The Southwest Pacific: U.S. Interests and China's Growing Influence

The Southwest Pacific:
U.S. Interests and China’s Growing Influence
July 6, 2007
Thomas Lum
Specialist in Asian Affairs
Foreign Affairs, Defense, and Trade Division
Bruce Vaughn
Specialist in Asian Affairs
Foreign Affairs, Defense, and Trade Division

The Southwest Pacific:
U.S. Interests and China’s Growing Influence
Summary
This report focuses on the 14 sovereign nations of the Southwest Pacific, or
Pacific Islands region, and the major external powers (the United States, Australia,
New Zealand, France, Japan, and China). It provides an explanation of the region’s
main geographical, political, and economic characteristics and discusses United
States interests in the Pacific and the increased influence of China, which has become
a growing force in the region. The report describes policy options as considered at
the Pacific Islands Conference of Leaders, held in Washington, DC, in March 2007.
Although small in total population (approximately 8 million) and relatively low
in economic development, the Southwest Pacific is strategically important. The
United States plays an overarching security role in the region, but it is not the only
provider of security, nor the principal source of foreign aid. It has relied upon
Australia and New Zealand to help promote development and maintain political
stability in the region. Key components of U.S. engagement in the Pacific include
its territories (Guam, the Northern Mariana Islands, and American Samoa), the Freely
Associated States (Marshall Islands, Micronesia, and Palau), military bases on Guam
and Kwajalein atoll (Marshall Islands), and relatively limited aid and economic
programs.
Some experts argue that U.S. involvement in the Southwest Pacific has waned
since the end of the Cold War, leaving a power vacuum, and that the United States
should pay greater attention to the region and its problems. They contend that in
some Pacific Island countries, weak political and legal institutions, corruption, civil
unrest, and economic scarcity could lead to the creation of failed states or allow for
foreign terrorist activity within their borders. According to some observers,
unconditional and unregulated foreign aid and business investment from China and
Taiwan, which may be attractive to some Pacific Island states, may exacerbate
underlying political, social, and economic tensions in the region. While China’s
influence is largely limited to diplomatic and economic “soft power,” many analysts
disagree about the PRC’s long-term intentions.
In 2007, the Bush Administration pledged to “re-engage” with the region and
declared 2007 the “Year of the Pacific.” Among the main topics, aims, and
initiatives under discussion at the Pacific Islands Conference of Leaders were:
expanding U.S. public diplomacy efforts and foreign aid activities; strengthening
U.S.-Pacific trade and preferential trade programs for Pacific Island countries;
addressing global warming and other environmental concerns in the region; and
enhancing educational and cultural exchanges. Several bills to increase U.S. foreign
aid to the region have been introduced in the 110^th Congress. This report will be
updated as warranted.

Contents
Overview ........................................................1
Key Policy Concerns...............................................2
Recent Trouble Spots...........................................3
Pacific Islands Conference of Leaders and Policy Proposals.............3
The Region’s Main Features.........................................4
U.S. Security Interests in the Pacific...................................5
Freely Associated States........................................6
Compact of Free Association.................................6
U.S.-FAS Security Relationship..............................7
Kwajalein Missile Range (Reagan Missile Test Site)..............7
Marshall Islands Changed Circumstances Petition................7
Pacific Islands’ Foreign Trade and Aid.................................8
Pacific Trade with Developed Countries............................9
Foreign Aid..................................................9
U.S. Assistance..........................................11
U.S. Economic Programs.......................................13
China’s Growing Influence.........................................14
The China-Taiwan Rivalry and “Dollar Diplomacy”.................14
China, Taiwan, and the Freely Associated States................16
China’s Aims in the Pacific.....................................17
Anti-Chinese Riots........................................18
Other Regional Actors.............................................19
Australia ...................................................19
Regional Role............................................19
Australia-U.S. Relationship.................................20
Australia and China.......................................21
New Zealand................................................21
Regional Role............................................21
New Zealand and China....................................22
France ......................................................23
Pacific Island Multilateral Groups................................24
Pacific Community.......................................24
Pacific Islands Forum......................................24
Appendix: Pacific Island Countries at a Glance ........................25

Figure 1. Map of the Southwest Pacific: Pacific Island Countries and
Cultural Areas...............................................27
List of Tables
Table 1. Total Trade (Imports + Exports) between Pacific Island
Countries, the World, and Selected Countries, 2005...................8
Table 2. Foreign Aid to the Pacific...................................10
Table 3. U.S. Foreign Aid and Compact Grants in the Pacific Islands
Region, FY2006 .............................................13

The Southwest Pacific: U.S. Interests and
China’s Growing Influence
Overview
The United States plays an overarching security role in the Southwest Pacific,
but it is not the only provider of security, nor the principal source of foreign aid, and
has relied upon Australia and New Zealand to help promote development and
maintain political stability in the region. Some observers have characterized the U.S.
role in the Pacific as one of “benign neglect.” Others have described it as transient,
responding to changes in the global security environment — from the Cold War to
the War on Terrorism — rather than the long-term development needs of the region.
Key areas of U.S. engagement in the Pacific include its territories (Guam, the
Northern Mariana Islands, and American Samoa), the Freely Associated States
(Marshall Islands, Micronesia, and Palau), military bases on Guam and Kwajalein
atoll (Marshall Islands), and relatively limited aid and economic programs. The
United States has security, political, economic, and environmental interests in the
Pacific, including providing security for and promoting economic development in the
Freely Associated States and U.S. territories, maintaining its military bases and
installations, preventing transnational crime and the harboring of terrorist cells, and
working with Australia and New Zealand to meet common regional goals.
The Pacific Islands can be divided into four spheres of influence: American,
Australian, New Zealander, and French. The American sphere extends through parts
of Micronesia, which includes U.S. territories and the Freely Associated States
(FAS), as well as Polynesia, including Hawaii and American Samoa. Australia’s
regional interests focus on the islands south of the equator, including the relatively
large Melanesian nations of Papua New Guinea (PNG) and the Solomon Islands as
well as Vanuatu. New Zealand has long-standing ties with the territory of Tokelau,
former colony Samoa (also known as Western Samoa), and two self-governing but
“freely associated” states, the Cook Islands and Niue. New Zealand also has a large
native Polynesian population of Maoris as well as large numbers of other more
recently arrived Pacific Islanders. France continues to administer French Polynesia
and New Caledonia. Australia, Japan, New Zealand, the United Kingdom, and the
United States are the major providers of development assistance.¹ In the past several
years, China has asserted increasing “soft power” in the region — primarily
diplomatic and economic influence.² Other than Australia and New Zealand, the only

¹ Most U.S. assistance to the region is not development aid but rather economic grants
provided to the Freely Associated States pursuant to the Compacts of Free Association.
² See Scott Whitney, “U.S. Pays Little Attention to Asia, Less to the Pacific,” Pacific
Islands Report, July 2, 2003. For further information, see Henry S. Albinski, “External
(continued...)

regional states with defense forces are Papua New Guinea, Tonga, and Fiji. The
United States is obligated by treaty agreement to defend the Freely Associated States.
Several other states rely upon Australia and New Zealand for their external security.
Key Policy Concerns
Since World War II, the United States has sought to prevent any potential
adversary from gaining a strategic posture in the South Pacific that could be used to
challenge the United States. In pursuit of this goal, the United States has
administered territories and entered into Compacts of Free Association in the
Micronesian area of the Pacific and maintained military bases on Guam and
Kwajalein atoll. Since the end of the Cold War, the United States’ security, political,
and economic engagement in the Micronesian area has remained strong. However,
compared to Australian and New Zealand policy-makers, U.S. officials have
expressed less direct concern about issues affecting other areas in the region as well
as the Southwest Pacific as a whole. USAID withdrew its mission in the Pacific in
the mid-1990s. The U.S. government has both tacitly and openly supported
Australia’s growing leadership role in the region. The Bush Administration may
have signaled a move toward greater or renewed involvement when it declared 2007
the “Year of the Pacific.”
Some experts suggest that the United States should pay greater attention to or
more directly engage the Southwest Pacific. In some Pacific Island countries, weak
political and legal institutions, corruption, civil unrest, and economic scarcity could³
lead to “failed states” and/or become springboards for terrorism. Australia’s
decision to lead a regional peacekeeping mission to the Solomon Islands in 2003 to
help quell ethnic strife reportedly was part of a larger effort to prevent transnational
crime and terrorism from taking root in the region. In 2004, a report by an Australian
public policy institution warned that Papua New Guinea was headed for possible
social and economic collapse, and that the country’s weak government, border
controls, and policing had allowed transnational criminal groups to enter the country.
The study called for Australia and other countries to increase foreign aid to Papua⁴
New Guinea. Some analysts argue that addressing these issues would not only help
promote political stability and economic development but also enhance U.S. security
interests and counter possible adverse effects of China’s growing influence in the
region. According to some observers, unconditional and unregulated foreign aid and
business investment from China and Taiwan — provided without goals related to
democracy, sustainable development, fair working conditions, and the environment
— may exacerbate underlying political, economic, and social problems in the region.

