Transparency of the Regulatory System
The Armenian regulatory system is still not implemented in a sufficiently transparent manner. A small cadre of businesses dominates particular sectors and utilize government assistance to suppress full competition. Despite some improvements in customs with regard to import procedures and the application of reference prices, the inconsistent application of tax, customs (especially with respect to valuation and classification), and regulatory rules (especially in the area of trade) undermines fair competition and adds risk for less politically-connected businesses, particularly small-and medium-sized businesses and new market entrants. Armenia’s legislation on protection of competition has recently been improved with clear definitions of limitation of competition and newly introduced concepts on price manipulation, imposition of fines on economic agents as a percentage of revenue vs. previous fixed amounts, and penalties for state officials for fixing tenders. However, the State Commission for the Protection of Economic Competition (SCPEC) lacks investigative powers and operates based on document studies, often provided by competing claimants. The efforts of the SCPEC alone are not enough to ensure a level playing field because of the roles of other state institutions, which affect competition, like courts, tax and customs agencies, and law enforcement agencies. Banking supervision is relatively well developed and largely consistent with the Basel Core Principles. The Central Bank of Armenia is the primary regulator for all segments of the financial sector, including banking, securities, insurance and pensions.
Safety and health requirements, most of them holdovers from the Soviet period, generally do not impede investment activities. Bureaucratic procedures can nevertheless be burdensome, and discretionary decisions by individual officials still provide opportunities for petty corruption. Despite persistent problems with corrupt officials, both local and foreign businesses assert that a sound knowledge of tax and customs law and regulations enables business owners to deflect the majority of unlawful bribe requests, which is easier for big companies than for SMEs. The unified online platform for publishing draft legislation was launched in March 2017, available at https://www.e-draft.am/. The proposed legislation is available for everybody to view and the registered users can send feedback and get a summary of comments on draft legislation. However, the time period devoted to public comments in Armenia is often not sufficient for proper feedback. The results of consultations have not been reported by the government in the past.
International Regulatory Considerations
Armenia is a member of the Eurasian Economic Union (EAEU) and adheres to the technical regulations adopted within the EAEU. Armenia is also a member of the WTO and the Armenian Government notifies draft technical regulations to the WTO Committee on Technical Barriers to Trade. Armenia is a signatory to the Trade Facilitation Agreement and had already implemented all category A requirements. Notification on implementation of category B requirements will be submitted to the WTO in April 2018 and the Armenian Government is working with international donors on potential assistance for the implementation of category C requirements.
Legal System and Judicial Independence
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 currently are set forth in the civil code. Thus, because Armenia lacks a commercial court, all disputes involving contracts, ownership of property, or commercial matters are resolved by litigants in the courts of general jurisdiction, which handle both civil and criminal cases. However, the courts which handle civil matters are overwhelmed by the volume of cases before them and are 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 do not do so, making civil court decisions unpredictable.
Many Armenian courts suffer from low levels of efficiency, independence, and professionalism, creating a need to strengthen the Armenian judiciary. Very often in cases when additional forensic expertise is requested during the judicial proceedings, the court may suspend the process until the forensic opinion is received, which may take months. Litigants are wary of turning to Armenian courts for redress because of the lack of judicial independence. Many judges at the court of general jurisdiction are reluctant to make a decision without getting advice from high court judges. Thus, decisions may be influenced by factors other than the law and merits of the cases. In general, the government honors judgments from both arbitration and Armenian national courts.
Due to the nature and complexity of commercial and contractual issues and the caseload of the civil courts, many matters involving investment/commercial disputes take months or years to work their way through the civil courts. In addition, because of the inherent inefficiencies and institutional corruption of the courts, matters are often delayed and outcomes are not predictable. Even though the Armenian Constitution provides investors the tools to enforce awards and their property rights, there is little predictability in what a court may do.
