	Background

The 1986 Compact of Free Association between the United States, the  FSM, and the RMI provided a framework for the United States to work  toward achieving its three main goals: (1) to secure self-government for  the FSM and the RMI, (2) to assist the FSM and the RMI in their efforts to  advance economic development and self-sufficiency, and (3) to ensure  certain national security rights for all of the parties. In the fall of 1999, the United States and the two Pacific Island nations  began negotiating economic assistance and defense provisions of the  Compact that were due to expire. Immigration issues were also addressed. According to the Department of State, the aims of the amended Compacts  are to (1) continue economic assistance to advance self-reliance, while  improving accountability and effectiveness; (2) continue the defense  relationship, including a 50-year lease extension (beyond 2016) of U.S.  military access to Kwajalein Atoll in the RMI; (3) strengthen immigration  provisions; and (4) provide assistance to lessen the impact of Micronesian  migration on Hawaii, Guam, and the CNMI. If the trust funds established in  the amended Compacts earn a 6 percent rate of return, the FSM trust fund  would be insufficient to replace expiring annual grants. Amended Compacts Could Cost the U.S. Government $6.6 Billion

Under the amended Compacts with the FSM and the RMI, new  congressional authorizations of approximately $6.6 billion could be  required for U.S. payments from fiscal years 2004 to 2086, of which $3.5  billion would be required for the first 20 years of the Compacts   (see table 1). This new authorized funding would be provided to each country in the  form of (1) annual grant funds targeted to priority areas (such as health,  education, and infrastructure); (2) contributions to a trust fund for each  country such that trust fund earnings would become available to the FSM  and the RMI in fiscal year 2024 to replace expiring annual grants; (3)  payments the U.S. government makes to the RMI government that the RMI  transfers to Kwajalein landowners to compensate them for the U.S. use of  their lands for defense sites; and (4) an extension of federal services that  have been provided under the original Compact but are due to expire in  fiscal year 2003. Nevertheless, the RMI trust fund would become  insufficient for replacing grant funding by fiscal year 2040. The United States could withhold payments if either country fails to  comply with grant terms and conditions. The successful implementation of the many new accountability provisions  will require a sustained commitment by the three governments to fulfill  their new roles and responsibilities. Appropriate resources from the  United States, the FSM, and the RMI represent one form of this  commitment. While  the U.S. government had already secured access to Kwajalein until 2016  through the 1986 MUORA, the newly revised MUORA would grant the  United States access until 2066, with an option to extend for an additional  20 years to 2086. In addition, the  Attorney General would have the authority to issue regulations that  specify the time and conditions of a Compact nonimmigrant’s admission  into the United States (under the original Compact, regulations could be  promulgated to establish limitations on Compact nonimmigrants in U.S.  territories or possessions).
Why GAO Did This Study

In 1986, the United States entered into a Compact of Free Association with the Pacific Island nations of the Federated States of Micronesia, or FSM, and the Republic of the Marshall Islands, or RMI. The Compact provided about $2.1 billion in U.S. funds, supplied by the Department of the Interior, over 17 years (1987-2003) to the FSM and the RMI. These funds were intended to advance economic development. In a past report, GAO found that this assistance did little to advance economic development in either country, and accountability over funding was limited. The Compact also established U.S. defense rights and obligations in the region and allowed for migration from both countries to the United States. The three parties recently renegotiated expiring economic assistance provisions of the Compact in order to provide an additional 20 years of assistance (2004-2023). In addition, the negotiations addressed defense and immigration issues. The House International Relations and Resources Committees requested that GAO report on Compact negotiations.

What GAO Found

The amended Compacts of Free Association between the United States and the FSM and the RMI to renew expiring U.S. assistance could potentially cost the U.S. government about $6.6 billion in new authorizations from the Congress. Of this amount, $3.5 billion would cover payments over a 20-year period (2004-2023), while $3.1 billion represents payments for U.S. military access to Kwajalein Atoll in the RMI for the years 2024 through 2086. While the level of annual grant assistance to both countries would decrease each year, contributions to trust funds--meant to eventually replace grant funding--would increase annually by a comparable amount. Nevertheless, at an assumed annual 6 percent rate of return, earnings from the FSM trust fund would be unable to replace expiring grant assistance in 2024, while earnings from the RMI trust fund would encounter the same problem by 2040. The amended Compacts strengthen reporting and monitoring measures that could improve accountability over assistance, if diligently implemented. These measures include the following: assistance grants would be targeted to priority areas such as health and education; annual reporting and consultation requirements would be expanded; and funds could be withheld for noncompliance with grant terms and conditions. The successful implementation of the many new accountability provisions will require appropriate resources and sustained commitment from the United States, the FSM, and the RMI. Regarding defense, U.S. military access to Kwajalein Atoll in the RMI would be extended from 2016 through 2066, with an option to extend through 2086. Finally, Compact provisions addressing immigration have been strengthened. For example, FSM and RMI citizens entering the United States would need to carry a passport, and the U.S. Attorney General could, through regulations, specify the time and conditions of admission to the United States for these citizens.