WRITTEN TESTIMONY OF THE HONORABLE SENATOR PETER CHRISTIAN, CHIEF NEGOTIATOR OF
THE JOINT COMMITTEE ON COMPACT ECONOMIC NEGOTIATIONS OF THE FEDERATED STATES OF MICRONESIA
TO THE US HOUSE OF REPRESENTATIVES
COMMITTEE ON INTERNATIONAL RELATIONS
SUBCOMMITEE ON ASIA AND THE PACIFIC
FOR CONSIDERATION DURING ITS JUNE 18, 2003, HEARING ON THE COMPACTS OF FREE ASSOCIATION
JULY 1, 2003
Mr. Chairman,
I have the honor to provide written testimony on behalf of the Federated States of Micronesia, and wish to thank you and the Members of the Committee for holding this important and timely hearing on a matter of utmost importance to my nation.
Further, Mr. Chairman, I wish to thank you and the Members for your understanding in affording me the opportunity to review the Administration’s proposed Compact legislation prior to submitting testimony.
Mr. Chairman, the negotiations have evolved considerably since your Committee last considered the matter in 2002. We have now reached agreement with the US on an amended Compact package. We joined the US in signing these agreements in May of this year, and look forward to working with Members and staff toward approval of the documents now before you.
We stand at an important juncture in relations between our nations. The amended Compact furthers our mutual commitment to preserve the peace and stability of the central Pacific, and promotes the continued development of the FSM on a sustainable basis. Mr. Chairman, these documents will largely determine the fate of the Micronesian people and the security and stability of the region for the next twenty years and beyond.
The sectoral approach to grant assistance in the new agreement is a marked change from past practice and will require implementation adjustments by both sides. Nonetheless, it provides the best mechanism for reaching our mutual goals in the next twenty years and beyond, and will direct assistance to where it is needed the most.
Similarly, we welcome and are committed to implementing new accountability and oversight requirements. It is no secret that there have been mistakes on both sides under the original Compact. While we were not always in agreement with the tone and findings of the GAO's reports during the past several years, we are thankful to them for undertaking this important initiative and shedding light on deficiencies. This has assisted both the US and FSM negotiators as they worked proactively to address these issues in the amended documents.
At the outset of the talks, the FSM proposed the notion of a joint committee to oversee implementation of the Compact. This proposal was welcomed by the US, and ultimately took the form of the proposed Joint Economic and Management Committee (JEMCO). The JEMCO will consist of representatives from the US and FSM, with a US majority, and will meet regularly to identify any problems in Compact implementation and develop prompt and cooperative responses. This is a positive change from the reactive management policies of the past.
We appreciate the generous nature of the US proposal. However, there remain certain provisions of the Administration’s proposal that cause the FSM serious concern. Unless addressed by the US Congress during the approval process, these problems hold the potential to unravel the carefully-constructed fabric of the Compact package we have jointly woven.
First and foremost, our concerns center on the level of economic assistance over the next twenty years. Beginning in 1997, the FSM began work on constructing a comprehensive economic analysis of its needs over the next twenty years. This analysis was at the core of our original economic proposal made in 1999, which called for economic assistance at levels of $84 million annually over the next twenty years. Six months later, the US responded with an initial offer of $61 million annually. After further analysis of ongoing macroeconomic trends, the FSM was able to lower its minimum required figure to $79 million annually. Still, we obviously had a significant difference of opinion.
The FSM demonstrated, unequivocally, that such a marked reduction in current assistance would threaten the very viability of the nation from the outset. On numerous occasions we presented our economic analyses to the US negotiators, and at no time were they met with countering analyses or were fundamental elements disputed. Instead, we were told that the US assistance proposal was the maximum that the US could offer - in essence the result of a political decision rather than sound and responsible economic analysis.
Fortunately, and through the hard work of negotiators on both sides, we were able to bridge the gap to the point were we could agree on submitting the document for Congressional consideration. While the annual grant figure of $72 million currently proposed by the US is much closer to the minimum level we initially identified, it still falls $7 million short of what we have identified as the absolute minimum required for the economy to experience any degree of economic growth during the next twenty years.
Further, it should be recognized that the funding under the amended Compact is subject to many more restrictions than the original Compact. For example, the Department of Interior has stated their understanding that no Compact assistance should be used to fund ongoing operations, except under very limited circumstances, and only with their approval. This leaves it up to the FSM Government to fund its current services through local revenues, whereas under the original Compact the majority of these were funded by the Compact. While the FSM has reached the objective set out in the original Compact of increasing the share of local revenues in the total budget, these are hardly adequate to fund all ongoing operations.
