A deadline of strategic importance for Washington passed without a breakthrough on Saturday night.

As lawmakers remained occupied with averting a federal government shutdown just hours before a midnight deadline, the Compact of Free Association (Cofa) pact that had steered ties between Washington and the Marshall Islands for decades expired on 30 September.

No public announcement has been made on the renewal. The U.S State Department did not respond to requests for comment on the status of months-long negotiations.

The deal, reached in 1986, grants the U.S military access to the Marshall Islands’ land, air and sea in exchange for financial aid and a legal basis for Marshallese to live, work and go to school in the U.S.

With growing fears of what has been called Beijing’s coercive influence campaign, the agreement is seen as crucial to Washington’s efforts to maintain its presence in the strategically vital Pacific region.

Cleo Paskal, a non-resident senior fellow for the Indo-Pacific at the Foundation for Defense of Democracies, a Washington-based think tank, said that “what has expired is just the financial and federal services component” while the “defence right continues”.
She added that the provisional federal spending bill passed by the US House late on Saturday continues federal services in Micronesia and the Marshall Islands but does not provide economic assistance for the Marshall Islands.

Washington’s funding accounts for about 40 percent of the Marshall Islands’ national budget.

In his budget for 2024, U.S President Joe Biden pledged more than US$7 billion over a 20-year period to extend the deals, the largest-ever congressional budget request for the region. Out of this total, US$2.9 billion was earmarked for the Marshall Islands.

Though the Biden administration successfully agreed on a renewal with Micronesia and Palau – the other two Pacific island nations with Cofa pacts with the U.S – the Marshall Islands refused to accept the new agreement.

The pressure to reach a more favourable deal intensified in recent months as the Marshall Islands’ national elections, slated for 20 November, drew nearer.

Paskal said there has been “a lot of back and forth” on the issue, adding that she understood that a “topline number has been agreed” but negotiations were continuing “on the way that money is divided”.

Speaking about the effect of the shutdown drama on the other two Cofa signatories’ funding, she said Micronesia would be getting the same as it was getting in 2023. Palau, whose agreement expires next year, will get funds as per its existing agreement – about US$2 million.

“The agreement with Palau was finalised, and had it passed Congress would have included a substantial increase that would have allowed it to avoid further deficits,” Paskal said, describing the spending crisis as “a gift” for those “who want to say that the U.S is an unreliable partner”.

She added that Palau has been tackling massive debts after Beijing stopped sending Chinese tourists there to pressure the country to switch its allegiance away from Taiwan.

Daria Kurushina, Schwarzman fellow at the Asia Society Policy Institute, a think tank in New York, said political dysfunction in Washington could be advantageous for Beijing.

“China can step in to become a more reliable partner for the island nations,” she said, stressing that “the scales will tip in favour of Chinese assistance” if the issue of funding to the Marshall Islands is not resolved in a timely manner.

“This will become a second China victory in the region after the Solomon Islands’ security deal,” she said.

Solomon Islands Prime Minister Manasseh Sogavare, who skipped the two-day gathering in Washington, said Pacific leaders were given only “three minutes” to talk and then “they lecture you, lecture you, lecture you on how good they are”.

He said there was a promise of US$800 million last year but that “nothing has come through until today”.