Semi-Annual Report

2011 Promoting public-private dialogue, strengthening advocacy, building capacity, improving business environment and investment climate

ANNUAL REPORT

BUSINESS SUPPORT OFFICE

EUROPEAN BANK FOR RECONSTRUCTION AND DEVELOPMENT

This report provides a comprehensive overview of the EBRD BSO’s activities across four main areas of its operation in Armenia over the past year. It features summary of engagement, key facts and figures, and illustrates main achievements.

EBRD BSO

EBRD BSO Annual report 2011

Table of Contents

EXECUTIVE SUMMARY ...... 3 THE ACHIEVEMENT OF THE BSO OBJECTIVES ...... 7 ACTIVITY 1 - ASSISTANCE TO THE INSPECTION REFORMS COORDINATION COUNCIL SECRETARIAT ...... 11

ACTIVITY 1.1 ADOPTION OF THE RA LAW ''ON MAKING AMENDMENTS TO THE RA LAW ON ORGANIZING AND CARRYING OUT INSPECTIONS''...... 14 ACTIVITY 1.2 IMPLEMENTATION OF THE RA LAW ''ON MAKING AMENDMENTS TO THE RA LAW ON ORGANIZING AND CARRYING OUT INSPECTIONS'' ...... 15 ACTIVITY 1.3 RISK BASED INSPECTION SYSTEM ...... 16 ACTIVITY 1.4 DRAFT LAW ON MARKET SURVEILLANCE ...... 18 ACTIVITY 1.5 TRANSPARENCY AND PUBLICITY OF INSPECTION REFORMS ...... 19 ACTIVITY 2 - ASSISTANCE TO THE SME DEVELOPMENT COUNCIL SECRETARIAT ...... 21

ACTIVITY 2.1 FACILITATION OF SME DEVELOPMENT COUNCIL ESTABLISHMENT ...... 22 ACTIVITY 2.2 ASSISTANCE TO THE SME DEVELOPMENT COUNCIL SECRETARIAT ...... 23 ACTIVITY 3 - ADVANCING COOPERATION WITH DONORS ...... 29 ACTIVITY 4 - DAY TO DAY ACTIVITIES AIMED AT ACHIEVING THE BSO OBJECTIVES ...... 32

ACTIVITY 4.1 – MANAGING THE PPD PROCESS ...... 32 ACTIVITY 4.2 –CAPACITY BUILDING OF THE BSO AND THE SECRETARIAT STAFF ...... 34 ACTIVITY 4.3 – THE BSO REPORTS ...... 34 CONCLUSION ...... 35 APPENDIXES ...... 37

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EXECUTIVE SUMMARY

The Business Support Office (BSO) is a project by the European Bank for Reconstruction and Development established to support the implementation of economic reform in Armenia and facilitate public policy dialogue aimed at improvement of business environment.

The vision of BSO is to become an integral and valuable catalyst between the Government and business community through ensuring an effective dialogue aimed at improving the country’s business environment and investment climate.

The mission of BSO is to raise key issues that affect the business environment, provide technical assistance to the Government in the process of developing strategies/reforms to address identified impediments, in parallel, facilitate prior consultations with the business community and transmit feedback on proposed reforms to the authorities.

Since January 2010, upon the request from the Ministry of Economy, the BSO started active cooperation with the Executive Body (the Secretariat) of the Inspection Reform Coordination Council (IRCC). The main focus of the IRCC has been on introducing EU approach of risk-based inspections in all inspectorates which would ultimately reduce the burden that inspections impose on businesses, improve the quality of these inspections and significantly reduce the occurrences of corruption and violation.

The EBRD BSO has provided broad assistance to the Council Secretariat in all aspects of the reform – mapping of current inspections, reviewing about 500 laws, decrees and regulations pertaining to inspections, defining the risk-based approach, drafting the checklists and the new law introducing risk based inspection concept. In particular, the BSO worked extensively with the business community in raising the awareness of this reform, discussing and seeking comments on legal and regulatory changes and assisting in presentations to the Council.

Since its inception in mid 2010, this reform has achieved tangible results (presented throughout the report). Below is the excerpt from the article published by the Oxford Analytica, a global analysis and advisory firm (Box 1).

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Excerpt from the article published by Oxford Analytica Box 1

Armenian Tax System Becomes Lighter Burden on Firms The Government has published the list of 2386 companies that are to be inspected by the State Revenue Committee in 2012. Such advance notification is being given for the first time, and will lead to a decrease in tensions between the tax authorities and business. It is an important step towards simplifying the procedure for tax inspections, which has long been identified as the most serious obstacle to doing business in Armenia, and it is part of ongoing reforms in taxation and customs.

What Next From 2012, only businesses that are considered risky will be subject to inspections, and the list of such companies will be known beforehand.

Source: Oxford Analytica, January 9, 2012, http://www.oxan.com/display.aspx?ItemID=ES172976

The successful cooperation through the platform under the IRCC set a stage to broaden the scope of the policy dialogue and establish a more advanced module to enhance the effectiveness of the public consultations. Trusting the BSO as a bridge for effective public- private policy dialogue, the Business Advocacy Network consisted of already 31 associations, unions, foundations representing the interest of SMEs, addressed a letter to the EBRD RO with the request to broaden the successful cooperation format and promote another platform for policy dialogue aimed at addressing developing challenges of SMEs (find the copy of the letter in Annex 1). The excerpt from the letter by the Business Advocacy Network Box 2

Dear Mr. Razlog, On behalf of “Business Advocacy Network (BAN) I am pleased to express our appreciation regarding EBRD’s Business Support Office efforts on facilitation of Public-Private Dialogue in our country. … Due to this collaboration the voice of SME community through our Network gets heard and our suggestions considered in the process of inspection reform design and implementation… We are hopeful that our established cooperative relationships and complementary expertise due to BSO’s efforts will facilitate the process of smooth implementation of inspection reform in Armenia.

In this regard, we would like to express our intention to replicate such a successful cooperation format with Business Environment Improving Unit of the Ministry of Economy as well. We envisage the BSO as a potential facilitator for promoting an efficient Public-Private Dialogue between this Government unit and our Network in the framework of business environment improvement reforms.

We are sure that our collaboration which has a successful precedent as mentioned above can offer considerable promise in addressing the development challenges of private sector, in particular, SME community in our country.

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Therefore, the BSO expedited the dialogue between the key stakeholders and provided timely advice in the course of establishment of such a module. In the meantime, relevant Government ministries relying on the BSO’s expertise in the field, requested assistance to facilitate and support the process of establishment of a new forum where the private sector is expected to become more proactive and maintain effective pipeline of issues for regular consideration (Box 3).

Excerpt from the letter of the RA Minister of Economy to the Donor Community

Box 3 Dear all,

I am pleased to inform you that with the ultimate goal to succeed in the reform programs aimed at improving the business environment for small and medium enterprises, the Government of Armenia jointly with the European Bank for Reconstruction and Development have initiated measures to ensure structured partnership and constructive policy dialogue between the state and the private sector.

Directed with the above mentioned objective, the RA Prime Minister’s decision “On Establishment the Council for Small and Medium Entrepreneurship Development” has been drafted….

Sincerely, Tigran Davtyan

Thus, as a result of mutual concentrated efforts, SME Development Council (SME DC) was formed by the Prime Minister’s decision as of July 7, 2011 to serve as a platform for identifying, prioritizing and resolving key constraints to the SME development (find Annex 2). The functioning of the Council is supported by the Council Secretariat. It was agreed that the BSO will provide technical assistance to the SME DC Secretariat by facilitating regular meetings and roundtable discussions with leading business associations to learn their views on issues that hamper business settings for SMEs, provide technical expertise for developing potential solutions, update them on progress achieved and outline the reform agenda.

Hence, the BSO focused its operations around the main objectives of the IRCC and the SME DC, which are to improve the country’s business environment through the efficient and consistent reform implementation ensuring productive cooperation and dialogue between the Government and the business community.

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Directed with the above mentioned objectives the BSO continued throughout the year 2011:  advancing the dialogue with the business community aimed at identifying priority areas of high concern;  providing detailed technical analysis of the business and regulatory settings for Government and business stakeholders on the raised issues;  networking with key business associations and unions with the aim of keeping the business community informed about the strategies and reforms developed by the Government to improve business environment, while ensuring feedback to adjust the reform model according to the real needs of the private sector;  sharing information and expertise with the donors operating in the field of business environment improvement having the perspective to complement mutual efforts.

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THE ACHIEVEMENT OF THE BSO OBJECTIVES

The objectives of the BSO are to:

 Initiate effective Public-Private dialogue (PPD) by taking the role of a proactive facilitator;  Provide technical assistance to the IRCC and SME Development Council to optimize and improve the business regulatory framework aimed at creating an enabling environment for the private sector;  Keep the business community informed about Government developed approaches and strategies, while ensuring feedback to adjust the reform model according to their real needs;  Contribute to the improvement of Armenia’s Doing Business rank;  Contribute to the donor community coordination through active information exchange.

To achieve its objectives the BSO initiated activities that can be divided into 4 interrelated fields

 Assistance to the IRCC Secretariat;  Assistance to the SME DC Secretariat;  Cooperation with donors;  Day to day activities aimed at achieving the BSO objectives.

In summary, the following achievements highlighted below in the Box 4 represent the main outcomes of the BSO operation in Armenia during 2011. This success is a result of a strong and valuable cooperation with the IRCC and SME DC Secretariats and partners from private sector, and to a larger extent is based on a concerted action of all stakeholders:

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Year 2011 Results Box 4

 The SME Development Council has been established by the RA Prime-Minister decision “On the SME Development Council Adjunct to the RA Government”;  Policy dialogue facilitation: 5 High-level Coordination Council meetings, chaired by the Prime- Minister;  20 working group PPDs, 24 round tables, 4 seminars and range of working meetings with the Secretariats of IRCC and SME DC, Inspection Reform and Business Environment Improvement Units of the Ministry of Economy, Government bodies, business community and donors;  7 interviews by TV and 5 articles in newspapers to raise public awareness on inspection reforms as well as on government developed policies and measures to improve the business environment for SMEs in the country;  Mapping of all 18 inspection bodies has been accomplished, submitted and approved by the Council;  The RA Law “On making changes and amendments in the RA Law “On organizing and carrying out inspections in the RA” has been adopted by the National Assembly of RA thus introducing EU inspection standards in Armenia;  The list of measures ensuring the enforcement of the law has been confirmed by the RA Prime Minister decree N 830-A of September 6 2011 (find Annex 4);  The model of annual reports to be published by inspection agencies has been developed;  Standards defining inspection methodology and risk factors within the frames of a tax body activities has been confirmed by the RA Government;  The list of organizations that are subject to inspection every six months by the method of exception has been confirmed by the RA Government;  Performance checklists for lottery, prize game and casino licensing terms and requirements has been confirmed by the RA Government;  17 checklists for different pilot inspectorates has been drafted and submitted to the Council;  The plan for annual inspections have been published by the 13 inspection agencies;  The state registration process for business entities has been simplified by the RA Law 1122-N;  The registration of real property lease for business purposes has been simplified through reduction of procedures and leasing charges by the RA Law “On making amendments in the RA Law “On state registration of property rights”’;  The SME e-signature cost has been reduced 3 times since January 2012 and now is 3,500 AMD;  A unified form of “Income tax calculation by organizations” and “Employers’ reports on obligatory social insurance payments” has been elaborated for micro and small entrepreneurs;  The liquidation process for legal entities has been simplified by the amendments in the RA law “On state registration of legal entities”.

