Transparency of the Regulatory System
The Law on Public Procurement devolves the power of procurement to budgetary units (i.e., ministries, municipalities, and independent agencies) except when the government authorizes the Ministry of Finance’s Central Procurement Agency to procure goods and/or services on its behalf. All tenders are advertised in Albanian and Serbian, as well as in English in cases of large tenders. The Public Procurement Regulatory Commission (PPRC) initiates procurement audits of the various Kosovo ministries, municipal authorities, and agencies receiving funds from the Kosovo consolidated budget. In 2015, the law was amended to mandate the use of electronic procurement as means of increasing transparency in tendering procedures.
Rule-making and regulatory authority lies at the central level with the Kosovo Assembly, while government ministries and agencies draft and authorize secondary legislation (i.e. implementing regulations). Municipal assemblies have regulatory authority at the local level. All legal, regulatory, and accounting systems in Kosovo have been created in line with EU standards and international best practices. Publicly listed companies comply with international accounting standards.
Draft laws are published on the Assembly website and distributed to stakeholders. Public hearings are held on proposed laws, including for investment laws. The 2016 regulation on the Minimum Standards for Public Consultation Process clarifies the standards, principles, and procedures for consultations during the drafting of legislation. The GOK recently developed an online platform for public comments, at http://konsultimet.rks-gov.net/ and publishes rules, regulations, and laws in the official Kosovo Gazette at https://gzk.rks-gov.net/ , and on the Kosovo Assembly website at http://www.kuvendikosoves.org/?cid=2,191 .
Kosovo’s Better Regulation Strategy 2014-2020 is a government initiative to implement a smart regulatory system with sound implementation and effective communication. The Law on Public Financial Management and Accountability requires a detailed impact assessment of any budgetary implications before new regulations can be implemented.
International Regulatory Considerations
Kosovo is a CEFTA member and is pursuing EU integration. Through the Stabilization and Association Agreement (SAA) with the EU, Kosovo is working to harmonize its laws and regulations with EU standards. Kosovo is not a member of the WTO.
Legal System and Judicial Independence
Kosovo’s judicial system, although improving, still faces many challenges. In 2016, the Kosovo Assembly amended the constitution to enhance the independence of the judiciary in line with EU requirements. Enforcement remains weak and time-consuming. The judiciary lacks the subject-matter expertise to effectively handle complex economic issues. Regulations and enforcement actions may be challenged in the regular court system, as well as the constitutional court.
The courts are perceived as being influenced by the executive branch. USAID, the EU Rule of Law Mission in Kosovo (EULEX), and other international partners are working to reform the judicial system by assisting local institutions with court reform and decentralization. In addition, USAID is implementing programs on contract enforcement and property rights.
Kosovo has a civil legal system. Property and contracts ownership is enforced according to relevant legislation. The Law on Enforcement Procedures permits claimants to utilize bailiffs licensed by the Ministry of Justice to execute court-ordered judgments. The 2012 Law on Obligations repeals the former Yugoslav Law on Obligations and provides the basic legal framework for contracts and torts. In addition, the government adopted Laws on Arbitration and Mediation in 2007, and later harmonized these laws with the Law on Contested Procedures. These have all addressed key impediments to enforcing arbitral awards.
Significant legislation overhauling the 2004 Criminal Code and the Criminal Procedure Code, developed by the United Nations Mission in Kosovo (UNMIK), went into force in 2013. This legislation brought Kosovo’s Criminal Law in compliance with the EU Convention on Human Rights and updated definitions and best practices. The Criminal Code contains penalties for tax evasion, bankruptcy, fraud, intellectual property offenses, antitrust, securities fraud, money laundering, and corruption offenses.
The Law on Courts also changed the structure and jurisdiction of the Commercial Court, creating a Department for Commercial Matters within the Basic Court of Pristina that has jurisdiction for the entire territory of Kosovo and a Department within the Court of Appeals. The Court’s jurisdiction changed to specifically include “disputes between domestic and foreign economic persons in their commercial affairs.” It also includes reorganization, bankruptcy, and liquidation of economic persons; disputes regarding impingement of competition; and protection of property rights and intellectual property. The Department for Commercial Matters has jurisdiction over economic disputes between both legal and natural persons. Commercial cases can take anywhere from six months to two years to resolve. The Court of Appeals also includes a Commercial Matters Department and addresses all appeals coming from the Pristina Basic Court’s Department for Commercial Matters.
Laws and Regulations on Foreign Direct Investment
The legal system in Kosovo has three layers of legislation operating simultaneously: laws enacted by the former Yugoslavia through 1989; regulations issued by the United Nations Interim Administrative Mission in Kosovo (UNMIK); and laws passed by the Kosovo Assembly. The Law on Foreign Investment, passed by the Assembly in late 2013, has improved the legal infrastructure and helped address any inconsistencies in current legislation that unduly discourage foreign investment. With international assistance, GOK has been moving towards a legal structure that complies with European standards. These efforts have intensified in accordance with the 2016 entry into force of the European Union’s Stabilization and Association Agreement (SAA) with Kosovo. Although the legislative framework for a market-oriented economy is in place, poor enforcement, uncertainties regarding legal recognition of foreign arbitral awards, and a nascent modern judiciary hinder economic growth and investment. To address these challenges, the United States and the EU provide assistance aimed at improving Kosovo’s judiciary. Licensed private enforcement agents began assisting enforcement of judicial decisions in 2014; they have had moderate success in executing collections on non-performing loans.
