The renewal of key provisions in the Compacts of Free Association (COFAs) with Palau, the Marshall Islands, and Micronesia has been omitted from the U.S Senate’s Budget Supplemental text.

The absence of renewal provisions in the budget proposal is surprising as negotiations on the terms had reportedly been completed. Reasons for the omission are unclear, although some speculate it could be due to demands for “offsets” – finding budget cuts elsewhere to finance the COFA renewal.

U.S Senate Supplemental budget appropriates US$60 billion for Ukraine aid, US$14 billion for Israel military aid, and US$5 billion for Asia-Pacific. However, the US$7.1 billion promised to the COFA states was not included.

This “offset” requirement was applied to the first Compact Review Agreement in 2010, where the United States and Palau agreed on the negotiated terms of the Compact Review. Still, because of the “offset” mandate of the U.S Congress, it took 8 years for the funds to come through. During those 8 years, Palau’s tourism industry grew, with China’s market becoming the dominant market, at its peak, representing over 70 percent of the total market share.

Palau concluded the negotiations of the second Compact Review a year earlier with the intent to address the economic fallout from the COVID pandemic.

Delay in implementing the Compact Review Agreement can impact Palau’s economic recovery efforts and erode the trust and confidence in the U.S commitments.

The fate of the COFA renewals remains uncertain. Congressional representatives from both parties have expressed support for the agreements, but it’s unclear when or how the issue will be resolved.