacific Islands region will not have to come at the cost of engagement with other regions.

Coordinate with FAS governments to push back against China’s efforts to enhance its influence in the Pacific Islands region. The message to Beijing should be that the region does not welcome efforts to displace existing diplomatic and security relationships or escalate rivalry with the United States. These efforts should be carefully calibrated to ensure the FAS do not feel that they are being asked to oppose all Chinese engagement in the Pacific Islands region. Instead, the goal should be framed as preventing a level of Chinese influence that would destabilize regional institutions and exacerbate divisions among Pacific Island states. 

• The United States should work with the FAS to make them a central part of a broadened force posture and forward presence in the Indo-Pacific. Building off the Marshall Islands’ already important role in US defense operations, the Federated States of Micronesia recently agreed to develop new military facilities on its territory. Additionally, Palau has formally requested that the United States establish airstrips, ports, and bases on its islands, a request Washington should consider seriously to the extent that it aligns with defense needs. Such deepened security cooperation should not be framed as anti-China, but rather as furthering the broader US strategic goal of a free and open Indo-Pacific. 
• The Federated States of Micronesia, as the only member of the FAS that recognizes Beijing, will be watched closely by the other actors and should be prioritized in efforts to fortify regional architecture against excessive Chinese influence. Washington should seek to amplify Micronesian President David Panuelo’s March 2022 statement that Beijing’s proposed regional security pact would destabilize the Pacific Islands security environment.
• Washington should develop a convincing counternarrative to China’s posturing on climate and economic development that draws attention to China’s disproportionate contribution to global greenhouse gas emissions, its refusal to adhere to 2050 net neutrality targets, and its history of using foreign lending as a tool to undermine local sovereignty over national resources. This narrative can be amplified by FAS representatives in regional fora and in bilateral exchanges with other Pacific Island officials. 
• US officials should take an active role in promoting and facilitating official, economic, and educational exchanges involving Taiwan, the Marshall Islands, Palau, and other Pacific Island nations, including Kiribati and Nauru. The US ambassador to Palau’s official visit to Taipei in April 2021 under a special pandemic-related travel arrangement between Taiwan and Palau offers a model for how Washington can elevate and strengthen Taiwan’s bilateral relationships in the Pacific Islands in the face of relentless pressure from Beijing.

Help the FAS defend against Chinese vectors of elite capture while working constructively with FAS governments to build rule of law and resilience. Beijing has a well-honed playbook for using tools of economic sharp power, such as debt dependency and corruption, to enhance its leverage over and influence in emerging economies that lack strong accountability and oversight mechanisms. The United States should help build the FAS’s capacity to safeguard the integrity and transparency of their markets and political institutions and close governance gaps. At the same time, it should invest in its own ability to investigate and prosecute violations of US law that occur in the FAS or have a nexus with FAS territories and persons.

• The Department of Justice, the Federal Bureau of Investigation, and the Department of the Treasury should strengthen US law enforcement presence in the FAS and enhance cooperation with FAS authorities to combat Chinese-linked organized criminal activities, identify and prosecute corrupt practices involving FAS officials, strengthen anti–money laundering measures, and provide intelligence and analysis of illicit financial activities in FAS markets and institutions. 
• US officials should champion and offer technical assistance in support of reforms to FAS public procurement rules and procedures aimed at fighting fraud and ensuring a level playing field for private-sector bidders and state-owned enterprises.
• Washington should identify ways to work with other regional partners to insulate the FAS from Chinese economic coercion, which Beijing has already demonstrated it is willing to deploy against Palau and the Marshall Islands in connection with their recognition of Taiwan. Promoting tourism, foreign assistance, and FDI can help buffer the FAS against such pressure campaigns.

Streamline and rationalize US engagement with the FAS. The complexity and substantive breadth of the Compacts has resulted in management of US-FAS relationships that involves multiple agencies and touches on a broader set of equities than those in other bilateral relationships. The multifaceted nature of the ties should be a source of strength in the relationship rather than a liability. To that end, the United States should endeavor to speak with one voice—or at a minimum in a well-coordinated fashion—in its engagement with FAS governments.

• The White House, through the National Security Council, and as encouraged by Section 105(b)(6) of the Compact of Free Association Amendments Act (Public Law 108-188), should reestablish the Interagency Working Group on the Freely Associated States, to be co-chaired by the Departments of State and Interior, which would together be responsible for managing the uniquely complex set of foreign and domestic laws and programs under the Compacts.
• Washington should ensure that forward-deployed US personnel and consular staff have a complete picture of US assistance to the FAS that accounts for all US government operations involving the FAS. At present, many US officials based in the FAS are not fully versed on programs, grants, and other forms of assistance that benefit the FAS, contributing to poor coordination and siloed lines of engagement. An increasing tendency in Congress to make the FAS eligible for domestic programs requires closer monitoring of domestically focused legislation by relationship managers.
• The unique nature of the US security relationship with the FAS means that the Department of Defense will by necessity engage with FAS governments through different channels than other agencies do, but this engagement should not be pursued in a way that conflicts with or undermines overall management of the US-FAS relationship. 