Details on the above mentioned results are presented throughout the report. As a follow up to the Inspection Reform Concept adopted on September 17, 2009 the National Assembly adopted the RA Law “On Making Amendments” to the RA Law “On Organizing and

Carrying out Inspections in the RA” on June 23, 2011 (Box 5).

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Box 5

Excerpt from News Inspections of businesses in Armenia to be based on risk assessment May 25, ARKA On Wednesday, Armenian National Assembly passed at the first reading amendments to the law on inspections. These amendments imply transition to inspections based on risk assessment. Economy Minister Tigran Davtyan, presenting the bill to lawmakers, said that the amendments imply new fundamental changes in organization of inspections of businesses. They propose to divide economic entities into three groups - high, moderate and low-risk categories. The minister pointed out some faults in the current system of inspections, which often were unnecessary and displeased entrepreneurs. He said that only high-risk businesses would be inspected. It is also planned to create database of results of inspections. Frequency of inspections will be restricted – high-risk economic entities will be inspected no more than once a year, moderate risk companies once in three years and low-risk businesses once in five years. Special forms filled by economic entities will be taken as basis for inspections. “This is a crucial step that changes inspection principles and will spur development of small and mid-scale businesses, since rules of this game will be simple and clear and will create favourable environment for those companies doing their business above board” Davtyan said. Source: http://arka.am/en/news/economy/26028/?sphrase_id=26713

The relevant Government ministries rely on the BSO as a source of specific technical expertise in selected matters relating to the business environment improvement. The Prime Minister of Armenia extended his appreciation towards the BSO’s assistance during various meetings with the EBRD high officials. Box 6

Excerpt from News Middle class formation important in overcoming corruption and installing democratic values- Armenian PM October 17, News.am The delegation of the Board of Directors of European Bank for Reconstruction and Development (EBRD) arrived in Armenia to discuss the current projects, to get acquainted with the situation in Armenia and to clarify the priorities in elaborating new strategy for Armenia, governmental press service informs Armenian News-NEWS.am. Director for Caucasus, Moldova and Belarus Paul-Henri Forestier and EBRD Resident Office in Yerevan Valeriu Razlog also participated in the meeting…… Head of Armenian government thanked EBRD Business Support Office and the Bank’s support in the establishments of the Small and Medium Enterprises Development Council.

Source: http://news.am/eng/news/78242.html

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And finally, the wider outcome of our works is reflected in Armenia’s doing business rank. Though not all reforms and advancements have been captured by the World Bank’s “Doing Business – 2012: Doing Business in a More Transparent World” report, Armenia managed 6-point rating improvement to 55 from the previous year’s 61. In addition to 6 point rank increase Armenia is recognized as the champion in the number of reforms implemented in business regulation area in the region. This achievement is a byproduct of the concentrated efforts and productive team work of the BSO with the MoE, IRCC and SME DC Secretariat as well as IFC Investment Climate Reform project. Ranking details are presented below (see Box 7). Box 7

Doing Business 2012 Fact Sheet

Rank in Doing Business 2012: 55 Rank in Doing Business 2011: 61

Areas of business regulation reform: Starting a business, Dealing with construction permits, Getting credit (credit information), Paying taxes, Resolving insolvency.

 starting a business easier by establishing a one-stop shop that merged the procedures for name reservation, business registration, and obtaining a tax identification number and by allowing for online company registration.  dealing with construction permits easier by eliminating the requirement to obtain an environmental impact assessment for small projects.  credit information system by introducing a requirement to collect and distribute information from utility companies  tax compliance easier for firms by reducing the number of payments for corporate income tax, social security contributions, property, and land taxes. It also introduced mandatory electronic filing and payment for major taxes.  Armenia amended its bankruptcy legislation. Amendments regulate the appointment of insolvency administrators, reduce the processing time for bankruptcy proceedings, and regulate sales by auction.

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ACTIVITY 1 - ASSISTANCE TO THE INSPECTION REFORMS COORDINATION COUNCIL SECRETARIAT

Since January 2010, upon the request from the Ministry of Economy, the BSO started active cooperation with the Secretariat of the IRCC. The main focus of the IRCC has been on introducing EU approach of risk-based inspections in all 18 inspectorates which would ultimately reduce the burden inspections impose on businesses.

In the scope of its assistance program the BSO has provided detailed technical assistance to the IRCC Secretariat to achieve the targets fixed in the Inspection Reform Activity Plan for 2011 (find Annex 5), facilitated policy dialogue, between the private sector and the policy- makers aimed at better representing business community proposals advancing inspection reforms underway. An innovative approach and, to a certain extent, creative practice resulted in full ownership of the reform program among the business community.

The inspection functions are widely viewed by corporate entities and civil society as an excessive burden on companies and an obstacle to improving business environment in the country. Through risk based approach the inspection procedures will be more targeted, transparent and creating environment of certainty important for businesses planning. Therefore, successful implementation of inspection reforms will stimulate the development of small and mid-scale businesses and will create favorable environment for those companies to do their business above board.

In summary, the following results represent the main outcome of the BSO operations in the field of inspection reforms. 1. Discussions, roundtables, monthly working group and broader PPDs were held with businessmen and business associations to comprehend their proposals as well as the problems faced. 2. About 500 laws, sub-legislative acts, orders, and technical guidelines regulating supervision respective areas of operating inspectorates in Armenia have been studied. 3. Discussions with the representatives of inspectorates were held to fully understand their spheres on the practical level.

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4. International experience on inspection systems has been studied. 5. Mapping of all 18 inspection bodies has been accomplished. 6. The optimal model of inspection system has been developed. 7. The risk-based inspection system introduction plan in Fire Inspectorate has been developed. The plan comprises the structure of databases, methodology of risk evaluation and inspection targeting. The risk profile and checklists have already been developed which are fundamental components for the introduction of risk based inspections in practice. According to the action plan inspections by the Fire inspectorate will be implemented by risk-based methods in Yerevan by the end of 2011 and in allover Armenia during 2012. 8. The risk-based inspection system introduction plan in Hygiene and Anti-Epidemic Inspectorate has been developed. The plan comprises the structure of databases, methodology of risk evaluation and inspection targeting. Currently risk profile and checklists are being developed for this sphere. 9. The risk–based inspection system introduction plan in Labor Inspectorate has been developed. The technical description of the software necessary to implement the risk-based inspections has been designed. Currently the development of risk profile and the checklists are underway. 10. The preliminary mechanism of risk-based inspections system for Market and Consumer Rights Protection Inspectorate has been developed. 11. Working groups consisting of state and private sector stakeholders were formed to develop checklists for the rest of inspectorates. 12. Monitoring and Evaluation plan of risk-based inspections was developed and submitted to the Council. As a result of the above mentioned activities, amendment to the RA Law “On organizing and carrying out inspection in the RA” has been drafted and submitted to the IRCC. The Draft Law on amendments was soon adopted by the National Assembly in the second and final hearing by on June 23, 2011. Main provisions of the Law are presented in the box below (Box 8) and details in Annex 3.

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Box 8

Main Provisions Assigned by the Law

Inspection planning according to the risk factors The standards determining the risk degree have been clearly established by the law. The economic entities are to be classified as of high risk (to be inspected once a year), medium risk (once every three years) and low risk (once every five years).

Inspections only within the framework of checklists

The checklist includes a comprehensive list of issues to be checked, which must be specified during the inspection. The issues in the checklist are clearly elaborated so that the answers can be only “Yes” or “No”. The inspector has no right to check any other indicator not included in the checklist.

Inspections only on the basis of annual plans

In the annual inspection plan, the inspection body may include only up to 20% of all registered legal entities in the group of high risk subject to its inspection. At least 70% of the annually planed inspections must be carried out in companies included in high risk group, maximum 25% - in medium risk and maximum 5% - in low risk group. Each inspection body should approve its annual inspection plan by December 1 of the year preceding the inspections and within three days published it on its official website.

Having in mind the private sector feedback on successful implementation of inspection reforms and their firm support, a strict provision was included into the Law stating that all the inspectorates that would refuse to adopt the risk-based inspection system would be forced to inspect a concrete business only once in every 5 year. This provision has been included into the Law to guarantee the adoption of risk based system by all inspectorates. To ensure the proper operation of the new risk-based inspection system the Prime Minister issued a Governmental decision prolonging the suspension of inspections by the bodies which do not comply with the new risk-based inspection system. In the framework of its continues support, currently the BSO is assisting the IRCC Secretariat in making amendments in laws and sub-legislative acts regulating inspection

13 EBRD BSO Annual report 2011 functions of respective state bodies to secure smooth implementation of the new Law in practice.

ACTIVITY 1.1 Adoption of the RA Law ''On making amendments to the RA Law on organizing and carrying out inspections''

Steps taken:

1. Long-term and short-term decisions were made regarding the regulation of inspection processes.  The long-term decision is to Draft a new Law regulating the inspection system in general.  The short-term decision is to regulate the main problematic areas by making amendments and changes in the RA Law “On organizing and carrying out inspections”.

2. 12 meetings were arranged with the members of IRCC Secretariat, international consultants engaged with the support of EBRD and IFC to find out the main issues to be regulated by these amendments and changes. 3. 9 provisions were developed for amending the RA Law “On organizing and carrying out inspections”. 4. The Draft Law was presented to the Inspection Reform Coordination Council during the second sitting on March 4, 2011. 5. The proposals and recommendations voiced at the meeting were summarized and incorporated into the Draft Law. 6. 20 meetings were arranged with responsible Ministries to discuss the suggested amendments and to come to an agreement over the Draft Law. 7. 5 working group PPDs and 7 round table meetings took place with private sector representatives to discuss the Draft Law and to receive their comments and recommendations.

Completed deliverables:

1. Minutes of the Council held on March 4, 2011 (find Annex 7) and working group PPDs.

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2. Governmental decisions authorizing the submission of the Draft Law to the National Assembly.