All major sectors of the Kosovo economy are open to foreign investment. The Kosovo Assembly and UNMIK, which governed Kosovo until 2008 under UN Security Council Resolution 1244, have passed pro-business legislation that specifically seeks to attract foreign investment. Under Kosovo law, foreign firms operating in Kosovo are granted the same privileges as local businesses except that foreign investors may not hold more than 49 percent ownership in a business producing or selling military-related products (Reg. No. 2001/3, Section 6).
In 2016, Kosovo passed a series of laws with bearing on economic issues. Most notably, the Law on Strategic Investments enables fast track negotiations between the GoK and private companies in targeted sectors. The Law on Late Payments in Commercial Transactions seeks to discourage late payments and regulates the calculation of interest on late payments. The Law on Bankruptcy regulates all matters related to the insolvency of business organizations; the provisions for the protection, liquidation and distribution of the assets of a bankrupt debtor to its creditors; and the reorganization and discharge of debt for qualified business organizations. The Law on Prevention of Money Laundering and Combating Terrorist Financing enabled Kosovo to join Egmont Group, an inter-governmental network of 152 Financial Intelligence Units whose members exchange expertise and financial intelligence to combat money laundering and terrorist financing. The Credit Guarantee Fund Law increased access to finance for all micro- and SMEs in Kosovo in an effort to increase employment, boost local production, and improve the trade balance.
Kosovo’s commercial laws are available to the public in English, as well as Kosovo’s official languages (Albanian and Serbian). They can be found on the Kosovo Assembly’s website at: www.assembly-kosova.org/?cid=2,191 and on Official Gazette website at: http://gzk.rks-gov.net/default.aspx .
Competition and Anti-Trust Laws
The Law on Competition and Law on Antidumping and Countervailing Measures were adopted in 2010 and amended in 2014. The Competition Authority, established in 2008 and consisting of four members and a chairperson appointed by the Assembly, is in charge of implementing these laws, as well as the Law on Consumer Protection. The Competition Authority’s board was reconstituted in late 2016 after three years of inactivity.
Expropriation and Compensation
Articles 7 and 8 of the Foreign Investment Law protect foreign investments from unreasonable expropriation not in the public interest, guaranteeing due process and timely compensation payment, based on fair market prices. The Law on Expropriation of Immovable Property permits the expropriation of private properties by the government or municipalities when such action is in the public interest. Articles 5 through 13 of the Law on Expropriation of Immovable Property define expropriation procedures. An eminent domain clause additionally limits the possibility of lawsuits arising from the expropriation and sale of property through the privatization of state owned enterprises.
In the mining sector, the expropriation of properties is conducted through the Resettlement Framework Policy, which GOK drafted with World Bank support.
ICSID Convention and New York Convention
In 2009, Kosovo became a party to the International Center for Settlement of Investment Disputes (ICSID) Convention and has incorporated the Convention into national law.
There is no specific legislation providing for the enforcement of the ICSID Convention, but in accordance with the Law on Foreign Investments, investors may agree upon arbitration or other alternative dispute resolution mechanisms. Kosovo is not a signatory to the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Law.
Investor-State Dispute Settlement
The Commercial Department of Pristina Basic Court has jurisdiction over investment disputes involving SOEs. There are no records available detailing the frequency with which domestic courts have ruled in SOEs’ favor.
Kosovo’s courts recognize international arbitration awards. There is no history of extrajudicial action against foreign investors.
Kosovo is party to ICSID. Over the past ten years, Kosovo has had three investment dispute claims brought by foreign investors. Kosovo’s state-owned telecom company has lost two cases before the London Court of International Arbitration (LCIA), with one case involving a foreign investor. In May 2013, the LCIA determined Post & Telecom Kosovo owed an Israeli company €8.7 million following a breach of contract. In July 2016, the International Court of Arbitration in Paris determined Kosovo owed an Austrian printing company €5 million for illegally terminating a passport manufacturing contract. In June 2015, a German company filed a case before ICSID related to the failed privatization of Kosovo’s telecom company; as of March 2017, the case is pending.
International Commercial Arbitration and Foreign Courts
The Foreign Investment Law stipulates that investors may utilize the following alternative dispute resolution mechanisms:
- The ICSID Convention if both the foreign investor’s country of citizenship and Kosovo are parties to said convention at the time of the request for arbitration;
- The ICSID Additional Facility Rules if the jurisdictional requirements for personal immunities per Article 25 of the ICSID Convention are not fulfilled at the time of the request for arbitration;
- The United Nations Commission on International Trade Law Rules. In this case, the appointing authority referred to therein will be the Secretary General of ICSID; or
- The International Chamber of Commerce Rules.
Since 2011, arbitration services have been available at arbitral tribunals within the Kosovo Chamber of Commerce and American Chamber of Kosovo. Kosovo’s Arbitration Rules are a set of model rules based on the 2010 United Nations Commission on International Trade Law (UNCITRAL) Model Rules for Commercial Arbitration. They are consistent with international best practices. The Law on Foreign Investment also favors the use of arbitration. To utilize this option, the law requires the disputed agreement/contract include an arbitration clause.
In addition, in accordance with the Law on Mediation, the Ministry of Justice has established a Mediation Commission, which has adopted the necessary rules to create mediation services and has trained and certified several mediators. For more information, visit http://www.kosovo-arbitration.com/en .
In the World Bank’s 2017 Doing Business report, Kosovo ranked 163 out of 171 countries in addressing insolvency. In an attempt to improve commercial legislation, the Assembly approved a new Law on Bankruptcy in July 2016. The law regulates bankruptcy and insolvency procedures; provisions for the protection, liquidation, and distribution of the assets of a bankrupt debtor to its creditors; and the reorganization and discharge of debt for qualified business organizations. Under the law, foreign creditors have the same rights as domestic investors and creditors when launching and participating in bankruptcy proceedings.