² (...continued)
Power Engagement in Melanesia,” in Bruce Vaughn, ed. The Unraveling of Island Asia?:
Governmental, Communal, and Regional Instability. Westport: Praeger, 2002.
³ David Barber, “It’s Not So Pacific in Pacific as Leaders Gather,” German Press Agency
(DPA), October 20, 2006.
⁴ “Report Warns PNG Could Become Transnational Crime Base,” South China Morning
Post, December 14, 2004.

Recent Trouble Spots
The United States has not becomeAcronyms
directly involved in domestic crises in the
region, but rather has largely relied upon^ANZ^US^A^u^s^t^ralia^,^N^e^w^Z^ealan^d,
Australia and New Zealand, which have^Un^ited^{States A}^llian^c^e
played roles as intermediaries and^FAS^Freely^A^s^s^o^cⁱ^a^t^ed^States
peacekeepers. Australia and New Zealand^(Mar^s^h^a^l^l^I^s^l^aⁿ^d^s^,^Mⁱ^cron^es^ia,^an^{d P}^a^lau⁾
have deployed peacekeeping troops in^FM^F^Fo^r^e^igⁿ^Militar^y^Fin^aⁿ^cⁱⁿ^g
Tonga, the Solomon Islands, and East^FS^M^Fe^derat^e^{d S}^t^at^es^of^Mi^cron^esⁱ^a
Timor. In 2006, political and civil unrest^IM^ET^Iⁿ^terⁿ^a^tⁱ^oⁿ^a^{l Militar}^y
flared in three Pacific Island countries — a^E^d^uc^a^tⁱ^o^{n a}ⁿ^d^T^r^aⁱⁿⁱ^ng
military coup in Fiji and riots in Tonga and^MC^A^M^illenⁿⁱ^u^m^C^h^a^l^l^eⁿ^g^e^A^ccouⁿ^t
the Solomon Islands. In each case,^PI^F^P^acifⁱ^{c Is}^lan^d^s^Foru^m
opposition to political actions by the^PI^N^P^acifⁱ^{c Is}^lan^d^Nation
government combined with economic^PNG^P^a^p^u^{a New}^Guⁱⁿ^ea
grievances and inter-ethnic tensions. In^PRC^Peopl^e’^s^R^e^pu^blⁱ^c^of^C^hⁱⁿ^a
Tonga and the Solomon Islands, indigenous^RM^I^Re^p^u^b^{lic o}^f^th^{e Mar}^s^h^a^ll^Is^l^aⁿ^d^s

rioters destroyed business property owned
by ethnic Chinese. Australia and New
Zealand sent peacekeeping troops to Tonga
and deployed additional forces in the Solomon Islands to help quell unrest.
Approximately 300 military troops and police officers from Australia and New
Zealand were already stationed in the Solomons as part of the 2003 peacekeeping
mission. In Papua New Guinea, peacekeeping forces from Australia, New Zealand,
Fiji, and Vanuatu are helping to enforce a truce, brokered in 1998, between the PNG
government and an armed secessionist group on Bougainville. Many Pacific Island
leaders and citizens reportedly have viewed Australia’s past and present leadership
role and armed presence in the region with resentment or deep ambivalence.
Pacific Islands Conference of Leaders and Policy Proposals
In May 2007, the Pacific Islands Conference of Leaders (PICL), a triennial⁵
meeting of Pacific states and territories sponsored by the East-West Center, gathered
for the eighth time since the organization was founded in 1980. The conference,
convening in Washington, DC, for the first time, was attended by Secretary of State
Condoleezza Rice. The Bush Administration pledged to “re-engage” with the region
and declared 2007 the “Year of the Pacific.” Among the main topics, aims, and
initiatives under discussion were: expanding public diplomacy efforts through a new
public affairs office in Fiji; strengthening the Joint Commercial Commission; Pacific
fisheries management; the U.S. military expansion in Guam and its impact on the
region; global warming and rising sea levels; and establishing a regular U.S.-Pacific
Islands dialogue. Other proposals included: enhancing educational and cultural
exchanges; expanding foreign aid grants in the area of democracy-building; more
fully utilizing the Generalized System of Preferences (GSP) program; and creating
⁵ The East-West Center is an education and research organization established by the U.S.
Congress in 1960 to strengthen relations and understanding among the peoples and nations
of Asia, the Pacific, and the United States.

more welcoming business environments.⁶ The State Department also hosted a Core
Partners Meeting to help coordinate foreign aid in the region.⁷ Some analysts stated
that the renewed U.S. interest in the Pacific had arisen in response to growing
Chinese influence.
The Region’s Main Features
The Western Pacific or Pacific Island region (excluding Australia and New
Zealand) covers 20 million square miles of ocean and 117,000 square miles of land
area (a bit larger than Cuba), 80% of which is Papua New Guinea. About 8% of the
land is arable. The area has a population of nearly 8 million among the 14
independent states (see Appendix). The total GDP of these islands (in purchasing
power parity terms) is approximately $24 billion in 2006 (about the same as
Panama). With the exception of Fiji, which has a significant ethnic Indian minority,
the Pacific Island nations are populated predominantly with indigenous peoples —
Polynesians, Melanesians, and Micronesians. These three groups differ historically
by geography, language, culture, and physical characteristics. Polynesia is located
roughly in the southeastern part of the region while Melanesia lies in the southwest,
closer to Australia. Micronesia straddles the north.
The Pacific Island nations (PINs) were among the last to regain independence
following World War II. Countries that remain as territories include: Guam, the
Mariana Islands, and American Samoa (United States), New Caledonia and French
Polynesia (France), Tokelau (New Zealand), and Easter Island (Chile). The 14
sovereign states of the region are formal democracies (mostly parliamentary) with
loosely organized political parties and some incorporation of traditional tribal
practices. Since gaining independence, most PINs have experienced relatively little
political violence. Human rights are generally respected and elections reported
largely as “free and fair.” Freedom House rates eight countries as “free” and four
(Fiji, Papua New Guinea, the Solomon Islands, and Tonga) as “partly free.”⁸ Fiji’s
rating has dropped since the December 2006 military coup.
Most of these countries, with the exception of Fiji, Papua New Guinea, and the
Solomon Islands, have limited natural and human resources upon which to launch
sustained development. Many small Pacific Island nations are hindered by weak
resource and skilled labor bases, lack of economies of scale, primitive infrastructure,
poor government services, and remoteness from international markets; some are
threatened by rising sea levels, as well. The Asian Development Bank (ADB) groups
its member Pacific Island nations into three categories:

⁶ U.S. Department of State, “U.S. Engagement in the Pacific Islands Region: 2007 Pacific
Islands Conference and Core Partners Meeting,” Fact Sheet (Revised), May 8, 2007.
⁷ Foreign aid donor countries in attendance at the Core Partners Meeting were: Australia,
China, France, Germany, India, Japan, South Korea, New Zealand, and the United Kingdom.
⁸ U.S. Department of State, Country Reports on Human Rights Practices, 2005 (March

2006); Freedom in the World 2007, January 2007, [http://www.freedomhouse.org].

1. Countries with abundant natural resource endowments, good economic
development potential, and relatively large populations (the Melanesian nations
of Papua New Guinea, Vanuatu, and Solomon Islands).
2. Countries that are relatively advanced with moderately good natural resource
bases and modest growth prospects (Fiji, Samoa, Micronesia, Tonga, and Cook
Islands).
3. Island atoll nations with few natural resources and little development potential
(Marshall Islands, Nauru, Tuvalu, and Kiribati).⁹
Although development potential among the Melanesian nations is good, poverty
reduction and government capacity-building are pressing concerns. The ADB
recommends that foreign governments and multilateral institutions help the atoll
nations to establish trust funds as principal sources of government revenue.
U.S. Security Interests in the Pacific
The Freely Associated States (FAS), together with Guam and the Northern
Mariana Islands, have been regarded as a security border of the United States, the
defense of which is considered to be key to maintaining vital sea lanes. In addition
to being home to the Reagan Ballistic Missile Defense Test Site at Kwajalein Atoll
in the Marshall Islands, the FAS are located strategically between Hawaii and Guam.
According to some military experts, the FAS provide a vast buffer zone for Guam,
which serves as the “forward military bridgehead” from which to launch U.S.
operations along the Asia-Pacific security arc stretching from South Korea and Japan,
through Thailand and the Philippines, to Australia. The U.S. military is building up
forces on Guam to help maintain deterrence and respond to possible security threats¹⁰
in the Pacific. During the Cold War, the FAS helped the United States to bolster
its security posture in the Pacific, particularly in the 1980s as the status of U.S. bases
in the Philippines came into doubt and as the Soviet Union took steps to increase its
presence in the region. During this time, Palau was considered as a possible
alternative base location to the Philippines. With the end of the Cold War, U.S.
attention to the Pacific region, including foreign aid and public diplomacy, has
waned. However, U.S. economic and security commitments to the FAS have been
maintained through the Compact of Free Association.¹¹

⁹ Palau and Niue are not members of the ADB.
¹⁰ For further information, see CRS Report RS22570, Guam: U.S. Defense Deployments, by
Shirley A. Kan and Larry A. Niksch.
¹¹ United States Congress Office of Technology Assessment, Integrated Resource
Management for U.S. Insular Areas, U.S. Government Printing Office, June 1987; “U.S. and
the Freely Associated States,” Stanley O. Roth, Assistant Secretary for East Asian and
Pacific Affairs, Testimony before the House Resources Committee and the House
International Relations Committee, Subcommittee on Asia and the Pacific, October 1, 1998.

