The Compacts of Free Association, Congress, and Strategic Competition for the Pacific

The United States is on the brink of a making a massive strategic blunder if it fails to continue funding a little-known but critically important agreement called the Compacts of Free Association (COFA). COFA has served as a key foundation for U.S. engagement in and across the Pacific for decades, but with a potential lapse of this arrangement on the horizon, China is waiting eagerly to fill the void.

The COFA agreements between the United States and the Republic of Palau (Palau), the Republic of the Marshall Islands (RMI), and the Federated States of Micronesia (FSM) (referred to collectively as the Freely Associated States, or FAS) are wholly unique. The interlocking maritime waters of these three countries span across the middle of the Pacific, a region central to United States national security, as was made clear during the bloody and pivotal battles of World War II. Following several decades as U.S.-administered territories after World War II, the three countries chose independence and signed compacts of free association with the United States, RMI and FSM in 1982 and Palau in 1986. These arrangements, which expire in 2024 for FSM and RMI and in 2025 for Palau, have been successfully renegotiated for another 20 years, but the funding for these agreements remains at risk amid congressional 2024 budget battles. 

This arrangement in the Pacific confers enormous advantages to both the United States and the FAS. The status of free association gives the U.S. military unilateral defense access to an area of the Pacific that is broader than the continental United States. More critically, it allows the United States to deny military access or strategic use of the FAS to third countries. In exchange, citizens of these countries can work and reside in the United States as residents, join the U.S. military (which they do at higher rates per capita than any U.S. state), and receive economic assistance and access to certain federal programs and services.

To try and quantify the immense strategic value of these agreements, consider a scenario in which China displaces the United States in the FAS and thereby establishes a line of control between Hawaii and Southeast Asia. Not only would such an outcome require a massive U.S. military buildup to maintain strategic balance—likely in the hundreds of billions of dollars—it would also place China directly in the rear of U.S. and allied forces in a Taiwan or South China Sea contingency. In addition, this scenario would isolate Australia and New Zealand from the United States. Compare this to the relatively low cost of continuing to fund these agreements—around 360 million total per year—and the bargain is clear. 

For those who doubt China’s ability to swiftly displace the United States in the Pacific, we already have a clear example. On January 15 of this year—just two days after Taiwan’s presidential election—the Pacific Island of Nauru announced that it had switched diplomatic recognition from Taiwan to the People’s Republic of China (PRC). While this might seem a minor development on the global stage, it was a deliberate move to gain an influential foothold in the middle of the Pacific. The payoff the PRC made in exchange for recognition—rumored to be $100 million—was as much a message to the FAS as it was to the United States. We are ready and willing to step in with funding if the United States and its allies fail you, the PRC seems to be broadcasting. 

The COFA agreements are the definition of a huge bang for a relatively small buck and have administration and bipartisan support. And yet, they are still at risk of falling victim to congressional politics or ignorance over the significant role they play in strategic competition. The Biden administration had pushed to include COFA funding in the National Defense Authorization Act but it was removed at the last minute. This despite strong support from the Department of Defense, which views COFA as the backbone of U.S. defense posture in the Pacific. While COFA may be included in the as-of-yet unpassed supplemental, there is little transparency about if, where, and when this funding will be pushed through. As COFA gets tossed from one funding vehicle to another, however, the clock on U.S. influence in the Pacific is ticking.

This is strategic malpractice of the highest order. As a senior administration official testified to Congress, “if we don’t get [the COFA funding], you can expect that literally the next day Chinese diplomats . . . will be on the plane.” And they will be on that plane with bags of cash, promises of friendship, and designs for building ports and airfields.

Republicans and Democrats and the Senate and House all agree that China is the most pressing U.S. national security threat. But if U.S. Congress fails to fund the COFA agreements, despite this broad bipartisan support, the United States will lose the opportunity to lock in U.S. advantages in this critical region for the next 20 years, while ceding influence and military access to China. The Pacific and U.S. allies are watching—and so is Beijing.

Charles Edel is the Australia Chair and senior adviser at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Kathryn Paik is a senior fellow with the Australia Chair at CSIS.