Results: The National Assembly of RA adopted the RA Law “On making Amendments to the RA Law on organizing and carrying out inspections in RA” on June 23, 2011. The main following changes were made in current inspections procedure:  Risk-based inspection system has been established;  The principle of carrying out inspections exceptionally with checklists has been established;  The principle of inspection annual planning has been set up along with concrete cases for carrying out non- planned inspections.

ACTIVITY 1.2 Implementation of the RA Law ''On making amendments to the RA Law on organizing and carrying out inspections''

Steps taken:

1. The sub-legislative acts supporting the implementation of the amended Law “On organizing and carrying out inspections'' have been identified. 2. The list of 43 sub-legislative acts arising from the Law, deadlines of presenting them to the Government and to 20 responsible state bodies have been set by the Prime- Minister’s Decree.

Completed deliverables:

1. Minutes of the Council held on April 12 (find Annex 8), and July 29, 2011 (find Annex 9); 2. Analysis of the Law “On making amendments to the RA Law on organizing and carrying out inspections”; 3. Minutes of the discussions with subsequent ministries; 4. The RA Prime Minister’s Decree #830-A adopted on September 6, 2011 (find Annex 4) 5. The draft Governmental Decree on approving the Annual report template for inspections and its filling instructions;

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6. The draft Governmental Decree on approving the list of organizations which can exceptionally be inspected once in 6 months.

Results: The following Governmental Decrees have been adopted at the Government sitting held on the December 29, 2011. 1. Governmental Decree on approving the Annual Report template for inspections and its filling instructions; 2. Governmental Decree on approving the list of the organizations which can exceptionally be inspected once every 6 months.

ACTIVITY 1.3 Risk Based Inspection System

Steps taken:

1. Risk based inspection methodology for State Hygiene and Anti-Epidemic Inspectorate has been drafted and adopted by the Inspection reform coordination council. 2. Based on Prime Minister’s Decree a working group has been established to evaluate the economic activities by sectors. The working group includes 2 representatives from the Inspectorate, 2 representatives from consumer rights protection NGOs, 2 representatives from business associations, 2 scientists from the National Academy of Science and 1 representative from the Inspection reform secretariat. 3. Checklists for 4 different sectors of hygiene and anti-epidemiological sphere have been drafted. 4. The risk profile for Fire Inspectorate has been drafted by estimating more than 8000 buildings in Yerevan and in different regions of Armenia. 5. Checklists for 9 types of buildings have been drafted. 6. Risk based inspection methodology for State Labor Inspectorate has been drafted and adopted by the Inspection reform coordination council. 7. One general checklist has been drafted for the Labor Inspectorate. 8. A cost-efficient and effective model framework for market surveillance activities has been developed with the assistance of the international expert hired by the EBRD BSO (find Annexes 6, 13).

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9. Risk based inspection methodology and 2 checklists for State Casino Licensing Inspectorate have been drafted, submitted to the IRCC and adopted by the Government. 10. Risk based inspection methodology for Tax Inspectorate has been drafted and adopted by the Government. 11. 7 PPDs and 14 round table meetings with both representatives of private sector and Inspectorates were organized to learn their approach on the structure of databases, risk-based indicators and risk evaluation methodology for all inspectorates.

Completed deliverables:

1. Minutes of the Council held on March, 4 and July 29, 2011; 2. Minutes of the Hygiene and Anti-Epidemic working group 9 policy dialogues; 3. Minutes of 14 working group meetings and round tables with private sector; 4. 17 draft checklists for different spheres and Inspectorates. 5. Governmental decisions authorizing continuous promotion of inspection reforms to improve the business environment and investment climate in the country.

Results:

 Prime-Minister’s Decree #419-A as of May 13, 2011 on establishing a working group.  Governmental Decree #1852-N as of December 22, 2011 on applying the risk based inspection methodology for the State Casino Licensing Inspectorate.  Governmental Decree #1636-N as of November 10, 2011 on applying the risk based inspection methodology for the Tax Inspectorate. “For Armenian taxpayers advance notification will free them from unexpected inspections, which have caused many complaints. Such advance notification is being given for the first time, and will lead to decrease in tensions between the tax authorities and business” (Oxford Analytica, January 9, 2012, http://www.oxan.com/display.aspx?ItemID=ES172976).

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ACTIVITY 1.4 Draft Law on Market Surveillance

Steps taken:

1. Existing procedure of Market Surveillance in Armenia has been studied – the issues have been revealed together with beneficiaries. 2. International experience on Market Surveillance procedures and philosophy has been studied, including cases of:  Countries in Western Europe  Countries in Eastern Europe  Countries where, with the help of international organizations, inspection reforms either have been already completed or are in the final stages of completion, e.g. Ukraine, Malta, etc. 3. A cost- efficient and effective model framework for market surveillance has been developed based on the final report by Robin Croft, the BSO recruited international expert in market surveillance. 4. The RA Law ''On Market Surveillance'' has been drafted, discussed with international consultants. 5. The RA Law “On making amendments to the RA Law on organizing and carrying out inspections” has been discussed in 2 working group meetings with the Market and Consumer Rights Protection Inspectorate.

Completed deliverables:

1. Minutes of the working group sittings (find Annex 6); 2. Comparative analysis of Market Surveillance system in different countries; 3. The RA Draft Law ''On Market Surveillance'';

Results:  A cost-efficient and effective model framework for market surveillance has been developed (find Annex 13).  4 round table meetings have been organized with the Quality Infrastructure Reform Department, State Accreditation Agency, State Standardization Institute and State Institute of Metrology to discuss the Draft Law.

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 Based on meetings results a comprehensive document has been prepared (Summary Document of Suggestions) summarizing all comments and suggestions on the Draft Law “On Market Surveillance”.  On February 18, 2011 a PPD on Inspection reform took place with participation of the representatives from the Ministry of Economy and the private sector where Robin Croft, International Expert of Market Surveillance of EBRD BSO presented the methodology and preliminary mechanism of the risk-based system for the market surveillance inspections (find Annex 6)

ACTIVITY 1.5 Transparency and publicity of Inspection Reforms

Steps taken:

1. Cooperation with all Inspectorates aimed at preparing Annual Plans of Inspections and making them available for stakeholders; 2. Cooperation with all Inspectorates aimed at preparing Annual Reports of Inspections and making them available for stakeholders; 3. Working Group PPDs aimed at introducing the main principals of inspection system transparency to the private sector. 4. Awareness raising campaign on Inspection reform in marzes (provinces).

Completed deliverables:

1. Minutes of the meeting with Inspectorates. 2. Minutes of working group PPDs. 3. Governmental decisions authorizing continued promotion of inspection reforms to improve the business environment and investment climate in the country. 4. 7 interviews by TV and 5 articles in newspapers to raise public awareness on inspection reforms as well as Government developed policies and measures to improve the business environment for SMEs in the country.

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Result: In early 2012, 13 inspectorates have already published the Annual Plans of Inspections (i.e. list of companies to be inspected during the year) on their websites. This is an important achievement in terms of transparency and likely to reduce the incidents of violations by inspectorates (in particular by tax authorities).

Also jointly with the Secretariat different inspection plans have been compiled into one general file which has been made available in the official website of the Ministry of Economy (http://mineconomy.am/arm/126/free.html).

“From 2012 only businesses that are recognized “risky” will be subject to inspections and the list of such companies will be known beforehand” (Oxford Analytica, January 9, 2012, http://www.oxan.com/display.aspx?ItemID=ES172976).

From June till the end November, together with the Inspection Reform Unit, partners from private sector and donor community initiated an active awareness raising campaign aimed at furnishing with information the business circles in marzes (provinces), particularly in the cities of 6 marzes (Dilijan, Vanadzor, Gyumri, Gavar, Armavir, Vayk) on the risk based inspection system in Armenia and on subsequent changes being made in the legislation. This was the first time the regional businesses were awarded an opportunity to get information on Inspection reform and clarifications on the questions they have from the first hand.

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ACTIVITY 2 - ASSISTANCE TO THE SME DEVELOPMENT COUNCIL SECRETARIAT

The successful cooperation through the platform under the Inspection Reforms Council set a stage to broaden the scope of the policy dialogue and establish a more advanced module to enhance the effectiveness of the public consultations. There was a need to establish a new forum with limited participation of senior cabinet members and relevant representation from the private sector, with a clear understanding that the private sector is expected to become more proactive and maintain effective pipeline of issues for regular consideration. To address this need, after intensive stage of consultations with all parties concerned, the Government developed a concept on establishment of the SME Development Council. The concept was circulated within the Ministries and presented to the prominent private sector representatives. Based on the feedback, all comments and suggestions were carefully reviewed and considered while finalizing the charter and modus operandi of the Council. The EBRD BSO facilitated the dialogue between key stakeholders and provided timely advice in the course of establishing the SME Development Council. It also helped to prepare the initial package of issues to be considered on a priority basis. The international practice of similar councils’ functioning was presented to both public and private sector representatives, which has increased the intensity of consultations and facilitated the establishment process. On July 7, 2011 by the Prime Minister decision the SME Development Council has been established. The decision suggests that the Council will serve as a platform for constructive policy dialogue aimed at identifying, prioritizing and resolving key constraints to the SME development. The Council is chaired by the Prime Minister. It has nine permanent members and comprises of representatives from the private sector (5 seats), representatives from donor organizations (2 seats) and representatives from the Ministry of Economy (2 seats, i.e. the Minister and the First Deputy Minister). The private sector is represented in the Council by the most prominent and active associations representing the interests of the SME sector: Chamber of Commerce and Industry of Armenia, Chamber of Commerce and Industry of Yerevan, the Business Advocacy Network, the Foundation for Small and Medium Businesses and the Association of Armenian Freight Forwarders.

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The EBRD and the Organization for Security and Co-operation in Europe (OSCE) are the members representing the donor community in the Council. The Council functioning principles has been presented to Ivan Nimac, Head of IFC Vienna office and currently IFC is considering providing possible technical support to the Council secretariat. The operations of the Council are supported by the Council Secretariat headed by the First Deputy Minister of Economy. The Secretariat staff is composed of 5 experts from the EBRD Business Support Office, 4 experts from the Ministry of Economy, 1 expert form the SME Development National Center and 1 expert from the OSCE. During the year 2011 the Council convened 2 sittings in July 27 and November 2.