Freely Associated States
Compact of Free Association. The Micronesian archipelagoes of the
Marshall Islands, Micronesia, Palau and the Northern Mariana Islands were districts
of the U.S.-administered United Nations Trust Territory, established in 1947. In
1978, the Northern Mariana Islands voted to enter into a commonwealth arrangement
with the United States. In 1986, the Marshall Islands and Micronesia entered into
Compacts of Free Association with the United States and thereby became sovereign,
"freely associated" states. The Compact agreements were negotiated and agreed to
by the governments of the Republic of the Marshall Islands (RMI), Federated States
of Micronesia (FSM), and the United States, and approved by plebiscites in the two
Trust Territory districts and by the U.S. Congress in 1985 (P.L. 99-239). The
economic terms of the Compact were renegotiated in 2003.
Compact grant assistance for the RMI (1987-2003) totaled approximately $1¹²
billion, while such assistance to the FSM during the same period amounted to about
$1.5 billion. During this period, the two freely associated states received, on average,¹³
nearly 90% of their foreign funding or assistance from the United States. In
December 2003, President Bush signed P.L. 108-188 into law, extending grant
assistance for another 20 years and establishing trust funds for the Marshall Islands
and Micronesia to provide perpetual sources of revenue. U.S. grant assistance to the
RMI (2004-2023) is to total $629 million while grants to the FSM are to total $1.4
billion pursuant to the Compact amendments.¹⁴
In 1995, Palau entered into a 50-year Compact of Free Association with the
United States. Palau is to receive more than $450 million in economic assistance
between 1995 and 2009. The Compact established a trust fund which is to provide
revenues to the government when grant funding expires. The value of the Palau trust
fund in 2007 is approximately $166 million.¹⁵
As part of the Compacts, the United States agreed to support the FAS
economically with the goal of making them self-sufficient. The FAS are eligible for
many U.S. federal programs, while FAS citizens have the right to reside and work in
the United States and its territories as lawful non-immigrants or “habitual residents”
and are eligible to volunteer for service in the U.S. armed forces. The RMI, FSM,
and Palau joined the “coalition of the willing” in Iraq. Hundreds of FAS recruits
serve in the U.S. military.

¹² Including compensation for U.S. nuclear testing on the Marshall Islands during the 1940s
and 1950s.
¹³ General Accounting Office, “Foreign Assistance: Lessons Learned from Donors’
Experiences in the Pacific Region,” August 2001.
¹⁴ Inflation adjustments are to be added. U.S. contributions to trust funds for the RMI and
FSM are to total $276 million and $517 million, respectively. For further information, see
CRS Report RL31737, The Marshall Islands and Micronesia: Amendments to the Compact
of Free Association with the United States, by Thomas Lum.
¹⁵ “Palau Trust Fund Assets Doubled to $166 Million,” Pacific Islands Report, March 16,

2007.

U.S.-FAS Security Relationship. Although they are sovereign nations, the
FAS remain under the U.S. security umbrella. Under the Compact, the United States
is obligated to defend the FAS against attack or threat of attack. The United States
may block FAS government policies that it deems inconsistent with its duty to defend
the FAS, the so-called "defense veto." The United States also has the prerogative to
reject the strategic use of, or military access to, the FAS by third countries, the so-
called "right of strategic denial." The United States invoked this provision in 2001
when it rejected the Marshall Islands’ decision to allow three Taiwan naval cadet
training vessels to stop in the RMI, citing sensitivities in the U.S.-China
relationship.¹⁶ A similar Taiwan “Friendship Fleet” visited Palau in 2005 without
U.S. objections. In addition to grant and trust fund assistance, the United States may
make strategic decisions related to the FAS pursuant to the Compact of Free
Association. The United States has never invoked the "defense veto" against any
strategic policy decisions made by the FAS.
Kwajalein Missile Range (Reagan Missile Test Site). Under the
Compact, the United States may establish military facilities in the FAS. The United
States has a military presence only in the Marshall Islands. Through the Military Use
and Operating Rights Agreement (MUORA) with the RMI, the United States
operates military facilities on Kwajalein Atoll. The United States regularly conducts
missile defense tests and space surveillance activities from the Kwajalein Missiles
Range or the Reagan Missile Test Site. Kwajalein also serves as an intercontinental
ballistic missile (ICBM) test target. Some experts consider the site to be of critical
importance in the Bush Administration’s missile defense program.¹⁷
Marshall Islands Changed Circumstances Petition. In September
2000, the Republic of the Marshall Islands government submitted to the United
States Congress a Changed Circumstances Petition related to U.S. nuclear testing on
the Marshall Islands atolls of Bikini and Enewetak during the 1940s and 1950s. The
Petition requests additional compensation for personal injuries and property damages
and restoration costs, medical care programs, health services infrastructure and
training, and radiological monitoring. According to various estimates, between 1954
and 2004, the United States spent over $500 million on nuclear test compensation
and related assistance in the Marshall Islands, including Compact funding of $150
million as part of a “full and final settlement” of legal claims against the U.S.
government. The Petition bases its claims for compensation upon “changed
circumstances” pursuant to Section 177 of the Compact. The Petition argues that
“new and additional” information since the enactment of the Compact — such as a
wider extent of radioactive fallout than previously known or disclosed and more
recent radiation protection standards — constitute “changed circumstances” that
would justify additional compensation.

¹⁶ Other Taiwan ship visits to the Marshall Islands had been approved in the past.
¹⁷ Under the Compact, as amended (P.L. 108-188), U.S. base rights are to continue to 2066,
with the U.S. option to extend the arrangement for another 20 years (to 2086). The United
States pays “use fees” to the RMI of $15 million per year through 2013, rising to $18 million
annually from 2014 through 2023. The United States can terminate its use of the site after

2023.

In November 2004, the U.S. Department of State released a report evaluating
the legal and scientific basis of the Petition. The report concluded that there was no
legal basis for considering additional compensation payments. On May 25, 2005, the
House Committee on Resources and the Subcommittee on Asia and the Pacific of the
House Committee on International Relations held a joint hearing on the Petition. On
July 19, 2005, the Senate Committee on Energy and Natural Resources held an
oversight hearing on the effects of the U.S. nuclear testing program on the Marshall
Islands. On April 5, 2006, the House of Representatives unanimously passed H. Res.
692, which commends the people of the Marshall Islands for the contributions and
sacrifices they made to the U.S. nuclear testing program in the Marshall Islands.
However, the 109^th Congress made no determination on the petition. In April 2006,
peoples of Bikini and Enewetak atolls filed lawsuits against the United States
government in the U.S. Court of Federal Claims seeking compensation and/or
damages related to the U.S. nuclear testing worth $561 million and $384 million,
respect i v el y.¹⁸
Pacific Islands’ Foreign Trade and Aid
Table 1. Total Trade (Imports + Exports) between Pacific Island
Countries, the World, and Selected Countries, 2005
($ millions)
World Australia China EU-25* Japan Ne wZe aland Uni t e dSt at es
Fij i 2,327 460 45 197 99 286 216
Kiribati 8023121453
PNG 4,703 2,507 375 550 575 135 117
Samoa 199 93 6 8 24 70 24
Sol o mo 380 52 101 22 22 10 4
n Islands
T onga 140 12 3 8 12 40 17
V a nuatu 450 48 8 66 59 18 12
T otals 8,279 3,195 539 853 805 564 393
^So^urce^{: I}^M^F,^Dⁱ^r^ectⁱ^{on of}^T^r^{ade St}^atⁱ^s^tⁱ^c^s^Q^uar^t^e^r^l^y^{, S}^e^pt^em^{ber 2006}
^*^EU^dat^a^f^r^om^Eu^ropean^C^o^m^mⁱ^s^sⁱ^on^{, March}²⁰⁰⁶

¹⁸ For further information, see CRS Report RL32811, Republic of the Marshall Islands
Changed Circumstances Petition to Congress, by Thomas Lum, et al.

