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Great Power: The Cost and Value of the Compacts of Free Association

Passing up these agreements would squander Great Power relations dating to WWII and put friends and allies like Japan at risk from growing Chinese aggression.



Map of EEZs in the Central Pacific showing significance of Palau, Micronesia and the Marshall Islands. (© Cleo Pascal. Reprinted with permission.)

How does a Great Power get itself defeated? Sometimes it does too much – as in America's 20-year effort to turn Afghanistan and Iraq into countries more to its liking. 

And sometimes it does too little – as is happening in the Central Pacific. That is where Chinese influence has gradually eroded what Washington thought was a solid, almost guaranteed presence.

Peleliu is one of the islands making up Palau.

Some Background

First a little background. Three contiguous island nations– Republic of Palau, Federated States of Micronesia, and Republic of Marshall Islands – occupy an area about as large as the continental United States. They also make up a huge corridor in the middle of the Central Pacific. 

This is strategic geography by any standard. Indeed, after World War II, they (along with what would become the Commonwealth of Northern Mariana Islands) were declared the only "Strategic Trust Territory" countries by the United Nations. And they were assigned to the United States for administration. 

Starting nearly 40 years ago, as they became independent, each of the three entered into a "Compact of Free Association" (COFA, or Compact States) with the US. These countries are now known collectively as the Freely Associated States (FAS).

These complex COFA agreements are currently being renegotiated. They provide the three countries with financial and other assistance — including the right of their citizens to live and work in the United States. The amounts and types of assistance are what are periodically renegotiated. 

Through the COFAs, Washington also undertakes responsibility for the three nations' defense. That includes the right to prevent any foreign military presence in each of the COFA states. This, many strategists assume is in "perpetuity." 

And that was supposed to be that.

Why are these Important to the United States?

Without control of this terrain, America's defense posture in the Indo-Pacific becomes untenable, if not impossible. And preventing the People's Republic of China (PRC) from seizing Taiwan would be nearly impossible as well. 

As a former US Navy intelligence officer puts it: "If we lose the Freely Associated States to the PRC, then you can kiss Taiwan goodbye. "


However, over the last 30 years (some would say longer) the PRC has insinuated itself into the commercial and political systems of each FAS nation. It is now to the point that American control is no longer the"sure thing" it was once thought.

There is no reason the FAS nations cannot cancel the COFA agreements. Or, for that matter, just declare that they no longer consider the deals to be valid and are withdrawing. 

And China has got a blank check or three ready in case they should do so. In fact, it is encouraging them. If this happens the United States has no good options – and "sending in the Marines" is not a good option.

US Space Force’s Space Fence on Kwajalein Atoll in the Marshall Islands went into operation on March 27, 2020.

Where do the Negotiations Stand?

The financial and service components of the COFAs must be signed by at least the Federated States of Micronesia and Marshall Islands. Palau is a year later.) And then they must be passed by the US Congress by September 30, 2023. 

If they are not, services like weather forecasting, the post office, education programs, and much, much more run out of money. This can be quite serious. For example, the Federal Aviation Administration is one of the services. If that stops running, normal flights can't operate. 

So far, Marshalls hasn't signed. But Palau and Micronesia have signed, and those agreements are heading to Congress. While the Senate seems supportive, the question is, will they pass the House of Representatives? 

One would think a look at the map – and remembering a little history about World War II – would make even the most skin-flint of politicians reach for the checkbook and allocate whatever funds are necessary to keep the FAS nations "on-side."

It is the best bargain the United States has ever had.

A Critical Foundation in the Central Pacific

The COFA's are best viewed as a maintenance fee and a foundation for the US presence in the Central Pacific. And that comes with the right to exclude foreign militaries from the FAS territories. Sort of like buying health insurance. 

The amount of money needed to renew the COFA deals is also a pittance – around $7.1 billion USD, spread out over three countries and twenty years. Said in another way, that's under $117 million USD per country per year (and a chunk of that goes back to US services). 

Not convinced? That cost is literally less than half a day's worth of Medicaid and Medicare fraud


What would be the cost of having to defend properly or having to occupy the FAS to forestall Chinese influence? 

A lot more than that. 

The Chinese Navy Kuznetsov-class aircraft carrier Liaoning was in the Pacific Ocean east of Okinawa on December 21-22, 2022. The carrier repeatedly landed and departed fighter jets and helicopters a total of about 180 times. (© The Ministry of Defense Joint Staff Office)

The Risks of Passing This Up

But can't the US Navy just do more with what it has and "spread a bit" to cover the region? 

The laws of physics intrude here. As noted by a senior retired US Navy officer who served in the Pacific for several decades:

We had to balance the limited resources against the threat from the PLA Navy in the East China Sea and South China Sea, North Korean missile launches and maritime aggression, normal training and readiness requirements, and pop-up contingencies like a HADR event....

And then you add on this topic (for a region the size of the USA) and you begin to understand the frustration of many who serve in the FDNF (Forward Deployed Naval Force)... And it also explains why most of the officers on the 7th Fleet staff went to work early and stayed late… It seemed as if the "tasking" would never end...and we had to keep doing more with less.

