U.S. Department of State
U.S. Department of State
Other State Department Archive SitesU.S. Department of State
U.S. Department of State
U.S. Department of State
U.S. Department of State
U.S. Department of State
U.S. Department of State
U.S. Department of State
Home Issues & Press Travel & Business Countries Youth & Education Careers About State Video
 You are in: Under Secretary for Political Affairs > Bureau of East Asian and Pacific Affairs > Releases > Fact Sheets > 2002 East Asian and Pacific Affairs Fact Sheets
Fact Sheet
Bureau of East Asian and Pacific Affairs
Washington, DC
April 23, 2002

U.S. Proposes Amended Compact of Free Association Funding for the Republic of the Marshall Islands

As part of the ongoing negotiations regarding the Compact of Free Association between the Government of the United States and the Government of the Republic of the Marshall Islands (RMI), the U.S. and RMI have previously jointly committed to the purpose of Title II of the Compact, which is to assist the Government of the RMI in its efforts to advance the economic self-sufficiency of the people of the RMI, and to continued security and defense relations as set forth in Title III of the Compact. The U.S. and RMI are also jointly committed to public sector reform and more effective accountability under the Compact. The United States Compact Negotiator is Albert V. Short.

Regarding the expiring funding provisions of Title II, the United States has proposed new Title II assistance levels beginning in FY-2004. The U.S. is committed to extending economic assistance annually to the RMI for a period of 20 years, commencing with $37 million in U.S. FY 2004 (beginning on October 1, 2003) and providing declining annual assistance from this amount as described in the attached table from FY 2005 through FY 2023. This assistance includes funds already agreed to under the U.S. Military Use and Operating Rights Agreement in connection with U.S. Defense Department use of defense sites at Kwajalein Atoll through FY 2016.

U.S. assistance to the RMI will be targeted to sectors most in need of assistance: (a) education, (b) health, and (c) infrastructure. Other areas of special need include private sector development, capacity building, and the environment. In addition, the U.S. will continue to extend Federal programs and services to the RMI, with certain modifications, through fiscal year 2023. This assistance, currently valued at approximately $10 million per annum, may be discontinued or amended at the discretion of the U.S. Congress.

The U.S. proposes to terminate annual mandatory financial assistance to the RMI after a period of 20 years. The U.S. also proposes to establish a general trust fund for the RMI to offset partially the termination of direct U.S. financial assistance after FY 2023. The trust fund will receive an initial U.S. contribution of $8 million in FY 2004 and increasing U.S. annual contributions as described in Tab 1 from FY 2005 through FY 2023.

The U.S. offer on trust funding is conditioned on RMI contributions of at least $30 million prior to FY 2004 of "bump-up" funds available to them under section 231 of the Compact during fiscal years 2002 and 2003 as well as other RMI funds. In addition, after FY 2004, additional RMI and third-party contributions to the fund are anticipated.

In an effort to improve monitoring and oversight of U.S.-provided funds, the U.S. proposed the establishment of a joint U.S.-RMI mechanism to review the use of Compact funds, including the trust fund, to ensure they benefit those areas of the economy with the greatest need and are used most effectively. U.S. and RMI representatives will assess the performance of the RMI in achieving mutually agreed goals using macroeconomic performance standards.

Questions and Answers on U.S. Proposed Amended Compact Funding

Question: Is this a new Compact with the Republic of the Marshall Islands?

Answer: It is not a new Compact but rather amendments to the Compact. Certain funding provisions in Title II of the Compact were for 15 years plus up to an additional 2-year period while negotiations continue. Amending Title II to continue financial assistance will require Congressional action. In addition, the U.S. plans to table amended language to update Titles I, II, and IV of the Compact. The U.S.-RMI relationship of free association continues in accordance with the Compact, and independent of the expiring provisions of Title II.

Question: When does the Compact expire?

Answer: The Compact itself does not expire. Certain funding provisions of Title II of the Compact expired in October 2001. However, the Compact provides for follow-on assistance for up to 2 years at the average level of the preceding 15 years through FY 2003 (ending on September 30, 2003), while negotiations on an amended Compact are ongoing.

Question: Will the Congress have to pass the amended Compact?

Answer: Yes. Congress will have to enact the amended Compact by a vote of both houses prior to October 2003 in order to assure continued Compact funding.