Pacific Trade with Developed Countries
Among the larger Pacific Island nations for which information is available,
Australia is the major trading partner, followed by the 25 countries of the European
Union (EU-25), Japan, and New Zealand. China and the United States are the fifth
and sixth largest trading partners, respectively (see Table 1). All PINs are
beneficiaries of trade preference programs offered by major industrialized trading¹⁹
countries and blocs. The EU’s new accord with African, Carribean, and Pacific
(ACP) countries, the Cotonou Agreement, signed in 2000 and scheduled to go into²⁰
effect in 2008, offers some additional trade preferences. Australia and New
Zealand offer preferential treatment to imports from PINs pursuant to the South
Pacific Regional Trade and Economic Cooperation Agreement (SPARTECA). In
2001, the sixteen members of the Pacific Islands Forum²¹ signed the Pacific
Agreement on Closer Economic Relations (PACER), which aims to facilitate the
establishment of free trade agreements, first among the PINs and then between the
PINs and Australia and New Zealand. In 2006, 22% of U.S. imports from Pacific
Island countries ($57 million out of total imports of $264 million) received duty-free
treatment under the U.S. GSP program.
Foreign Aid
The Pacific Island region has among the highest rates of foreign aid per capita
in the world. According to one source, foreign aid to the region totaled
approximately $886 million in 2004 (see Table 2). In per capita terms, there are
significant variations by country, with the FAS among the highest recipients in the
region and the large PINs among the lowest. On average, the Pacific Island countries
receive levels of aid that are significantly higher than those of other countries in the
world at similar levels of income.
The largest donors in terms of official development assistance (ODA) are
Australia, the United States, and Japan. Other large providers are New Zealand and
the United Kingdom. The bulk of U.S. funding in the region goes to the Freely
Associated States. Australian aid is directed primarily at Melanesian and Polynesian
states, while New Zealand aid flows mostly to Polynesia.²² In the past decade, the
EU, France, and Japan reportedly have increased their development assistance in the
region, while Australia and New Zealand have added conditions on aid and the²³
United States and the United Kingdom have cut back on their programs.

¹⁹ Also referred to as generalized system of preferences (GSP) programs.
²⁰ The Cotonou Agreement replaces the Lome Convention.
²¹ The 14 sovereign Pacific Island countries plus Australia and New Zealand.
²² Asian Development Bank, A Pacific Strategy for the New Millennium, September 2000.
²³ Whitney, op. cit.

Some sources estimate that China has become the third largest provider of
foreign assistance in the region.²⁴ However, experts generally do not include aid
from China in rankings of major aid donors because it differs fundamentally in
purpose and character and lacks transparency. Assistance programs from major
donors, such as Australia and New Zealand, reportedly aim to achieve sustainable
development in Pacific Island countries through promoting effective and accountable
government and broad-based, private sector growth.²⁵ By contrast, aid from China
often grows out of high-level meetings with Pacific Island leaders and consists
mostly, but not entirely, of loans, infrastructure and large construction projects (e.g.
roads, government buildings, sports venues) in capital cities that directly benefit the
governments in power rather than local communities. Furthermore, the Chinese
government does not release foreign aid data (see China’s Growing Influence,
below).
Table 2. Foreign Aid to the Pacific
Annual Estimated U.S.
Major F oreign F oreign f oreign
PopulationBilateral AidAid InflowsAid as %assistance
Donors(2004) of GDP*(2006)
$ million$ million
Cook Islands21,000New Zealand7.07.0—
Fiji906,000Australia, Japan 63.03.02.5
Kiribati 105,400UK, Japan16.622.01.3
Marshall60,400United States,50.035.031.0
IslandsTaiwan
Micronesia 108,000United States86.037.070.0
Nauru 13,287Australia20.033.0—
Niue2,166New Zealand2.626.0—
Palau20,579United States19.613.530.0
Papua New5,670,544Japan,400.09.60.3
GuineaAustralia, China
Samoa 176,908Japan, Australia30.07.51.4
Solomon552,438Australia, New122.042.00.2
IslandsZealand
Tonga 114,689Australia, New19.07.71.7
Zealand
Tuvalu11,810Australia, Japan13.085.0—
Vanuatu208,869Australia, New38.011.02.2
Zealand, Japan
T otals 7,972,090 886.8 10.6 140.6

²⁴ Nick Squires, “Pacific Persuasion,” South China Morning Post, July 21, 2005. See also
Foreign Affairs, Defense and Trade References Committee, Senate of Australia, “China’s
Emergence: Implications for Australia,” March 2006.
²⁵ AusAID, Pacific Regional Aid Strategy, 2004-2009.

^Source:^CI^A^,^T^h^{e W}^o^r^l^{d Fact}^book^{, 2007}
^No^te:^C^hⁱⁿ^{a does}ⁿ^o^t^provⁱ^d^{e dat}^a^on^f^o^rei^gⁿ^ai^d.
^*^F^o^rei^gⁿ^Aⁱ^{d as}^%^of^G^D^P^bas^e^{d u}^pon^W^o^r^l^{d Fact}^book^“^econ^o^mⁱ^{c ai}^{d” f}ⁱ^g^u^r^es^{(2004) an}^{d n}^o^mⁱⁿ^a^l
^GDP^d^a^ta.
Total aid flows to the Pacific from Australia are estimated to be $574 million²⁶
for 2006-07. New Zealand’s regional and bilateral aid programs are to total $22
million in 2005-2006 and $59 million in 2006-2007, respectively.²⁷ After reportedly
cutting aid to the Pacific by 72% between 2000 and 2004, Japan has bolstered aid to
counter growing Chinese influence. In 2006, Japan pledged a regional aid package
of $410 million while cultivating support for Tokyo’s bid to join the UN Security
Council. Japan is to provide $38 million in bilateral development aid to the region²⁸
in 2006-2007. The EU’s European Development Fund (EDF) supports ongoing
regional and national programs worth $235 million.²⁹ In 2006, the European
Commission adopted its first formal strategy in 30 years for political and economic
development and environmental protection in the Pacific. In 2007, the EU
announced that it would spend $159 million on development projects in the region’s
largest country, Papua New Guinea, over a six-year period beginning in 2008. In
2006, the Asian Development Bank (ADB) approved loans, grants, and technical
assistance totaling $110 million.³⁰ The World Bank (IBRD) lends about $50 million
annually (2000).
U.S. Assistance. When treaty obligations to the Freely Associated States are
excluded, the United States provides little development assistance to the Pacific
region (see Table 3). Economic grant funding to the FAS as provided through the
Department of the Interior, pursuant to the Compacts of Free Association, as
amended, totaled $125 million in FY2006.³¹ The last U.S. bilateral development aid
(non-military) programs in the region, costing about $12 million annually, ended in
1996 following the closing of USAID’s regional aid mission office in Suva, Fiji. The
major reasons cited for its termination were shifting strategic priorities reflecting the
end of the Cold War and budget constraints. Some military assistance and Peace
Corps programs continued. In 2006, the United States funded military assistance
(IMET and FMF) and Peace Corps programs worth $9.6 million to seven Pacific
Island countries — Fiji, Kiribati, Papua New Guinea, Samoa, Solomon Islands,
Tonga, and Vanuatu.
Other major U.S. foreign aid programs in the Pacific Islands region are: the
Pacific Island Fund ($100,000 in FY2006), supporting small projects developed by
U.S. ambassadors in their host countries; South Pacific Fisheries (about $18 million
annually); HIV/AIDS programs in Papua New Guinea ($1.5 million per year); and

²⁶ [http://www.ato.gov.au/budget/2006-07/ministerial/html/ausaid-05.htm]
²⁷ [http://www.nzaid.govt.nz/programmes/]
²⁸ [http://www.mofa.go.jp/policy/oda/note/grant-6r.html]
²⁹ [http://www.delfji.cec.eu.int/en/achievements/pacific_region.htm]
³⁰ [http://www.asiandevbank.org/Documents/reports/operations/2006/default.asp#appendix]
³¹ U.S. Department of the Interior, Office of Insular Affairs, FY2008 Budget Justification.

environmental programs (coral reef conservation and environmental research).³²
Under the Multilateral Treaty on Fisheries between the United States and certain
Pacific Island countries, U.S. tuna fishing vessels gain access to fishing zones in the
Southwest Pacific in exchange for the payment of licensing fees and U.S. economic
assistance to the Pacific Island countries. The Southwest Pacific supplies one third
of the world’s tuna. Several bills to increase U.S. foreign aid to the region have been
introduced in the 110^th Congress.
Selected Pacific Legislation in the 110^th Congress
H.R. 1205:Coral Reef Amendments Act of 2007 (Introduced in the House)
H.R. 2150:To Authorize Appropriations for South Pacific Exchanges (Introduced
in the House)
H.R. 2151:To Provide Technical and Other Assistance to the Countries in the
Pacific Region through the United States Agency for International
Development (Introduced in the House)
H.R. 2152:Pacific Islands Fulbright Scholarship Fund Act of 2007 (Introduced in
the House)
In March 2006, the Millennium Challenge Corporation signed a five-year $65
million aid agreement with Vanuatu which focuses on transportation infrastructure
as a means of reducing poverty. The Millennium Challenge Account (MCA),
established in 2004, rewards countries that demonstrate good governance, investment
in health and education, and sound free market policies. Vanuatu is one of only three
countries in the East Asia-Pacific region eligible for full MCA assistance (the other
two being East Timor and Mongolia).
Between 1995 and 2003, the number of U.S. Peace Corps missions in the
Pacific Islands region decreased by 50%. Peace Corps operations in the Cook
Islands, Fiji, Marshall Islands, and Tuvalu were terminated because of budgetary
constraints, while the missions in Papua New Guinea, Solomon Islands, and Niue
were closed because of concerns about safety and security. The Peace Corps closed
its mission in Fiji in 1998 but reopened it in 2004. Currently, there are
approximately 350 volunteers in 7 countries.³³
USAID’s Office of U.S. Foreign Disaster Assistance (OFDA) provided $50,000
to address immediate needs following the April 2, 2007 tsunami that killed 21

³² “U.S. Policy Toward South Pacific Island Nations, including Australia and New Zealand,”
Statement of Glyn Davies, Deputy Assistant Secretary of State, before the Subcommittee
on Asia, the Pacific, and the Global Environment, House Committee on Foreign Affairs,
March 15, 2007; Matthew P. Daley, “U.S. Policy Toward the Pacific Islands,” Georgetown
University, DC, February 24, 2004.
³³ Tamara Renee Shie, “Rising Chinese Influence in the South Pacific,” Asian Survey, Vol.

