SUBCHAPTER II
General Rules Allocation
of Government Responsibilities
SECTIONS
§ 204. Requirement that a foreign investor obtain a Foreign Investment Permit.
§ 205. Categories of economic sectors.
§ 206. Responsibilities of the National and State Governments regarding foreign investment.
A noncitizen may not conduct any activity in the FSM that amounts to “engaging in business”, as defined in section 203 of this chapter, unless that noncitizen holds a currently valid Foreign Investment Permit authorizing that noncitizen to conduct that activity, except as provided in section 419 of chapter 4 of title 55 of this code.
Source: PL 10-49 § 7; PL 14-48 § 2.
Cross-reference: Title 55 of this code is on Government Finance and Contracts. Section 419 of chapter 4 (Government Contracts) of title 55 of this code is on Implementation of Infrastructure Development Plan.
Case annotation: A noncitizen cannot engage in business in the FSM unless that noncitizen holds a valid foreign investment permit. A "noncitizen" is any business entity in which any ownership interest is held by a person who is not a citizen of the FSM. Geoffrey Hughes (Export) Pty, Ltd. v. America Ducksan Co., 12 FSM R. 413, 414-15 (Chk. 2004).
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 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”) —the set of economic sectors that are closed to foreign investment anywhere in the FSM. Economic sectors in the National 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 List.
(b) Category B (“National Amber List”) —the 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 Amber List include the following:
(i) banking, other than as defined in title 29 of this code; and
(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.
(c) Category C (“National Green List”) —the 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 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) 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 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.
(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 may be required to meet those same character criteria in order to obtain or retain that substantial ownership interest.
Source: PL 10-49 § 9; PL 14-32 § 2.
Case annotations: The Foreign Investment Act regulates the operation of noncitizen business within the Federated States of Micronesia, not individual investors. 32 F.S.M.C. §§ 203(2) and 204 have no application to acquisitions of interests in a business operating in the Federated States of Micronesia with a national foreign investment permit. Michelsen v. FSM, 3 FSM R. 416, 426 (Pon. 1988).
The Foreign Investment Act of 1997 establishes a system of Categories of economic sectors for the purposes of implementing the FSM policy to welcome foreign investment in all sectors of the FSM economy. Three of these categories are made up of economic sectors that are of special national significance and therefore fall within the national government’s jurisdiction in respect of foreign investment regulation. The first is the National Red List. No foreign investment is permitted in the activities specified on this list, which includes the minting of money and arms manufacture. The second is the National Amber List. Banking (other than as defined in Title 29 of the FSM Code) and insurance are included on this list. Certain criteria specified in the FSM Foreign Investment Regulations must be met before investment is permitted in these areas. A third category of activities that fall within the jurisdiction of the national government appear on the National Green List. Helicopter Aerial Survey Pty., Ltd. v. Pohnpei, 15 FSM R. 329, 333-34 (Pon. 2007).
Foreign investment Category C (National Green List) comprises the 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. It includes banking, as defined in title 29 of the FSM Code; telecommunications; fishing in the FSM’s Exclusive Economic Zone; international and interstate air transport; international shipping; and such other economic sectors as the Secretary may, after consultation with States, designate in the FSM Foreign Investment Regulations as being on the National Green List. Helicopter Aerial Survey Pty., Ltd. v. Pohnpei, 15 FSM R. 329, 334 (Pon. 2007).
In contrast to the three areas subject to national regulation, economic sectors that are not of special national significance are delegated to the jurisdiction of the state governments in respect of foreign investment regulation, which are to be established separately by each state, except that an economic sector included in any of the categories for national regulation cannot appear in any of the categories for state regulation. Helicopter Aerial Survey Pty., Ltd. v. Pohnpei, 15 FSM R. 329, 334 (Pon. 2007).
(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 List), Category B (National Amber List), and Category C (National Green List).
(b) determining what criteria, if any, shall be specified for foreign investments in Category B (National Amber List) economic sectors.
(c) the issuance of FSM Foreign Investment Permits in respect of Category B and Category C 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.
(2) The National Government shall meet regularly, at least once every two years, with authorities designated by the Governments of the States to review sectoral developments 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.
(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.
(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.
(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.
Source: PL 10-49 § 10.
Cross-reference: The statutory provisions on the President and the Executive are found in title 2 of this code. The statutory provisions on the Congress of the Federated States of Micronesia are found in title 3 of this code.
The website of the FSM National Government contains announcements, press releases, news, forms, and other information on the National Government at http://fsmgov.org.
The official website of the Congress of the Federated States of Micronesia contains the public laws enacted by the Congress, sessions, committee hearings, rules, and other Congressional information at http://www.fsmcongress.fm/.
Case annotations: The following case annotations that interpreted provisions of the previous Foreign Investment Act have been retained below for reference purposes.
Based on the language and legislative history of the FSM Foreign Investment Act, 32 F.S.M.C. 201-232, and on that law’s similarity to its Trust Territory predecessor, there is no indication that Congress intended the Foreign Investment Act to apply to the provision of legal services. Carlos v. FSM, 4 FSM R. 17, 28-29 (App. 1989) (Following this decision, the FSM Congress amended 32 F.S.M.C. 203 and 210(8) to specifically include legal services).
Since Congress did not give any consideration to, or make any mention of, the services enumerated in art. XIII, § 1 of the FSM Constitution in enacting Foreign Investment Act, 32 F.S.M.C. 201-232, the avoidance of potential conflict with Constitution calls for conclusion that Congress did not intend the Foreign Investment Act to apply to noncitizen attorneys or to any other persons who provide services of the kind described in art. XIII, § 1 of the Constitution. Carlos v. FSM, 4 FSM R. 17, 30 (App. 1989) (Following this decision, the FSM Congress amended 32 F.S.M.C. 203 and 210(8) to specifically include legal services).
By statute the practice of law is specifically included in businesses engaged in by noncitizens requiring a foreign investment permit. 32 F.S.M.C. 203. Michelsen v. FSM, 5 FSM R. 249, 254 (App. 1991).
The Foreign Investment Act does not explicitly limit judicial review therefore an aggrieved person affected by an agency decision may seek review under the Administrative Procedures Act. Michelsen v. FSM, 5 FSM R. 249, 254 (App. 1991).
The scheme of national, constitutionally-authorized foreign investment legislation is so pervasive there is no room for state to supplement it. Non-FSM citizen attorneys and their private practice of law are expressly subjected to the national legislative scheme. Insofar as attorneys who are engaged in the private practice of law and whose business activities are within the scope of the nat’l FIA, the state FIA is invalid. Berman v. Pohnpei, 5 FSM R. 303, 306 (Pon. 1992).
An isolated interest-free unsecured loan is not engaging in business within the meaning of the Pohnpei State Foreign Investment law. Kihara v. Nanpei, 5 FSM R. 342, 345 (Pon. 1992).