Palau is an archipelago in the Western Pacific including more than 200 islands stretching over 650 km. Only eight of the islands are permanently inhabited, the largest of which is Babeldoab.

The population of around 20,000 enjoys a relatively high per capita income compared with other Pacific island states. The economy mostly comprises fishing, subsistence agriculture and tourism. Long-term prospects for the latter have been greatly bolstered by factors such as the expansion of air travel in the Pacific and the rising prosperity of East Asian countries.

Nonetheless, Palau faces several development challenges common to the smaller island-states of the region: its small size and population; isolation, exacerbated by poor communications infrastructure; lifestyle diseases like obesity and heart disease; and vulnerability to natural disasters.

Considered a biodiversity “hotspot” by the Biodiversity Convention, Palau has a unique ecosystem. But there are several areas of environmental concern, including: illegal fishing using dynamite, inadequate facilities disposing of solid waste in Koror, and sand and coral dredging in the Palau lagoon. In addition, a potential major environmental threat is global warming and the related rising of the sea level.

In 2005, the President of Palau took the lead on a regional environmental initiative called the Micronesia challenge, which aims to conserve 30% of near-shore coastal waters and 20% of forest land by 2020. The initiative was joined by the Federated States of Micronesia, Marshall Islands, Guam and Northern Mariana Islands.

Key issues in EU-Palau relations

Under the 10^th European Development Fund (EDF), the EU and Palau signed a new Country Strategy Paper for 2008–13 in October 2007, with a budget of € 2.9 M.

The EU’s partnership with Palau has historically focused on addressing the basic energy needs of the population. Under the 10^th EDF, the strategy once again focuses on the water and energy sector, specifically renewable energy. Energy generation through renewable sources will help diversify the resource base of the economy, improve energy supply security and strengthen the balance of payments position.

In addition, a Technical Cooperation Facility will be established to fund necessary local or regional technical assistance.