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 Friday, July 23 2021 19:05

US State Department Investment Review: Foreign investors remain  concerned about the rule of law, equal treatment, and ethical conduct  by government officials

US State Department Investment Review: Foreign investors remain  concerned about the rule of law, equal treatment, and ethical conduct  by government officials

ArmInfo.Armenia has achieved respectable rankings  on some global indices measuring the country's business climate. This  is stated in the published report of the US State Department on the  investment climate in Armenia for 2021.  

The article notes that,  Armenia's investment and trade policy is relatively open; foreign  companies are entitled by law to the same treatment as Armenian  companies. Armenia has strong human capital and a well-educated  population, particularly in the science, technology, engineering, and  mathematics fields, leading to significant investment in the  high-tech and information technology sectors. Many international  companies have established branches or subsidiaries in Armenia to  take advantage of the country's pool of qualified specialists and  position within the Eurasian Economic Union (EAEU). However, many  businesses have identified challenges with Armenia's investment  climate in terms of the country's small market (with a population of  less than three million), limited consumer buying power, relative  geographic isolation due to closed borders with Turkey and  Azerbaijan, and concerns related to weaknesses in the rule of law.

The report also notes:"Following a revolution in April/May 2018  fueled in large measure by popular frustration with endemic  corruption, Armenia's government launched a high-profile  anti-corruption campaign. The campaign has yielded a number of  high-profile cases.  Beyond these successes, the fight against  corruption needs to be institutionalized in the long term, especially  in critical areas such as the judiciary, tax and customs operations,  and health, education, military, and law enforcement sectors. Foreign  investors remain concerned about the rule of law, equal treatment,  and ethical conduct by government officials. U.S companies have  reported that the investment climate is tainted by a failure to  enforce intellectual property rights. There have been concerns  regarding the lack of an independent and strong judiciary, which  undermines the government's assurances of equal treatment and  transparency and reduces access to effective recourse in instances of  investment or commercial disputes.  Concerns about equal treatment,  particularly on the basis of nationality, are fueled by perceptions  of the uneven application of laws and regulations across enterprises  in specific industries. Representatives of U.S. entities have raised  concerns about the quality of stakeholder consultation by the  government with the private sector and government responsiveness in  addressing concerns among the business community.  Government   officials have publicly responded to private sector concerns about  perceptions of slow movement in the government bureaucracy as a  function of needing to guard against corruption-related risks. The  Armenian National Interests Fund and Investment Support Center are  responsible for attracting and facilitating inward foreign direct  investment."

Despite improvements in some areas that raise Armenia's  attractiveness as an investment destination, investors claim that  numerous concerns remain and must be addressed to ensure a  transparent, fair, and predictable business climate. A number of  investors have raised concerns about the quality of dialogue between  the private sector and government.  Investors have also flagged  issues regarding government officials' ability to resolve problems  they face in an expeditious manner. An investment dispute in the  country's mining sector has attracted significant international  attention and remains outstanding after several years." The report  also notes that, the Armenian government does not maintain investment  screening mechanisms for foreign direct investment in particular.  Government approval is required to take advantage of certain tax and  customs privileges, and foreign investors are subject to the same  requirements as domestic investors where regulatory approvals may be  involved.

"The Armenian government nominally uses transparent policies and laws  to foster competition.  Some report that Armenia's new government has  pursued a more consistent execution of these laws and policies in an  effort to improve market competition and remove informal barriers to  market entry, especially for small- and medium-sized enterprises.   Armenia's legislation on the protection of competition has been  improved with a number of clarifications regarding key concepts.  There have been some procedural improvements for delivering  conclusions and notifications of potential anti-competitive behavior  via electronic means.  However, companies regard the efforts of the  State Commission for the Protection of Economic Competition (SCPEC)  alone as insufficient to ensure a level playing field. They indicate  that improvements in other state institutions and authorities that  support competition, like the courts, tax and customs, public  procurement, and law enforcement, are necessary.  Numerous studies  observe a continuing lack of contestability in local markets, many of  which are dominated by a few incumbents." 

Safety and health requirements, many of them holdovers from the  Soviet period, generally do not impede investment activities.   Nevertheless, investors consider bureaucratic procedures to be  sometimes burdensome, and discretionary decisions by individual  officials may present opportunities for petty corruption. 

