New Compact of Free Association Agreements with Micronesia, the Marshall Islands, and Palau Approved by Congress

Congress recently enacted legislation approving and funding agreements between the United States and Micronesia, the Marshall Islands, and Palau that update the Compacts of Free Association (COFAs) that have governed relations between the United States and the three Freely Associated States (FAS) since their independence.¹ The legislation appropriates $7.1 billion over twenty years, including $3.3 billion to Micronesia, $2.3 billion to the Marshall Islands, and $889 million to Palau.² The legislation also restores federal benefits for FAS citizens living in the United States³ and expands benefits for FAS veterans of the U.S. armed forces.⁴ The new agreements and implementing legislation maintain and reinforce U.S. influence in the Pacific at a time when the United States is facing increasing Chinese competition in the region.

Following World War II, the one thousand islands and atolls in the western Pacific Ocean that are now Micronesia, the Marshall Islands, Palau, and the Northern Mariana Islands (NMI) comprised the Trust Territory of the Pacific Islands (TTPI), administered by the United States as part of the UN international trusteeship system. From the mid-1960s, the Congress of Micronesia (a name that referred to the entirely of the trust territory, not just the islands that would later comprise the country of Micronesia) considered the future status of the TTPI and recommended either free association with the United States or full independence. One of the TTPI's six districts, the NMI, voted instead to become a commonwealth of the United States and was administratively separated from the rest of the territory.⁵ At an April 1978 meeting in Hilo, Hawaii, representatives from the TTPI's remaining districts and the United States agreed on a “Statement of Agreed Principles of Free Association” that established guidelines for the negotiation of the territory's future political status.⁶ A constitutional referendum in July of that year that would have established upon independence a single political entity to succeed the TTPI was rejected by voters in the Marshall Islands and Palau districts and led to their partition. Negotiations between the now three TTPI entities and the United States led to the signing of COFAs and related agreements in 1982 (Micronesia), 1983 (the Marshall Islands), and 1986 (Palau).⁷ The COFAs with the Marshall Islands and Micronesia entered into force in 1986, subsequent to congressional approval.⁸ But the COFA with Palau would not go into force until 1994 despite Congress's approval eight years earlier.⁹ The Palauan constitution forbade nuclear weapons in Palauan jurisdiction absent approval by a 75 percent majority vote in a referendum,¹⁰ and the United States insisted that it be granted permission as a prerequisite to Palau's independence.¹¹

The COFAs codified a bargain between the United States and the Freely Associated States. The United States provided the FAS with financial grants (including for current account operations, energy production, health and medical programs, education, and roads), program assistance (including for the services, without charge, of the U.S. Weather Service, the U.S. Postal Service, and the U.S. Federal Aviation Administration), trade benefits (including duty-free treatment, with some exceptions, for articles imported from Palau to the United States), national security and defense, and the right of FAS citizens to live and work in the United States. In exchange, the FAS granted the United States—across the strategically critical corridor that spans the Pacific from the Hawaiian Archipelago to Japan, the Philippines, and Taiwan—military operating rights, the right to establish and use defense sites, and the right to deny territorial access to foreign militaries.¹² The United States has missiles and early warning radars in Palau, has an ICBM testing and military space operations range in the Marshall Islands, and conducts military exercises in Micronesia.¹³ In 2023, COFA funds reportedly accounted for about 20–30 percent of the Marshall Islands’ and Palau's annual government revenue.¹⁴

The original COFAs’ financial grants, which provided considerable monetary support for the three newly independent states ($690 million to the Marshall Islands, $1.54 billion to Micronesia, and $574 million to Palau),¹⁵ were made either as lump sums or on a periodic basis, with the latest payments sunsetting fifteen years after the Compacts’ entry into force. (The COFAs’ other provisions, including those relating to defense, were not time limited.) Thus, if the grants were to continue beyond that initial period, the COFAs would need to be updated. To this end, amendments to the COFAs with Micronesia and the Marshall Islands (the Amended COFAs) were concluded in 2003¹⁶ and entered into force the following year following congressional approval.¹⁷ And a Compact Review Agreement (CRA) with Palau was signed in 2010 and entered into force in 2018,¹⁸ after a long delay in Congress due to budgetary rules in the Republican-controlled House of Representatives that required spending offsets.¹⁹ Temporary extensions covered the gaps between the expiration of the financial grants in the original COFAs and the entering into force of the Amended COFAs and the CRA.²⁰

The economic assistance provisions of the Amended COFAs expired at end of the 2023 fiscal year, and those of the CRA were set to expire at the end of the 2024 fiscal year. With these dates approaching, the United States and the FAS sought to extend the COFAs’ financial assistance provisions a second time. Agreements were signed with Palau and Micronesia on May 22 and 23, 2023, respectively, and with the Marshall Islands on October 16, 2023.²¹ Temporary extensions again continued funding for Micronesia and the Marshall Islands until legislation approving the three revised COFAs and related agreements—the Compact of Free Association Amendments Act—was signed by President Joseph R. Biden, Jr., on March 9, 2024.²²

In accordance with the revised COFAs, the act appropriated billions of dollars for the FAS and extended certain benefits to FAS citizens. The money will provide “support for basic public service delivery, such as health and education, improve infrastructure, and bolster the health of the Compact trust funds previously established.”²³ The act also allocated $700 million to a Marshall Islands trust fund for uncompensated environmental and health damage caused by the U.S. nuclear atmospheric tests over Bikini and Enewetak atolls between 1946 and 1958.²⁴ Additionally, the legislation broadened eligibility for federal benefits for FAS citizens. Since 1996, FAS citizens living in the United States were ineligible for certain federal programs.²⁵ Access to those benefits, including Supplemental Nutrition Assistance Program, Temporary Assistance for Needy Families, and Supplemental Security Income, has now been restored.²⁶ The new law also increased benefits for FAS veterans of the U.S. armed forces.²⁷

China's increasing efforts to extend its influence in the Pacific provided urgency to the negotiation and adoption of the COFA extensions. They have also led more generally to a greater prioritization of U.S. engagement with Pacific Island states.²⁸ President Biden's Indo-Pacific Strategy warned that “[t]he PRC is combining its economic, diplomatic, military, and technological might as it pursues a sphere of influence in the Indo-Pacific and seeks to become the world's most influential power. The PRC's coercion and aggression . . . is most acute in the Indo-Pacific.”²⁹ It also described “negotiations on our Compacts of Free Association with the Freely Associated States as the bedrock of the U.S. role in the Pacific.”³⁰ Kurt Campbell, at his confirmation hearing to be deputy secretary of state in December 2023, emphasized that “[i]f we don't get [the COFA funding approved] you can expect that literally the next day Chinese diplomats—military and other folks—will be on the plane . . . trying to secure a better deal for China.”³¹ In addition to negotiating and signing the COFA extensions, President Biden has announced other steps to enhance the United States' relationship with Pacific island states, including establishing a U.S.-Pacific Partnership and an annual U.S.-Pacific Islands Forum Summit,³² recognizing the Cook Islands and Niue as independent states,³³ opening or planning to open embassies in Solomon Islands, Tonga, Vanuatu, and Kiribati,³⁴ and supporting initiatives and programs of particular interest to Pacific Island states, such as those relating to climate change, trade and economic development, infrastructure, and security.³⁵