In 1986, after 17 years of negotiations, the United States and the FSM and the RMI entered into the Compact of Free Association. The three main U.S. goals for the Compact—(1) to secure self- government for the FSM and the RMI, (2) to assure certain national security rights for all the parties, and (3) to assist the FSM and the RMI in their efforts to advance economic development and self-sufficiency— represent a continuation of U.S. rights and obligations first embodied in the U.N. trusteeship agreement that made the United States the Administering Authority of the Trust Territory of the Pacific Islands. The provisions governing the amount and distribution of this economic assistance are due to expire, unless renegotiated and subsequently reauthorized by the Congress, in late 2003. Unlike economic assistance provisions, the Compact’s migration provisions are not scheduled to expire in 2003. Compact Funds Had Limited Impact and Accountability

While the FSM and the RMI spent nearly $1.6 billion in Compact direct funding during 1987 through 1998, these funds have contributed little to improving economic development. However, the causeway remains unfinished. Moreover, Interior resources devoted to Compact oversight were minimal. Interior officials have claimed that interagency disagreements between the Departments of State and the Interior concerning the level of and responsibility for oversight, and a Compact provision guaranteeing payment of Compact funds (“full faith and credit”), have limited the U.S. government’s ability to oversee the use of Compact funds and ensure that they are used effectively. Migrants were working mainly in low-skill, low-wage jobs and costing the islands’ governments an estimated $371 million to $399 million mainly in health care and education costs. Donors Recognized Challenges in Promoting Economic Self-Sufficiency and Alleviating Poverty

Major donors to Pacific Island nations have provided about $11 billion to this region from 1987 through 1999. Compact migration has clearly had a significant impact on Guam, Hawaii, and the CNMI and has required government services in key areas. The negotiation of new economic assistance presents an opportunity for the United States to benefit from its 15-year experience under the Compact and the experiences of other aid donors to Pacific region, in order to potentially increase the effectiveness of the assistance it provides.
What GAO Found

The Compact of Free Association between the United States and the Federated States of Micronesia and the Republic of the Marshall Islands provides direct U.S. economic assistance and extends U.S. domestic programs and federal services to these two Pacific Island nations. The Compact also allows for migration from Micronesia and the Marshall Islands to the United States and establishes U.S. defense rights and obligations in the region. The Compact's economic assistance provisions were scheduled to expire in late 2001. However, the provisions will remain in effect for two more months while the United States and the two Pacific Island nations renegotiate them. Congress must renegotiate and reauthorize the expiring provisions by late 2003 for economic assistance to continue uninterrupted. The $1.6 billion provided under the Compact through 1998 has had little impact on economic development in Micronesia and the Marshall Islands and was subject to limited accountability. U.S. oversight was limited by interagency disagreements between the Departments of Interior and State, a lack of resources devoted to Compact oversight, and Interior's belief that Compact provisions restricted its ability to require accountability and withhold funds. Because of the lack of opportunities in the region, thousands of citizens in Micronesia and the Marshall Islands have migrated to the United States. Migrants to Guam, Hawaii, and the commonwealth of the Northern Mariana Islands generally work in unskilled, low-paying jobs. Between 1996 and 2000, the local governments have spent at least $371 million on assistance--primarily health care and education. Since 1987, several multilateral organizations and donor nations, including the United States, have given nearly $12 billion to the two Pacific island nations to promote economic self-sufficiency and alleviate poverty. The major donors believe that many Pacific Island nations will not be able to improve development without continued assistance.