With the U.S. fiscal year approaching an end and no new funding plan in place, multiple tiny island nations in the Indo-Pacific risk being cut off from Washington’s economic support just as China is trying to woo them away from their military alliance with the U.S.
Palau, the Federated States of Micronesia and the Marshall Islands, known collectively as the Freely Associated States, risk falling between several U.S. policy cracks in coming weeks and months despite bipartisan support in Congress to renew the Compacts of Free Association (COFA) that govern their relations with the U.S. The worry is that the longer the uncertainly lasts, the more attracted the islands’ populations will be to approaches from China.
Micronesia and the Marshall Islands will see their economic aid expire at the end of the fiscal year on Sept. 30 if Congress doesn’t enact a continuing resolution. Even if lawmakers can agree on a continuing resolution, there’s no certainty that they would include the aid, opting instead to wait for full appropriations bills or a package that also reauthorizes the nations’ updated COFA.
The funding uncertainty overlaps with unfinished negotiations with the Marshall Islands on its new pact, leaving Congress to make decisions about spending for the three nations without seeing the revised pact. Palau’s funding doesn’t expire until the end of fiscal 2024, but its future is closely linked with those of the other two countries.
“We’re waiting to get the final negotiation from RMI [Republic of the Marshall Islands],” House Natural Resources Chairman Bruce Westerman, R-Ark., said in an interview. “I see we’ve got kind of two hurdles to cross. The first one is what do we do with a CR, if there’s a CR, or what do we do in an appropriations package to bridge the gap until we get the COFAs.”
Westerman’s committee has jurisdiction over COFA, and he led a congressional delegation to the three countries last month.
The Biden administration signed memorandums of understanding with Palau, Micronesia and the Marshall Islands in January to renew the COFA for another two decades. Under the compacts, the U.S. sends economic assistance to the countries, whose populations combined are less than 200,000, and provides their citizens with other benefits in exchange for a U.S. military presence on their territories.
Palau and Micronesia finalized the terms of their respective compacts with the U.S. in May, but the State Department is still wrangling over final technical details with the Marshall Islands. Westerman said that U.S. Postal Service and Federal Aviation Administration issues were among the outstanding issues.
The White House’s fiscal 2024 budget request included a proposal for over $7.1 billion in mandatory spending over the next 20 years to implement the revised COFA. Lawmakers ultimately are expected to appropriate implementing funds in the same legislative package that provides authorization, as they did at the last renewal in 2003, according to lawmakers and staffers working on the issue.
But closing the gap that could open on Sept. 30 is a challenge.
“Bicameral, bipartisan conversations are happening about a short-term fix in the CR space to keep the lights on,” said a Senate Democratic aide, who was not authorized to be quoted. “I think the challenging factor is that since the Marshall Islands hasn’t agreed to a new compact, it makes it difficult to support funding for the Marshall Islands in [a short-term funding vehicle].”
Funding for the compacts comes through and is administered by the Interior Department.
Administration request
The administration’s requested “anomalies” for a potential CR included $128 million in COFA economic assistance for Palau and the Federated States of Micronesia, rising to $252 million if the Marshall Islands reaches final agreement on its own revised compact before the end of September.
“A lot of things are being talked about … There’s proposals to go ahead and lock the COFAs in the CR at the higher levels, but it’s also complicated because the COFAs are mandatory spending. The CR deals with discretionary spending and appropriations,” Westerman said. “So exactly how we handle all of that is still up in the air.”
Without that anomaly, “vital compact related economic assistance and many federal programs and services will cease,” says the White House anomalies request released at the end of August.
“I think over here in the Senate, we are hopeful that the Marshall Islands will sign new compact agreements and that we will have a path forward by the end of the calendar year, and we are open to riding on whatever moving vehicle that looks like,” the Senate staffer said.
A Biden administration official familiar with the state of final COFA talks said the timing couldn’t be more consequential for broader U.S. strategic goals.
“We’ve obviously been talking about government shutdowns for a long time, but this is the first time that a government shutdown coincides with the renewal of the COFA agreements, which only happens every 20 years,” said the official, who wasn’t authorized to be quoted. “This government shutdown could coincide with shutting down most of the Freely Associated States with it. If we care about our leadership in the Indo-Pacific or countering malign PRC [People’s Republic of China] influence, the national security implications of the two coinciding in the next two weeks cannot be overstated.”
Fear of an encroaching China
Small Pacific island nations are finding themselves pressed to choose sides in the growing great power rivalry between the U.S. and China in the Indo-Pacific.
Vanuatu in recent weeks experienced another in a rapid series of changes of power when lawmakers voted to remove Prime Minister Ishmael Kalsakau in a no-confidence vote amid accusations that he was moving the island chain away from its long-standing foreign policy of neutrality toward the West because he signed a security agreement with Australia. His replacement, Sato Kilman, is seen as supporting more friendly relations with Beijing, a major source of international development funding for the nation.
“The U.S. understands it had taken its eye off the ball for the Pacific, and that it had created something of a strategic vacuum for others, with more malign intentions, to move in,” said Charles Edel, senior adviser and Australia chair at the Center for Strategic and International Studies. “There is now a clear recognition that in the Pacific, the United States needs to show up, show up consistently, and be a good partner to the entire region.”
The governments of the three nations, which are approximately 2,500 miles from Hawaii in the Oceania region known as Micronesia, are warning lawmakers that failure to speedily appropriate funding for the renewed COFA would create an opening for Beijing to expand its influence.
At a House Natural Resources Committee field hearing in Guam in August, Palauan Finance Minister Kaleb Udui said Beijing had been trying to tempt Palauan locals to oppose U.S. plans to place an early-warning radar on one of the islands by offering to construct a new hotel and casino nearby.
“Some of our people, including some of our most important leaders, are tempted by its offers. They see China as the best opportunity for the private sector growth that we want. The U.S. does not have a command economy [like China], but it has the compact,” Udui said. “A significant delay in [enacting] the new agreement will give those in Palau who seek … a future with China or who have Chinese connections an opportunity to sow doubt about the U.S.”
In addition to the trip to Guam, Westerman led a delegation to Palau, the Federated States of Micronesia and the Marshall Islands. He said officials from the three countries were anxious to see the agreements finalized and funded by Congress. The fifth-term lawmaker also said he saw firsthand China’s efforts to tout its international development budget.
“It was in Micronesia, right across from the government buildings, there was a Chinese development project that really hadn’t had anything done to it, but they did have the fence up with the banner wrapped around it talking about the Chinese development,” he said.
“History and current events leave no room for doubt that U.S. strategic control and close alliance with our compact partners are vital to international peace and security in Indo-Pacific region,” Sen. Joe Manchin III, D-W.Va., chair of the Energy and Natural Resources Committee, which has jurisdiction over COFA, said at a July hearing on the matter. “Which is why it’s so important that we renew these agreements in a timely fashion.”
Added Sen. Brian Schatz, D-Hawaii, a member of the Foreign Relations subcommittee on East Asia and the Pacific, on the importance of not letting funding to COFA lapse: “This is our obligation, and it’s essential for the United States and our foreign policy. If we’re serious about being present in the Asia-Pacific, we have to put our money where our mouth is.”
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