Source document: https://docs-lawep.s3.us-east-2.amazonaws.com/1698745293484.pdf (Micronesia, Federated States of)
TWENTIETH CONGRESS OF THE FEDERATED STATES OF MICRONESIA FOURTH REGULAR SESSION, MAY 2018 C.B.

NO.
20-192 ______________________________________________________________________ ______________________________________________________________________ A BILL FOR AN ACT To amend sections 202, 205, 206 and 208 and to insert a new section 202A of title 32 of the Code of the Federated States of Micronesia (Annotated), to amend the Foreign Investment Act of 1997, as amended, to streamline the review and screening of foreign investment applications and issuance of permits by creating a National Foreign Investment Single Window, and by providing for a transitional clause, and for other purposes.
BE IT ENACTED BY THE CONGRESS OF THE FEDERATED STATES OF MICRONESIA: 1 Section 1.

Statement of Policy.

In order to achieve economic 2 self-sufficiency through sustainable economic growth, it is deemed 3 in the best interest of the FSM to create an open and friendly 4 investment environment within which the private sector will be able 5 to freely conduct business and be guaranteed fair competition and 6 investor protection.
Foreign investment plays an important role in 7 the economic development of the nation and the states.

However, 8 inadequate business climate perpetuates a negative impact that is 9 not only counterproductive but also inimical to the interest of the 10 nation and its people.
Some of the perceived reasons for the poor 11 foreign investment performance in the Federated States of 12 Micronesia are the complicated and oftentimes conflicting 13 requirements of foreign investment set out in the national and 14 state laws.
While efforts have been undertaken to encourage foreign 15 investment, little has been achieved so far because of the 16 fundamental weaknesses arising from the national and state foreign CBL 20-212/PC#20-224 ______________________________________________________________________ ______________________________________________________________________ C.B.

NO.

20-192 1 investment legislations lacking in harmony.
Therefore, it is the 2 policy of the national government to streamline and centralize the 3 regulation of foreign investment with a view towards achieving the 4 following objectives and principles: (a) National government recognizes the role of foreign investment in the economic development of the nation and the states.

(b) Priorities of foreign investments shall align with the goals and objectives of national development plan.
(c) Procedures in processing foreign investment applications shall start at the national government and endorsed to the relevant state government to facilitate the commencement of business operation.

(d) Foreign investment is to be encouraged in accordance with transparent, fair, and consistent rules based on international best practices.
(e) The national government recognizes the potential contribution of foreign investment towards creating jobs for Micronesians, efficient utilization of resources, and increased public revenue.

(f) Foreign investment is subject to providing development training and capacity building of domestic labor force, technology transfer, and incentive on apprenticeship.

Section 2.
Section 2.

Section 202 of title 32 of the Code of the 2 of 14 ______________________________________________________________________ ______________________________________________________________________ 1 Federated States of Micronesia (Annotated), is hereby amended to 2 read as follows: C.B.

NO.

20-192 “Section 202.

Purpose of this chapter.


(a) The purpose of this chapter is to encourage responsible foreign investment and openness to entering into partnership with domestic investors within the territory of the FSM in a manner that serves the economic, social, and cultural interests of its citizens.

This purpose shall be borne in mind in the implementation and interpretation of the provisions of this chapter.
(b) In achieving the purpose stated in subsection (a), Congress intends uniform application and interpretation of the law and in the procedures adopted to give effect to the law in order to minimize differentiated treatment of investors, uncoordinated policy application, and potential discrimination among prospective investors.
(c) In adopting this act, Congress intends to exercise its expressly delegated powers to regulate banking, foreign and interstate commerce and the interplay of related powers enumerated in section 2 Article IX of the Constitution.” Section 3.

Title 32 of the Code of the Federated States of 22 Micronesia (Annotated), is hereby amended by inserting a new 23 section 202A to read as follows: 24 “Section 202A.

National preemption.


(a) Except as 3 of 14 ______________________________________________________________________ ______________________________________________________________________ C.B.

NO.

20-192 provided in subsection (b) of this section, the provisions of this act shall supersede any and all State laws insofar as they may now or hereafter relate to foreign investment regulation.

This section shall take effect immediately.


(b) Construction and interpretation.

(1) This section shall not apply with respect to any cause of action, which arose, or any act or omission, which occurred, before the effective date of this act.

(2) Nothing in this act shall be construed to exempt or relieve any person with foreign investment or employees from any state or municipal law with respect to state and municipal fees or taxes, if applicable.
(3) Nothing in this act shall be construed as negating the authority of the states to require health and environmental standards and measures, provided, that, they are uniformly applied to foreign and domestic businesses.” Section 4.

Section 205 of title 32 of the Code of the 18 Federated States of Micronesia (Annotated), is hereby amended to 19 read as follows: “Section 205.

Categories of economic sectors.