Use all available tools to ensure fiscal stability and accountability while promoting economic development in the FAS, starting with terms of the newly funded Compacts but extending to foreign assistance, promotion of FDI by regional partners, and strengthening oversight of key sectors. Washington needs to be clear-eyed about the FAS governments’ pathways to economic development and treat the economic assistance elements of the Compacts as part of a broader strategic partnership rather than a means to FAS self-sufficiency. A significant increase in funding would also be important for both symbolic and practical reasons. At the same time, Washington should encourage and support the FAS governments’ efforts to meet their economic development goals and help build international partnerships in support of those goals. To do so, the FAS governments should maintain and update development plans and be open to mutually agreeable auditing and reporting.

• The US Agency for International Development (USAID), the Department of the Interior, and other US government stakeholders should work collaboratively with the FAS governments (and potentially international stakeholders such as the World Bank, Asian Development Bank, Green Climate Fund, and national departments of financial institutions) to develop an action plan to mitigate and adapt to the effects of climate change and protect marine resources from exploitation and degradation.
• Washington and the FAS should regard the Compact trust funds—funds from which the FAS governments can withdraw a certain amount every year—as a shared commitment to long-term fiscal and economic stability for the FAS. US officials should consider encouraging the FAS governments to allocate a share of their respective funds to support national priorities, such as climate resilience and adaptation projects or health infrastructure. Such expenditures could be paired with matching funds from USAID and potentially foreign development agencies. 
• The Development Finance Corporation should conduct feasibility studies and consider targeted investments aimed at attracting private-sector FDI to the FAS and overcoming perceptions that the FAS economies do not offer worthwhile development opportunities. Such efforts should be realistic and focus on existing FAS strengths, such as fisheries, while working constructively with FAS partners to reduce bureaucratic and regulatory obstacles to investment. 
• Washington should pursue continual and systematic coordination with regional partners such as Australia, France, Japan, New Zealand, and Taiwan to better promote multi-sector planning and implementation. Japan in particular has demonstrated a strong capacity in developing infrastructure in the Pacific Islands that Washington should seek to leverage in the FAS. One possibility could be helping increase internet connectivity in the FAS.
• The United States should promote greater intraregional cooperation among the Freely Associated States and their relationship with Guam and the Northern Mariana Islands. Their historical and cultural interconnections are amplified through economic, transportation, and educational links that have stabilized over the past 50 years. The United States should also support the Pacific Islands Forum, which recently reintegrated the Federated States of Micronesia, the Marshall Islands, and Nauru (but not Kiribati), and which bolsters regional support and solidarity for the FAS as the three countries manage their relationships with China.

Invest in the Compact relationships. The United States’ unique relationships with the FAS should be viewed as the cornerstone of its broader strategy in the Pacific Islands region. The healthier the ties, the more effective the United States will be in securing its regional objectives. To that end, the United States should seek to continue building trust and goodwill with FAS officials and deepen connections with FAS communities even when such efforts are not linked to an immediate strategic payoff. As China’s ambitions in the Indo-Pacific theater grow, durable Compact relationships will only appreciate in value and are likely to carry benefits in ways that are not obvious today. 

Following the conclusion of negotiations between the US Special Presidential Envoy and the FAS governments, the US Congress should seek expeditious ratification of the third set of Compact economic assistance provisions. US officials, including legislators, should not hesitate to offer constructive, workable, mutually beneficial suggestions for strengthening the agreements, and they should encourage their counterparts to do the same. US messaging and actions should reflect the enduring and inherent importance of the US-FAS relationship independent of the current geopolitical environment. 

Washington should continue to prioritize improving the health and education of FAS citizens through a grants-based system. Healthy and well-educated populations are vital to the economic success of the FAS, and these programs benefit the United States when FAS citizens choose to relocate to the United States.

Washington should seek to deliver reliably and visibly on all of its obligations under the Compacts but especially on those commitments that carry outsize symbolic value, such as providing medical care to FAS military veterans through the Veterans Affairs system and to impoverished and vulnerable communities under Medicaid. The United States should seek to increase the understanding in the FAS that their economic and programmatic assistance stems from the Compact, funded by the US Congress, to prevent China (or other foreign investors) from distorting local perceptions of who is contributing to the overall well-being of FAS societies.

Federal and state officials as well as representatives of institutions of higher learning should seek to expand the availability of educational opportunities for FAS citizens. People-to-people connections of the kind fostered through study abroad are critical in shaping elite networks that link business and political leaders across national lines. At present, the United States funds scholarships for FAS citizens who are eligible for Pell Grants. However, FAS citizens are not eligible for work-study programs at US colleges and universities. Going forward, US institutions should invest in developing more opportunities for FAS citizens by funding more scholarships and expanding their access to US programs. 