ACTIVITY 2.1 Facilitation of SME Development Council Establishment

Steps taken:

The BSO facilitated the dialogue between key stakeholders and provided timely advice in the course of establishing the SME Development Council. The concept was developed and circulated within the Government and presented to the prominent private sector representatives. Based on the feedback, all comments and suggestions were carefully reviewed and considered while finalizing the documents of the Council. 1. On March 15, 2011 a meeting held at Chamber of Commerce and Industry of RA. The idea of creating a council on the SME issues adjunct to the RA Prime Minister has been discussed with the prominent private sector representatives presenting the interest of SMEs in the country. 2. On April 14, 2011 a meeting held with the members of the Business Advocacy Network, the Chamber of Commerce and Industry of Yerevan, the Foundation for Small and Medium Businesses, the Association for Foreign Investment and Cooperation and the Armenian Freight Forwarders. The initial drafts of SME Development Council concept and Council Secretariat regulation were presented and private sector representatives gave their proposals regarding the documents. 3. On April 28, 2011 a follow up meeting was organized with business circles to present amendments based on the private sector comments and suggestions on the documents presented during April 14 meeting.

22 EBRD BSO Annual report 2011

4. During May, 2011 range of meetings held at the RA Ministry of Economy, with the First Deputy Minister of Economy, the Head of Financial and Technical Department of the RA Government and the team of Legal Department of the RA Government to agree on the concept of the SME Development Council Establishment and elaborate the RA Prime Minister draft decision “On the creation of SME Development Council Adjunct to the RA Government”.

Completed Deliverables:

1. During May, 2011 in close cooperation with the First Deputy Minister of Economy, the Head of Financial and Technical Department of the RA Government and the team of Legal Department of the RA Government the RA Prime Minister draft decision “On the creation SME Development Council Adjunct to the RA Government” has been elaborated and agreed with interested parties from private sector and the Government. 2. On May 30, 2011 a meeting was held at the Government where the draft decision of the RA Prime Minister “On the creation of SME Development Council Adjunct to the RA Government” has been discussed, final agreements have been reached regarding other donor organizations involvement and bringing the document to its final form ready for signing.

Results:

1. Adoption of the RA Prime-Minister decision “On the creation of SME Development Council Adjunct to the RA Government” on July 7, 2011 (find Annex 2) and thus the creation of the SME Development Council.

ACTIVITY 2.2 Assistance to the SME Development Council Secretariat

Steps taken:

The BSO, through intensive consultations and regular meetings, has been assisting the SME Development Council member business associations to prioritize and frame effective

23 EBRD BSO Annual report 2011 submissions on binding business environment constraints to be considered on a priority basis by the SME DC Council. At the same time the BSO has been providing technical assistance, traced back by analytical and legal support of the BSO staff, to the SME Development Council Secretariat to analyze and elaborate solutions to the presented issues as well as to secure the implementation of protocol directions of the SME DC sessions (find Annex 12).

1. Assistance to the Council member private sector representatives in articulating issues hampering doing business for SMEs to be set for discussion at the SME DC sessions. 2. Detailed technical assistance to the SME Development Council Secretariat to analyze presented issues and prepare solutions. 3. Facilitation of the advocacy efforts between the Council Secretariat and private sector. 4. Assistance in preparing meeting minutes with clear deliverables and follow up measures.

Completed Deliverables:

1. The RA Government Decree 1122-N has been worked out and passed according to which the social insurance registration number is allocated while getting state registration certificate by legal entities. Simultaneously, by the requirement of the business community the Secretariat worked out a legislative package on further improvement of state registration process for legal entities. Particularly, the proposed amendments were on the allocation of various information and additional services to the SMEs by state register at the time of registration as it was necessary for effective performance of start-up companies (the issue is presented in details in the list of issues identified in the process of settlement by the Council Secretariat). 2. Amendments to the RA Law “On state registration of property rights” have been developed and passed according to which the registration of real property leasing for business purposes has been simplified. 3. The RA Government Decree N 115-N has been worked out and approved which stipulates that the payment for e-signature purchase has been reduced for those economic entities which are to purchase e-signature from January 1, 2012.

24 EBRD BSO Annual report 2011

Simultaneously, the RA Government plans to apply the reduced price for those organizations and sole proprietors which are obliged to submit e-reports provided by the tax legislation since 2013. 4. Amendments to the RA Law “On application of cash registers” has been worked out and passed that reduces documentation and time required for tax reporting. 5. Changes have been made in the RA Law “On income tax” which determine that the reports on income tax and social payments are to be submitted in a unified electronic way. The Law will come into effect from January 1, 2013. 6. Changes have been made in the RA Law “On state registration of legal entities” to simplify the liquidation process of legal entities. 7. The RA Government Draft Decree N 88 “On confirmation of the procedure of changing the functional significance of buildings, constructions or a part of them in the RA”, amendments in the RA Government Decree N 1473-N “On confirmation of the procedure of giving architectural design task” and amendments in the RA Law “On administrative violations” have been developed to simplify the process of changing functional significance of flats. Presently, the charges for leasing office spaces in business centers in Armenia are rather high. Due to this, the SMEs prefer to use flats as offices. But the legislation hinders this process for a businessman to pass through a number of complicated procedures in different state agencies. Thus, the current practice of changing the functional significance of a flat from living into business, increases administrative burden and creates conducive environment for corruption. The package of above mentioned legal documents along with the analysis of the current practice will be presented during the upcoming council session aimed at simplification of the process of changing functional significance of flats. 8. Meetings held with the business community and the representatives of the RA Customs Service to discuss the possibility of elaboration and putting into practice the successful experience of combined cargo transportation which will essentially boost the exporting activities of SMEs. In the result of discussing the options of settlement, a decision was made to elaborate a form allowing combined cargo transportation and instruct the customs officers on putting it into practice correspondingly. Currently, according to the RA Customs Service order, entrepreneurs may export products if they ensure its certain quantity. This order is practically not applicable

25 EBRD BSO Annual report 2011

for SMEs since the latter are not able to ensure such a large quantity due to their limited resources and financial means. 9. A range of discussions has been held with a number of organizations carrying out transit transportation with the aim to improve the process of transit transportation of goods and vehicles in the Customs territory of Armenia. Based on analysis of comments and suggestions voiced during discussions, the draft Government Decree “On making changes and amendments in the RA Government Decree N 887 dated December 27, 2000” has been worked out and circulated. Today the lowest number of transit transportation in the region is in Armenia. Because of legislative deficiencies, the transit transportation in the RA Customs agencies is fulfilled with artificially created delays and expenses. 10. Range of legislative acts and agreements have been elaborated aimed at clear regulation of property and bank account arrest procedures so that the entrepreneurs, during the settlement of disputes with tax and compulsory enforcement agencies, have opportunity to continue their regular business activities and avoid red tapes and corruption by certain state agencies. Nowadays, during the settlements of disputes by the Tax and the Compulsory Enforcement Services the whole bank account of the entrepreneur is arrested without taking into account the size of the disputed sum. In fact, such a practice interrupts the activity of the entity causing compulsory expenses, extra bureaucracy and corruption risks. 11. Changes and amendments in the Government Decree 228-N “On confirmation of the form of a firm name registration, its filling in and presenting as well as submitting to expert structure in electronic way” have been worked out to inform on the area of their registration as well as to advance legal entities state registration process. Simultaneously, the draft notification form to legal entities with the registration certificate has been elaborated aimed at raising awareness on accounting procedures special for their activity regarding submitting tax reports, filling in forms and the legal acts regulating their field of business. Currently after being registered at state register businessmen are not aware of their further obligations as well as do not poses information on which tax and social insurance payments department they are registered. 12. Amendments to the RA Laws “On joint-stock companies” and “On securities market” has been worked out aimed at making the information on the shareholders

26 EBRD BSO Annual report 2011

of joint-stock companies and/or on shares public. The Draft Laws have been included in the four-day sessions agenda of the National Assembly. 13. Minutes of the SME DC Council held on July 27, 2011 (find Annex 10) and November 2, 2011 (find Annex 11).

Results: 6 out of 10 issues raised by the private sector representatives during the first SME DC meeting held on July 27 have been solved.

1. The state registration process for legal entities by allocation of registration number for making social insurance payments at the time of registration by the state register has been simplified. Previously the “One window” principle of state registration of legal entities by the state register did not relate to getting a registration number at social insurance foundation. Because of this the advantage of “One window” principle wasn't used completely and the SME entities had to waste time on getting a registration number in social insurance foundation. 2. The leasing process for legal entities has been simplified:  The requirement of mandatory notarization of leasing treaties has been eliminated;  “One window” principle has been established, which functions in the RA State Cadaster Committee;  A unified payment has been set for registration of standard leasing treaty, as a result of which the previous expenditures have been noticeably reduced. Previously, the requirement of mandatory notarization of the leasing treaty between legal entities as well as the requirement of state registration had made the process rather complicated and noticeably increased the required costs. The problem was particularly urgent for those SMEs who have to frequently lease new spaces because of peculiarities of their business, thus appearing again in the process of costing time and money. 3. The e-signature cost for SMEs has been reduced from AMD 13.000 to AMD 3500. As a result of established e-communication culture the SMEs are obliged to purchase e-signature on time. Taking into account the limited financial resources of SMEs, the amount for e-signature purchase was a noticeable financial burden for them.

27 EBRD BSO Annual report 2011

4. The information on the summary of calculations carried out by cash registers is to be submitted to the State Revenue Committee (SRC) on quarterly instead of monthly basis; since January 1, 2012 entrepreneurs may send the information on money calculations carried out by cash registers electronically within a day without additional visits and time waste. Previously, according to the RA Law “On application of cash registers”, entrepreneurs were obliged to submit the SRC information on the summary of calculations carried out by cash registers every month. Taking into account the fact that some entrepreneurs visit the SRC for their other tax reporting once a quarter, visiting the SRC every month to take the mentioned liabilities caused waste of time. 5. A unified form of “Calculation of income tax by organizations” and “Employers’ reports on obligatory social insurance payments” has been elaborated for SMEs: from 2013 the documentation and time required for tax reporting will be reduced. 6. The liquidation process of legal entities have been simplified: the changes made in the RA Law “On state registration of legal entities” defines that within three working days the state register makes an inquiry to tax agencies regarding the tax liabilities of the legal entity. Absence of a response from the tax agency within 20-day term is considered as a confirmation of absence of tax liabilities by the legal entity, after which the liquidation of the latter is considered as completed. The entity is given a reference on its liquidation within a day. Previously the liquidation process was rather complicated. In fact, the entrepreneurs had to stay in the process of liquidation for one year on average wasting time and resources on artificial bureaucracy.

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ACTIVITY 3 - ADVANCING COOPERATION WITH DONORS

To-date, close cooperation between the BSO and other donors has been maintained inter alia through regular and ad hoc donor coordination meetings. Moreover, to avoid duplications, we regularly meet and exchange information with donors implementing projects in similar fields as the BSO. Donor theme groups on competitiveness are regularly held serving as an additional ground for discussing and presenting progress of projects and sharing information in this regard.