The following system of Categories of economic sectors is hereby established for the purpose of implementing the policy of the FSM to welcome foreign investment in all sectors of the FSM economy, insofar as such foreign 4 of 14 ______________________________________________________________________ ______________________________________________________________________ C.B.

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20-192 investment is consistent with the economic, social, and cultural well-being of its citizens: (1) Categories for National Regulation - economic sectors that are of special national significance and therefore fall within the jurisdiction of the National Government in respect of foreign investment regulation.
These Categories are the following: (a) [Category A (“National Red List”)-]National Prohibited Category - The following set of economic sectors that are [closed] prohibited to foreign and domestic investment anywhere in the FSM.
Economic sectors in the National Red Prohibited Category List are the following: (i) arms manufacture; (ii) the minting of coins or printing of notes for use as currency; (iii) business activities relating to nuclear power or radioactivity; and (iv) such other economic sectors as the Secretary may, after consultation with States pursuant to section 206(2) of this chapter, designate in the FSM Foreign Investment Regulations as being on the National [Red] Prohibited Category List.
[(b) Category B (“National Amber List”)— The set of economic sectors that are subject to National Government 5 of 14 ______________________________________________________________________ ______________________________________________________________________ C.B.

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20-192 regulation and as to which certain criteria specified in the FSM Foreign Investment Regulations must be met.
Economic Sectors on the National Amber List include the following: (i) banking, other than as defined in title 29 of this code; (ii) insurance; and (iii) such other economic sectors as the Secretary may, after consultation with States pursuant to section 206(2) of this chapter, designate in the FSM Foreign Investment Regulations as being on the National Amber List.]
(b) National Restricted Category The economic sectors under this category shall be identified by the Department and made part of the National Foreign Investment Regulations subject to specified criteria on how they must be met.

(c) National Green Investment Category The economic sectors under this category shall be identified by the Department and made part of the National Foreign Investment Regulations subject to specified criteria on how they must be met.
[Category C (“National Green List”)— The set of economic sectors that are subject to National Government regulation 6 of 14 ______________________________________________________________________ ______________________________________________________________________ C.B.

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20-192 but as to which no special criteria need to be met before a Foreign Investment Permit is to be issued.
Economic sectors on the National Green List include the following: (i) banking, as defined in title 29 of this code; (ii) telecommunications; (iii)fishing in the FSM's Exclusive Economic Zone; (iv) international and interstate air transport; (v) international shipping; and (vi) such other economic sectors as the Secretary may, after consultation with States pursuant to section 206(2) of this chapter, designate in the FSM Foreign Investment Regulations as being on the National Green List.]
[(2)](d) National Reserved Category [Categories for State 15 Regulation— Economic sectors that are not of special national 16 significance and therefore are delegated to the jurisdiction of 17 the State Governments in respect of foreign investment 18 regulation.

These Categories are to be established separately by 19 each State, by means of the State Foreign Investment Regulations 20 in each State.
An economic sector included in any of the 21 Categories for National Regulation pursuant to subsection (1) 22 above shall not appear in any of the Categories for State 23 Regulation.

In the absence of State foreign investment 24 legislation, the National government will continue to regulate 7 of 14 ______________________________________________________________________ ______________________________________________________________________ C.B.

NO.
NO.

20-192 1 foreign investment in that State pursuant to provisions of the 2 FSM Foreign Investment Act superseded by this act.]
3 Economic sectors under National Reserved Category shall be 4 developed in consultation with the States following the 5 effective date of this act to be incorporated into the National 6 Foreign Investment Regulations for the purpose of safeguarding 7 the interests of local businesses and reserving business 8 opportunities for the citizens, and to effectively facilitate 9 review, screening, and issuance of permit by the National 10 Foreign Investment Single Window.
11 [(3)](2) notwithstanding anything to the contrary in subsection 12 (1) of this section, and regardless of the economic category 13 involved: (a) every applicant for or holder of an FSM Foreign Investment Permit may be required to meet such character criteria as may be specified in the FSM Foreign Investment Regulations in order to obtain or retain an FSM Foreign Investment Permit; and (b) every present or future holder of a substantial ownership interest in an applicant for or holder of an FSM Foreign Investment Permit may be required to meet those same character criteria in order to obtain or retain that substantial ownership interest.
Section 5.

Section 206 of title 32 of the Code of the 8 of 14 ______________________________________________________________________ ______________________________________________________________________ 1 Federated States of Micronesia (Annotated), is hereby amended to 2 read as follows: C.B.

NO.

20-192 “Section 206.

Responsibilities of the National and State Governments regarding foreign investment.
(1) The National Government of the FSM shall be responsible, at the initiative of the Secretary, for: (a) determining, after consultation with the States as required under subsection (2) below, which economic sectors, in addition to those enumerated in section 205(1) of this chapter, shall be designated for inclusion in [Category A (]National Red Prohibited Category List), [Category B (]National Amber Restricted Category List[), and Category C (]National Green Investment List[).
], and National Reserved Category.