Question: Will the Compact of Free Association continue after FY 2023?

Answer: Yes. The Compact, which establishes the relationship of free association between the United States and the RMI, does not expire. Similarly, the United States expects to maintain its defense and security relationship with the RMI indefinitely. Consistent with our overall goal of assisting the RMI in its efforts to achieve economic self-sufficiency, the United States intends to terminate annual mandatory financial assistance after 20 years, and replace it with the proceeds of a separate trust fund established for the RMI. The United States intends to contribute to this trust fund, and expects the RMI, together with others, to contribute to the trust fund.

The United States is also negotiating an extension of certain Federal services for 20 more years. Federal domestic programs may also be continued during this 20-year period. Whether such services and programs continue after the 20 years will be for the U.S. Congress to decide.

Question: Why would U.S. Compact Title II annual grant assistance decline as the U.S. trust fund payment increases over the 20 years of the amended Compact?

Answer: The Title II base grant would decline by $.5 million per year from FY 2005 to FY 2023. This decrement would be deposited into the trust fund. The U.S. believes this decrement strikes the right balance to support prudent financial management on the part of the RMI government while facilitating a transition from annual mandatory assistance in FY 2023 to reliance on trust fund income in FY 2024.

Question: Is the RMI receiving 25-30% less assistance than the Federated States of Micronesia on a per capita basis?

Answer: That calculation is misleading. It is based on the deduction of the economic assistance related to the use of Kwajalein from the amount of assistance the RMI receives. Kwajalein assistance under the Military Use and Operating Rights Agreement (MUORA) is intended to benefit the people of Kwajalein atoll. Since it is assistance, it should be included in the assistance total.

Including Kwajalein assistance currently totaling $13 million per year, the RMI's per capita assistance is $784 compared to $782 for the FSM for FY 2003. (This calculation is based on the RMI's population estimate.)

The RMI's calculation of per capita U.S. assistance cited above excludes additional amounts that we believe should be taken into account in calculating the per capita economic benefits to the RMI from the U.S. presence on Kwajalein. Notably, the RMI does not include $21 million in annual tax payments, job salaries, and telecom service payments flowing into the local and national economy as a result of U.S. defense sites operated on Kwajalein atoll. In addition, the RMI receives approximately $10 million in federal program assistance per year.

It is also important to note that the RMI and FSM negotiations are on separate tracks. Each country's assistance is based on the demonstrated needs of that country rather than a general comparison of the two based on a simple per capita formula. For instance, the FSM's population is distributed over a larger sea space served by four state governments. The FSM situation is therefore not amenable to a simple per capita comparison with the situation in the Marshall Islands.

Question: What governs the terms of U.S. access to Kwajalein?

Answer: Title III of the Compact sets forth the security and defense relationship between the U.S. and the RMI. Under sections 321 and 323 of the Compact, the U.S. and RMI entered into an Agreement Regarding the Military Use and Operating Rights of the United States in the Marshall Islands. This agreement provides terms and conditions for U.S. access to Kwajalein.

Question: How will special needs on Ebeye and Kwajalein Atoll be addressed?

Answer: The RMI government submitted separate funding requirements for the special needs of Ebeye. The United States formulated its assistance proposal taking into account the RMI's request.

Question: The RMI has submitted to the U.S. Congress a request under the "changed circumstances" provision of the U.S.-RMI Agreement under section 177 of the Compact regarding the U.S. Nuclear Testing Program (section 177 Agreement). What is the status of the RMI's request and what action has the U.S. taken?

Answer: The RMI submitted its request to Congress under the changed circumstances provision of the Agreement between the U.S. and the RMI for the implementation of section 177 of the Compact. Congress recently sent President Bush a letter concerning the RMIís request. As appropriate, an interagency group will study the RMI's request and respond to Congress separately from our Compact negotiations.

Question: Will the U.S. address nuclear medical needs under the Compact?

Answer: The RMI included a request for additional health care funding related to the Nuclear Testing Program in its Compact request as well as its changed circumstances request to Congress. The U.S. has requested that the RMI consider this matter within their total health care requirement.

Question: Will the U.S. guarantee funding with a "full faith and credit" pledge over the amended Compact period?