Collaboration with IFC in the scope of Doing Business Reform

The BSO continues its already extensive cooperation with the IFC Doing Business Reform project team in the scope of the Inspection Reforms implementation project. Moreover, having the prospective to consolidate efforts, a mutual decision was made to form a working group and pursue activities stipulated in the Inspection Reform Coordination Council action plan, cooperate in certain structures envisaged by the Governmental program on improving business environment as well as in the PPD framework. The BSO will thus seek to further increase the established cooperation with the IFC through joint working groups, complimentary projects and close co-ordination of policy dialogue.

OSCE and BSO collaboration in the frame of Regulatory guillotine initiative

On February 4, 2011 the OSCE Office in Yerevan presented the main findings of the assessment of Armenia’s business environment that aims to assist the improvement of regulatory policy. The assessment was carried out by OSCE international expert Scott Jacobson and provides a detailed analysis of the potential impact of new regulations. The assessment was done in response to a Government request for support in carrying out regulatory reforms, which aim to increase accountability and transparency, thus reducing the corruption risk and promoting a competitive business environment. Considering EBRD BSO’s extensive experience in cooperation with the private sector, the BSO was requested and organized a meeting with the representatives of 6 key business associations and OSCE expert Scott Jacobson, during which he presented the “Regulatory

29 EBRD BSO Annual report 2011

Guillotine and the re-engineering of the RIA structure” assessment report. Later on the possible cooperation avenues with the private sector were discussed. After discussions with the business associations, Scott Jacobs finalized the operation plan of the Regulatory Guillotine model and presented to the President and the Prime Minister for their consideration. As a logical continuation of the taken measures, under a Presidential Decree dated September 17, 2011, a Council has been set up for the Coordination of Measures to Improve Efficiency of State Regulation of Economic Activities and Reforming of the Laws Regulating the Economic Sphere. On November 3, 2011, a letter of intent was signed between the Government of Armenia and international donor organizations to improve governance effectiveness in the Republic of Armenia through Regulatory Guillotine.

Counterpart International Armenia’s assistance to the Inspection Reform

The “Mobilizing Grassroots Monitoring for Inspection Reform” project implemented by the Foundation for Small and Medium Businesses, with the support of Counterpart International Armenia, monitors and supports the Government of Armenia’s reform efforts in development and implementation of the Inspection Reform through mobilizing advocacy activities by SME community and acting as a watchdog of the reform process. Towards that aim, the organization has done activities to reveal the cost of current inspection system for SMEs and to find out SMEs’ position regarding the inspection reform. It contributed to the effort of EBRD BSO of establishing an effective public-private dialogue by mobilizing and engaging the SME community in participatory monitoring of the Inspection Reform. In addition to that awareness raising activities were undertaken including dissemination of information bulletins among the stakeholders in Yerevan and in regions, producing and airing radio programs and publishing articles in print media.

Completed deliverables:

1. Minutes of the Donor Coordination meetings (find Annex 14).

2. Minutes of working group meetings.

3. Projects designed in conjunction with other donors.

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Results:  Donor community has been widely involved in the business environment improvement process, constantly updated on the progress of the IRCC and SME DC decisions.  Recommendations made by donor community have been taken into account by the Government.  Private sector representatives have gained knowledge on new methodologies and international experience in relevant fields of interest.

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ACTIVITY 4 - DAY TO DAY ACTIVITIES AIMED AT ACHIEVING THE BSO OBJECTIVES

ACTIVITY 4.1 – Managing the PPD process

BSO is managing the dialogue process and providing necessary technical assistance to the Secretariats and the Councils operations. The BSO experts regularly organize working group meetings with representatives of business associations, foundations and NGOs, informing them about the Secretariats’ course of actions, providing materials to be discussed during the Councils sessions, getting feedback and making revisions in accordance to the suggestions made as well as providing information about the Councils’ decisions. In addition, the BSO organized consecutive round tables where representatives of business associations, the Government and donor organizations discussed issues persistent in private sector. Box 9

Excerpt from News

Business Incentive: SME gets notice of Government in helpful measures October 3, ArmeniaNow

Business experts in Armenia have enthusiastically greeted government-initiated measures to spur small and medium businesses in Armenia, however they say more drastic and large-scale steps should yet be taken to reform the field. Early in 2011 Prime Minister Tigran Sargsyan stated that 5-6 percent growth was expected in the sphere of small and medium enterprises (SME) this year, stressing that “2011 will be an exceptional year in that respect”. On September 14 the Center CEO Tigran Harutyunyan presented an initiative aimed at SME development, according to which the state will compensate 50 percent of expenses required for export certification of ultra-small company production. Gagik Poghosyan, coordinator of business protection network, points out two main improvements in the field that will contribute to its development. According to Poghosyan, the amendments to the law “On organization and implementation of inspections in RA” and the establishment of Inspection Reform Coordination Council will make the problem solution process in this field more productive. By the amended law, in particular, a new system of implementing inspections has been introduced, which would limit ungrounded inspections and keep the focus on the highest-risk economic entities. “There are presently 18 inspection structures in Armenia. A new inspection methodology has been developed due to the legislative changes to make the process much easier for SME,” says Poghosyan. Poghosyan believes that the significance of the new council lies in the possibility of discussing SME challenges during its sessions. During the July 29 session 10 issues were discussed related to liquidation procedures, SME rental contracts for premises, classification and differentiation of SME, as well as other procedural issues….

Source:http://www.armenianow.com/economy/business/32108/armenian_small_medium_business_programs

32 EBRD BSO Annual report 2011

Steps taken:

These activities are described in detail under the Activities 1 and 2.

Completed deliverables:

 High-level Coordination Council meetings, chaired by the Prime-Minister.  20 working group PPDs, 24 round tables, 4 seminar and range of working meetings with the Secretariats of Inspection Reform Coordination Council and SME Development Council, Inspection Reform and Business Environment Improvement Units of the Ministry of Economy, Government bodies, business community and donors.  Minutes of the Council held on 4th of March, 12th of April, 27th of July, 29th of July, 2nd of November and of the working groups and round tables PPDs.  Regular consultations with state authorities to secure implementation of SME Development Council decisions.  Technical assistance to the IRCC and SME Development Council Secretariats to analyze and draft solutions to the issues raised during Councils sittings.  Monitoring of the implementation process of IRRC and SME Development Council decisions.  Facilitation of an effective dialogue between the Government and business circles on the issues of business climate improvement in the sphere of small and medium entrepreneurship and inspection reforms.

Results:

 Achieved results presented in Activities 1.1, 1.2, 1.3, 1.4, 1.5, 2.1 2.2  An environment conducive for the operation of the IRRC Council and SME Development Council has been established.  The private sector participation in the decision making process of the Government implemented policies and reforms has been ensured, thus a conductive environment for the Council operation has been established.  Building social capital as the framework of trust between the public and private sectors has been achieved. The BSO considers this a critical factor for the inspection reforms to be successful in Armenia.

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ACTIVITY 4.2 –Capacity building of the BSO and the Secretariat staff

Steps taken:

Professional development of the BSO and the Secretariat staff through their day-to-day work and participation in trainings, seminars and conferences is the ultimate objective of the BSO management. In addition, based on the Government request to EBRD BSO’s assisted the facilitation of SME DC establishment and provided technical assistance to the SME DC secretariat works by hiring 3 experts.

Results:  The knowledge brought in by the international expert has ensured a high standard of work of the BSO, the Council and the Secretariat.  The BSO and Secretariat experts as well as senior officials from the MOE have acquired new skills and knowledge, gained experience and further brought those to support the work of the BSO, the Secretariat and the Council.

ACTIVITY 4.3 – The BSO reports

Steps taken:

The biannual report on the BSO activities covering reporting period January-August 2010 was submitted to the Resident Office of the EBRD and to relevant staff members of the EBRD Headquarters in London. Financial reports have been submitted monthly.

Completed deliverables:

 Biannual report;  Monthly financial reports.

Results:

The BSO reporting system to the EBRD is effective and working in a timely manner.

34 EBRD BSO Annual report 2011

CONCLUSION

The EBRD BSO during year 2011 has continued to play the role of policy dialogue facilitator. We succeeded through the established advocacy to build social capital, i.e. environment where private sector shares its concerns with the Government in an open and transparent manner with the confidence that its voice is heard and respected. On the other hand, the Government realized that it needs this micro level input on the economy in order to understand the effects of its reforms, policies and to create incentives for growth and investments. The work in the first part of the year focused upon providing a framework for regular consultative processes by facilitation of working group and high level PPDs with the IRCC Secretariat playing various roles in the area of inspection reform implementation. The work in the second part of the year has focused on establishment of another platform for PPD, SME Development Council, through which private sector representatives could recommend and put pressure for reforms/policies that benefit a broader spectrum of business entities. The BSO concentrated resources in providing secretariat services to the SME DC, on one hand assisting business community to articulate problems and develop preferred well balanced solutions, on the other hand assisting the Government in implementing steps and policy monitoring.

The outcomes of our activities are as following:  Through established democratic policy advocacy, the private sector has received new recognition as a legitimate stakeholder in policymaking;  The state and business could reach agreement on joint action plans and negotiate policy standards;  Several harmful proposals have been blocked by joint efforts with the private sector, SME DC and IRCC secretariats;  Partner associations strengthened their organizational skills and reputation and equipped them by offering value to their members. They also mobilized membership around issues of importance to business;  The Government got micro level input from businesses by that setting optimal policy priorities and incorporating feedback to create market friendly policies;  Through PPDs the Government improved its own coordination and accountability thus improving the governance.

35 EBRD BSO Annual report 2011

The achievements outlined above suggest that the BSO objectives have been achieved and set a stage to continue full-scale operation in the coming years.

In our future works we will continue to focus attention on creating an environment conducive for effective public-private dialogue and involving the wider business community in discussions on improving the investment climate and ensuring stability in the operations of the Inspection Reform Coordination Council, SME Development Council and secretariats. In the meantime, we will further continue to look for opportunities to cooperate with donors undertaking business environment improvement and PPD fostering projects.

In particular we will:  Continue promoting regular interaction and help maintaining constructive dialogue between the country’s main stakeholders, i.e. the Government, business community and donors.  Continue strengthening the functioning of the platform aimed at identifying current problems of private sector urgently and effectively.  Provide necessary technical assistance designed to strengthen the functioning of Secretariats of the Inspection Reform Coordination Council, SME Development Council and advance reform efforts in these areas.

 Identify both key impediments to investment by local and foreign enterprises and main drivers and agents of investment using respective background knowledge and expertise.