"Armenia has a hybrid legal system that includes elements of both  civil and common law.  Although Armenia is developing an  international commercial code, the laws regarding commercial and  contractual matters are currently set forth in the civil code. Thus,  because Armenia lacks a commercial court, all disputes involving  contracts, ownership of property, or other commercial matters are  resolved by litigants in courts of general jurisdiction, which handle  both civil and criminal cases. Courts that handle civil matters may  be overwhelmed by the volume of cases before them and are frequently  seen by the public as corrupt.  Despite the ability of courts to use  the precedential authority of the Court of Cassation and the European  Court of Human Rights, many judges presiding over civil matters do  not do so, increasing the unpredictability of civil court decisions  in the eyes of investors." "Businesses tend to perceive that many  Armenian courts suffer from low levels of efficiency, independence,  and professionalism, which drives a need to strengthen the judiciary.  Very often in proceedings when additional forensic expertise is  requested, the court may suspend a case until the forensic opinion is  received, a process that can take several months. Businesses have  noted that many judges at courts of general jurisdiction may be  reluctant to make decisions without getting advice from higher court  judges. Thus, the public opinion is that decisions may be influenced  by factors other than the law and merits of individual cases. In  general, the government honors judgments from both arbitration  proceedings and Armenian national courts." "Due to the nature and  complexity of commercial and contractual issues and the caseload of  judges presiding over civil matters, many matters involving  investment or commercial disputes take months or years to work their  way through the civil courts. In addition, businesses have complained  of the inefficiencies and institutional corruption of the courts.   Even though the Armenian constitution provides investors the tools to  enforce awards and their property rights, investors claim that there  is little predictability in what a court may do.

Armenian law protects secured interests in property, both personal  and real. Armenian law provides a basic framework for secured  lending, collateral, and pledges and provides a mechanism to support  modern lending practices and title registration. According to  Armenia's constitution, foreign citizens are prohibited from owning  land, though they may take out long-term leases. In the World Bank's  2020 Ease of Doing Business report, Armenia ranked 13th among 190  economies for the ease of registering property. Lack of clear title  to land is generally not an issue in Armenia. The World Bank observes  that while all land plots in Armenia are mapped, some may not be  formally registered with the body responsible for immovable property  registration."

"Armenia has a strong legislative and regulatory framework to protect  intellectual property rights (IPR).  Domestic legislation, including  the 2006 Law on Copyright and Related Rights, provides for the  protection of copyright with respect to literary, scientific, and  artistic works (including computer programs and databases), patents  and other rights of invention, industrial design, know-how, trade  secrets, trademarks, and service marks.  The Intellectual Property  Agency (IPA) in the Ministry of Economy is responsible for granting  patents and overseeing other IPR-related matters. The collective  management organization ARMAUTHOR manages authors' economic rights.  Trademarks and patents require state registration by the IPA, but  copyright does not.  There is no special trade secret law in Armenia,  but the protection of trade secrets is covered by Armenia's Civil  Code. Formal registration is straightforward, the database of  registered IPR is public, and applications to register IPR are  published online for two months for comment by third parties.  Armenia's legislation has been harmonized with the World Trade  Organization's Agreement on Trade- Related Aspects of Intellectual  Property Rights (TRIPS).  In 2005, Armenia created an IPR Enforcement  Unit in the Organized Crime Department of the Armenian Police, which  acts only based on complaints from right holders and does not  exercise ex-officio powers.  It is also noted that, there is  not a widespread understanding of responsible business conduct (RBC)  in Armenia, but several larger companies with foreign ownership or  management are introducing the concept. Initiatives, where they do  exist, are primarily limited to corporate social responsibility  efforts. However, RBC programs that do exist are viewed favorably.  Some civil society groups and business associations are playing a  more active role to promote RBC and develop awareness.  Major pillars  of corporate governance in Armenia include the Law on Joint Stock  Companies, the Law on Banks and Banking Activity, the Law on  Securities Market, and a Corporate Governance Code. International  observers note inconsistencies in this legislation and generally rate  corporate governance practices as weak to fair. Specific areas for  potential improvement cited by the local business community include  improving internal and external auditing for firms, enhancing the  powers of independent directors on company boards, and boosting  shareholders' rights. 

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