China Threatens US Interests in Micronesia, Former President Warns

Recent Features

Oceania | Diplomacy | Oceania

China Threatens US Interests in Micronesia, Former President Warns

If Compact funding remains stuck in limbo, the Freely Associated States will be increasingly vulnerable to China’s influence, David Panuelo warned.

China Threatens US Interests in Micronesia, Former President Warns

In this screenshot from an FDD recording, former FSM President David Panuelo speaks at the Foundation for Defense of Democracies (FDD) in Washington, D.C., Dec. 1, 2023.

Credit: Screenshot/ FDD

David Panuelo, the former president of the Federated States of Micronesia, came to Washington last week to warn that, without U.S. support, his country is becoming increasingly vulnerable to Beijing’s influence efforts. During a public event at the Foundation for Defense of Democracies on December 1, Panuelo urged the U.S. Congress to quickly approving the funding for the Compacts of Free Association. The figures have been agreed upon by negotiators; now it all depends on congressional action. 

“It is very critical that approval of this is done as soon as possible,” Panuelo said, because on February 2, the money allocated to the Federated States of Micronesia and the Marshall Islands runs out under the terms of the continuing resolution. (Palau’s funding expires in September 2024, but it also needs the new Compact funding approved soon to help its struggling economy.) The White House has also called on Congress to pass the funding as soon as possible

In the meantime, Panuelo said, “China is looking at the chaos in Washington, D.C.” Delaying Compact funding, he emphasized, “would severely impact the U.S. being the major player in our region, especially in the Freely Associated States.” 

The Compacts of Free Association Are Vital to U.S. Interests 

The Compacts of Free Association are bilateral agreements between the United States and three countries – the Republic of Palau, the Federated States of Micronesia, and the Republic of the Marshall Islands – that are collectively known as the Freely Associated States. Under these agreements, the Freely Associated States receive grant aid and security guarantees from Washington. Their citizens have access to domestic U.S. programs and services, are free to live and work in the United States and its territories without a visa, and can enlist in the U.S. military. 

“The Compacts are unique agreements that cannot be found anywhere else in the world,” Panuelo said. “The free entry of our citizens into the United States is so important, and the fact that our young men and women serve in the United States armed forces at a higher per capita rate than any of the U.S. states speaks for itself.” Nowhere else in the world does the United States grant such broad benefits to non-U.S. citizens, and nowhere else in the world do foreign countries grant the United States such far-reaching military access. 

The benefits to U.S. security are extensive. The Compacts of Free Association give the United States the right to construct bases in the three countries and to prevent third parties from using the islands, their airspace, and their territorial waters for military purposes — the right of strategic denial. The U.S. missile defense test site on Kwajalein Atoll in the Marshall Islands is crucial to U.S. regional security and could help protect the United States in a conflict with China. A radar installation is under way in Palau that will help the U.S. military monitor China and North Korea. There are also plans for a greater U.S. military presence in the Federated States of Micronesia.

Along with the benefits of existing U.S. military infrastructure, these islands – which cover a swath of the ocean as wide as the continental United States – create a bridge from Hawai‘i to Japan and the Philippines, key U.S. allies. In a conflict, the islands could be used to facilitate the movement of troops, fuel and supplies to Asia. The U.S. military expects Guam to become an early target in a conflict with China and sees advantages to a more dispersed force posture; the Freely Associated States could provide reserve airfields and ports during war. Moreover, the Compacts of Free Association could help to keep the defensive perimeter of a potential war in the western Pacific, rather than shifting toward Hawai‘i or farther east.

“It’s imperative that we see the Compact as not only the security of the Federated States of Micronesia or the Compact nations, but the entire Pacific,” Panuelo said. 

The Freely Associated States Want U.S. Commitment   

Panuelo emphasized that strategic denial is “the essence” of the Compacts. The defense provisions are designed to last in perpetuity; unlike U.S. funding, they do not expire after 20 years, require renegotiation, or depend on congressional approval. However, the language about perpetuity holds true only as long as the agreements are in force. There is a pathway in the Compacts of Free Association for termination, which would revoke all provisions, including U.S. military access. 

