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Executive Summary: PALAU OFFERS BASES TO THE US

Charlotte Morton, Antonia Gough, PACOM Team

Week of Monday, May 17, 2021


Palau’s President Surangel Whipps during a visit to the Republic of China (Taiwan), which Palau recognizes instead of the People’s Republic of China[1]

Palau, a Micronesian archipelago of more than 500 islands, has invited the United States (US) to build and host strategic ports, land bases, and airfields on its array of islands. These facilities would be accessible to the US and possibly other allies. The country’s three operational runways would be improved and port facilities deepened to host larger US fleets.[2] Palau is eager for the US to build these in the hopes that this will provide an economic stimulus. Palau argues that the US military would be able to increase its readiness by using these bases of operations. These plans would counter China’s strategic interests in the deal, which are linked to its Belt and Road Initiative (BRI).[3] The decision by Palau’s President Surangel Whipps is to be interpreted in the context of US-China relations. Both powers would benefit strategically from accessing Palau; therefore, the decision to invite the US to build infrastructure - and subsequently disadvantage China - is politically significant. The chances of the US hosting military operations on the islands of Palau are likely. Despite overlooking the Micronesian islands in the past, the US has moved to widen its Indo-Pacific defense strategy in recent years.


The tension between Palau and China escalated in 2017 when Palau continued to honor its 1999 diplomatic recognition of Taiwan.[4] This followed a period of increased Chinese tourism to Palau between 2015 and 2017 that was prompted by China’s investment in package tours to the Pacific archipelago.[5] In response, China stopped the package tours deal and tourism significantly decreased, which took a huge hit on Palau’s fragile economy.[6] Therefore, the country is now seeking stronger relations with the US to bolster its political ties with the global superpower. This is likely going to affect regional security, notably due to Palau’s geographical proximity to the Philippines, which is currently facing maritime security threats from China in the South China Sea. However, a potential US acceptance of the offer to build infrastructure on the archipelago may provide Palau with an opportunity to avoid a reliance on China.


Palau has experienced both hard and soft Chinese power. China’s decision to ban tourism to Palau in 2017, after having encouraged Palauan citizens to make a considerable investment in the tourism industry, was a soft power move. Contrastingly, the December 2020 joint seizure by Palau authorities and the US Coast Guard of a Chinese fishing vessel suspected of illegally harvesting sea cucumber from Palauan waters demonstrated that Chinese actions in Palau have crossed the line into hard power maneuvers. The threat posed to the region’s security by this two-pronged approach has been summarized by Palau’s former president as “threatened by predatory economics as it is by military aggression.”[7] The first interception of a Chinese vessel in Palauan waters, waters in which foreign commercial fishing is banned, provides a clear explanation for the recent move by the Palauan Government to reach out to the US for collaboration.[8] Palau’s maritime area is essential to its economy, food security, and culture. The communities that inhabit the islands rely on their natural surroundings for their diet, their income, and their sense of identity. The landscapes are what attract foreigners there for tourism and thus prop up the economy. Given the tiny size of Palau’s landmass and population, the significance of the sea is that it provides anchoring for a small country to feel strong. The presence of the US Coast Guard in the area would help prevent future incursions and assist Palau in patrolling its vast marine areas. The country does not, after all, have a military as a result of the US being responsible for its defense. Palau’s reliance on the US reduces its autonomy since the US has control over how the military is used and Palau defends itself. This suggests that it is in Palau’s best interest to maintain good relations with the US, which may be further encouraged with Palau’s recent offer of infrastructure to the US.


