believes will obviate many current problems caused by the annual budget process, which it claims disrupts effective economic planning. In their comments on this report, the governors of American Samoa and the Virgin Islands also supported the establishment of a long-term economic development and financial assistance agreement with the federal government. The general exemption from federal laws called for in the Compact is another potential area of interest to the territories. The application of federal laws is a major issue in the territories, (seé ch. 5.) and the fact that the FAS will be exempt from most federal laws has already raised some concerns. For example, Guam officials are concerned that because the FSM and the Marshall Islands will be exempt from U.S. immigration laws and its residents will have free access into the United States and its territories, an influx of immigrants to Guam might occur, causing economic and social problems. Guam offi- cials would like to control their own immigration laws, a right currently enjoyed by the NMI. If granted such authority, Guam could conceivably remedy any future possible immigration problems from the FAS. The exemption from federal laws may also give the MicroneSian states a competitive advantage because they will no longer face the same federal and regulatory constraints as the U.S. territories. For example, although the FAS already establish their own wage and tax laws, under the Compact they will be able to establish new investment and economic incentives to attract Asian and U.S. industries which could compete with the flag ter- ritories. access The FSM to the U.S. and the Marshall Islands market with the other U.S. will have territories. equal For example, with the removal of federal regulations and establish- ment of economic incentives, they could become more competitive with the tuna industry in American Samoa. CONCLUSION The Compact of Free Association represents a unique status arrangement between the United States and the Micronesian states of the FSM and the Marshall Islands. If approved, it will establish a political relationship markedly different than the relationship between the United States and its flag territories. Under the Compact, the FAS will enjoy their own sovereignty and, except for defense and security matters will be largely independent, self-governing bodies. The key provisions of the Compact--economic assistance, foreign affairs, and domestic authority--are likely to attract the interest of the flag territories because they address areas of current concern to them, We believe U.S. policymakers will face new challenges to result of the Compact. 5000228 improve U.S.-territory 21 relations as a