Transparency of the Regulatory System
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 businesses. Armenia’s legislation on the protection of competition has been improved with clear definitions and newly introduced concepts on issues such as price manipulation, imposition of fines as a percentage of revenue versus fixed amounts, and penalties for state officials. This has generated a gradual improvement of Armenia’s ranking according to international indices. However, companies regard the efforts of the State Commission for the Protection of Economic Competition (SCPEC) alone not to be enough 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. Banking supervision is relatively well developed and largely consistent with the Basel Core Principles. The Central Bank of Armenia is the primary regulator of the financial sector and exercises oversight over banking, securities, insurance, and pensions. Data on Armenia’s public finances and debt obligations are broadly transparent, and the Ministry of Finance publishes periodic reports that are available online.
Safety and health requirements, most of them holdovers from the Soviet period, generally do not impede investment activities. Nevertheless, investors consider bureaucratic procedures to be sometime burdensome, and discretionary decisions by individual officials may present opportunities for petty corruption. A unified online platform for publishing draft legislation was launched in March 2017, and is available at https://www.e-draft.am/eng . Proposed legislation is available for the public to view. Registered users can submit feedback and see a summary of comments on draft legislation. However, the time period devoted to public comments is often regarded not sufficient to solicit proper feedback. The results of consultations have not been reported by the government in the past. The government maintains other portals, including http://www.e-gov.am and http://www.arlis.am ,that make legislation and regulations available to the public.
International Regulatory Considerations
Armenia is a member of the EAEU and adheres to relevant technical regulations. Armenia’s entry into CEPA will lead it to pursue harmonization efforts with the EU on laws, regulations, and policies relevant to economic affairs. 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 sent category “A”, “B,” and “C” notifications to the WTO.
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 are currently 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 courts of general jurisdiction, which handle both civil and criminal cases. However, some report that the courts that handle civil matters are 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 do not do so, making civil court decisions that investors consider as unpredictable.
According to several businesses, 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, which it has been reported to take months. Litigants are feeling distrustful aboutturning to Armenian courts for redress because of the lack of judicial independence. Companies have noted that many judges at courts of general jurisdiction are 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 cases at hand. 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 or commercial disputes take months or years to work their way through the civil courts. In addition, companies have complained of the inherent inefficiencies and institutional corruption of the courts, which lead to matters to be often delayed and outcomes not to be predictable. 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.
Laws and Regulations on Foreign Direct Investment
Basic legal provisions covering foreign investment are specified in the 1994 Law on Foreign Investment. Foreign companies are entitled by law to the same treatment as Armenian companies (national treatment). The Armenian government has submitted to parliament a new draft Law on Foreign Investment, to replace the 1994 law. This new law would strengthen protections for foreign investors. A Law on Public-Private Partnership (PPP) has been drafted and is awaiting approval by the parliament. The PPP law establishes the framework for the government to attract private capital for joint projects focused on infrastructure.
Business Armenia is Armenia’s national authority for investment and export promotion. It provides information to foreign investors on Armenia’s business climate, investment opportunities, and legislation; supports investor visits; and serves as a liaison for government institutions. More information is available via Business Armenia’s website (https://www.businessarmenia.am/).
Competition and Anti-Trust Laws
SCPEC reviews transactions for competition-related concerns. Relevant laws, regulations, commission decisions, and more information can be found on SCPEC’s website (http://www.competition.am/?lng=2 ). Concentrations, including mergers, acquisitions of shares or assets, amalgamations, and incorporations are subject to ex ante control by SCPEC under conditions established by law. Whenever a concentration gives rise to concerns about harm to competition, including the creation of a dominant position or strengthening the dominant position, SCPEC can prohibit such a transaction or impose certain remedies. However, SCPEC’s investigative powers have been reported to be limited, forcing SCPEC to rely primarily on document studies. Armenia’s Law on Protection of Economic Competition has been amended several times in recent years to bring Armenia’s competition legal framework into alignment with EAEU and CEPA requirements.
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. According to the Armenian constitution, equivalent compensation is owed prior to expropriation.
ICSID Convention and New York Convention
Armenia is party to the ICSID Convention and Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention).
Under Article 5 of the Armenian constitution, international treaties are a constituent part of Armenia’s legal system. When an international treaty is ratified, if it stipulates norms other than those present in domestic law, 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 a wider range of options for resolving 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. As of January 2019, two investment disputes brought against Armenia under the U.S.–Armenia BIT were pending with the International Center for Settlement of Investment Disputes.
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 with party agreements. Commercial disputes are heard in courts of general jurisdiction. 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. In accordance with the New York Convention and Article 5 of the Armenian constitution, domestic courts must 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 to those who seek alternatives to litigation, they currently are not widely used or trusted.
According to the Law on Bankruptcy adopted in 2006, creditors, equity, and contract holders (including foreign entities) have the right to participate and defend their interests in bankruptcy cases. Armenia decided in 2018 to adopt a new, specialized bankruptcy court to begin operations in 2019. Creditors have the right to access all materials relevant to cases, submit claims to court, participate in meetings of creditors, and nominate candidates to administer cases. Monetary judgments are usually made in local currency. The Armenian Criminal Code defines penalties for false and deliberate bankruptcy, concealment of property or other assets of the bankrupt party, or 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 conducting asset sales by auction.
According to the World Bank’s 2019 Ease of Doing Business Index, Armenia stands at 95 in the ranking of 190 economies on the ease of resolving insolvency (http://www.doingbusiness.org/rankings ; http://www.doingbusiness.org/data/exploreeconomies/armenia#resolving-insolvency ). 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 38.2 cents on the dollar.