The US Air Force would tell you something similar.

The US Government has simply got to pay up – or it risks defeat in the Indo-Pacific. And that means defeat everywhere. 

What would Losing Defense Access Given by the COFAs Cost the US?

Here is a back of the envelope calculation of what it would cost to cover or properly control the area the US currently has access to under the COFAs. 

Of course it's a rough estimate of some initial costs, and it's limited only to a very, very narrow military lens, which may be more and it may be less. But you'll get the idea.

1. More Ships

You'd need more Navy ships. Say 20. That would give you 7 that you could keep on station or moving around the area. And remember that it's the size of the continental United States. It depends on type of ship of course, but you'd do well to have something that can fight since the PLA Navy may be on the scene. 


Cost: $40 billion USD. 

2. Submarines 

You might need another submarine to handle the area?  So maybe 2 or 3 subs. And don't forget extra submarine tenders.  

Cost: $10 billion USD or more.

3.  Aircraft

You'd need additional aircraft ー patrol, surveillance, combat ー to deploy in the area.  

Cost: $2 billion USD.

3. Ground Troops

Having a battalion of ground troops in each of the countries to keep things in order is another important part of the task.

Cost: $2 billion USD.

4.  Facilities and Support

Military construction would be necessary in the region. This would be needed to allow our occupying force to have facilities to live in and to operate from:  

Cost $2 billion USD.

5. Surveillance Systems

We would also need surveillance systems and hardware to cover the area. 


Cost:  $2 billion USD.

6.  Missiles and Defense Hardware

Air and missile defense hardware systems needed to defend US troops in the area would be another expense:  

Cost: $2 billion USD.

7.  Seven Years Operating Costs

Then there is operating costs over 7 years for all of the above.  

Cost:  $10 billion.

8. Support for the FAS

Another cost would be that of running the FAS governments, societies, and economies for which we are now responsible. 

Cost: $3 billion. USD

9.  'Goodwill' Lost

There is also the value of "goodwill" lost to the United States by virtue of having to become an occupying force. And that would happen in an area where we were once well-regarded. It would be a political warfare win for the PRC.  

Value:  almost priceless.  But let's say $10 billion USD in cost to the US. It's also the equivalent of a $10 billion handout to the Chinese. 

Total loss: $20 billion USD.


10. Regional Allies and Friends

Another cost is the value of our regional allies – Japan, South Korea, Taiwan, Philippines, Australia. And others who may not be allies but are watching closely to see if America is serious about defending its interests. And looking after its partners and resupply lines. 

They won't just see this as America "wavering" but rather "withdrawing." Indeed, we may find they become far less cooperative as they seek to hedge their bets. 

Cost: It's hard to quantify, but say $10 billion USD – conservatively.

Their Majesties the Emperor and Empress (now emeritus) of Japan offered flowers at the Cenotaph for the 81st Infantry Division of the US Army on Peleliu Island, Palau. April 9, 2015. (Pool photo)

Where That Puts Us

And here we are at $103 billion.

But there's more: In the event a "fight" is required to keep or retake the FAS, the costs skyrocket.  As we saw in Afghanistan where we were blowing $45 billion USD a year. 

When you add in the cost of long-term veteran care, the price tag on the Iraq War is north of $3 trillion USD.

As one observer put it: 

$350 million USD will not fund a single day of full scale war in COFA let alone the Pacific. [There would be a] Minimum of $2 billion USD in direct costs per day. And $3.5-5 billion USD per day when you factor in market/industry losses.

A $5 increase in a barrel of oil increases US Navy/Marine Corps fuel bill by $1.05 billion USD per year for peacetime consumption. (Which is a fraction of our wartime guzzle.) What do you think will happen to the price of fuel, food etc on day one of the war? Massive inflation and rationing at home. Very costly indeed."

And if Taiwan is lost because of what happens in the FAS, the blow to America's position in the Indo-Pacific ー not to mention its prestige, position and perceived reliability globally ー will be immense. This will have demonstrated that US military power could not keep 23 million Taiwanese free of PRC enslavement. United States financial and economic power could not either. Nor could America's nuclear arsenal.

The cost of this and having most of Asia turn "red" overnight will be a lot more than the $350 million that's being argued over with the COFA's.


Squandering Opportunities

Squandering this opportunity to renew relationships that have existed since World War II and to yield vital terrain that was paid for in American blood would constitute diplomatic, legislative and moral malfeasance.

It's not like we haven't seen this before. 

In the early 1990's the US balked at the Philippines' request to increase our annual rent on military facilities by $116 million per year. (In current dollars, that is three Joint Strike Fighters). 

This was a bargain we passed on and China took notice. If we had remained, the Spratleys, Mischief Reef and Fiery Cross Reef would most likely be reefs today. Not Chinese military bases.

Congress is once again in danger of giving the expression "penny-wise and pound-foolish" a new meaning.


Author: Grant Newsham

Grant Newsham is a retired US Marine officer and former US diplomat. He is the author of the book When China Attacks: A Warning To America. Find his testimony before the US Congress on YouTube and his articles on JAPAN Forward.

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