Joint Communiqué On The Initialing Of Economic Provisions Of The Compact Free Association

Government of the Federated States of Micronesia

Joint Communiqué On The Initialing Of Economic Provisions Of The Compact Free Association Between The Federated States Of Micronesia And The United States Of America, November 4, 2002, Palikir, Federated States Of Micronesia

PALIKIR, Pohnpei (November 4, 2002) - Representatives of the governments of the United States (U.S.) and the Federated States of Micronesia (FSM) met in Pohnpei, Federated States of Micronesia on November 3-4, 2002, to conduct the seventh round of talks on amended provisions of the Compact of Free Association. This was the first round of talks to be held in the FSM, affording some members of the U.S. Office of Compact Negotiations an opportunity to see firsthand the development achieved during the first sixteen years of the Compact.

This round focused on initialing ad referendum amended Compact (Title Two) economic provisions that will provide continued U.S. economic assistance to the FSM under the Compact of Free Association for a period of twenty years, after which a trust will continue to provide funding support. In addition, both sides initialed amended Title Three provisions extending the bilateral defense and security relationship and amended Title Four survivability and termination provisions.

Title Two of the Compact sets forth the economic and financial understandings of the two governments regarding U.S. grants and access to Federal programs and services. In contrast to the previous arrangement, U.S. grants will now be extended over twenty years, principally in six sectors: education, health, infrastructure, public sector capacity building, private sector development, and the environment, with the priorities in health and education. FSM negotiators reserved on the adequacy of the level of annual grant assistance and trust fund contributions, and on the need for a fully indexed inflation rate.

A select group of U.S. Federal services, including those of the U.S. Postal Service, Federal Emergency Management Agency and the USAID's Office of Foreign Disaster Assistance, Federal Aviation Administration, Federal Deposit Insurance Corporation, and Department of Transportation, among others, will also be continued with certain changes. FSM negotiators reserved on the discontinuation of certain FEMA disaster assistance programs.

Section 221(b) of the draft Compact amendments provides that U.S. Federal programs available to the FSM during the year prior to the date the amendments take effect shall continue to the extent that they remain available to state and local governments in the U.S. and to the extent authorized by the U.S. Congress for the FSM. The chief negotiators, Mr. Albert V. Short of the U.S. and Senator Peter Christian of the FSM, exchanged letters noting that the economic provisions of the Compact were formulated based upon the assumption that the FSM will continue to be eligible for Federal programs, unless otherwise provided by Congress.

In addition, both sides initialed a subsidiary agreement on fiscal procedures that elaborates how U.S. grants will be applied and administered. A key feature would be a new management body called the "Joint Economic Management Committee" (JEMCO). It is the intention of the parties that, through this partnership, the accountability for and effectiveness of Compact grant funds and programs will be increased.

Title Three of the Compact sets forth the defense and security relationship between the Federal States of Micronesia and the United States of America. This relationship remains unchanged over the coming twenty years.

Title Four of the Compact, which deals with termination of the Compact and aspects that would survive, would be amended to address implications for the trust fund in the unlikely event that such termination should occur.

The U.S. and FSM representatives initialed a subsidiary agreement to establish a trust fund, the corpus of which will be built up over the twenty-year period through annual contributions by the U.S., the FSM, and potentially other donors, both public and private. The purpose of the Fund is to contribute to the economic advancement and budgetary self-reliance of the FSM by providing an annual source of revenue after FY-2023 when U.S. direct financial assistance ends. Similar trust fund arrangements have proven highly successful in several other Pacific island countries.

Desiring to complete the negotiating process as soon as possible in order to facilitate early submission of the Compact amendments by both parties to their respective approval processes, U.S. and FSM representatives resolved to concentrate their efforts during the coming weeks in order to overcome remaining issues.

FSM and U.S. officials also met to continue a process of discussing important issues relating to mutual cooperation on the movement of their respective citizens between the two countries, and their treatment therein.