Most leaders in the Freely Associated States don’t want to consider termination, Panuelo said, because of the benefits their countries derive from the agreements. It’s in the United States’ best interest to keep it that way.

That is why the current moment is so critical for the strength of the United States’ relationships with these three countries. 

In October, Palauan President Surangel Whipps Jr. questioned whether the United States is “really committed” to funding the Compact, and stressed that many Palauans worry that the U.S. military presence makes them a “target for China.” 

In November, President Wesley Simina, Panuelo’s successor, said that “if the U.S. Congress does not approve [Compact funding] in time, we’re faced with a fiscal cliff.” 

The Marshall Islands may be the most dissatisfied of the three, because the United States has not agreed to pay more compensation for nuclear testing; but the country is depending, at a minimum, on receiving Compact money.  

It cannot be overstated how much the Freely Associated States need this funding, which goes into their government budgets and health and education sectors and allows them to make long-term plans. During my visits to the region this year, I saw the challenges that these countries face, including high unemployment, poor healthcare systems, rising seas, and frequent storms – and in the Marshall Islands, the legacy of U.S. nuclear tests. These countries are still recovering from the economic impacts of the pandemic and are increasingly threatened by climate change. Compact funding won’t solve everything, but it supports the Freely Associated States’ financial stability. 

Compact funding also provides an intangible benefit to the Freely Associated States, and that is a sense of reciprocity. Strategic denial is a significant advantage for the United States, but being in China’s crosshairs is not an advantage for the islands. Micronesians remember World War II, and as regional tensions escalate, they fear being caught once again in the middle of great power competition. U.S. funding helps to ensure that the Compacts of Free Association remain mutually beneficial, balancing risk with reward – otherwise, the Freely Associated States may reconsider the wisdom of the arrangement.

If the U.S. Congress fails to approve the funding by February 2, the leaders of the Freely Associated States will lose faith in the U.S. government. Their concerns will deepen the longer funding lapses. Then, out of necessity, “we will have to find different sources of funding,” Simina said. Failure to approve Compact funding would not only weaken these crucial relationships, it would provide an opening for Beijing.

China Is Undermining U.S. Interests in the Freely Associated States 

In March, at the end of his presidential term, Panuelo wrote a letter to his fellow national leaders excoriating Beijing for conducting “political warfare” in the Federated States of Micronesia. In doing so, he exposed China’s activities there to an unprecedented degree. Those activities included clandestine intelligence operations, interference in government affairs, bribing government officials to advance China’s interests, pressing the government to adopt policies advantageous to China, supporting secessionist movements, and more. Panuelo warned that these activities undermined the country’s sovereignty and national security. Given the United States’ relationship with the Federated States of Micronesia, the threats to U.S. interests are clear. 

Unlike the Federated States of Micronesia, Palau and the Marshall Islands recognize Taipei, but that has not stopped Beijing from using many of the same tactics there. In July, a report revealed that China had attempted to influence Palau’s media environment, although the effort was unsuccessful. Previous reports revealed the presence of Chinese criminal groups in Palau, which successfully courted elites on behalf of the Chinese government. In 2017, China attempted to pressure the country to switch recognition by cutting off Chinese tourism, although Palau held firm.

China’s influence efforts in the Marshall Islands receive relatively less international attention, apart from the Rongelap bribery case, but appear to be equally robust. When I visited the country this year, I learned that several Marshallese senators were visiting China, and the caretakers of China’s old embassy were holding private meetings with the Marshallese government. I also heard that China was pointing to the legacy of U.S. nuclear testing as proof that the United States was untrustworthy, using this existing schism in the Marshall Islands-U.S. relationship as a wedge. 

The central lesson from Panuelo’s letter in March is that China’s influence efforts are far advanced, and they happen quietly. So quietly, in fact, that sometimes it takes the former leader of a country to expose them. If China can make these inroads in the Freely Associated States while U.S. funding remains in effect, what could Beijing do in a void created by U.S. inaction? 

“The question is a very big one,” Panuelo said. “Who’s winning the competition for influence?”