Credit to:  Editorial from the Marshall Islands Journal, September 23, 2022 edition.

Palau had the advantage of a later cycle for renewing the funding arrangements of their Compact of Free Association, that didn’t end until 2009 — six years after the RMI and the FSM. And Palau took full advantage of this to improve its Compact set up with the United States.

Palau leaders were smart. They watched the RMI and FSM negotiations and avoided some of the obvious pitfalls.

Perhaps most important, they did not accept the economic package the US government offered initially. Palau negotiators understood the power of standing up and walking away from the negotiating table, which they did in the early going as their way of rejecting the initial US proposal. In contrast, the RMI and FSM focused on completing their new Compact funding agreements before the expiration of the first agreement on September 30, 2003. This handcuffed negotiators for the islands, giving the US the upper hand in Compact Two talks (and now, again, our negotiating team is rushing to conclude an agreement with the US government).

The stated reason for the RMI policy to wrap up the economic talks by September 30, 2003 was to ensure no disruption in US funding when Compact One funding expired. What the Palau experience demonstrates is that the expiration of the Compact funding agreement did not result in the US halting funding. Palau, even after the two governments agreed on a new funding agreement, went years without Compact approval. The US government continued to appropriate funding on an annual basis at the levels established.

But back to the negotiations. The US wanted Palau’s funding agreement to include a similar set up to the RMI’s JEMFAC and the FSM’s JEMCO, US-controlled committees that were in charge of deciding and approving the annual Compact budgets for these two freely associated states. Both JEMFAC and JEMCO give the US government a three-to-two majority (and as we’ve seen over time, this has been a source of friction).

Palau negotiated wisely to gain US agreement to establish a “Palau Economic Advisory Group” (EAG). The structure is like night and day compared to JEMFAC and JEMCO. First and foremost, is the set up. It doesn’t cede a majority to the US, and includes people with broad economic and development policy experience.

Meanwhile, JEMCO and JEMFAC are chaired by the Director of Insular Affairs at the Interior Department and the two other US members are representatives of the State and Health and Human Services Departments. While US government bureaucrats make the final budget decisions for RMI and FSM in the JEMFAC/JEMCO process, there are no US government representatives on EAG — let’s repeat this point: No US government officials on Palau’s EAG.

How are Palau’s EAG members chosen? Palau selects two, the US government selects two, and the fifth member is chosen by the US government from a pool of three people nominated by Palau.

Palau put its Finance Minister, Kaleb Udui, on the EAG. But its second appointee is worthy of special mention: This is Dr. Naoyuki Yoshino, an emeritus economic professor from a Japan university and former Dean and CEO of the Asian Development Bank Institute in Tokyo. This gives Palau not only a top-notch economic advisor, but links Palau to Japan, a key partner.

The US government named two representatives: Dr. Peter Watson, former President and CEO of the US Overseas Private Investment Corporation and presently an investment banker and policy adviser, and Dr. Denise Eby Konan, Dean of the College of Social Sciences, professor of economics, and former Chancellor of the University of Hawai’i at Manoa. 

The fifth member, appointed by the US from Palau’s list of nominees, is Dr. James K. Galbraith, the Lloyd M. Bentsen Jr. Chair in Government/Business Relations at the Lyndon B. Johnson School of Public Affairs, professor of Government at the University of Texas at Austin, and former executive director of the Joint Economic Committee of the United States Congress. 

Unlike JEMCO and JEMFAC, Palau’s EAG members select their chairman. So while the RMI and FSM have been saddled with a US government official as chair of their finance committees, Palau’s EAG chose Dr. Galbraith as its chair.

What can we conclude about Palau’s Economic Advisory Group? Unlike the JEMFAC/JEMCO operations, which are budget committees not economic advisory groups, Palau’s EAG is a group that will provide serious, thoughtful and nuanced economic advice based on this group’s 100+ years of experience in US, Japan and global finance and economic development. This is why Palauans are better off with their Compact than the RMI and the FSM, which have no qualified economic advisors in the JEMFAC/JEMCO makeup.

Marshall Islands Journal 9/23/2022 edition p15.

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