Source document: https://docs-lawep.s3.us-east-2.amazonaws.com/1698745303091.pdf (Micronesia, Federated States of)
TWENTY-FIRST CONGRESS OF THE FEDERATED STATES OF MICRONESIA FIRST REGULAR SESSION, 2019 C.B.

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21-10 A BILL FOR AN ACT To further 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 to achieve the stated purposes, by amending sections 202, 205, 206, and 208, and by inserting a new section 202A to title 32 of the Code of the Federated States of Micronesia (Annotated), 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 2 economic self-sufficiency through sustainable economic growth, it 3 is deemed in the best interest of the FSM to create an open and 4 friendly investment environment within which the private sector 5 will be able to freely conduct business and be guaranteed fair 6 competition and investor protection.
Foreign investment plays an 7 important role [of foreign investment] in the economic development 8 of the nation and the states.

However, [this] inadequate business 9 climate [and performance] perpetuates a negative impact that is 10 not only counterproductive but also inimical to the interest of 11 the nation and its people.
Some of the perceived reasons for the 12 poor foreign investment performance in the Federated States of 13 Micronesia are the complicated and oftentimes conflicting 14 requirements of foreign investment set out in the national and 15 state laws.

While efforts have been undertaken to encourage 16 foreign investment, little has been achieved so far because of the 17 fundamental weaknesses arising from the national and state foreign CBL 21-09/PC #21-07 C.B.

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21-10 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: 5 (a) National government recognizes the role of foreign 6 investment in the economic development of the nation and the 7 states.

8 (b) Priorities of foreign investments shall align with the 9 goals and objectives of national development plan.
10 (c) Procedures in processing foreign investment applications 11 shall start at the national government and endorsed to the 12 relevant state government to facilitate the commencement of 13 business operation.

14 (d) Foreign investment is to be encouraged in accordance with 15 transparent, fair, and consistent rules based on international 16 best practices.
17 (e) The national government recognizes the potential 18 contribution of foreign investment towards creating jobs for 19 Micronesians, efficient utilization of resources, and increased 20 public revenue.

21 (f) Foreign investment is subject to providing development 22 training and capacity building of domestic labor force, technology 23 transfer, and incentive on apprenticeship.

24 Section 2.
24 Section 2.

Section 202 of chapter 2 subchapter I of title 32 25 of the Code of the Federated States of Micronesia (Annotated) is 2 of 14 C.B.

NO.

21-10 1 hereby amended to read as follows: “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.

Chapter 2 subchapter I of title 32 of the Code of 24 the Federated States of Micronesia (Annotated) is hereby amended 25 by inserting new section 202A, following section 202, to read as 3 of 14 C.B.

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21-10 1 follows: “Section 202A.

National preemption.

(a) Except as 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 chapter 2 subchapter II of title 20 32 of the Code of the Federated States of Micronesia (Annotated), 21 is hereby amended to read as follows: 22 23 24 25 “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 4 of 14 C.B.

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21-10 all sectors of the FSM economy, insofar as such foreign 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) National Prohibited Category [Category A (“National Red List”)] The following set of economic sectors that are [closed] prohibited to foreign and domestic investment anywhere in the FSM.
Economic sectors in the National Prohibited Category [Red] 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) National Restricted Category B (“National 5 of 14 C.B.

NO.

21-10 Amber List”)— The following set of economic sectors that are subject to National Government regulation and as to which certain criteria specified in the FSM Foreign Investment Regulations must be met.
Economic Sectors on the National Restricted Amber Category 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 Restricted Category 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.
6 of 14 C.B.

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21-10 [Category C (“National Green List”)— The following set of economic sectors that are subject to National Government regulation 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 Investment Category List include the following:] (i) banking, as defined in title 29 of this code; Zone; (ii) telecommunications; (iii) fishing in the FSM's Exclusive Economic (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 Investment Category List.
(2) National Reserved Category [Categories for State Regulation— Economic sectors that are not of special national significance and therefore are delegated to the jurisdiction of the State Governments in respect of foreign investment regulation.

These Categories are to 7 of 14 C.B.

NO.

21-10 be established separately by each State, by means of the State Foreign Investment Regulations in each State.
An economic sector included in any of the Categories for National Regulation pursuant to subsection (1) of this section shall not appear in any of the Categories for State Regulation.]
Economic sectors under National Reserved Category shall be developed in consultation with the States following the effective date of this act to be incorporated into the National Foreign Investment Regulations for the purpose of safeguarding the interests of local businesses and reserving business opportunities for the citizens, and to effectively facilitate review, screening, and issuance of permit by the National Foreign Investment Single Window.
(3) Notwithstanding anything to the contrary in subsection (1) of this section, and regardless of the economic category 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 as 8 of 14 C.B.
NO.

21-10 1 2 3 4 established by law may be required to meet those same character criteria in order to obtain or retain that substantial ownership interest.

Section 5.

Section 206 of chapter 2 subchapter II of title 32 5 of the Code of the Federated States of Micronesia (Annotated) is 6 hereby amended to read as follows: “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) of this section, 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] 9 of 14 C.B.

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21-10 National Restricted Category List, National Green Investment List, and National Reserved Category economic sectors, and in general for the administration of foreign 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 [consult] meet regularly, at least once every two years, [with authorities designated by the Governments of the States] to review sectoral developments priorities and to formulate policy recommendations in order to improve the implementation of this chapter.
[to discuss proposals to add economic sectors to, or remove them from, Category A (National Red List), Category B 10 of 14 C.B.

NO.

21-10 (National Amber List), or Category C (National Green List) under section 205(1) of this chapter.
(3) The Government of each individual State shall be 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 11 of 14 C.B.

NO.

21-10 subject to the provisions of this law and FSM Foreign Regulations.
[rules and jurisdiction applicable to each such Category as described in this section and elsewhere in this chapter.

(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 chapter 2 subchapter II of title 32 21 of the Code of the Federated States of Micronesia (Annotated), is 22 hereby repealed in its entirety.

23 24 25 “Section 208.


Transition [Application procedures for State Foreign Investment Permits.

An application for a State Foreign Investment Permit 12 of 14 C.B.

NO.

21-10 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 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].” 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 13 of 14 C.B.
NO.

21-10 able to continue to engage in business.

Failing to apply for permit or to qualify for 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 7 President of the Federated States of Micronesia or upon its 8 becoming law without such approval.
9 10 Date: 5/22/19 Introduced by: /s/ Florencio S. Harper Florencio S. Harper (by request) 14 of 14