China’s strategic move into the Pacific region as part of its BRI has created political tensions with countries that support Taiwan.[9] China’s BRI is a signature geostrategic project of Chinese President Xi Jinping, which aims to establish infrastructure in developing nations. However, this is made via loans that often create ‘debt traps’, as seen in Vanuatu, Samoa, and Tonga.[10] Australia and the US have raised concerns about China’s loan scheme in the region because it provides China with greater control over the nations’ assets, which translates into political leverage.[11] Palau is one of the only countries that has held out against China’s pressure. In 2019, Kiribati and the Solomon Islands changed alliances from Taiwan to China following China’s provision of large amounts of foreign aid. Taiwan subsequently accused China of authoritarian expansionism in the Pacific.[12] Developing nations in the Pacific are already at risk of financial insecurity because of their geographically small size and reliance on tourism and aid from larger states. Therefore, Palau’s decision to avoid China’s BRI is a significant decision for the small country, especially when China has employed political pressure in the past. This refusal of Chinese investment illustrates Palau’s reaffirmation of its traditional pro-US stance - including its dependence on the US for defense - which is significant as Palau could have opted instead for building ties with China as a counterweight to the US.


Palau will now rely more heavily on the US to invest in its infrastructure. Tensions between Palau and China have increased as a result of the former’s continued support for Taiwan. March 2021 also saw Palau’s President Whipps’s decision to accompany the US representative to Taiwan on a visit to the latter, in a demonstration of their support. President Whipps admits that “Palau’s position, as a friend of Taiwan, has caused a lot of collateral damage for Palau.”[13] Despite this, China’s hard and soft power responses to Palau may have encouraged Palau’s leadership to affirm their anti-China stance, suggesting that Chinese efforts to turn Palau away from Taiwan will only backfire. Such moves only heighten the awareness of Palauans that China is not an ally but instead is applying aggressive and damaging pressure. Recently, the strength of the partnership between Palau and Taiwan has been demonstrated by the two countries opening Asia’s first travel bubble in March 2021.[14] The hope is that this will assist Palau’s wounded economy and is no doubt a part of wider aspirations to immunize Palau to Chinese economic incentives.


Palau, along with two other Micronesian nations - the Marshall Islands and the Federated States of Micronesia - are part of the Compact of Free Association (COFA) with the US.[15] Crucially, this blocks any other states (such as China) from accessing the strategically significant area, allows the US to veto the presence of foreign forces on Palauan territory, and to enjoy unrestricted military access to the maritime area (which is roughly the size of the US itself).[16] Currently, the US has no troops stationed in Palau permanently. The Palau archipelago is located just 600 miles from the Philippines, a key current battleground for China.[17] This puts the country in a militarily strategic position and goes some way to explaining why China has it in its sights. Other reasons include a potential desire by China to involve Palau and other Micronesian states in its BRI, Chinese access to vital maritime passageways, and to dissuade the remaining 15 states globally that recognize Taiwan from continuing to do so. Palau is also one of a string of islands that currently stands between China having unfettered access to the open ocean. If China had access to the surrounding waters, the gap between its and the US’s hard power would decrease. Chinese influence faces a considerable set of challenges: a 70-year head start in the Pacific by the US, staunch support for the US by Palau, and Palau having several other dedicated allies including Taiwan, Japan, and other Pacific states. Palau’s history, as a scene of some of the greatest violence during World War ll, provides additional impetus to the Palauan desire to avoid warfare of any kind. This historical context further increases Palau’s strength of allegiance towards the US, a key protector of Palau, propelling it away from China.


China’s growing influence in the Pacific has presented a variety of concerns for the region and the international community alike. China has the long-term objective of creating a network of military bases in the region, which would solidify its control in Southeast Asia in conjunction with its presence in the South China Sea.[18] The US perceives China’s growing influence as a threat. In March 2021, the US Navy’s Indo-Pacific Command expressed the importance of the US creating a new missile defense base in the Pacific as a part of its larger strategy to counter China’s military threat in the region.[19] The project would cost USD 77 million to build the military infrastructure in Guam.[20] Although this may be needed for the nations in the Pacific that require foreign help in combating China’s potential threat, the initiative by the US may create greater tensions with China. As a result, China may use economic and military means to increase its pressure on nations to switch alliances. This will likely create a security threat in the region, as well as increasing tensions in the South China Sea and Taiwan.