47, No. 2 (March/April 2007).

persons and displaced 5,400 others in the Solomon Islands. USAID pledged an
additional $200,000 for emergency shelter, water, health, and sanitation provided
through humanitarian organizations. Since 1995, USAID/OFDA has supported the
Pacific Islands Disaster Assistance Program (disaster management training)
implemented by the Asia Foundation ($300,000 requested for FY2007).
Table 3. U.S. Foreign Aid and Compact Grants in the Pacific
Islands Region, FY2006
($ thousands)
Compact of
FMF IMET P e aceCor p s F reeAssociation Tot a l s
Grants
Fiji*4942351,832— 2,561
Kiribati001,362— 1,362
Papua New Guinea02880— 288
Samoa001,368— 1,368
Solomon Islands1490— 149
Tonga2481131,371— 1,732
Vanuatu0982,122— 2,220
Sub-Total s 742 883 8,055 9,680
Marshall Islands— — — 45,00045,000
Micronesia— — — 96,00096,000
Palau— — — 12,70012,700
Sub-Totals (FAS)153,700153,700
Totals 742 883 8,055 153,700 163,380
^Source:^U^.^S^.^D^e^part^m^eⁿ^t^of^S^t^at^{e, F}^Y^{2008 C}^oⁿ^g^r^es^sⁱ^on^al^Bu^dg^et^Ju^s^tⁱ^fⁱ^catⁱ^oⁿ^f^o^{r F}^o^rei^gⁿ
^Operation^s^.
^*^In^res^pon^s^e^{to th}^{e Decem}^{ber 2006 m}^ilitary^cou^pⁱⁿ^Fijⁱ^,^th^e^Un^ited^States^s^u^s^p^en^ded^m^o^s^t^m^ilitary
^a^{nd econ}^o^mⁱ^{c ai}^{d t}^o^t^h^{e cou}ⁿ^t^ry^pu^rs^u^aⁿ^t^t^o^S^ectⁱ^oⁿ^{508 of}^t^h^{e F}^o^rei^gⁿ^O^p^e^r^a^tⁱ^o^ns
^A^ppropriation^s^A^c^{t. Fij}ⁱ^con^tin^u^e^s^{to receiv}^e^s^o^m^e^p^e^acek^eepin^g^,^h^u^m^an^itarian^{, en}^vⁱ^ron^m^en^tal,
^an^{d dem}^o^cracy^-^r^{elated as}^sⁱ^s^t^an^ce.
U.S. Economic Programs
The Joint Commercial Commission (JCC) was proposed by President George
H.W. Bush in 1990. On January 12, 1993, a Memorandum of Understanding
establishing the United States/Pacific Island Nations Joint Commercial Commission
was signed by the United States and the then-13 independent Pacific Island nations.

The objective of the JCC is to promote mutually beneficial commercial and economic
relations between the United States and the Pacific island countries. The JCC, which
has a rotating chairmanship, has been criticized for lacking a permanent bureaucracy
and forceful agenda. In October 2006, the Pacific Islands Forum Secretariat’s Deputy
Secretary General, Peter Forau, stated that the PINs wanted to reinvigorate JCC
efforts with the United States, which have languished in the past few years.³⁴
China’s Growing Influence
The People’s Republic of China (PRC) has become a growing force in the
Southwest Pacific as a result, some argue, of a political vacuum created by U.S.
neglect. In order to garner political and economic influence in relation to Taiwan, the
United States, and U.S. allies as well as to access raw materials, China has expanded
its diplomatic and commercial presence in the region. By some accounts, the PRC
has become the third-largest source of foreign aid to the South Pacific, which it
largely provides without the kinds of conditions or performance criteria — some say
heavy-handedness — that have engendered resentment among some Pacific Island
countries toward their major benefactor, Australia. Although China’s influence is
largely limited to diplomatic and economic “soft power,” some analysts worry about
the PRC’s long-term intentions.
The China-Taiwan Rivalry and “Dollar Diplomacy”
The PRC and Taiwan are diplomatically and economically active in the
Southwest Pacific. While the United States does not maintain an embassy in several
Pacific Islands countries with which it has diplomatic relations, the PRC has opened
diplomatic missions in all Pacific countries with which it has diplomatic relations and
has provided bilateral assistance, embarked on high profile regional visits, and hosted
lavish receptions in Beijing for Pacific Island leaders.³⁵ Of the 24 countries with
which Taiwan (or ROC) has diplomatic ties, six are in the Pacific, of which two are
Freely Associated States.³⁶ China and Taiwan have become major sources of trade,
investment, immigration, and tourism in the region.
The PRC and Taiwan both have begun to develop more coordinated diplomatic
and economic strategies in the Pacific. In April 2006, PRC Premier Wen Jiabao held
a summit in Fiji (China-Pacific Island Countries Economic Development and
Cooperation Forum) with members of the principal regional organization, the Pacific
Islands Forum (PIF). At the meeting, China and several PIF countries signed the

³⁴ “Pacific Island Nations Keen to Renew JCC Relations with US,” Asia Pulse, October 24,

2006.

³⁵ Reportedly there are more Chinese diplomats in the region than from any other nation.
Squires, op. cit.
³⁶ Taiwan (ROC) has diplomatic relations with the following Pacific Island nations:
Kiribati, the Marshall Islands, Nauru, Palau, the Solomon Islands, and Tuvalu. China has
diplomatic relations with Cook Islands, Fiji, Micronesia, Papua New Guinea, Samoa, Tonga,
and Vanuatu.

China-Pacific Island Countries Economic Development and Cooperation Guiding
Framework. Wen reportedly pledged $375 million in development assistance and low
interest loans as well as the establishment of preferential tariffs for Pacific Island
goods. The PRC also has expressed interest in a free trade agreement with the PINs.
In September 2006, Taiwan President Chen Shui-bian held the country’s first
summit with its Pacific allies, held in Palau, and signed agreements on cooperative
projects including law enforcement, online government, tourism, public health, the
environment, energy, agriculture and fisheries. Taiwan and the six summit
participants signed a “Palau Declaration,” recognizing Taiwan’s achievements in
political democratization and economic development and supporting Taiwan’s bid
to join the United Nations, World Health Organization, and other major international
organiz ations.³⁷
In return for aid, Beijing and Taipei demand diplomatic recognition and support
of diplomatic objectives. China insists that its diplomatic relations in the Pacific
support the “one-China” policy, cut off contacts with Taiwan, and oppose resolutions
in the United Nations (U.N.) that would criticize China’s human rights record.
Taiwan’s Pacific friends support U.N. resolutions that would endorse its membership
in international organizations.
Some experts argue that “dollar diplomacy” — large amounts of unconditional
aid in exchange for support on international issues — may exacerbate political
instability and corruption in recipient countries while not leading to broad economic
development. According to many observers, financial and other benefits from
Beijing and Taipei may overly influence the behavior of Pacific Island leaders who
preside over limited budgets or negate the incentives offered or sanctions imposed
by other major aid donors such as Australia. In the face of military and economic
sanctions by Western countries, for example, the new leadership in Fiji reportedly has
sought to strengthen the country’s relationships with China, India, Japan, South
Korea, and Southeast Asia.³⁸ Some have accused the PRC and Taiwan of meddling
in the domestic politics of several Pacific Islands countries, including Fiji, Kiribati,
Nauru, the Solomon Islands, and Vanuatu. Both Beijing and Taipei have denied using
aid primarily to advance diplomatic or strategic agendas and have stressed the mutual
benefits of their Pacific Island relationships.
Many Pacific Island nations have welcomed the attention, aid, and economic
support from the PRC and Taiwan. Several of these countries, such as Kiribati and
Nauru, have switched diplomatic alliances more than once reportedly in response to

³⁷ Lawrence Cheng, “Chen Denies Chequebook Diplomacy,” South China Morning Post,
September 5, 2006; “Taiwan Allies Issue Palau Declaration,” PACNEWS, September 6,
2006; Lilian Wu, “Too Early to Discuss Cost of Projects with Allies: MOFA,” Central News
Agency English News, September 5, 2006.
³⁸ “Bainimarama to Seek Trade, Military Ties with Asia,” Pacific Islands Report Briefs,
January 30, 2007; U.S. Department of State, Bureau of East Asian and Pacific Affairs,
Background Note: Fiji (September 2006).