The legacy of US nuclear testing in the Marshall Islands remains a fraught and challenging topic for both US and Marshallese officials that, more than any other issue, threatens to sour US relations with one of the Freely Associated States. The US official position has been that the legal question of compensation is settled and access to US courts is closed, whereas Marshall Islands leaders feel strongly that the compensation provided under Section 177 of the current US-RMI Compact was inadequate. Negotiation may offer an opportunity to bring the two sides closer to a common position on this difficult topic. To maintain a cordial and productive bilateral relationship with Majuro, US officials should acknowledge that a conversation about nuclear testing will need to take place. 

Washington should attempt to mitigate the adverse impact of Compact programs on US territories in the region and on US states. Between 2004 and 2018, Hawaii, Guam, and the Northern Mariana Islands estimated $3.2 billion in costs for providing services to COFA migrants but received $509 million in federal grants. Hawaii’s and Guam’s reported Compact impact costs have risen, with the majority of funds being spent on educational, social, and health services in Hawaii. Micronesians living in Guam and Hawaii face high rates of homelessness and poverty. The failure to adequately address these impacts undermines positive US-FAS personal connections and could contribute to negative perceptions about the United States and its ability to live up to its commitments. 

Dissenting Opinion

Despite coming to consensus within the group on the relevant issues and necessary actions for US officials, one study group member questioned whether relations between the United States and the Freely Associated States were sufficiently amicable and mutually beneficial to justify the appropriation of diplomatic and economic resources recommended in this report. That dissenting view held that the Compacts of Free Association relationships had created economic dependency and outsize expectations on the part of the FAS governments, which in turn has contributed to the difficulty in negotiating renewed economic provisions during the last two years. From this perspective, it would have been preferable to assess the importance of the Compact relationships by comparing them with other US relationships in the Indo-Pacific in terms of their strategic costs and benefits and to use that lens to make resourcing recommendations. Using such a lens would have meant recommending against the use of superlatives to describe US-FAS ties. 

The dissenting view felt that the FAS governments’ approach to Compact negotiations over the last two years sometimes lacked sincerity and that the recent appeal to replace the US negotiating team with a special presidential envoy was aimed at securing a more favorable outcome than would otherwise have been reasonable or justified. The dissenting view contended that, as with any negotiation, both sides of the Compact relationships have bottom lines. The dissenting view regrets that this basic message has been absent from the negotiations to date and from this final report.

Senior Study Group Members

Admiral (Ret.) Philip Davidson, co-chair, former commander, US Indo-Pacific Command
Brigadier General (Ret.) David Stilwell, co-chair, former assistant secretary of state for the Bureau of East Asian and Pacific Affairs
Robert Underwood, co-chair, former delegate from Guam to the House of Representatives; former president, University of Guam

David Cohen, former US representative to the Pacific Community; former deputy assistant secretary of the interior for insular affairs
Gerard “Jerry” Finin, adjunct professor, Center for Australian, New Zealand and Pacific Studies, Georgetown University
Lori Forman, development advisor and professor, Daniel K. Inouye Asia-Pacific Center for Security Studies; former assistant administrator for Asia and the Near East, US Agency for International Development
Carla Freeman, senior expert, United States Institute of Peace
Mary Therese Perez Hattori, interim director, Pacific Islands Development Program, East-West Center
Elizabeth Havice, professor, University of North Carolina at Chapel Hill
Francis X. Hezel, director, Micronesian Seminar 
Kenneth “Ken” Kuper, assistant professor, University of Guam
Satu Limaye, vice president, East-West Center
Bonny Lin, director, China Power Project, and senior fellow, Center for Strategic and International Studies
James Loi, partner and chief operating officer, The Asia Group; former deputy assistant secretary of state for Australia, New Zealand, and the Pacific Islands
Jonathan G. Odom, commander, US Navy; military professor of international law, George C. Marshall European Center of Security Studies
Andrew Scobell, distinguished fellow, United States Institute of Peace 
Vikram J. Singh, senior advisor, United States Institute of Peace; former deputy assistant secretary of defense for South and Southeast Asia
Allen Stayman, former professional staff, Senate Committee on Energy and Natural Resources; former deputy assistant secretary of the interior for territorial and international affairs; former special negotiator, Office of Compact Negotiations, US Department of State 
Alan Tidwell, professor of the practice and director, Center for Australian, New Zealand and Pacific Studies, Georgetown University

Project director: Brian Harding, senior expert, United States Institute of Peace 
Series executive director: Jennifer Staats, director of East and Southeast Asia programs, United States Institute of Peace 
Lead researcher and writer: Trevor Sutton, senior fellow, Center for American Progress
Research and administrative support: Nicole Cochran and Camilla Pohle-Anderson, United States Institute of Peace

Senior Study Group members express their support for the general findings and recommendations the group reached but do not necessarily endorse every statement or judgment in the report. They participated in the study group in their personal capacities; the views expressed are their own and do not necessarily represent the views of their institutions or employers.