Add to this the effects of the initial reduction in grant funding in 2004, the pressures placed on the economy by raising the necessary $30 million trust fund contribution, and the reduction in government capacity due to new restrictions on the funds, and one can see that the potential for huge economic instability exists. The $7 million in additional annual funding requested by the FSM may not seem like much in the overall scheme of the Compact and the US foreign assistance budget, but it is critical to the health of the FSM's economy, the well-being of our people, and to the future of our nation.
There are several other aspects of the Compact which are troublesome from our point of view. First, there is the inadequacy of the inflation adjustment. This involves two separate issues - the formula to calculate adjustment and the base year for adjustment. The FSM seeks the assistance of the Congress in restoring full inflation adjustment and adjusting the base year to 2002, which is far more reasonable than the proposed date of 2004. This, of course, is closely linked to the issue of the adequacy of grant funding, and it is possible that shortcomings in one area could be met through adjustment of the other.
Similarly, we note that the GAO’s testimony before your Committee in 2002 stated that the levels of funding proposed for the FSM's trust fund were not adequate to ensure the viability of the fund. We concur with this finding, and are also concerned about some of the structural and organizational weaknesses of the fund that we highlighted during the course of the negotiations. We hope that these can be sufficiently corrected in the next few years, as provided for in the final Compact text.
Another alarming change in the amended Compact is the loss of FEMA disaster relief assistance. Without reinstatement of this important benefit by the US Congress, the substantial investment made by the US, and pledged for the next twenty years, is placed in jeopardy. As the proposed amendments now stand, storms or other natural disasters — a statistical certainty, hold the potential to derail the economic engine of the nation.
Similar to the FEMA issue, we are very concerned over continuation of federal programs under the amended Compact. Throughout the negotiations, the US has stated that it was not their desire to force the hand of Congress on this important issue. At the same time, Congress has at times (such as in the "No Child Left Behind Act") called upon the negotiators to decide the matter. In many areas this has resulted in essential federal programs extended to the FSM possibly falling through the cracks.
The US negotiator has since clarified the Administration’s position on the matter, stating that calculations of the US assistance offer were made based upon the assumption that federal programs would continue at their current levels. We hope that Congress, in its wisdom, will take note of this important statement and act to ensure the continuation of invaluable programs to the FSM, such as those under NCLBA, IDEA, Head Start, Pell Grants, and others.
Mr. Chairman, allow me to turn briefly to elements of the legislation that are not part of the negotiated amendments. We wish the Committee to be aware that the FSM had no part in the drafting of these proposals by the Administration. In fact, we were not consulted on any aspect of the drafting and were assured that any changes from the existing language in PL 99-239 would be solely to update existing language. When we finally had the opportunity to review the draft, which we received well after your hearing, we found that the changes went far beyond a simple “updating.” We identified at least three major problems that will require adjustment by the Congress.
First, there is the issue of transition to a machine-readable passport scheme. This is a concept to which the FSM has repeatedly pledged its support. However, we find it quite alarming that the Administration has unilaterally seen fit, at this late hour, to set aside $250,000 or more from the Compact’s capacity-building assistance for this purpose. It is alarming for many reasons — the fact that budgets are in the process of being developed on the negotiated package, the fact that the sector is currently under funded even before these changes, and for the precedent it sets for future US action without consultation.
Second, and similar to the first, is that the US insists on mandating the FSM’s development of a more effective immigrant screening system. We are given one year to do this, without specifying how such measures would be funded. Again, the FSM has repeatedly agreed to undertake steps to implement such systems. However, and by all reasonable estimates, it is an extremely expensive undertaking that likely could not be could be concluded in one year. Under the US proposal, FSM failure to meet this arbitrary deadline would result in withholding of Compact assistance.
Finally, there is the matter of changes to the language concerning provision of compensatory federal programs. In 1986 Congress passed this language during its consideration in order to mandate these programs, and funding, to the FSM as partial compensation for loss of tax and trade benefits that were made by Congress prior to passage. While the tax and trade provisions of the original Compact are largely unchanged, the Administration has seen fit to alter the language of the compensatory provisions so as to make them optional for the US. Clearly, it is not be the Administration’s role to redraft agreed Congressional language.
In conclusion, Mr. Chairman, the US and the FSM acting together have drawn upon the lessons of the original Compact in developing a document that will further the mutual interests of both nations. With the help of the US Congress in addressing the few shortcomings in the proposed agreement before you, we can arrive at a document that ensures the continued viability of a nation and her people, and thus maintains the peace and security of this critical region of the world.
Both the US and FSM can be rightly proud of the unique bonds we have forged in the Compact period, and in the innovative roadmap we have constructed for the next 20 years and beyond. We urge Congress to act favorably on the Compact legislation, and to make the corrections necessary to ensure a solid foundation for the future.
I thank you, Mr. Chairman.
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