Answer: The U.S. proposes to amend section 236 (the full faith and credit provision) of the Compact. The amendment will ensure a multi-year mandatory appropriation for Compact funding but not extend the ability to pledge or assign future Compact funding as a source for repaying debt, without specific prior approval of the U.S. Government. Future funds may not be encumbered except as specifically approved by the U.S. Government.

Question: Is there an inflation adjustment in the new Compact?

Answer: The U.S. proposes to extend the inflation indexation adjustment adopted in the previous Compact period (capped at 5 percent per annum) to the annual payments for the base grant and trust funds in the new 20-year period.

Question: What oversight conditions will apply to Compact assistance?

Answer: Grant conditions normally applicable to U.S. state and local governments shall apply to Compact assistance and the trust fund. Each year, the Government of the United States would, after consultations with the RMI, attach grant terms and conditions which may include special grant conditions that the U.S. Government determines:

  • are needed to ensure compliance with grant terms and conditions,
  • provide for the effective use of U.S. assistance, and
  • ensure that reasonable progress is being made toward established objectives. The Government of the United States may withhold funds for violation of grant terms and conditions.

Question: What federal services and programs will be extended to the RMI?

Answer: The U.S. has tabled draft subsidiary agreements to provide, through FY 2023, the services of the following federal agencies to the RMI:

U.S. Postal Service (USPS)
Department of Transportation (DOT), including the Federal Aviation Administration (FAA)
Department of Defense Humanitarian Assistance Projects (CHAP) on a reimbursable basis from Compact assistance, and
Telecommunications Services

The U.S. is preparing the following subsidiary agreements for discussion:

National Weather Service
Natural Disaster Assistance
Status of Forces Agreement
Mutual Assistance on Law Enforcement Matters
Federal Programs and Services
Fiscal Procedures Agreement

The U.S. will continue to extend federal programs to the RMI, with certain modifications, and subject to future action to modify, amend, or eliminate such programs by the U.S. Congress.  

Fiscal Year

Grant Notes (1, 3&5)

Kwajalein Impact (7)

Kwajalein Payments (3&6)

Trust Fund (2, 3, 4&5)

Total (3)

2004

23.811

1.9

11.289

8

45

2005

23.311

1.9

11.289

8.5

45

2006

22.811

1.9

11.289

9

45

2007

22.311

1.9

11.289

9.5

45

2008

21.811

1.9

11.289

10

45

2009

21.311

1.9

11.289

10.5

45

2010

20.811

1.9

11.289

11

45

2011

20.311

1.9

11.289

11.5

45

2012

19.811

1.9

11.289

12

45

2013

19.311

1.9

11.289

12.5

45

2014

18.811

1.9

11.289

13

45

2015

18.311

1.9

11.289

13.5

45

2016

17.811

1.9

11.289

14

45

2017

17.311

0

0

14.5

31.811

2018

16.811

0

0

15

31.811

2019

16.311

0

0

15.5

31.811

2020

15.811

0

0

16

31.811

2021

15.311

0

0

16.5

31.811

2022

14.811

0

0

17

31.811

2023

14.311

0

0

17.5

31.811

Notes to Table on Funding:

  1. Grant funds are decremented by $.5 million per year, with the decremented funds going to the trust fund.
  2. Trust funds are increased by $.5 million per year, with these incremented funds coming from the grant account.
  3. An inflation adjustment will be applied similar to that in section 217 of the current Compact.
  4. RMI to contribute "bump-up" and other funds (approximately $30 million) in addition to the U.S. contribution to the trust fund in FY-04.
  5. Grant and trust amounts do not account for other RMI or third party contributions.
  6. Under Article X(4)(a) of the Military Use and Operating Rights Agreement (MUORA) -- $7.1 million with inflation adjustment.
  7. Under Article X(4)(b) of the MUORA. These amounts are not inflation adjusted. 


Released April 23, 2002



  Back to top

U.S. Department of State
USA.govU.S. Department of StateUpdates  |   Frequent Questions  |   Contact Us  |   Email this Page  |   Subject Index  |   Search
The Office of Electronic Information, Bureau of Public Affairs, manages this site as a portal for information from the U.S. State Department. External links to other Internet sites should not be construed as an endorsement of the views or privacy policies contained therein.
About state.gov  |   Privacy Notice  |   FOIA  |   Copyright Information  |   Other U.S. Government Information

Published by the U.S. Department of State Website at http://www.state.gov maintained by the Bureau of Public Affairs.