enticements of assistance by China and Taiwan.³⁹ Some Pacific Island leaders argue
that foreign assistance is not a “zero-sum game” and that increased aid, trade, and
investment from the PRC and Taiwan neither exclude the influence of Australia and
New Zealand nor preclude U.S. re-engagement in the region.⁴⁰
There reportedly are more than 3,000 Chinese state-owned and private
enterprises (including energy production, garment factories, fishing and logging
operations, plantations, hotels, restaurants, and grocery stores) in the Pacific, with a
total value estimated at between $600 million and $1 billion.⁴¹ The governments of
the largest Pacific Island countries — Papua New Guinea, Fiji, and the Solomon
Islands — have welcomed investment from China or Taiwan as part of their “look
north” foreign policies. Papua New Guinea and the Solomon Islands, whose exports
of wood to China grew by 26% and 29% respectively in 2006, run large trade
surpluses with the PRC. PRC investments in PNG include the $1 billion Ramu
nickel mine, logging, gas production, and tuna processing. Chinese demand for
timber reportedly has fueled large-scale illegal logging in Indonesia and Papua New
Guinea.⁴² China operates a large tuna fishing fleet in Fijian waters and has agreed to
help develop a hydro power plant in the country.
China, Taiwan, and the Freely Associated States. The FAS remain
under strong U.S. economic and strategic influence, despite growing economic
assistance and investment from China and Taiwan. There appears to be little, if any,
political pressure in the FAS to alter the economic and strategic underpinnings of
their relationships with the United States. As in other Pacific Islands countries, some
citizens in the Freely Associated States have expressed concerns about the possible
adverse effects of PRC and Taiwanese influence.
Despite the strength of the U.S.-FAS relationships, the former Trust Territory
districts also have good relations with Japan, China, and Taiwan based largely upon
foreign assistance and commerce. The Compact does not restrict the countries with
which the sovereign Freely Associated States may have diplomatic relations.
Micronesia established diplomatic relations with China in 1989, while the Marshall
Islands and Palau recognize Taiwan, for largely economic rather than ideological
reasons. China is likely one of the largest providers of foreign assistance to the RMI,⁴³
after the United States and Japan, although amounts are difficult to determine. PRC
assistance to Micronesia has included loans, grants, and the construction of
government buildings and a sports center. China also maintains a large tuna fishing

³⁹ Robert Keith-Reid and Samisoni Pareti, “China Stirs the Pot of Divided Pacific
Loyalties,” Pacific Islands Report, March 16, 2006.
⁴⁰ “Chinese Aid Won’t Mean Chinese Influence: Sevele,” Tonga Now, May 22, 2007.
⁴¹ Kalinga Seneviratne, “South Pacific: China Seen As Alternative to Big-Brother Aussies,”
Inter Press Service, April 17, 2006; Alphonse Muapi, “Investment Grows,” Business News,
April 6, 2006.
⁴² “China’s Demand for Timber is Destroying Forests in Indonesia, PNG, Says Greenpeace,”
Associated Press, April 17, 2007.
⁴³ U.S. Government Accountability Office, “Compacts of Free Association: Development
Prospects Remain Limited for Micronesia and the Marshall Islands,” June 2006.

fleet in the country. Micronesia, along with six other countries in the region with
which China has diplomatic relations, is an approved tourist destination for Chinese
citizens.
The Marshall Islands switched recognition from the PRC to Taiwan in 1998.
According to the U.S. Government Accountability Office, Taiwan is the second
largest source of foreign aid to the Marshall Islands (about $10 million annually)
after the United States (Japan is the third largest provider of assistance).⁴⁴ Taiwan
has pledged $40 million over 20 years for the Marshall Islands Trust Fund, which
was established by the United States and the Marshall Islands as part of the
amendments to the Compact of Free Association in 2004. A major portion — over
50% — of the large businesses reportedly are owned by Taiwanese, many of whom
are naturalized citizens of the RMI, which has caused some concern among the native
business community.⁴⁵
Taiwan, which has had diplomatic relations with Palau since 1999, reportedly
“casts a huge shadow” over the country’s economy, with estimates of $100 million
in cumulative aid and loans, causing some resentment among locals. Japan is also
a major aid donor. In addition, Taiwan and Japan are Palau’s top source of tourists:
Taiwan supplied 34,000 tourists or 42% of total foreign visitors to Palau, a nation of

20,000, in 2005.

China’s Aims in the Pacific
Some specialists argue that China’s main objectives in the Southwest Pacific are
to check and reverse Taiwan’s diplomatic inroads and to garner influence but not
replace the United States as the regional hegemonic power. Others argue that China
has devised a comprehensive strategy to take advantage of waning U.S. interest in the
region since the end of the Cold War, especially in Melanesia. Some add that China
has attempted to enhance its penetration of the region through emigration.
The ethnic Chinese population in the Pacific Island region is economically
influential but remains relatively small numerically. Estimates of the ethnic Chinese
population in the Pacific (including French Polynesia and the U.S. territories), range
from 80,000 to over 200,000, or between 1% and 3% of the total population. These
estimates are based upon data that generally do not break down ethnic Chinese
populations by place of origin.⁴⁶ There reportedly has been an influx of Chinese in
the two largest Pacific Island nations, Papua New Guinea and Fiji (with an estimated
20,000 Chinese in each country) along with reports of illegal immigration and ethnic
Chinese involvement in organized criminal activity, including illegal drugs,
gambling, prostitution, and money laundering. However, according to other experts,
the PRC government has no systematic policy to populate the islands and “no real

⁴⁴ Ibid.
⁴⁵ “Sale of Biggest Marshalls Business Shows Increasing Taiwan Dominance,” PACNEWS,
October 18, 2005.
⁴⁶ Penny Spiller, “Riots Highlight Chinese Tensions,” BBC News, April 21, 2006 and “The
Pacific Proxy: China vs. Taiwan,” PACNEWS, February 9, 2007.

need” to bolster its influence through such a policy. Rather, Chinese immigrants in
Pacific Island communities often complicate PRC relations in the region by creating
resentment among indigenous citizens toward Asians in general or Chinese in
particular. Furthermore, some argue, Chinese populations in the Pacific are not
monolithic — they include ethnic Chinese from China, Hong Kong, Taiwan, and
elsewhere in Southeast Asia as well as Pacific Islanders of Chinese descent who have
resided and intermarried in the Pacific region since the 19^th century.
Anti-Chinese Riots. PRC and Taiwanese engagement in the region, coupled
with the ethnic-Chinese economic presence, while often welcomed by PIN
governments, has engendered some resentment among indigenous peoples. In some
cases, public anger against the national government has spilled over into anti-ethnic-
Chinese activity. In November 2006, riots broke out in Tonga’s capital, Nuku’alofa,
in which at least eight people died and three-quarters of the commercial district were
destroyed, including 30 Chinese-owned businesses. More than 70% of Nuku’alofa’s
grocery stores are owned by newly-arrived migrants from China, according to one⁴⁷
report. The riots were sparked by anger over the perceived slow pace of political
reforms following the death in September 2006 of King Taufa’ahau Tupou IV, and
reflected frustration over political and economic privileges enjoyed by the hereditary
nobility, unemployment and the reduction of civil service jobs, and the growth of⁴⁸
ethnic Chinese-owned businesses. Estimates of the ethnic Chinese population in
Tonga, many of whom are Tongan citizens, range from 1,000 to 4,000 persons.
Australia and New Zealand sent 85 and 70 troops and police, respectively, to help
restore order and enforce martial law. Although stability was restored, Tongan
opposition groups criticized the foreign troops as backing an undemocratic
government.⁴⁹ Approximately 200-300 Chinese nationals returned to China on an
airplane chartered by the PRC government.
In April 2006, an estimated 1,000 political demonstrators, rioters, and looters
clashed with police and set buildings on fire in the business district of Honiara, the
capital of the Solomon Islands, where there is a concentration of ethnic Chinese-
owned businesses. Among the demonstrators’ charges was that both the former and
newly-appointed governments were corrupt and unduly influenced by local Chinese
business interests and Taiwan government money or “assistance.” The ethnic
Chinese community in the country is estimated to total a few thousand, with about
2,000 in Honiara. Most ethnic Chinese in the Solomon Islands reportedly are from
Hong Kong, Singapore, Indonesia, and Malaysia or are naturalized third or fourth
generation Solomon Islanders, with no links to Taiwan. Taiwan, which has
diplomatic relations with the Solomon Islands, reportedly provides $11 million in

⁴⁷ Bertil Lintner, “China’s Third Wave: The Sinicizing of the Pacific,” Asia Times Online,
[http://www.atimes.com], April 18, 2007.
⁴⁸ “Not So Friendly — Tonga,” The Economist, November 25, 2006.
⁴⁹ Pesi Fonua, “Tonga Gets Outside Help after Riots,” Associated Press, November 19,

2006; Dan Eaton, “Stop Backing Regime, Troops Told,” The Press (New Zealand),

November 22, 2006; Peter Lewis, “Australian Troops Go ‘Softly Softly’,” Australian
Broadcasting Corporation, November 23, 2006.

