Opinion: Government shutdown threatens key U.S. effort to counter China in Pacific

President Whipps Jr., Leo Falcam Jr,, and Jack Ading speak before the U.S. Senate Committee on Energy and Natural Resources, United States Senate, and the House Natural Resources Committee Indo-Pacific Task Force Hearing (July 2023)

A looming government shutdown threatens to upend a major multibillion-dollar diplomatic initiative between the United States and three Pacific Island nations that the Biden administration views as a cornerstone of its efforts to counter China in the region, according to multiple U.S officials and congressional aides familiar with the matter.

The Biden administration has been engaged in negotiations to renew decades-old “compacts of free association” (COFAs) with the Marshall Islands, Micronesia, and Palau to shore up the U.S footprint and posture in the northern Pacific. Renewing these COFAs is a top priority for the Biden administration, as it grants the United States unfettered military access to all of the maritime areas of the three island nations in question. That covers an area roughly equivalent to the contiguous United States in a strategic part of the Pacific Ocean.

The three island nations were all crucial stepping stones for the United States and other allied powers to capture in their campaign to defeat Japan during World War II, and they represent important parts of U.S power projection in the Pacific to this day as competition with China heats up. U.S President Joe Biden’s 2022 Indo-Pacific strategy referred to the COFAs as the “bedrock of the U.S role in the Pacific.”

Through this diplomatic arrangement, these three nations, collectively known as the Freely Associated States (FAS), effectively cede decisions on their external security to Washington in exchange for security guarantees and economic assistance from the United States. All three countries’ economies are heavily dependent on U.S economic assistance.

A government shutdown could throw a massive wrench into years of negotiations to renew the agreement between all three states, dealing a blow to Washington’s credibility in the region as it ramps up a campaign of competition and influence against Beijing—and it could spell deep trouble for the island nations’ economies.

“These COFAs are extremely important, and China knows this,” said Derek Grossman, a senior defence analyst and expert on Indo-Pacific security issues at the Rand Corporation, a U.S government-funded think tank. “Beijing knows that those COFAs provide the U.S with basically unmitigated access to that area of the Pacific, so they have been trying to loosen the screws on those COFAs, though unsuccessfully to date.”

The last-ditch scramble to salvage the COFA agreements falls into a broader strategy for the Biden administration to carve out more influence and sway in the Pacific to counter China. The United States opened embassies in the Solomon Islands and Tonga earlier this year, and the administration plans on opening an embassy in Vanuatu next year as well. The U.S Agency for International Development also opened a new regional Pacific mission in Fiji this year to begin coordinating and expanding U.S aid programmes in the sparsely populated Pacific Island nations. At the summit this week, the White House announced it would establish diplomatic relations with the Cook Islands and Niue, further expanding Washington’s diplomatic footprint in the South Pacific.

The concerns over the status of the negotiations offer a portrait of how perennial political dysfunction in Washington is affecting U.S foreign policy, particularly with its global strategy on countering China. If the shutdown’s effect on small island nations isn’t dominating the headlines in Washington, it is still seen as an existential issue for these nations given their economic reliance on the United States.

The competition between the United States and China in the region—as well as the prospect of a U.S government shutdown—loomed large over a major diplomatic confab at the White House this week, where Biden hosted leaders from the 18-member Pacific Islands Forum on Monday and Tuesday. The prime minister of the Solomon Islands, Manasseh Sogavare, skipped the summit months after signing a controversial security agreement with China that alarmed U.S officials.

For the three FAS island nations, time is quickly running out for U.S negotiators to finalise the deals and for Congress to approve and fund the new COFAs, which are negotiated and renewed every 20 years. Congress has not yet signed into effect agreements with Micronesia and Palau that the Biden administration has finalised. The Biden administration is still in the process of hashing out its COFA with the Marshall Islands. (Marshall Islands leaders have long complained that past U.S COFAs did not do enough to address the long-term environmental and health effects of U.S nuclear testing in Marshall Islands territory during the 1940s and 1950s.) “Negotiations with the [Marshall Islands] are continuing in order to reach an agreement as expeditiously as possible,” a State Department spokesperson said.

The Biden administration tapped a seasoned career diplomat, Joseph Yun, to lead negotiations on renewing the COFAs as a special presidential envoy in March 2022.

The Biden administration has requested US$7.1 billion over the next 20 years to implement renewed COFAs, but it is contingent upon the administration to finalise all renewals and a busy Congress—already mired in infighting as the Republican-controlled House grapples with last-ditch efforts to avert a shutdown—to approve them. Economic assistance to Micronesia and the Marshall Islands will expire at the end of fiscal year 2023, which is 30 September. For Palau, the economic assistance goes through fiscal year 2024. In the event of a U.S government shutdown, these countries could tap into trust funds to meet budget requirements for essential services, according to the State Department spokesperson.

But the trust fund is only a stopgap measure and can’t replace the massive flow of critical economic assistance that fully renewing the COFAs would bring, officials and experts said. Without the flow of U.S assistance, key services in the countries such as hospitals, schools, and postal services could begin to shut down. Officials in Micronesia told members of Congress on a delegation visit last month that around four-fifths of their government’s budget comes from COFA funding. (The Micronesian Embassy in Washington did not respond to a request for comment.)

The good news for advocates of the COFA arrangement is that both Republican and Democratic lawmakers support the renewals, even if getting those renewals across the finish line will be tricky as the clock winds down and politicking around a government shutdown heats up.

“The Chinese Communist Party dictatorship has pursued a model in which they challenge U.S leadership by attempting to leverage the FAS through systematic political warfare, economic disruption, corruption, and coercion,” said Amata Radewagen, a Republican delegate to Congress representing American Samoa—a U.S territory in the South Pacific—at a congressional hearing in July. “We have a duty to protect the interests of Americans and island peoples alike by reauthorising these Compact agreements.”

Despite setbacks in convincing the Solomon Islands to drop its proposed new security partnership with Beijing, the three FAS countries have leaned toward the United States and rebuffed Chinese efforts to make inroads in the strategically important Pacific Island chains.The Marshall Islands and Palau are also two of just 13 countries that maintain formal diplomatic relations with Taiwan, and Micronesia banded with other Pacific Island countries to reject a Chinese proposal for a massive new joint security and economic pact between the countries in the region and Beijing.

Biden officials say they are confident they can get the COFA deals done by the deadline. But U.S diplomats privately fear that, in the worst-case scenario, a prolonged government shutdown and extended absence of COFA funding could roil the FAS countries’ economies and, by extension, sow doubt about the reliability of the United States in the long term. “China is waiting in the wings for us to screw up on this as they play the long game for influence in the Pacific,” said another senior U.S official familiar with the negotiations, who spoke to Foreign Policy on condition of anonymity as they were not authorised to speak publicly about the matter. “A government shutdown would hand them a perfect gift here to start undermining our standing with the FAS countries.”

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