The 1994 Compact of Free Association with the USA made Palau a democratic republic, and guarantees not only a diplomatic and economic relationship (they use the U.S. dollar) but also its defense by American troops. The Republic of Palau is among the youngest and smallest nations in the world, it is located in the vast, strategic region of the Pacific, and remains committed to keeping its borders secure. The Republic of Palau has flourished as a thriving democracy that respects human rights, upholds the rule of law, and takes a leadership role on many environmental issues.
Palau is the same size as the State of Texas in terms of their EEZs. Palau had only 20,000 population, but the EEZ is one reason why these islands are so important. Palau holds a strategic position in the western Pacific as part of the so-called Second Island Chain. The Compact of Free Association provides the United States the critical right of strategic denial foreclosing access to Palau by military forces and personnel of any nation except the United States.
The first island chain is the island chain closest to mainland Asia. Second island chain is the one moving eastward, further out in the Pacific. Palau is part of that second island chain. Today China is securing resources around the globe. But the physical characteristics of the Pacific Ocean have not changed. It will be used by China the same way that the Japanese used it 60 years ago, as a way to bring resources back to the homeland. And China is very concerned about that. The Chinese look at those lines as ways of stopping them from getting the resources around the world that they are purchasing back to mainland China. And they are very, very concerned about that. Palau is one of just four remaining Pacific nations that recognise Taiwan, after Solomon Islands and Kiribati switched diplomatic recognition to Beijing in 2019.
Tourism accounts for more than 40% of the country’s GDP, and since November 2017, the Chinese government has banned tour operators in that country selling package tours to Palau, with the stroke of a pen knocking out a huge and growing proportion of the tourist market.
General MacArthur's address to a joint session of Congress in April 1951, said, "A vast moat to protect us as long as we hold it . . . [a] protective shield for all of the Americas and all of the free lands of the Pacific Ocean area, a chain of islands extending in an arc from the Aleutians to the Marianas held by us and our free allies, from this island chain, we can . . . prevent any hostile movement into the Pacific."
Health facilities in Palau are adequate for routine medical care, but the availability and quality of services are limited. Doctors and hospitals may request cash payment at the time of service. Serious medical conditions requiring hospitalizations or evacuation to the United States or elsewhere may cost tens of thousands of dollars. The Belau National Hospital will accept payment by cash, credit or debit card, while private clinics may require cash payment.
Palau is vulnerable to tropical cyclones and floods. Although the crime rate in Palau is relatively low, visitors might be the target of petty and sometimes violent crime as well as other random acts against individuals and property.
Many roads in Koror, where the vast majority of the population lives, are in fair condition but have no sidewalks and little or no shoulder on the side of the road. The roadway known as the “Compact Road” that loops around the large island of Babeldaob is in fairly good condition. Secondary roads connecting villages to the Compact Road vary in quality from good to rough. Drunken drivers are a late-night hazard in Palau.
Palau gained its independence and established diplomatic relations with the United States in 1994, with the entry into force of the Compact, under which the U.S. remains responsible for Palau's defense until 2044. Palau is a sovereign nation and conducts its own foreign relations. The United States and Palau cooperate on a broad range of issues, including strengthening regional security, promoting sustainable development and addressing climate change, and protecting fisheries and the environment. Approximately 500 Palauans serve as volunteers in the U.S. armed forces, and Palau also has one of the highest levels of voting coincidence with the United States at the United Nations.
The United States and Palau signed the Compact Review Agreement in 2010, with a wide range of federal programs to continue until 2024. The United States also worked with Palau to establish the Compact Trust Fund to assist Palau in achieving healthy economic growth. As of July 2018, the value of the Compact Trust Fund was approximately $226,362,000.
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