Pohnpei reforms Foreign Investment law

September 19, 2018

Pohnpei Legislature overrides governor’s veto of streamlined Foreign Investment law

 

Pohnpei (The Kaselehlie Press)— On Sept. 6, the Pohnpei State Legislature overrode Gov. Marcelo Peterson’s veto of a bill on Foreign Investment regulations.

 

 In so doing, the bill became State Law 9L-84-18 over the objection of several local business leaders who showed up at the legislative chambers to protest its enactment as well as the objections of the Governor contained in his veto and veto letter.

 

The Standing Committee on Resources and Development report on the initially submitted bill says that the purpose for it was to have a more simplified foreign investment law in place.

 

 It says that purpose is accomplished by deleting the provisions on the preferred joint venture sector and on the special investment sector of the previous law, and by dismantling the Discretionary Review Panel. Instead, the new law places all decision-making power that the Legislature has not already declared as unallowable into the hands of one person, the Registrar of Corporations.

 

The report says that the aim of those provisions is to do away with unnecessary delays in the review process of foreign investment applications. The report says that its first public committee hearing on the proposed bill was in 2016.

 

 One of those hearings was with the officers of the Pohnpei Chamber of Commerce and the Pohnpei Business Association. The report says that the witnesses at that hearing suggested that Pohnpei should only consider serious investors that would come in and help in developing the State’s economy as opposed to those who would come and snatch what little money circulates among consumers and businesses.

 

“They also expressed that a foreign investment policy needs to have clear guidelines before we rest all decision making under one authority, to provide direction to the implementers and be inclusive of the types of foreign investment that Pohnpei State needs,” the report said.

“The witnesses who appeared before the Committee asked the Committee to give this bill a meticulous review and then requested that they be accorded time to submit their written comments on the bill after an internal meeting amongst themselves and their other members. To date, the Committee never received any further inputs from these groups. Your Committee collectively agrees that the witnesses have been given ample time to meet and submit any comments.”

 

The report claimed that it sent out letters soliciting comments on the bill to the business community and to the local governments and that as of the date of the submission of the report on the bill hadn’t received a single comment.

The committee recommended passage though the bill underwent several changes before it was submitted to the governor whose veto was subsequently overturned.

Under the new law, a foreign investor who holds 49 percent of the total equity of the business who can demonstrate that his FSM citizen partner in the business truly owns and fully controls by such means as voting rights of common stock, not less than 51 percent of the total equity of the business can operate certain types of businesses.

Since Pohnpei’s foreign investment policies were revised in 2011, foreign investment applications have fallen into three categories.

Green light applications were given nearly automatic approval. Amber light applications required approval by the Discretionary Review Panel that the Committee Report on the recent law said is disbanded under the new law and left to the discretion of the Pohnpei Registrar of Corporations.

 

 Red light businesses were not allowed for foreign investors of any kind but few business types were listed in that section. That has changed under the new law. Red light businesses that foreign investors cannot own or operate in the FSM unless they have already been granted a permit to operate. If those “grandfathered” businesses have already been given a permit to operate they will not be allowed to renew their foreign investment permits when they expire.

 

The business types now included as red light businesses that the Legislature has determined local people “have enough capacity and resources for (and) it has been determined that they can definitely supply the market demand” include: retail and wholesale-general merchandise, apartment services, tour guides/dive tours, rental car services ,  barber/beauty shop, moms-pops stores, Agricultural farming including livestock/poultry, bakery, gas stations, other business activities in which foreign investment is prohibited by state law.

 

 The remaining red light businesses have built in exceptions for “hotel/ establishments” with investments of a million dollars or less: restaurants except for those affiliated with and within the facilities of a hotel establishment, bar/night club with the same exceptions as above, gift shop except as above.

 

There is a new temporary category for businesses that the Registrar of Corporations, in his or her discretion determines will be of significant benefit to the economy of the State and is requested in connection with a project undertaken by the FSM National Government, the Pohnpei Government, a local government or Pohnpei, and enterprise licensed to do business in Pohnpei, or a non-profit organization authorized to conduct religious or humanitarian services in Pohnpei.

 

The term for such a permit cannot exceed 36 months. On the open “Green List” category, no special criteria needs to be met before a foreign investment permit is issued to a preferred joint venture in which one or more FSM citizens hold an equity interest.

Except as otherwise listed, for investment in any business with an initial capitalization of $500,000 or more, or $50,000 in the case of a professional service, no further equity requirements nor special criteria needs to be met before a foreign investment permit is issued.

There is a special investment sector under the “Green List” category of applications for a foreign investment permit for certain types of businesses with verifiable local partners.

 

Under the new law, a foreign investor who holds 49 percent of the total equity of the business who can demonstrate that his FSM citizen partner in the business truly owns and fully controls by such means as voting rights of common stock, not less than 51 percent of the total equity of the business can operate certain types of businesses.

 

The value of leased land by a citizen partner would be included in the equity calculation. Such an investor could operate a service industry that is not otherwise excluded under the new law.

 

Interestingly, such an investor could also own a business for “exploration, development and extraction of land-based mineral resources and of marine-based mineral resources with the marine regulatory jurisdiction of the State.”

They could also own a business for the “exploration, cutting and milling of naturally occurring timber resources.”

 

The remainder of the law sets down the processes for foreign investors to apply for a permit and for the single source decider to make the decisions regarding applications.

 

In addition to other objections, Governor Peterson’s letter regarding his veto said that the cutting and milling of naturally occurring timber resources should be added to the “Red List” because the resource is so limited, and the need to protect our watershed in our effort to build resilience against the impact of climate change is vitally important.

 

The governor also suggested that the Legislature should reconsider the allowance of gift shops, bars, nightclubs and restaurants for foreign owners as long as they are contained within a foreign owned hotel establishment, saying those businesses can and should be owned by local business.

 

His letter also said that the “Red List” for hotel establishments where the investment is $1 million or less is not an adequate limitation.

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