Transparency of the Regulatory System
The main law governing foreign investment, the Montenegrin Law on Foreign Investment, is based on the national treatment principle, which is a basic principle of GATT/WTO that prohibits discrimination between imported and domestically produced goods with respect to internal taxation or other government regulation.
All proposed laws and regulations put forth by the government are published in draft form and open for public comment, generally for a 30-day period.
Regulations are often applied inconsistently, particularly at the municipal level. Many regulations are in conflict with other regulations, or are ambiguous, creating confusion for investors. As noted in the American Chamber of Commerce’s (AmCham) 2016 Business Climate Survey, many municipalities lack adequate detailed urban plans, making the process to obtain construction permit procedures lengthy and complex. Some municipalities have made efforts to speed up procedures in order to improve the business environment for investors. While at the national level there are fewer obstacles for investments and other activities, many larger-scale projects involve both local and national authorities, and it is often necessary to work with both administrations in order to complete a project.
Foreign investors are subject to the same conditions as domestic investors when it comes to establishing a company and making an investment. There are no other regulations in place which might deprive a foreign investor of any rights or limit their ability to do business in Montenegro. The Law of Foreign Investments is currently fully harmonized with World Trade Organization rules.
On January 22, 2004, the Parliament established an Energy Regulatory Agency, which maintains authority over the electricity, gas, oil, and heating energy sectors. Its main tasks include approving pricing, developing of a model for determining allowable business costs for energy sector entities, issuing of operating licenses for energy companies and for construction in the energy sector, and monitoring public tenders. The energy law mandates that in the energy sectors, when prices are affected by monopoly positions of some participants, business costs will be set at levels approved by the Agency. In those areas deemed to function competitively, the market will determine prices. The price of gasoline is set nationally every two weeks and is uniform across all petrol stations.
The Agency for Electronic Communication and Postal Services was established by the government in 2001. It is an independent regulatory body whose primary purpose is to design and implement a regulatory framework and to encourage private investment in the sector.
While there is a full legal and regulatory infrastructure in place to conduct public procurement, U.S. companies have complained in numerous cases about irregularities in the procurement process at the national level, and maintain there is an inability to meaningfully challenge decisions they believe were erroneously taken through the procurement apparatus. In other cases, the system delivers appropriate outcomes, though in a complex and time-consuming way.
Public procurement is conducted jointly by the Public Procurement Directorate, the Ministry of Finance (as the main line ministry for the procurement area), and the State Commission for Control of Public Procurement Procedures in the protection of rights area. The Public Procurement Directorate began operations in June of 2007 while the State Commission for the Control of Public Procurement Procedures Control was established in 2011. The State Commission takes decisions in the form of written orders and conclusions made at its meetings. The decisions are made by a majority of present members. The State Commission’s Rules of Procedure specify the method for this work. The Law of Public Procurement entered into force in 2011. The Administrative Court oversees cases involving public procurement procedures.
The Montenegro State Audit Institution (SAI) is an independent supreme audit institution for verification of the entire government’s financial statements, including state-owned enterprises. The audits are made publicly available on the SAI’s website . Accounting standards implemented in Montenegro are transparent and consistent with international norms. In addition there are various international companies that conduct accounting and auditing procedures are present in the country.
International Regulatory Considerations
Montenegro is a candidate country for membership to the EU, with accession negotiations launched on June 29, 2012. As of December 2016, 26 negotiating chapters including the two Rule of Law chapters (Chapter 23 – Judiciary and Fundamental Rights and Chapter 24 – Justice, Freedom and Security) were opened; and two chapters have been provisionally closed (Chapter 25 – Science and Research and Chapter 26 – Education and Culture). Opening benchmarks are set for eleven chapters. Montenegro is currently taking steps to harmonize its regulations with EU regulations and accepted best practices as part of the negotiation process.
The government has not notified the World Trade Organization (WTO) of any measures that are inconsistent with the WTO’s Trade Related Investment Measures (TRIMs), nor have there been any independent allegations that the government maintains any such measures.
Legal System and Judicial Independence
Montenegro’s legal system is of a civil, continental type based on Roman law. It includes the legal heritage of the former Yugoslavia and State Union of Serbia and Montenegro. As of 2006, when the country regained its independence, Montenegrin codes and criminal justice institutions were applicable and operational. Montenegro’s Law on Courts defines a judicial system consisting with three levels of courts: Basic, High, and the Supreme Court. Montenegro established the Appellate Court and the Administrative Court in 2005 for the appellate jurisdiction in criminal and commercial matters, and specialized jurisdiction in administrative matters. The specialized Commercial Courts have first instance jurisdiction in commercial matters.
The Basic Courts have first instance jurisdiction in civil cases and criminal cases in which a prison sentence of up to 10 years is possible. There are 15 Basic Courts for Montenegro’s 23 municipalities. Two High Courts in Podgorica and Bijelo Polje have appellate review of municipal court decisions. The High Courts also decide on jurisdictional conflicts between the municipal courts. They are also first instance courts for serious crimes where prison sentence of more than 10 years is specified. The Podgorica High Court has specialized judges and departments who deal with organized crime, corruption, war crimes, money laundering, and terrorism cases.
