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FSM and US Meet in Technical Working Session

HONOLULU, Hawai'i (Joint Committee on Compact Economic Negotiations): April 18, 2002 - On April 6^th, 2002 representatives from the Federated States of Micronesia (FSM) and United States (US) met informally to discuss key elements of a US counter proposal delivered to the FSM on March 27^th.

Following on the Fourth Negotiating Round in December 2001, the US drafted a discussion document for the technical working session. The session was designed to facilitate the free flow of information between the two sides toward an agreement to be initialed sometime in the summer of 2002. Upon conclusion of the session both parties recognized that there are many outstanding details to be worked out in the remaining negotiating rounds.

The US discussion document's key elements included: an annual grant of 72M declining by 1M each year for twenty years, identification of priority sectors in Health, Education and Infrastructure with additional sectors in Private Sector Development, Environment and Capacity-Building, a twenty year time frame for grant funding, a Trust Fund account increasing by 1M each year to replace grants after 20 years, endorsement of ongoing access to certain federal services and programs, continuation of current 2/3 inflation adjustments with a 5% cap, a Joint Economic Management Committee and, mandatory annual appropriations by the US Congress.

In December, the FSM presented its most recent proposal including the following key elements that the US discussion document countered: 79M in stable annual grant assistance, 20M in annual contributions to a Trust Fund to replace grants after 20 years, identification of grant sectors in Health, Education, Infrastructure, Environment, Private Sector Development and Capacity-Building, a twenty year time frame for grants, full adjustment for inflation, ongoing access to federal programs and services, a Joint Economic Management Mechanism with a full time joint management Secretariat for Compact II implementation, and, full faith and credit from the US Congress to support annual grants for twenty years.

Regarding certain key US elements, and after review and analysis by Joint Committee on Compact Economic Negotiations (JCN) and Economic Management and Policy Analysis Team (EMPAT), Senator Peter Christian, the FSM's Chief Negotiator, informed the US that the FSM was willing to accept the US 2/3 inflation adjustment capped at 5% as a concession the FSM could live with. The FSM could not support the US proposal of annual USD 1 M "decrements" while increasing the Trust Fund amount by 1M annually. This is essentially a "step down" and would have the same effect by magnitude as the initial step-down in Compact I, that would create a powerful drag on the FSM economy both per capita and in private sector development.

In opening the session, Senator Christian stated that "the FSM has given the proposal our dedicated attention and that our final numbers and guiding language must be adequate enough and clear enough to support progress and maintenance of the FSM's effort to attain its economic and social goals. All of this is to prepare for the FSM, in the next 20 years, a more economically solid platform from which the Trust Fund will move."

Upon conclusion of the session, Senator Christian made it clear to the US that based on the FSM's economic analysis of the US discussion document the FSM remains committed to its own proposal. He also noted that the US discussion document begins to close the gap between each side's proposed annual grant numbers and moves us closer to finding the necessary economic equation. And, Senator Christian assured the US that further dedication and review would be underway in the FSM as preparations for the Fifth Negotiating Round, tentatively scheduled for May 23^rd to 25^th, get underway.

When President Leo A. Falcam was briefed on the outcome of the technical working session on Thursday, April 11^th, 2002, he echoed Senator Christian's commitment to the FSM's proposal. President Falcam also noted that "certain key elements contained in the US proposal require much more internal discussion in the FSM and elaboration by the US to satisfy FSM concerns." Some of these areas of concern, besides those noted above, are: "conditioning" the FSM's Trust Fund on an initial capital investment of 30M by the FSM; the annual grant decrements which could be economically shocking after seven years of intense structural adjustment; and, details of a joint management mechanism for managing and evaluating annual grants, federal programs and services, and possibly the Trust Fund. However, President Falcam went on to say, "it is the FSM's hope that the gap on these and other issues will be further narrowed at the next negotiating round."