annual assistance to the SI and has been accused of exacerbating corruption there.⁵⁰
Taiwanese officials denied that they had “bought” any influence in the election of
Snyder Rini to be Prime Minister in 2006. The PRC evacuated 300 Chinese
nationals during the upheaval. Australia and New Zealand, which together had
approximately 300 military troops and police officers already stationed in the
country, a legacy of the 2003 peace-keeping mission established to help quell ethnic
violence, sent additional personnel.⁵¹
Other Regional Actors
The Southwest Pacific is in Australia’s and New Zealand’s immediate
neighborhood and is of vital importance to these two nations. Many American
strategic and regional analysts and practitioners familiar with Australia’s and New
Zealand’s relationship with the South Pacific have generally been comfortable
relying on Australia and New Zealand to take the lead in promoting peace, stability,
development, and other Western interests in the region. The two Oceanic nations
have provided development aid, helped to mediate regional conflict, sent
peacekeeping forces to trouble spots, and responded quickly to natural disasters.
They share many U.S. strategic concerns while taking care to cultivate good
relationships with China. Deputy Assistant Secretary of State Glyn Davies stated,
“The bedrock of our relations in the region remains, of course, our treaty alliance
with Australia. We simply have no more steadfast partner in the region and in the⁵²
world today.”
Australia
Regional Role. Australia has a long standing concern over what many have
viewed as an arc of instability which spans the region to the north of Australia, from
the Southwest Pacific through archipelagic Southeast Asia.⁵³ While there has been
some improvement, such as in Aceh in Indonesia, continuing instability and the
potential for failed states continues in places such as East Timor, West Papua,
Bougainville in Papua New Guinea, and the Solomon Islands.
Australia has supported Pacific Island countries’ sustainable development
through both bilateral and regional programs. Australian defense cooperation has
sought to complement this assistance by contributing to Pacific Island countries’
“efficient and sustainable use of maritime resources and enhancing regional

⁵⁰ Ashley Wickham, “Taiwan Payments Cloud Solomons Democracy,” Pacific Islands
Report, May 19, 2006; Alfred Sasako, “Taiwan Fund Secrecy Dangerous for Solomons,”
Pacific Islands Report, March 30, 2006.
⁵¹ The Regional Assistance Mission to the Solomon Islands (RAMSI).
⁵² “U.S. Policy Toward South Pacific Island Nations, including Australia and New Zealand,”
op. Cit.
⁵³ For further information, see Bruce Vaughn, ed. The Unraveling of Island Asia?:
Governmental, Communal, and Regional Instability. Westport: Praeger, 2002.

security.”⁵⁴ Australia has worked closely with Papua New Guinea to develop law and
order, border security, and economic management capacity.
Since 2001, Canberra has played a more assertive role in the region out of a
desire to prevent further destabilization that could foster international crime or
terrorist activity. Australian Prime Minister John Howard has stated: “It is in
Australia’s interests and in the interests of our Pacific Island neighbors to strive for
a region that is economically viable, politically stable and free from crime. The
financial costs and potential threats to Australia from failing states, including
transnational crime and international terrorism, would be immense.”⁵⁵ Australia has
provided patrol boats and other support to Pacific Island nations to assist them in
monitoring their maritime resources. In 2006, Canberra sent troops and police
officers to East Timor, the Solomon Islands, and Tonga to promote stability. Its
presence in East Timor and the Solomons appears to be evolving into longstanding
commitments.⁵⁶ Australia has also played an increasingly active role in support of
the Pacific Islands Forum, while an Australian, Greg Urwin, serves as Secretary
General of the Pacific Islands Forum.
Australia-U.S. Relationship. Australia arguably is America’s closest ally
in the Asia-Pacific region, and under the leadership of Prime Minister John Howard
has been a staunch supporter of the Bush Administration’s war against terror. Since
the fall of Singapore during World War II, Australia increasingly has looked to the
United States as its key alliance partner. This alliance relationship was codified in the
Australia, New Zealand, United States (ANZUS) Alliance of 1951. Australians
fought alongside Americans in WWI, WWII, Korea, and Vietnam. The Australian
government invoked the ANZUS alliance after the terrorist attacks of 9/11 in the
United States and sent troops to fight in Afghanistan and Iraq. New Zealand’s anti-
nuclear policies in the 1980s led the United States to suspend its ANZUS defense
obligations to New Zealand, although Australia and New Zealand maintain close
military ties. The ANZUS alliance has continued to function along bilateral lines
between the United States and Australia. The Australia-United States Ministerial
(AUSMIN) meeting has been a key institutional aspect of the relationship.⁵⁷ The
Australia-U.S. Free Trade Agreement (AUSFTA) came into force in January 2005.
It liberalized an already productive bilateral trade and investment relationship and⁵⁸

established working groups to explore further trade reform.
⁵⁴ Australian Government, Department of Foreign Affairs and Trade, “South Pacific,”
[http://www.dfat.gov.au].
⁵⁵ “Australia’s Regional Engagement in the South Pacific,” Pacific Magazine, March 2004,
[http:// www.dfat.gov.au].
⁵⁶ “Australia Struggles to Promote Order in Troubled Region,” US Fed News, January 4,

2007.

⁵⁷ For further information, see CRS Report RL33010, Australia: Background and U.S.
Relations, by Bruce Vaughn, and CRS Report RL32876, New Zealand: Background and
Bilateral Relations with the United States, by Bruce Vaughn.
⁵⁸ U.S. State Department, “Background Notes: Australia,” US Fed News, February 1, 2007.

Australia and China. Australian attitudes towards China have moderated
somewhat in recent years as a result of a rapid expansion in trade between the two
countries. This growing trade has evolved to a point where China is Australia’s
second largest trading partner behind the United States. Australian exports to China
grew by 39% in 2005-2006 to over $14 billion. Australia and China also concluded
the 8^th round of Free Trade Agreement negotiations in March 2007.⁵⁹ While the
United States remains Australia’s key strategic partner, China has become a key
economic partner. Some analysts point to a potential tension in this dynamic should
relations between the United States and China deteriorate. As a result, Australia does
not wish to see rising tension between the U.S. and China nor is it likely to support
a policy of containment of China. That said, Australia would likely be uneasy with
a significant expansion of Chinese influence, particularly diplomatic or defense
related, in the South Pacific, a region that it regards as within its area of immediate
strategic interest.
New Zealand
Regional Role. Deputy Assistant Secretary of State Glyn Davies described
New Zealand as a “key partner” in the Pacific, stating in a March 2007 speech that
“we are seeking greater cooperation with New Zealand in a number of areas in which
it can offer significant contributions, including non-proliferation, counter terrorism,⁶⁰
humanitarian and disaster relief and peacekeeping.” Though a small country of
approximately 4 million, New Zealand is a key actor in the South Pacific. New
Zealand has particularly close ties with Tokelau, Niue, the Cook Islands, Samoa, and
Tonga. Tokelau, administered by New Zealand since 1926, has moved towards⁶¹
greater political autonomy.” New Zealand’s Polynesian Maori community (15% of
the total population), as well as its Pacific Islander community (6.5%), have helped
to define New Zealand as a Pacific nation. For this reason, and because of its
reputation as an honest broker, it is viewed as a natural regional partner by many in⁶²
the Pacific. New Zealand’s key policy issues in the Pacific include diplomatic ties,
trade relations, security promotion, disaster assistance, and shared environmental
concerns.
New Zealand imposed sanctions against Fiji in the wake of the December 5,

2006 coup in an effort to foster the return of democracy. Defense ties, sporting links,

and intergovernmental development assistance have been curtailed, although
restrictions were not imposed upon trade, investment, or tourism. New Zealand has

⁵⁹ “The Australia-China FTA Negotiations in Brief,” Department of Foreign Affairs and
Trade, [http://www.dfat.gov.au].
⁶⁰ “U.S. Policy Toward South Pacific Island Nations, including Australia and New Zealand,”
op. cit.
⁶¹ New Zealand Ministry of Foreign Affairs, “New Zealand and the Tokelau Islands,”
[ h t t p : / / www.mf a t .govt .nz] .
⁶² New Zealanders of Pacific identity grew by 14.7% from 1996 to 2006. Hon Phil Goff,
“New Zealand in the Pacific” [http://www.beehive.govt.nz].

expressed concern that the situation in Fiji could have a negative impact on regional
stability.⁶³
New Zealand exports to the Pacific total over $700 million annually. New
Zealand provides largely unrestricted access for imports from Pacific countries under
the South Pacific Regional Trade and Economic Cooperation Agreement
(SPARTECA). Other arrangements, such as the Pacific Agreement on Closer
Economic Relations (PACER) and the Pacific Island Countries Trade Agreement
(PICTA) also promote regional trade.⁶⁴
New Zealand has worked to promote stability in Bougainville (PNG), East
Timor, the Solomon Islands, Fiji, and Tonga. The Biketawa Declaration of 2000
provides a regional security framework for collective action in times of crisis. There
is a regional view that “ethnic tensions, inequalities of wealth, lack of good
governance, land disputes and erosion of cultural values” are the key underlying
causes of conflict in the region.⁶⁵ New Zealand provides disaster assistance to Pacific
Island states with Australia and France through the FRANZ arrangement reached in

1992 to coordinate disaster assistance efforts between the three states.