A further crucial contextual development is the February 2021 exit of Palau, along with the four other Micronesian states, from the Pacific Island Forum. This organization is the highest level of cooperation existing within the region and it aims to tackle some of the key issues affecting the region, including sustainable development, trade, and security. Before the countries existed, the Forum was formed of three island groupings from the North and South Pacific: Polynesia, Melanesia, and Micronesia. Both Polynesia and Melanesia are considered South Pacific islands while Micronesia belongs to the North Pacific. This exit occurred as a result of the Forum selecting a non-Micronesian President (former Cook Islands Prime Minister Henry Puna), despite there being an unspoken arrangement that the Forum’s Presidency should rotate between the three state groupings. This time around, it was Micronesia’s turn to hold the presidency, so the eventual selection of a president from Polynesia was received as an affront to the Micronesian states. Palau, in keeping with its reputation as a small but vocal and principled state, was the first to leave the Forum. The country considered the Forum president selection procedure to be the final straw. Palau felt that they have too long been marginalized within the regional body. The lack of in-person meetings as the result of the COVID-19 pandemic made the breakdown of the Forum more inevitable. The defections of these states, which together comprise one of the three regional groups in the Forum, fundamentally change the Forum’s composition and therefore its relations with other countries, such as China. This split also means that Tuvalu is now the only country in the Forum that recognizes Taiwan. This leaves the tiny country open to large levels of pressure from China to change its policy. If the five “defecting” countries were to form their forum, three out of five would recognize Taiwan, and therefore they might be able to encourage the other two countries to do the same. Crucially, such a new grouping would give the US greater power to mold these countries, no longer needing to take into account leading forces of Australia and New Zealand or generally more issues related to South Pacific politics. This potential new dynamic could even lead China to “abandon” Micronesian countries as a target and instead channel even more focus into South Pacific states.


This proposition put to the US by Palau to create bases there is not the only development of note. In October 2020, the US, Australia, and Japan announced the funding of a USD 30 million project to build an internet cable to Palau to improve internet connectivity.[21] The first such project of its kind in Palau, it represents an alternative to relying on Chinese BRI projects. The US has also begun building a USD 200 million radar facility on the islands, but this has been paused due to COVID-19.[22] Although Australia finally established a diplomatic post in Palau in February 2020 and is concerned about Chinese influence in the Pacific region, they are much less active in the North Pacific where Palau is located, and even more so since the February 2020 breakdown of the Pacific Islands Forum. Palau feels particularly betrayed by Australia as a result of its failure to honor the informal pledge to install a Micronesian president to the Forum in 2021. In addition, Australia's position on climate change clashes somewhat with Palau’s. It is important to keep in mind that of the country’s two main domestic issues - an economy overly reliant on tourism and climate change - the latter has the priority.


Despite having a narrow economic base, a remote location, infrastructure constraints, a tiny population, and high exposure to negative climate change impacts, Palau is part of a significant defense geographical landscape for the US. The US is likely to take up this offer because Palau is located centrally within a maritime region in which it is attempting to become less reliant on some of its current larger bases in the region, namely Japan and Guam. Although the US administration has changed, the previous administration had already expressed commitment towards an increased presence in Palau. Diversification of their military presence in the Indo-Pacific is necessary, and stationing in Palau would be an example of this. Furthermore, if war were ever to break out in the South China Sea, Palau would form part of a vital line of defense. Control of Palau provides the US access within and through the surrounding maritime area.


The geostrategic focus of the US has largely been elsewhere in the region in recent years. This is despite there being several reasons that would encourage increased US engagement in Palau and the other Pacific island states. However, with this strong message sent by both the former and current Palau president, there is a good chance that US President Biden’s administration may respond positively. The US has little to lose in deciding to support an ally and further secure their presence in this traditionally neglected, but vital, region of the Pacific. The Counterterrorism Group’s PACOM team will continue to monitor the developments regarding US presence in Palau and any potential reaction from China. Please contact us for further assistance.