Laws and Regulations on Foreign Direct Investment
The Development Foundation of Armenia (DFA) is Armenia’s national authority for investment, and export promotion that provides services and information to foreign investors on business climate, investment opportunities and the legislation, support for investors’ visits, as well as liaison with governmental institutions. More information about the legislation, procedures and registrations can be obtained from DFA (E-mail: email@example.com; www.dfa.am).
Competition and Anti-Trust Laws
The State Commission for the Protection of Economic Competition reviews transactions for competition related concerns. The law, regulations, commission decisions, and more information can be found at http://www.competition.am/?lng=2.
Expropriation and Compensation
Under Armenian law, foreign investments cannot be confiscated or expropriated except in extreme cases of natural or state emergency, upon obtaining an order from a domestic court. In all cases, proper and fair compensation is owed to the property owner. The U.S. Government is not aware of any confirmed cases of expropriation.
ICSID Convention and New York Convention
Armenia is a state member of the ICSID convention and a signatory to the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention).
Under Article 5 of the Armenian Constitution, international treaties are a constituent part of the legal system of the Republic of Armenia. When an international treaty is ratified, if it stipulates norms other than those present in the domestic laws, the guidelines of the treaty shall prevail.
Investor-State Dispute Settlement
According to the 1994 Foreign Investment Law, all disputes that arise between a foreign investor and the Republic of Armenia must be settled in Armenian courts. A law on Commercial Arbitration was enacted in 2007, which provides investors with a wider range of options for resolving their commercial disputes. The U.S.-Armenia BIT provides that in the event of a dispute between an American investor and the Republic of Armenia, the investor may take the case to international arbitration. As an international treaty, the BIT supersedes Armenian law, a point which Armenia's constitution acknowledges and which holds in actual practice. While there have been a few investment disputes involving U.S. and other foreign investors, there is no evidence of a pattern of discrimination against foreign investors in these cases.
International Commercial Arbitration and Foreign Courts
Commercial disputes may be brought before an Armenian or any other competent court, as provided by law or in accordance to party agreement. Commercial disputes are heard in courts of general jurisdiction. The specialized administrative courts adjudicate cases brought against state entities. Final judgments may be appealed to the Court of Appeal and Court of Cassation, the highest judicial authority in Armenia.
The Law on Arbitration Courts and Arbitration Procedures provides rules governing the settlement of disputes by arbitration. Armenia is a member state to the International Center for Settlement of Investment Disputes (ICSID Convention) and convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention). The stipulations of the New York convention have been incorporated into Article 5 of the Armenian Constitution which requires domestic courts to recognize foreign arbitral awards.
Armenia intends to develop an alternative dispute resolution (ADR) mechanism that will include mediation and arbitration. ADR could be used not only in commercial matters, including those involving mobile property and secured transactions, but also in cases involving family and labor disputes. While ADR options are available for those who seek alternatives to litigation, they currently are not widely used or trusted.
According to the Law on Bankruptcy adopted in 2006, the creditors, equity and contract holders (including foreign entities) have the right to participate and defend their interests in the judicial proceedings of a bankruptcy case. Creditors have the right to access all materials relevant to the case, submit claims to the court in relation to the bankruptcy, participate in creditors' meeting, and nominate a candidate to administer the case. Monetary judgments are usually made in local currency. The Armenian Criminal code defines penalties for false and deliberate bankruptcy, for concealment of property or other assets of the bankrupt party, or for other illegal activities during the bankruptcy process. Armenia amended its bankruptcy law in 2012 to clarify procedures for appointing insolvency administrators, reducing the processing time for bankruptcy proceedings, and regulating asset sales by auction.
According to the World Bank’s 2018 Doing Business Index, resolving insolvency takes 1.9 years on average and costs 11 percent of the debtor’s estate, with the most likely outcome being that the company will be broken up and sold. The average recovery rate is 36.4 cents on the dollar. Globally, Armenia stands at 97 in the ranking of 190 economies on the ease of resolving insolvency in the World Bank’s Doing Business 2018 Report (http://www.doingbusiness.org/rankings; http://www.doingbusiness.org/data/exploreeconomies/armenia#resolving-insolvency).