New Zealand helps safeguard and manage the Southwest Pacific’s fisheries and
has taken a leading role on climate change and environmental concerns in the region.
New Zealand has agreed to accept Tuvalu’s entire population should rising sea levels
inundate the island, which lies within five meters above water. The government of
Tuvalu expects this will happen in the next 50 years.⁶⁶ New Zealand opposes the
shipment of nuclear material through the region and has sought to reduce whaling
through the establishment of a South Pacific Whale Sanctuary and the Convention
on Migratory Species. The United States and New Zealand have worked together to
address climate change issues through the U.S.-New Zealand Bilateral Climate
Change Partnership, established in 2002.⁶⁷
New Zealand and China. China is New Zealand’s fourth largest export
market with close to $1.3 billion in trade. This trade accounts for 5.6% of New
Zealand exports. New Zealand and China initiated Free Trade Agreement
negotiations in 2004. The trade relationship has developed alongside an increasing
number of high level exchanges between leaders of the two nations. PRC Premier
Wen Jiabao held discussions with New Zealand Foreign Minister Winston Peters in

⁶³ New Zealand Ministry of Foreign Affairs, “Pacific,” [http://www.mfat.govt.nz].
⁶⁴ New Zealand Ministry of Foreign Affairs, “Key Pacific Issues — Trade,”
[ h t t p : / / www.mf a t .govt .nz] .
⁶⁵ New Zealand Ministry of Foreign Affairs, “Key Pacific Issues — Security,”
[ h t t p : / / www.mf a t .govt .nz] .
⁶⁶ “Paradise Slowly Sinking,” Sunday Times, February 18, 2007.
⁶⁷ New Zealand Ministry of Foreign Affairs, “Joint Statement by New Zealand and the
United States Following the Fourth Meeting Under the U.S./New Zealand Bilateral Climate
Change Partnership,” August 30, 2006, [http://www.mfat.govt.nz].

Beijing in May 2007 during which the two leaders pledged to engage the Pacific in
a cooperative manner.”⁶⁸
France
The legacy of the period of French colonization in the Pacific can be seen today
in the French administration of French Polynesia and New Caledonia. French
Polynesia consists of some 118 islands grouped into five archipelagos with a
population of over 270,000. French and Tahitian are the official languages. The
capital of this Overseas Territory of France is Papeete on Tahiti. French Polynesia
has an approximate per capita GNP of $17,500. The territory’s Statute of Autonomy
of 1984 led to enhanced self government which was extended in 2004 with a new
autonomy statute. The president is elected by the Assembly of French Polynesia.
There are centrist, pro-autonomy, and pro-independence political parties. France
ended nuclear testing in French Polynesia in 1996 which had made it unpopular in
the region.⁶⁹
New Caledonia’s population of some 230,000 is largely comprised of native
Melanesians (known as Kanaks) and descendants of French settlers and convicts.
France annexed the islands in 1853 and established a penal colony there, which
closed in 1896. There were two major Kanak uprisings against the encroachment of
French settlers on Kanak lands in 1878 and 1917. New Caledonia has great mineral
wealth with deposits of nickel, cobalt, chrome, and gold. New Caledonia is the
world’s third largest producer of nickel with an estimated one quarter of world nickel
reserves.
Pro-independence sentiment coalesced again in the 1970s in response to global
decolonization and by 1984, a Kanak National Socialist Liberation Front (FLNKS)
was established. Violence between Kanaks and French settlers, which flared between
1984 and 1988, was addressed by the 1988 Matignon Accords. The agreements
allowed greater autonomy for New Caledonia as well as recognized the need to
address the disparities between the French and Kanak communities. The Noumea
Accord of 1998 committed France to transfer additional responsibilities to New
Caledonia’s government but retained for France responsibility for defense, justice,
public order, and some external affairs. A future vote to be held between 2014 and
2018 will determine if New Caledonia will become a fully independent nation or
remain associated with France.⁷⁰
France’s position in the South Pacific has improved greatly as the result of its
moves to allow the process of decolonization to proceed and to stop nuclear testing
in the region. France’s relations with New Zealand and other nations of the South
Pacific reached a low point when French agents sank the Green Peace ship Rainbow
Warrior in Auckland Harbour in 1985. The ship had been making preparations for
a protest voyage to Mururoa Atoll in French Polynesia where France conducted

⁶⁸ “Peters Meets Chinese Premier,” May 25, 2007, [http://www.beehive.govt.nz].
⁶⁹ New Zealand Ministry of Foreign Affairs, “French Polynesia” [http://www.mfat.govt.nz].
⁷⁰ New Zealand Ministry of Foreign Affairs, “New Caledonia” [http://www.mfat.govt.nz].

nuclear tests.⁷¹ France’s more recent intent to have better relations with New Zealand,
Australia, and other South Pacific states was demonstrated by the positive
atmosphere surrounding the second France-Oceania summit held in Paris in July

2006.⁷²

Pacific Island Multilateral Groups
Pacific Community. The Pacific Community, originally known as the South
Pacific Commission, was established in 1948 by the governments of Australia,
France, the Netherlands, New Zealand, the United Kingdom, and the United States.
The Secretariat of the Pacific Community (SPC) provides technical assistance and⁷³
advisory service on behalf of the 26 members of the Pacific Community. The SPC
has three administrative divisions which handle land, marine, and social resources
and provide information and expertise to member states.
Pacific Islands Forum. The Pacific Islands Forum, known as the South
Pacific Forum until 2000, has a more limited membership than the Pacific
Community but a higher international political profile. The South Pacific Forum was
established by the independent and self governing states of the region in 1971. The
group reaches decisions by consensus and since 1989 has held dialogue sessions after
its forum meetings. The Pacific Islands Forum was critical of France’s nuclear testing
in the mid-1990s and supported the South Pacific Nuclear Free Zone Treaty
(SPNFZ), which is also known as the Treaty of Rarotonga. The treaty prohibits
nuclear weapons and nuclear tests in the South Pacific. The activities of the Forum
are handled by the Pacific Islands Forum Secretariat. The 37^th Forum Communique
of 2006 highlighted such issues as regional fisheries, deep sea bottom trawling,
climate variability and sea level rise, sustainable development, and the Regional⁷⁴
Assistance Mission to the Solomon Islands. In recent years the forum has
increasingly focused on regional trade, good governance, and security.⁷⁵

⁷¹ “The Bombing of the Warrior,” [http://archive.greenpeace.org/ ].
⁷² “France-Oceania Summit: A Thawing of Relations,” Scoop Independent News, July 4,

2007.

⁷³ “Secretariat of the Pacific Community at a Glance,” Scoop Independent News, February

8, 2007.

⁷⁴ Pacific Islands Forum Secretariat, Forum Communique, Thirty-seventh Pacific Islands
Forum, Nadi, Fiji, October 24-25, 2006.
⁷⁵ Australian Department of Foreign Affairs and Trade, “Pacific Islands Forum,”
[http://www.dfat.gov.au viewed].

CRS-25
Appendix: Pacific Island Countries at a Glance
Former Colonial RulerLand AreaPopulationGDP perHDIMajor Exports to the U.S.
e of Independenceor Administrator(sq. kilo)capita (PPP)
ELANESIA
pua New GuineaAustralia452,8605,670,544$2,700139coffee, cocoa beans, fish,
sugar
jiUnited Kingdom18,270906,000$6,10090fish, beverages
garments
on IslandsUnited Kingdom27,540552,438$2,418128natural jewelry, electronics,
ⁱ^{ki/CRS-RL34086}fish, wood
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^s^.oranuatu United Kingdom, France12,200208,869$2,900119fish, plants, spices
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^://wikiYNESIA
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oaNew Zealand2,934176,908$2,10075juice, fish, fruit
aUnited Kingdom718114,689$2,20055fish, natural jewelry,
vegetable products
IslandsNew Zealand23621,000$9,000N/Afish, cut flowers, other
^a
valuUnited Kingdom2611,810$1,600N/Abicycles, machinery
telecom and sound
equipment
ue^aNew Zealand2602,166$5,800N/Afabrics, garments, toys,
integrated circuits

CRS-26
Former Colonial RulerLand AreaPopulationGDP perHDIMajor Exports to the U.S.
e of Independenceor Administrator(sq. kilo)capita (PPP)
ICRONESIA
United States702108,000$2,300N/Agarments, fish, pearls
^b
atiUnited Kingdom811105,400$2,700N/Afish, crustaceans
slands^bUnited States18160,400$2,900N/Afish, coconut oil
ⁱ^{ki/CRS-RL34086}au^bUnited States45820,579$7,600N/Afish, decorative wood items,other
^g/w
^s^.orAustralia, New Zealand,2113,287$5,000N/Anavigational instruments
^le^akUnited Kingdom
^://wikitals 517,196 7,972,090
^h^ttp
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CRS-27
Figure 1. Map of the Southwest Pacific: Pacific Island Countries and Cultural Areas

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