_______________________________________________________________________ The Counterterrorism Group (CTG)

[1]Surangel Whipps Jr., the 10th President of Palau, led a delegation to visit the Republic of China on March 30, 2021“ by Cypp0847, licenced under Creative Commons Attribution 2.0 Generic

[2] Palau 'would welcome British aircraft carrier' to counter China's reach in Pacific says president, The Daily Telegraph, April 2021, https://www.telegraph.co.uk/news/2021/04/12/palau-would-welcome-british-aircraft-carrier-counter-chinas/

[3] Tiny Palau in not-so-pacific middle of US and China, Asia Times, May 2021, https://asiatimes.com/2021/05/tiny-palau-in-not-so-pacific-middle-of-us-and-china/

[4] Ibid

[5] Ibid

[6] Ibid

[7] Palau seeks US bases to offset China’s influence, Asia Times, September 2020, https://asiatimes.com/2020/09/palau-seeks-us-bases-to-offset-chinas-growing-regional-clout/

[8] Tiny Pacific nation of Palau detains 'illegal' Chinese fishing vessel, The Guardian, December 2020, https://www.theguardian.com/world/2020/dec/15/pacific-nation-of-palau-detains-chinese-fishing-crew

[9] Taiwanese Foreign Minister uses Palau trip to warn China is 'forcing itself' into the Pacific, ABC News, January 2021, https://www.abc.net.au/news/2021-01-23/taiwanese-foreign-minister-joseph-wu-visits-palau-china/13084556

[10] Taiwanese Foreign Minister uses Palau trip to warn China is 'forcing itself' into the Pacific, ABC News, January 2021, https://www.abc.net.au/news/2021-01-23/taiwanese-foreign-minister-joseph-wu-visits-palau-china/13084556

[11] Ibid

[12] Taiwan fears China's authoritarian threat in the Pacific after losing two diplomatic allies, ABC News, October 2019, https://www.abc.net.au/news/2019-10-08/taiwan-says-china-poses-authoritarian-threat-in-the-pacific/11581682

[13] Palau’s new president pledges to stand with Taiwan, US against ‘bully’ China, Taipei Times, January 2021, https://www.taipeitimes.com/News/world/archives/2021/01/20/2003750909

[14] Palau president visits Taiwan to open travel bubble, France 24, March 2021, https://www.france24.com/en/live-news/20210328-palau-president-visits-taiwan-to-open-travel-bubble

[15] Compacts of Free Association, U.S. Department of the Interior, https://www.doi.gov/oia/compacts-of-free-association

[16] America’s Pacific Island Allies: The Freely Associated States and Chinese Influence, 2019, https://www.rand.org/pubs/research_reports/RR2973.html

[17] China and the Philippines' tense stand-off over Scarborough Shoal leaves fishermen in fear, ABC News, May 2021, https://www.abc.net.au/news/2021-05-26/china-philippines-stand-off-over-scarborough-shoal/100145586

[18] China’s Reach Tests the Pacific’s Fragile Island Democracies, Foreign Policy, January 2020, https://foreignpolicy.com/2020/01/07/chinas-reach-tests-the-pacifics-fragile-island-democracies/

[19] Pentagon pushes for Pacific missile defence site to counter China's threat to the US, ABC News, March 2021, https://www.abc.net.au/news/2021-03-19/united-states-pentagon-missile-defence-guam-counter-china/100015900

[20] Ibid

[21] Australia, Japan, U.S. to fund cable for Pacific island of Palau, Reuters, October 2020, https://www.reuters.com/article/palau-cable-australia-int-idUSKBN27D0FK

[22] Palau seeks US bases to offset China’s influence, Asia Times, September 2020, https://asiatimes.com/2020/09/palau-seeks-us-bases-to-offset-chinas-growing-regional-clout/

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