January 20, 2010

By Bill Jaynes
The Kaselehlie Press

Peilapalap, Pohnpei, FSM - A bill submitted a year ago by Fernando Scaliem, Floor Leader of the Pohnpei State Legislature at the request of Governor John Ehsa is set for legislative action during the current session of the Legislature in Pohnpei. In a nutshell, if the bill is successful at the Legislature it will undo some of the restrictions placed on foreign investors the legislature passed three years ago when they overrode the veto of then Governor Johnny David and would completely eliminate the Foreign Investment Board. The duties of that board would be passed to the Administrator of the Offi ce of Economic Affairs.

Former Governor David upon vetoing the bill three years ago said, ""The clearest message from this bill is that Pohnpei has become hostile toward foreign investment as one would have to think very hard to fi nd an area that is not restricted to foreign investors."

Former Senator Sailas Henry of Madolenihmw who chaired the committee that pushed the bill through predicted at the time that there would not be enough supporting votes to overturn the veto. Despite his prediction the legislature did overturn the veto and the bill became the law of the land.

The "new" law increased the foreign investment application fee from $25 to $250, named at least 11 types of businesses in which foreigners could not be engaged, and required at least a $50,000 investment before a foreign investment permit could be granted.

The proposed law would reduce the application fee to $50, eliminate most of the restrictions on the types of businesses in which foreigners can engage, and reduce capitalization requirements from $50,000 to $25,000 except in the case of professional services which would require a $5,000 capitalization. Foreigners would still, under the proposed bill, be restricted from retail sales in Pohnpei unless the non-citizen is involved in the manufacture of a product entirely produced in Pohnpei in which case they could sell their manufactured items at their manufacturing plant only.

The proposed bill does allow for special circumstances where a potential noncitizen investor could open a business in Pohnpei with less capital when the Administrator, after consultation and potential public hearings could determine that a proposed business would be especially good for the economy of Pohnpei.

The proposed amendments would add a new paragraph 1 to section 7-102, the definitions section of the bill. The new paragraph defines the "Administrator" as the Administrator of the Office of Economic Affairs. After establishing that definition subsequent proposed amendments eliminate all mention within the bill of the word "Board."

Though it is clear that the drafters of the new bill intended to wipe out every instance of the word "Board," that word slipped into the submitted bill several times even in the case of added text. As further evidence of the intention, Section 7-104 of Title 37 would be repealed in its entirety. 7-104 is the section in which the makeup of the Foreign Investment Board is defined.

If the amendment is passed as originally presented, the fi ling fee for a foreign investment permit would be decreased from $250 to $50.

Besides the elimination of the Foreign Investment Board the amendments would lift the restrictions on the types of businesses foreign investors can operate in Pohnpei. The Foreign Investment law passed three years ago listed several businesses foreigners could not operate in Pohnpei including: land transportation services including bus services, taxi services or car rentals; handicraft and gift shops; beauty shops and barber shops (except within a hotel of 12 rooms or more; bakeries; bar services not associated and contained within a restaurant or a hotel having at least 12 rooms for the accommodation of guests; tour guides; fishing guides, diving guides, and any other form of water transportation services; travel and tour agencies; hotels of less than 12 rooms; operations manufacturing products being produced by locally owned enterprises; equipment rentals for both land and water within the state, including rentals related to tourism; and commercial fishing for other than highly migratory species.

The wording that banned those businesses for foreign ownership in Pohnpei would be repealed and replaced by the following wording:

"The following system of economic sectors, as listed in Subsections (1) through (3) of this section and as expanded by Subsection (4) of this section is hereby established for the purpose of implementing the policy of Pohnpei to encourage foreign investment in the state's economy:

1) Except for economic sectors listed in subsequent subsections of this section, foreign investment in any business with an initial capitalization of $25,000 or more, or $5,000 in the case of a professional service, is unrestricted as to equity requirements, and no special criteria needs to be met before a foreign investment is issued.

2) No foreign equity is allowed in the following sectors: a. Retail trade; and b. Such other sectors where noncitizen commercial activity is prohibited by state law.

3) Subject to the capitalization requirements of Subsection (1) of this section, no special criteria needs to be met before a foreign investment permit is issued to a business in the following economic sectors in which not more than forty percent of the total equity of the business is held by noncitizens: a. Service industries, except businesses providing professional services or tourist services as defined by section 7-102 of this chapter; b. Exploration, development and extraction of land-based mineral resources and of marine-based mineral resources within the marine regulatory jurisdiction of the state; and c. Exploration, cutting and milling of naturally occurring timber resources.

4) Notwithstanding the restrictions of Subsection (1) and Subsection (3) of this section the Board (Administrator) may, in its discretion, grant a foreign investment permit to a business there under with less than the initial capitalization requirement or possessing more than forty percent foreign- owned equity therein, upon a finding that the applicant business will be of significant benefit to the economy of Pohnpei. A permit issued under this subsection may carry special conditions as to equity ownership, citizen employment and minimum capital investment; PROVIDED that such conditions shall later be waived upon a showing to the satisfaction of the Board (administrator) that the business has attained and will maintain the capitalization and, where applicable, the equity requirements of this section."

If the proposed bill passes the legislature and is signed into law by the Governor foreign investors would no longer be subject to the scrutiny of a foreign investment board but would apply to the Administrator of the Offi ce of Economic Affairs. The Administrator would be required to examine the applicant and compile information including public hearings in support of his or her final decision regarding the granting of an application for foreign investment.