China looms large in U.S. Senate hearing on FAS issues; Guam closely monitoring Compact developments

Sen. Lisa Murkowski said the primary interest of the hearing is U.S. financial assistance for the FAS which is set to expire and how that might impact the United States’ interests in the region.

The U.S. Senate Committee on Energy and Natural Resources held a full committee meeting on the freely associated states to examine U.S. interests in the FAS.

Sen. Lisa Murkowski, who chairs the committee, said the primary interest of the hearing is U.S. financial assistance, which is set to expire in the Marshall Islands and the Federated States of Micronesia at the end of fiscal year 2023, and then in Palau at the end of fiscal year 2024.

The committee is especially interested in how these expirations might impact the United States’ interests in the region and whether it would create a leadership void that other nations might seek to fill, specifically China.

Douglas Domenech, Assistant Secretary, Insular and International Affairs U.S. Department of the Interior, testified that if grant assistance under the amended Compacts is allowed to expire by the end of 2023 and 2024 respectively, and is not extended, there is the risk of damaging the respective bilateral relationships of free association between the United States and these Pacific Island nations.

Domenech said fulfilling all three Compact of Free Association agreements is critical to sustaining the U.S.Government’s commitment to these nations and their respective efforts to advance their own economic self-sufficiency.

Randall Schriver, Assistant Secretary of Defense for Indo-Pacific Security Affairs of the U.S. Department of Defense testified that the U.S. is increasingly confronted with a
more assertive and confident China that is willing to accept friction in the pursuit of its interests.

He said China’s pursuit of an alternative vision for the Indo-Pacific region to reorder it in China’s favor puts the U.S. on a pathway to strategic competition.

“The reemergence of great power competition – if not carefully managed – poses a challenge to the free and open order in the Indo-Pacific region that underpins our continued peace and prosperity. Given our strong relationships with the Freely Associated States, we are particularly concerned by China’s use of coercive tools to attempt to erode their sovereignty and induce them to behave in accordance with Chinese interests. The United States and China are not destined to be adversaries, and we are prepared to
support China’s efforts in the region to the extent that China promotes long-term peace and prosperity for all in the Indo-Pacific,” Schriver said.

Sandra Oudkirk, Deputy Assistant Secretary for Australia, New Zealand, and Pacific Islands, Bureau of East Asian and Pacific Affairs, U.S. Department of State, testified that China has significantly increased its engagement with Pacific Islands over the past decade
through development aid, investment, diplomatic engagement, military assistance and people-to-people exchanges.

She said China has provided $1.8 billion in assistance to the Pacific Islands since 2006, mostly for infrastructure, putting China third behind Australia ($7.7 billion) and the United States ($1.9 billion). Approximately 80 percent of Chinese assistance is comprised of concessional loans, with the remainder composed of in-kind assistance and grants.

Over the past decade, Oudkirk said dozens of senior leaders from China have visited the region, including President Xi Jinping’s 2014 Fiji visit to announce a strategic partnership. In 2015, Fiji’s PM made a return visit, meeting with Xi as well as Premier Li Keqiang. Papua New Guinea’s President O’Neill visited Beijing in 2016 and in June 2018, when he signed on to Beijing’s Belt and Road Initiative. In March 2017, President Xi hosted then Federated States of Micronesia President Christian for a state visit.

“Pacific Island countries’ collective debt to China rose from almost zero to more than $1.3 billion within the last decade. Chinese loans reportedly account for 60 percent of Tonga’s total external debt and 50 percent of Vanuatu’s external debt. Papua New Guinea has the biggest total debt to China at almost $590 million, about a quarter of its total external debt. There is a strong risk that these loans have the potential to be exploited for political leverage to extract additional concessions, as in the case of Sri Lanka’s Hambantota Port.
While the Freely Associated States do not have the same debts to China as some of their Pacific neighbors, China’s engagement is still growing. In the Federated States of Micronesia, China has provided $724 million between 2011 and 2016. In Palau, Chinese tourists and investment in the tourism sector dominates the market making Palau’s economy, which is highly dependent on tourism, susceptible to changes in China’s policies,” Oudkirk said.

Adelup Chief of Staff Tony Babauta, who formerly headed the Office of Insular Affairs, told the Patti Arroyo show on NewsTalk K57 that he agrees with the concern and recognition that China would exert economic and political influence in the Pacific if the U.S. does not renew the Compact.

Babauta said this is also the reason why Guam is so important as a strategic hub for national defense and security.

When it comes to Compact Impact for Guam, Babauta said Gov. Lou Leon Guerrero is working with Hawaii Governor David Ige to have a unified approach in developing a better system of monitoring Compact expenses in order to get more federal reimbursements on Compact costs.