 Identify which agencies (i.e. donors) can support analytical work on specific issues raised during consultative councils, meetings and coordinate the work with those agencies and other stakeholders in working groups.  Design and implement a communication and outreach strategy.  Elaborate a monitoring and evaluation framework.  Intensify sector specific dialogue process.  Participate in conferences and workshops on investment climate with a view to learning lessons from the experiences gained by other countries that have faced similar issues and to exchanging ideas on how to address common situations.

36 EBRD BSO Annual report 2011

Appendixes

ANNEX 1

Letter Copy

Mr. Valeriu Razlog, Head of EBRD Resident Office in Yerevan

Dear Mr. Razlog, Further to the meeting held on February 18 in Erebuni Business Center, on behalf of “Business Advocacy Network (BAN) consisted of different business associations, chambers of commerce and other business support NGOs, representing the interests of small and medium business community in Armenia, I am pleased to express our appreciation regarding EBRD’s Business Support Office efforts on facilitation of Public-Private Dialogue in our country.

In the past two years, our effective collaboration with BSO helped to develop a vital link between BAN organizations and the Ministry of Economy, aimed at fostering the inspection reform. Due to this collaboration the voice of SME community through our Network gets heard and our suggestions considered in the process of inspection reform design and implementation. The practice of established periodic working group meetings and broader PPDs provide us with a framework for regular consultative process through which main directions of inspection reforms have been discussed, several approaches have been worked out and joint steps for reform implementation initiated together with privet sector (through BAN), BSO, Inspection Reform Unit Secretariat team and other donors. We are hopeful that our established cooperative relationships and complementary expertise due to BSO’s efforts will facilitate the process of smooth implementation of inspection reform in Armenia.

Sincerely, Gagik Poghossian Deputy Chairman of the Board & CEO, Coordinating Member of Secretariat of Business Advocacy Network (BAN)

37 EBRD BSO Annual report 2011

ANNEX 2

Non Official Translation

Prime Minister of the Republic of Armenia Decision

7 July, 2011, 638-N

ON ESTABLISHMENT THE COUNCIL FOR SMALL AND MEDIUM ENTREPRENEURSHIP DEVELOPMENT IN THE REPUBLIC OF ARMENIA CONFIRMATION OF ITS STRUCTURE AND PROCEDURE Based on the 2nd point of the 121st article of the procedure established by the RA President Decree of July 17, 2007 NH-174-N, targetted at ensuring of efficient dialogue of the state and the business community on the matter of business environment improvement of the Small and Medium Entrepreneurship (hereinafter SME) sphere the following shall be carried out:

1. To establish a Council for SME development in the Republic of Armenia and confirm its structure in accordance with the Annex # 1

2. To establish the procedure of the SME Council activity, Annex 2

3. To the Minister of Economy of the RA

1) within 10 days after this Decree come into force to offer the representatives of business community and supporting donor organizations to submit proposals on SME development to the secretariat of the Council regarding assistance given by them

2) within 30 days after this Decree come into force to convene the first session of the SME development Council

5.This Decree comes into force from the day following the official publication

38 EBRD BSO Annual report 2011

Annex N 1 of the RA Prime Minister N 638-N decision issued on July 7, 2011

THE STRUCTURE OF THE RA SME DEVELOPMENT COUNCIL

T.Sargsyan RA Prime Minister (Chairman of the Council) T.Davtyan RA Minister of Economy K.Minasyan First Deputy Minister of Economy of the RA V. Razlog Head of the European Bank for Reconstruction and Development RO Yerevan( by agreement) S. Kapinos Ambassador, Head of OSCE office in Yerevan (by agreement) G.Poghosyan Coordinator of “Business Interests’ Protection Network” NGO (by agreement) N.Mailyan Executive Director of “Foundation for Small and Medium Businesses” NGO (by agreement) M.Sargsyan Chairman of the Chamber of Commerce and Industry of the RA (by agreement) K. Maritirosyan Executive Director of the Chamber of Commerce and Industry of Yerevan (by agreement) G.Makaryan Executive Director of “Republican Union of Employers of Armenia” NGO (by agreement) D.Sargsyan General Secretary of “Association of Armenian Transport Freight Forwarders” NGO (by agreement)

39 EBRD BSO Annual report 2011

Annex N 2 of the RA Prime Minister N 638-N decision issued on July 7, 2011

STATUTE

OF THE COUNCIL FOR DEVELOPMENT OF SMALL AND MEDIUM ENTREPRENEURSHIP UNDER THE GOVERNMENT OF THE REPUBLIC OF ARMENIA

1. GENERAL PROVISIONS

1.This statute determines the procedure of the activity of the Council for the Development of

SME (hereinafter Council).

2. The Council is a consultative and advisory body making decisions regarding business environment development in the sphere of SME through implementation of necessary actions aimed at the elaboration of proposals and solutions for state agencies.

3. The organizational and methodological activity of the Council is ensured by the secretariat of the Council (hereinafter Secretariat), the statute and the structure of which is confirmed by the Council.

II. THE ORGANIZATION OF THE COUNCIL’S ACTIVITY 4. The main principles of the Council activity are:

1) civil responsibility

2) equality of rights of the members of the Council

3) transparency of the activities

4) taking into consideration the opinion of business community during preparation and before decision making.

5. The functions of the Council are:

1) Discussion of the issues actual for SME development.

2) The adoption of relevant decisions concerning the solutions proposed by the secretariat directed at SME development, as well as at the improvement of the system of state management of the sphere.

6. The Council has a right

1) in case of need to invite the heads of state governing bodies to their sessions to discuss jointly the solutions proposed at the sessions.

40 EBRD BSO Annual report 2011

2) to present proposals to state bodies regarding further development of the state policy of the sphere of SME.

3) to receive necessary information regarding SME from state agencies

7. The Council holds its activity through sessions which are convened at least once in three months, as well as through special sessions.

8. Special sessions of the Council can be convened to solve urgent problems on the initiative of at least 1/3 of the Council members.

9. The sessions of the Council are considered eligible if the 2/3 of the Council membership is present at the session.

10. The agenda and the necessary documentation is given to the members of the Council 5 days beforehand.. The issues submitted to the Council are elaborated by the Secretariat.

11. Items to be discussed during the Council should be prepared by the Secretariat.

12. Each session of the Council begins with the confirmation of the agenda and the report of the Secretariat on the implementation of decisions made at the previous session.

13. The items on the agenda are presented by the Secretary of the Council.

14. In case of need for additional information or making new proposals by the members of the Council during the discussion it is put off to the next session. The Secretariat is obliged to ensure the necessary information, as well as the analyses of the mentioned proposals.

15. Representatives of state bodies can participate with right of advisory vote at the sessions of the Council.

16. The decisions of the Council are adopted by the simple majority of votes.

17. In case of votes equality the vote of the RA Prime Minister is decisive, and the member which doesn’t agree with the decision, may submit written opinion which is attached to the session’s protocol.

18. The minutes of the session are made by the Secretariat. The minute includes the items of the agenda, the speeches of the members, the proposals and solutions made for state and other bodies regarding the SME improvement.

19. Within three working days the Secretariat gives the minutes of the session to the members of the Council.

20. Working groups can be formed by the Council.

41 EBRD BSO Annual report 2011

III. The Chairman of the Council

21. The Chairman of the Council shall

1) preside over the sessions of the Council,

2) sign the protocols of the Council

3) during his absence appoints his substitute from among the members of the Council.

4) give assignments to the Secretariat

5) divide the responsibilities among the members of the Council.

IV Members of the Council

22. A member of the Council has a right

1) To submit issues to the Council discussion

2) make proposals regarding the issues submitted for the Council discussion A member of the Council takes part in the sessions personally

42 EBRD BSO Annual report 2011

ANNEX 3

The bulletin of the RA Law on Making Amendments in the RA Law on Organizing and Implementing Inspections

1. Inspections' planning according to risk factors

Each state body carrying out inspections is to introduce a system of audits based on risk assessment, due to which the given body will have the risk assessment of all the economy entities being under its control. For each inspection body the Government will confirm a general description of methodology of inspections based on risks and the standards determining the risk degree corresponding to its sphere. According to the assessment of the standards determining the risk degree, the economy entities are to be classified as of high, medium and low groups, which will be inspected with the following frequency:

1) Entities of high risk are to be inspected not oftener than once a year’ 2) Entities of medium risk – not oftener than once every three years. 3) Entities of low risk – not oftener than once every five years. The body carrying out inspection in the group of high risk may include only up to 20 % of the economy entities subjected to inspection by it. Each state body carrying out inspections confirms the annual inspection program by December 1 of the year preceding the inspections, and the mentioned program within three days is published on the official website of the latter /with the exception of the inspections carried out by the National Statistical Service/ At least 70 % of the annual program of inspections is made up of the entities included in high risk group and maximum 5% is made up of the entities of low risk group. Inspections only within the framework of check lists' questions

All the bodies carrying out inspections are to perform inspections exceptionally on the basis of check lists, excluding

 Tax and customs bodies,  State Commission for Protection of Economic Competition,  National Statistical Service

43 EBRD BSO Annual report 2011

 Financial control.

The check list includes a comprehensive list of issues to be checked, which are to be specified during the inspection.

The issues of the check list are elaborated simply and clearly so that the answer can be only yes or no.

The inspector has no right to check any issue which is not included in the check list.

All the check lists are confirmed by the RA Government.

The check lists are to be obligatory published in the official websites of the corresponding bodies performing inspections.

Unplanned inspections

Unplanned inspections may be done in the following cases:

1) when the terms of the previous instruction is expired

2) when there is written information /application, publication/ on causing harm to the life, health of the citizens, to legal entities, physical entities, legal interest of the state, to animals or environment, as well as on danger of emergency situation of natural or man-cause origin or on the already existing damage, and on the violation of consumers' right (in case of the application from the citizens whose rights have been violated)

3) when the reports determined by Law were not submitted for two reporting periods at least

4) the economy entity has applied for carrying out an inspection at his object,

5)when inspections are carried out in the direction of baseline data and their adjustment coefficient determined by the Law on fixed payments, excise stamps and cash register use, as well as aimed at revealing unregistered employees

6) in the objects of high or the highest risk,

7) the activity of organization of the sphere of lotteries, games with prizes, internet gambling or casinos.

8) the fact of violations by an economy entity has been revealed and founded during the inspection carried out at the another economy entity,

9) the inspection has been appointed in accordance with the Criminal Procedure Code of the Republic of Armenia.

During the inspections carried out in the cases provided by this paragraph only those issues are specified which became a ground for performing those inspections.