According to the Law on Courts there is just one Commercial Court based in Podgorica. There are other specialized courts according to the new Law and those are the Misdemeanor Courts (Basic Misdemeanor Courts and the Appellate Misdemeanor Court). The Commercial Court has jurisdiction in the following matters: all civil disputes between legal entities, shipping, navigation, aircraft (except passenger transport), intellectual property rights, bankruptcy, and unfair trade practices. The High Court hears appeals of Basic Court decisions, and High Courts’ first instance decision may be appealed to the Appellate Court. The Supreme Court is the third (and final) instance court for all decisions. The Supreme Court is the court of final judgment for all civil, criminal, commercial, and administrative cases and it acts only upon irregular i.e. extraordinary legal remedies. The Appellate Court is a second instance court for decisions of the Commercial Courts. There is also the Constitutional Court of Montenegro, which checks constitutionality, legality of legal acts, and acts upon constitutional complaints in relation to human rights violations.
The commercial court system faces challenges, including weak implementation of legislation and confusion over numerous changes to existing laws; developing a new system of operations, including electronic communication with clients; and limited capacity and expertise among the judges, as well as a general backlog in cases.
Over the last several years, the adoption of 20 new business laws has significantly changed and clarified the legislative environment. Recently adopted legislative reforms are expected to improve the efficiency and effectiveness of court proceedings, a trend which is already visible in the Basic Courts.
Laws and Regulations on Foreign Direct Investment
In order to attract foreign investment, the government established the Montenegrin Investment Promotion Agency (MIPA www.mipa.co.me ), the Privatization and Capital Investment Council (http://www.savjetzaprivatizaciju.me/pocetna ) and the Secretariat for Development Projects (www.srp.gov.me ). These organizations aim to promote Montenegro’s investment climate and opportunities in the local economy, with particular regard for the tourism, energy, infrastructure, and agriculture sectors.
Competition and Anti-Trust Laws
In February 2013, the Agency for Protection of Competition was established as a functionally independent entity with the entry into force of the new Law on Protection of Competition and following its registration with the Central Register of Economic Entities. The area of free market competition, regulated by the new Law, represents the area that has direct and significant impact on economic development and investment activity, by raising the level of the quality of goods and services, thus creating the conditions for lower prices and creation of a modern, open market economy. This, in turn, provides Montenegro with the possibility to participate in the single market of the European Union and in other international markets.
Expropriation and Compensation
Montenegro provides legal safeguards against expropriation, with protections codified in several laws adopted by the government. There have been no cases of expropriation of foreign investments in Montenegro. However, Montenegro has outstanding claims related to property nationalized under the Socialist Federal Republic of Yugoslavia, several of these unresolved cases involve U.S. citizens.
At the end of August 2007, Parliament passed a new Law on Restitution, which supersedes the 2004 Act. In line with the law, three review commissions have been formed: one in Bar (covering the coastal region); one in Podgorica (for the central region of Montenegro); and one in Bijelo Polje (for the northern region of Montenegro.) The basic restitution policy in Montenegro is restitution in kind when possible, and cash compensation or substitution of other state land when physical return is not possible.
In addition, Montenegro provides safeguards from expropriation actions through its Foreign Investment Law. The law states that the government cannot expropriate property from a foreign investor unless there is a “compelling public purpose” established by law or on the basis of the law. If an expropriation is executed, compensation must be provided at fair market value plus one basis point above the London Interbank Offered Rate (LIBOR) rate for the period between the expropriation and the date of payment of compensation.
ICSID Convention and New York Convention
Montenegro ratified its ICSID Convention membership on April 2013 and the country fully enforces the Convention.
Investor-State Dispute Settlement
The U.S. Embassy is aware of one ongoing investment dispute, which involves an American company in Montenegro. Additionally, there are a number of individual American investors involved in public procurement and construction cases that are in various stages of dispute resolution with the government.
International Commercial Arbitration and Foreign Courts
Dispute resolution is under the authority of national courts, but it can also fall under the authority of international courts if the contract so designates. Accordingly, Montenegro allows for the possibility of international arbitration. Various foreign companies have other bilateral and multilateral organizations providing risk insurance against war, expropriation, nationalization, confiscation, inconvertibility of profit and dividends, and inability to transfer currency; these are the Multilateral Investment Guarantee Agency (MIGA of the World Bank), U.S. Overseas Private Investment Corporation (OPIC), U.K. Exports Credit Guarantee Department (ECGD), Slovenia Export Corporation (SID), Italian Export Credit Agency (SACE), French Export Credit Agency (COFACE), and Austrian Export Financing Group (OEKB). In 2012, Montenegro became a Party to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the ICSID Convention).
Montenegro has taken steps to improve inefficiencies in the court systems, which frequently result in long and drawn-out trials. Procedural laws have been amended in the last few years in order to improve efficiency of the proceedings in line with the standards of the European Convention of Human Rights. It should be noted that most complaints that go to the European Court of Human Rights against Montenegro concern Article 6 of the Convention – right to a fair trial in a reasonable time. Civil appellate procedures have been simplified as part of an effort to eliminate the possibility of long appellate procedures, which was common in the past (there is now just one possibility for canceling the first instance court judgment and sending the case for retrial by the second instance court). In addition, Montenegro has passed a Law on Protection of Right to a Fair Trial in Reasonable Time, which enables the court to award compensation for an excessively long trial, and introduces a series of controlling mechanisms during the trial itself.
In 2011 Montenegro adopted the Law on Public Bailiffs, which subsequently improved the procedure to enforce of civil judgments.
The Bankruptcy Law, adopted in January 2011, mandates that debtors are designated insolvent if they cannot meet financial obligations within 45 days of the date of maturity of any debt obligation. The Foreign Trade Law decreases barriers for doing business and executing foreign trade transactions and is in accordance with WTO standards. However, the law still offers some latitude for restrictive measures and discretionary government interference.