4. STATEMENT: Opening Round Statement Of Hon. Gerald Zackios, Minister For Foreign Affairs And Chief Compact Negotiator: 5th Round Of RMI-U.S. Compact Negotiations

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OPENING ROUND STATEMENT OF HON. GERALD ZACKIOS, MINISTER FOR FOREIGN AFFAIRS AND CHIEF COMPACT NEGOTIATOR 5th Round of RMI-U.S. Compact Negotiations October 31, 2002 Majuro, Marshall Islands

I would like to welcome you Chief Negotiator Short, Deputy Assistant Secretary Cohen, Ambassador Senko and your team today for a productive and hopefully an "initially" conclusive round of discussions here in Majuro. I realize that you have been here for only a few hours but do hope that what you have seen so far and what you will see over the next few days will express to you our view that the Compact was and is a success. I hope, Al, you can make the contrast between now and 12 years ago when you were here last in Majuro. I am also sure you will see first hand what we are doing in preparation of implementing the new term of the Compact and what we need to do in terms of developing our economic capabilities and living standards for our people.

As we have discussed in the past, and as you heard from President Note earlier in your meeting with him, we are in full agreement in concluding our negotiations as soon as possible. My team is ready and willing, as we have been in the past, to work with your team so we can send a package to Congress as soon as possible.

I believe what we initial tomorrow will clarify what we have struggled to accomplish over the last year. I firmly believe we have come a long way. It was only in the first half of this year that we received very rough drafts or outlines of Title Two, the Fiscal Procedures Agreement and Trust Fund Agreement. With the federal program subsidiary agreements, I also believe that we have made progress in concluding these agreements on an agreement-by-agreement basis.

The documents we hope to initial reflect both of our Government’s interests to have a Compact agreement that not only sets forth the policy and framework for our relationship, but also gives us both a transparent framework to ensure that the Compact serves both of our interests in terms of economic development, budget stability, our security and defense relationship and the new component -- providing for future generations through the establishment of a Trust Fund. While the funds over the 20-year period will assist achieving budget stability and increasing investments in mainly education, health care and infrastructure, we strongly view that the Trust Fund must be at a sufficient level in 2023 so that budget stability remains and economic and living standard improvements continue -- not be stopped or reduced because of an insufficient Trust Fund.

As you know, we have no major difficulties on the Fiscal Procedures Agreement and the Trust Fund Agreement. On Title Two, as we have previously indicated, we will reserve on the financial numbers and until we have a response on our MUORA and SOFA-related proposals submitted to you this past August at our 4th round in Honolulu. We understand that your Government is currently reviewing the proposal and we look forward to make progress on this front.

Second, we stand firmly to our position to apply a full inflation adjustment over the 20- year period for the Title Two assistance. As we have stated in the past, our objective is to try to maintain the real value of the grant assistance minus the decrement to the Trust Fund. As we have worked out the numbers, the base grant declines at to rapid a rate that we don’t believe our domestic revenues can replace quickly enough, though we are estimating increased domestic revenue generation. In addition, we believe our economy is more sensitive to inflation, as shown in our inflation figures, that amounts to more than the U.S. mainland rate. Thus, with the $500 thousand decrement for the Trust Fund and only a two-third’s inflation adjustment we are, in reality, receiving a double decrement. We cannot afford this over a 20-year period.

Last, we will reserve on the Article IV trade provisions pending the receipt of your Government’s proposal. We understand that the proposal is in the works. I would like to point out that we see the Compact’s section 111(a) programs as an integral part of the existing tax and trade provisions and we want them included with any revised trade provisions.

For the subsidiary agreements, we look forward to signing the telecommunications agreement. I believe the signing of this agreement concludes the federal program subsidiary agreements we have received to date. With the notable exception of our reservation on the Disaster Assistance subsidiary agreement and the needed application of FEMA, we believe the only outstanding subsidiary agreement is for the National Weather Service.

Finally, we would be most appreciative if our delegation could be updated on the progress and status of the U.S. Administration’s review of my Government’s Changed Circumstances Petition currently pending before the U.S. Congress. As you know, the gross and manifest inadequacy of the Section 177 Nuclear Claims Fund is an issue of great importance to the Government and people of the RMI. Your briefing session during our talks in August in Honolulu was helpful in understanding the U.S. Government’s review process and we look forward to receiving an update on this most important issue.

In closing, we look forward to working with your team to establish a concrete course of our future steps and timetable to complete our negotiations and bring our agreement to the U.S. Congress.

Komol tata for making the long trip. I hope it is not only successful to our negotiations but also gives you the opportunity to personally experience life on our islands once more.

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