44 EBRD BSO Annual report 2011

4. Summary of the results of the inspection No violation The inspector finishes The inspector the inspection summarizes the inspection and makes up

a reference 10 days There is a violation isiolatioՒՄT 10 days

The inspector The inspector presents summarizes the the reference to the economy entity inspection and makes up a draft act

3 days

The inspector presents 5 days The entity has no the draft act to the entity objections

5 days 3 days

The entity studies the The inspector presents the draft act and presents final act to the entity objections

3 days

The inspector reconsiders the draft act and presents the final act to the entity

45 EBRD BSO Annual report 2011

ANNEX 4

Non Official Translation

Prime Minister of the Republic of Armenia Decision

September 6 2011 # 830-A

ON THE MEASURES ENSURING THE ENFORCEMENT OF THE LAW OF THE REPUBLIC OF ARMENIA “ON MAKING CHANGES AND AMENDMENTS IN THE RA LAW “ON ORGANIZING AND IMPLEMENTING INSPECTIONS IN THE REPUBLIC OF ARMENIA”

According to the 1st paragraph of the RA Government Law N 541-N dated April 8 2004 “On measures ensuring implementation of the international treaty of the RA, the Law of the Republic of Armenia, the normative Decree of the National Assembly of the RA, Approve the list of the measures ensuring implementation of the RA Law HO-243-N dated June 23 2011 “On making amendments in the RA Law “On organizing and implementing inspections in the Republic of Armenia” in accordance with the annex.

Prime- Minister of the T. Sargsyan Republic of Armenia

September 6 2011 Yerevan

46 EBRD BSO Annual report 2011

Annex Of the RA Prime-Minister Decision # 830-A on September 6 2011

LIST OF MEASURES ENSURING THE IMPLEMENTATION OF THE LAW OF THE REPUBLIC OF ARMENIA “ON MAKING CHANGES AND AMENDMENTS IN THE RA LAW “ON ORGANIZING AND IMPLEMENTING INSPECTIONS IN THE REPUBLIC OF ARMENIA”

NN Name of the measure Name of the state Terms of Source of financial provision ը/կ management structure presenting draft of the measures related to responsible for legal acts legal act enactment presentation or adoption of the draft legal act 1 2 3 4 5 1. Submitting to the RA RA Ministry of Health 3rd decade of Requires no financing Government the draft March 2011 decision of the RA RA Ministry of Labour Government «On and Social Affairs 3rd decade of approval of the general February 2012 description of the RA Ministry of Nature methodology of risk- protection based inspections and standards of risk State Service of Food 3rd decade of assessments by a Safety of the RA March 2012 corresponding structure Ministry of Agriculture of the Republic of Armenia” State Revenue 1st decade of Committee under the July 2012 RA Government

State Commission for the Protection of Economic competition 1st decade of of the RA November 2011 RA Ministry of Urban Development

RA Ministry of Finance 3rd decade of December 2011 Other state structures carrying out inspections in the RA

47 EBRD BSO Annual report 2011

3rd decade of July 2012

3rd decade of December 2011

1st decade of September 2012 2. Presenting to the RA RA Ministry of Health 3rd decade of Requires no financing Government the draft December 2012 decision of the RA RA Ministry of Labour Government “On and Social Affairs 3rd decade of approving the check February 2012 lists of inspections by a corresponding structure RA Ministry of Nature of the Republic of Protection 3rd decade of Armenia” November State Service of Food 2011 Safety of the RA Ministry of Agriculture 1st decade of November 2012

RA Ministry of Urban Development

Other state structures carrying out inspections 3rd decade of in the RA excluding July 2012 Tax and Customs structures, State 1st decade of Commission for the September Protection of 2012 Economic competition of the RA, State Statistical Service of the RA as well as the body, carrying out supervision activities directed at RA state budget implementation, including accuracy and legality of State Procurement 3. Presenting to the RA RA Ministry of 2nd decade of Requires no financing Government the draft Economy March 2012 decision of the RA Government “On confirmation of the

48 EBRD BSO Annual report 2011

procedure of sharing the information on economy entities between the state structures carrying out inspections” 4. Presenting to the RA RA Ministry of 3rd decade of Requires no financing Government the draft Economy November decision of the RA 2011 Government “On confirmation of the model of reports on the inspections carried out during the previous year” 5. Presenting to the RA RA Ministry of 3rd decade of Requires no financing Government the draft Economy October 2011 decision of the RA Government “On approval of the list of those organizations in which depending on the significance of their activity sphere for the state and public, inspections can be carried out by the state inspection structures supervising the given sphere once in six months”

(The annex was changed 02.11.11 N 1042-A)

Chief of the Government staff of the Republic of Armenia D. Sargsyan

49 EBRD BSO Annual report 2011

ANNEX 5

Inspection Reforms

The Activity Plan for 2011 Problem Action Terms

Procedures of State Step 1: Enactment of the legislative package on State control Supervision January - June  Elaboration  Presentation of international expertise  Discussion with business associations  Discussion with the NGOs presenting the consumers' interests  Discussion at the Council  Reconsidering of the legislative package in case of need  RA Government approval  Submitting to the RA National Assembly  Enactment

Step 2: Enactment of sub-legislative acts arising from the RA January- Law on State Supervision September

 Elaboration  Presentation of international expertise  Discussion with business association  Discussion with the NGOs presenting the consumers' interests  Discussion at the Council  Reconsidering of the legislative package in case of need  RA Government approval

Structural changes in Step 1: Change of the inspections’ status – transition from the February - June, the inspection system category of separate subdivisions of ministries to the category of state bodies functioning in the sphere of management of ministries

 Elaboration of changes in inspections legislation  Presentation of international expertise  Discussion with business associations  Discussion with the NGOs presenting consumers' interests  Discussion at the Council  Reconsideration in case of need

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 RA Government approval

Optimization of Step 1: Establishment of an optimal model of inspection January - March inspection system system for Armenia

 Elaboration of the model (has been implemented)  International expertise  Discussion at the Council  Other discussions if needed  Approval

Step 2: Introduction of an optimal model of inspection system March - June for Armenia

 Elaboration of changes in legal acts determining the spheres of inspection supervision  Discussion at the Council  Reconsideration in case of need

 RA Government approval

Fire inspectorate Step 1: Formation of database with the aim of risk January - management December

 Collecting data according to economy entities and constructions  Formation of fire statistic base

Step 2: Elaboration and introduction of check lists January - December  Elaboration of check lists of the sphere of inspection supervision from the point of view of rationalization of the requirements determined by the state  Discussions with business associations and the NGOs presenting consumers’ interests  Reconsideration in case of need  The assessment of the issues of the check lists by the working group  International expertise of reconsidered check lists

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Step 3: Reconsideration of the inspection business processes September - December  Description of the new business process of the inspection  Discussions at the Council  Implementation of corresponding legislative changes in case of being approved

Hygiene and anti- Step 1: Additional elaboration and approval of the January - epidemic inspectorate methodology of the inspection system based on risk February

 Elaboration of the methodology International expertise  Discussion with business associations and the NGOs protecting consumers’ rights  Discussion at the Council  Approval

Step 2: Introduction of the methodology of inspection system March - based on risks December

 Assessment of sphere risks and of the issues of the check lists by the working group  Formation of the data necessary for risk assessment and the statistical bases o Collecting data according to economy entities o Formation of the statistical base of hygiene risks

Step 3: Elaboration and Introduction of the check lists January - December  Elaboration of check lists of the sphere of inspection supervision from the point of view of rationalization of the requirements determined by the state

 Discussions with business associations and the NGOs protecting consumers’ rights  Reconsideration in case of need  Assessment of the issues of the check lists by the working group  International expertise of the reconsidered check lists  Approval of check lists

Step 4: Reconsideration of inspection business processes September- December

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 Description of the new business process of the inspection  Discussions at the Council

 Implementation of corresponding legislative changes in case of being approved

Step 1: Additional elaboration and approval of the January - methodology of the inspection system based on risks February Market and Consumers’ Interests  Elaboration of the methodology Protection inspectorate  International expertise  Discussion with business associations and the NGOs protecting consumers’ rights  Discussion at the Council

 Approval

Step 2: Introduction of the methodology of the inspection February - system based on risks December

Step 3: Elaboration and introduction of check lists March - December  Elaboration of check lists of the sphere of inspection supervision from the point of view of rationalization of the requirements determined by the state

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 Approval of check lists

Step 4: : Reconsideration of inspection business processes September - December  Description of the new business process of the inspection  Discussions at the Council  Implementation of corresponding legislative changes in case of being approved

Step 1: International experience research regarding the bodies February - March engaged in supervision of a specific inspectorate

 Countries of East Europe  The countries where inspection reforms have already been completed by the support of international State Service of Food structures or which are at the final stage of reforms Safety  Some other countries of interest /Singapore, Mexico and others/ /3 inspectorates/

Step 2: Elaboration and approval of methodology of risk- March - based system for each inspectorate September State Labour Inspectorate  Elaboration of risk assessment standards  Elaboration of the structure of database

Step 3: Collection and classification of the information September - State Urban required for the formation of data and statistical base December Development structures Inspectorate /Continuous/

Step 4: Elaboration and introduction of check lists September - December State Nature Protection  Elaboration of check lists of the sphere of inspection Inspectorate supervision from the point of view of rationalization of /Continuous/ the requirements determined by the state

54 EBRD BSO Annual report 2011

 Approval of check lists

Step 5: : Reconsideration of inspection business processes September - December  Description of the new business process of the inspection  Discussions at the Council  Implementation of corresponding legislative changes in case of being approved



System of Monitoring Regular additional elaboration of monitoring and assessment January – and Assessment system of reforms in pilot inspectorates December

 Calculation – analysis of the number of employees of /continuous/ the inspectorates, of inspectorate expenses with the goal of making a contrastive analysis after optimization  Carrying out surveys with businessmen and business associations /under IFC financing/  Information input in the monitoring system  Information analysis

Public – Private Step 1:Formation of the effective environment of conflict of February – partnership interests among all the stakeholders of the reforms ( state, December business circles and public) and active involvement of all the stakeholders in the process of reforms /continuous/

 Preliminary discussion of all the documentation set for discussion with the NGOs and business associations  Discussion of proposals submitted by NGOs and business associations  Providing awareness of all the stakeholder – businessmen, consumers, state structures regarding the process of reforms by means of mass media, through discussions, seminars and so on

55 EBRD BSO Annual report 2011

ANNEX 6 MINUTES

OF THE PUBLIC PRIVATE DIALOUGE ON INSPECTION REFORMS

held on 18 February, 2011 in the Erebuni Plaza Business Center ------Yerevan at 14:00

Meeting was chaired by RA Deputy Minister of Economy Karine Minasyan

List of Participants

1. RA Deputy Minister of Economy K. Minasyan 2. Head of Investment Policy Department of the RA Ministry of Economy R. Sarukhanyan 3. Senior Expert of Inspection Reform Council Secretariat of the RA Ministry of Economy G. Poghosyan 4. Expert of Inspection Reform Council Secretariat of the RA Ministry of Economy H. Kaghketsyan 5. Head of the EBRD Office in Yerevan V. Razlog 6. Head of the EBRD BSO A. Grigorian 7. Lawyer of the EBRD BSO S. Tsaturyan 8. Lawyer of the IFC Office in Yerevan S. Kristasatiryan