(b) determining what criteria, if any, shall be specified for foreign investments in [Category B (]National [Amber] Restricted Category List) economic sectors.
(c) the issuance of FSM Foreign Investment Permits in respect of [Category B and Category C] National Restricted Category List, National Green Investment List, and National Reserved Category economic sectors, and in general for the administration of foreign 9 of 14 ______________________________________________________________________ ______________________________________________________________________ C.B.

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20-192 investment rules established by this act or by the FSM Foreign Investment Regulations.

(d) promulgating such FSM Foreign Investment Regulations as may be necessary for the effective and efficient discharge of the responsibilities enumerated in this subsection and in general for the proper administration of this chapter.
(e) Develop and execute a national and state monitoring system between designated National and State agencies responsible for monitoring foreign investment to ensure that investors comply with their foreign investment permits and commitments to support the FSM economic development priorities.
(2) The National Government and the state governments or their designated agencies or authorities shall meet regularly, at least once every two years, [with authorities designated by the Governments of the States] to review sectoral developments priorities and [to discuss proposals to add economic sectors to, or remove them from, Category A (National Red List), Category B (National Amber List), or Category C (National Green List) under section 205(1) of this chapter.]
to formulate policy recommendations in order to improve the implementation of this chapter.

[(3) The Government of each individual State shall be 10 of 14 ______________________________________________________________________ ______________________________________________________________________ C.B.

NO.
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20-192 responsible for the regulation of foreign investment, including the issuance of State Foreign Investment Permits, in respect of foreign investment taking place or proposed to take place within the territory of that State in all economic sectors other than those designated for inclusion in Categories A, B, or C pursuant to section 205(1) of this chapter.
(4) If any foreign investment of a type described in subsection (3) of this section takes place or is proposed to take place within the territories of more than one State, each of those States shall have authority to regulate such foreign investment within its own territory.

(5) Action taken by the Government of a State under subsections (3) and (4) of this section shall be consistent with the provisions of this chapter and the FSM Foreign Investment Regulations.]
(3) [(6)] If any foreign investment or proposed foreign investment involves more than one economic sector, and those economic sectors are designated for inclusion in more than one Category pursuant to section 205 of this chapter, such investment or proposed investment shall be subject to the [rules and jurisdiction applicable to each such Category as described in this section and elsewhere in this chapter.]
provisions of this law and FSM Foreign Investment 11 of 14 ______________________________________________________________________ ______________________________________________________________________ C.B.

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20-192 Regulations.
[(7) The Department shall, upon request, offer assistance: (a) to States in the areas of foreign investment policy and promotion, under terms to be specified in the FSM Foreign Investment Regulations; and (b) to foreign investors with investments taking place or proposed to take place within the territory of more than one State, under terms and guidelines agreed with the concerned States.
(8) In the absence of State Foreign Investment Legislation, the National Government will continue to regulate foreign investment in that State pursuant to provisions of the Foreign Investment Regulations which shall be substantially the same as the Foreign Investment Act which is superseded by this Act.

]” Section 6.

Section 208 of title 32 of the Code of the 17 Federated States of Micronesia (Annotated), is hereby amended to 18 read as follow: “Section 208.
[Application procedures for State Foreign Investment Permits.

An application for a State Foreign Investment Permit shall be made in accordance with the provisions of State Foreign Investment Legislation and State Foreign Investment Regulations.

In the interest of coordination and reducing 12 of 14 ______________________________________________________________________ ______________________________________________________________________ C.B.

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20-192 administrative burdens on foreign investors, such provisions should: (1) establish rules and procedures consistent with the provisions of this chapter and with the provisions of the FSM Foreign Investment Regulations; (2) direct the responsible State authorities to make available to the Department copies of the application forms for State Foreign Investment Permits, together with such other materials and information necessary for the Department to assist prospective foreign investors; (3) direct the responsible State authorities to forward to the Secretary any application for an FSM Foreign Investment Permit, or any information submitted in support of such an application; and (4) direct the responsible State authorities to forward to the Department a copy of any State Foreign Investment Permit issued by those authorities].” Transition.
Within one year from the effective date of this act, holder of existing foreign investment permit issued by state authority is required to apply for a foreign investment permit and to qualify for issuance of foreign investment permit in accordance with this chapter to be able to continue to engage in business.
Failing to apply for permit or to qualify for 13 of 14 ______________________________________________________________________ ______________________________________________________________________ C.B.

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20-192 1 2 3 4 issuance of permit will result in the immediate discontinuance of business.

During the one-year period, state authority shall refrain from issuing any new foreign investment permit.” Section 7.
This act shall become law upon approval by the 5 President of the Federated States of Micronesia or upon its 6 becoming law without such approval.

7 8 Date: 5/17/18 Introduced by: /s/ Florencio S. Harper Florencio S. Harper (by request) 14 of 14