Invited Private Sector Representatives 1. Executive Director of the Union of Manufacturers and Businessmen of Armenia R. Makaryan 2. Senior Expert of the Union of Manufacturers and Businessmen of Armenia S. Barseghyan 3. Director of the Chamber of Commerce and Industry of the city of Yerevan K. Martirosyan 4. Director of the Small and Medium Enterprises Development Center Q. Malkhasyan 5. Director of the National Association of Consumers M. Hakobyan 6. Head of Quality Analysis department of he National Academy of Consumers in Armenia M. Aristakesyan 7. Director of the Armenian Exporters Association R. Meghchyan 8. CEO of the Association of Foreign Investments and Cooperation G. Poghosyan 9. Executive Director of the Foundation for Small and Medium Businesses N. Mailyan 10. Director of the Union of Community Financiers V. Movsisyan 11. Director of the Civil and Social Development Fund S. Mkhitaryan 12. Executive Director of the Union of Transporters and Forfeiters of Armenia D. Sargsyan 13. Director of the Association of Taxi Services E. Kirakosyan 14. Head of the Small and Medium Enterprises Association “Armenian Entrepreneurship” N. Manukova 15. Director of the Association of Young Lawyers of Armenia K. Zadoyan 16. Director of the “Dealnet Service” NGO A. Hovhannisyan

56 EBRD BSO Annual report 2011

17. Director of the “Araza” NGO T. Abrahamyan 18. Director of the Association of Greenhouses Poghos Gevorgyan 19. Head of the Association of Caucasus Office of Creditability Assessments L.Shaghbatyan

Session was opened by: RA Deputy Minister of Economy K. Minasyan Head of EBRD BSO A. Grigorian

The following session agenda was introduced:

Item 1 Presentation of the Inspection Reform Delivered by: Coordination Council Secretariat Gevorg Poghosyan, Senior progress report Expert of the Inspection Reform Council Secretariat, Ministry of Economy

Item 2 Presentation of the methodology and Delivered by: preliminary mechanism of the risk- Robin Croft, International based system for the market Expert of Market Surveillance surveillance inspections of EBRD BSO

Item 3 Presentation of the methodology and Delivered by: risk-based system for the hygiene and Hambardzum Kaghketsyan, anti-epidemic inspections Expert of the Inspection Reform Council Secretariat, Ministry of Economy

Item 4 Discussions

Opening the session K. Minasyan welcomed the private sector representatives and mentioned that the Government envisages the private sector as a motive power of the inspection reforms. She then expressed appreciation to EBRD BSO for its active assistance and support to the Secretariat of the Inspection Reform Coordination Council and for facilitation consecutive working group and broader Public Private Dialogues in the scope of reforms design and implementation and gave the floor to A. Grigorian.

Before referring to the session agenda A. Grigorian presented the aim of the meeting to those present, emphasizing the importance of the Public Private Dialogue process for the efficient implementation of inspection reforms and pointing out that comments and position towards the presented topics will be included in the final documents to be presented during the Coordination Council, chaired by the Prime Minister, planned in coming weeks.

57 EBRD BSO Annual report 2011

During the session:

Question 1: Presentation of the Inspection Reform Coordination Council Secretariat progress report Gevorg Poghosyan, Senior Expert of the Inspection Reform Council Secretariat, Ministry of Economy

Question 2: Presentation of the methodology and preliminary mechanism of the risk-based system for the market surveillance inspections Robin Croft, international expert of EBRD BSO

Question 3: Presentation of the methodology and risk-based system for the hygiene and anti-epidemic inspections

Hambardzum Kaghketsyan, expert of Inspection Reform Council Secretariat presented

Following the detailed technical presentation delivered by Robin Croft, mostly covering the narrow substance of the reform, during the second session the private sector made an active participation and provided useful set of comments and suggestions. They appear to be committed and engaged as more familiar and practical topic for their needs were discussed, i.e. the checklist and criteria for risk-based inspections.

M. Aristakesyan, Head of Quality Analysis department of the National Academy of Consumers in Armenia, raised range of technical issues concerning practical implementation of the risk-based inspections for Market Surveillance inspections. She also attached great importance to the combining of risk-based inspection implementation with the economic, managerial and social spheres of the country to ensure its balanced implementation, i.e. combining the interests of all three stakeholders of inspection reforms – state, private sector and consumers.

Q. Malkhasyan, Director of the Small and Medium Enterprises Development Center, positively evaluated presented risk-based mechanisms for inspections and put forward the following issues:

 Insure input of certain procedures (for instance disqualification mechanisms) either in the current Law or in the Draft Law on inspections identifying norms for inspectors in case of imperfectly implemented responsibilities while undertaking risk-based inspections.  How the risk-based inspections can assist in forming equal competition possibilities for all economic entities?  What are further steps and time frames for practical implementation of risk-based reforms in 3 pilot inspectorates?

58 EBRD BSO Annual report 2011

Raffi Mkhchyan, Chairman of Armenian Exporters Association, welcoming the undertaking of launching risk-based inspection in 3 pilot inspectorates, put forward the problem of raising inspectors' professional level as the most serious obstacle for the business and asked whether the Ministry of Economy undertaking or planning to undertake certain training programs to solve the problem.

K. Martirosyan, Director of the Chamber of Commerce and Industry of the city of Yerevan, attached great importance to the input of the risk-based inspection mechanisms in shortest as it will proposal time and stated that the system will provide a solid ground to decrease corruption risks in the system of inspections.

L.Shaghbatyan, Head of the Association of Caucasus Office of Creditability Assessments, mentioned that through such working group PPDs the private sector feels its ownership in the process of inspection reforms implementation and gets motivated that their voice gets heard by the state.

S. Barseghyan, Senior Expert of the Union of Manufacturers and Businessmen of Armenia, asked when the revised Draft Law on state inspections or the current Law with amendments will be put into practice to provide legislative ground for risk-based inspections. She was also interested in the view of Deputy Minister Minasyan concerning the political will to implement reforms in the sphere of tax inspections as well.

G. Poghosyan, CEO of the Association of Foreign Investments and Cooperation, expressed his appreciation towards facilitation of PPDs by EBRD BSO and asked H. Kaghketsyan, the Inspection Reform Council Secretariat expert, to explain what set of indicators have been used to develop the risk based criteria for hygiene and anti-epidemic inspections.

D. Sargsyan, Executive Director of the Union of Transporters and Forfeiters of Armenia, asked a question concerning the mechanism of identifying weighted risk of an economic entity in case it is classified in different risk groups according to different inspections’ ratings.

T. Abrahamyan, Director of the “Araza” NGO, expressed her appreciation towards organization of PPDs by EBRD BSO and attached great importance to the process of raising private sector awareness about new risk-based inspections system and methodology through organizing focus groups, trainings, issuing and distributing informative booklets about the new system. She pointed out that through these measures broader private sector circles will get informed about the new inspection system as well as their rights and responsibilities.

E. Kirakosyan, Director of the Association of Taxi Services, pointed out the importance of PPD process and asked questions about practical implementation of risk-based inspection system.

K. Minasyan, RA Deputy Minister of Economy, summing up the session attached great importance to the necessity of implementation of inspection reforms and urged the representatives from private sector to be very active, disseminate the presented information within the broad circle of economic entities, get feedbacks, share those with the Inspection Reform working group within the coming week, as the Coordination Council is planned to convene shortly and the Inspection Reform Coordination Council Secretariat has to finalize the documents to be presented to the Council according to the private sector provided

59 EBRD BSO Annual report 2011 comments and suggestions. She also pointed out that the aim of cooperation within this format is not only to keep informed the private sector about reforms but more importantly to make them direct and active participants and decision makers of the process.

Concluding, Mrs. Minasyan expressed her thankfulness and extended great deal of appreciation for EBRD BSO’s efforts in advancing PPD.

60 EBRD BSO Annual report 2011

ANNEX 7

MINUTES

OF THE SECOND SESSION OF THE COORDINATION COUNCIL ON INSPECTION REFORMS

held on the 4th of March, 2011 in the Government Building ------Yerevan at 15:00

Meeting was chaired by RA Prime Minister Tigran Sargsyan

List of Participants

Council Members

9. RA Minister of Economy T. Davtyan 10. RA Minister of Nature Protection A. Harutyunyan 11. RA Minister of Agriculture S. Karapetyan 12. RA Minister of Transport and Communication M. Vardanyan 13. RA Minister of Urban Development V. Vardanyan 14. RA Minister of Labor and Social Affairs A. Grigoryan 15. RA Minister of Energy and Natural Recourses A. Movsisyan 16. RA Minister of Emergency Situations A. Yeritsyan 17. RA Minister of Finance V. Gabrelyan 18. Chairman of the RA Civil Service Council M. Badalyan 19. Deputy Chairman of the Central Bank of Armenia N. Yeritsyan 20. Head of the Legal Department of the RA Presidential Administration A. Tunyan 21. Deputy Chairman of the Union of Manufacturers and Businessmen Q. Pilosyan 22. Executive Director of the Foundation for Small and Medium Business (FSMB) N. Mailyan 23. Executive Director of the RA Chamber of Commerce and Industry A. Vardanyan 24. President of the National Association of Consumers M. Hakobyan 25. Head of the Consumer Rights Protection NGO L. Yaghubyan 26. Chairman of Armenian Exporters Association R. Mkhchyan

Participants

1. Ra Government Chief of Staff D. Sargsyan 2. First Deputy Minister of the RA Ministry of Economy K. Minasyan 3. Head of the Financial-Economical Department of RA Government Staff L. Hunanyan 4. Deputy Head of the Financial-Economical Department of RA Government Staff R. Vardanyan 5. Senior Specialist of the Financial-Economical Department of RA Government Staff V. Poghosyan 6. Deputy of the RA Head of the State Revenue Committee A Beibutyan

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7. Deputy of the RA Minister of Health H. Darbinyan 8. Deputy of RA Minister of Justice G. Muradyan 9. Deputy of Yerevan Mayor K. Areyan 10. Head of the RA Urban Development State Inspection Department S. Hatrapetyan 11. Deputy Head of the RA Urban Development State Inspection Department M. Hovhannisyan 12. Expert of the Inspection Reforms Division of the RA Ministry of Economy G. Poghosyan 13. Expert of the Inspection Reforms Division of the RA Ministry of Economy H. Kaghketsyan 14. Expert of the Inspection Reforms Division of the RA Ministry of Economy D. Harutyunyan 15. Expert of the Inspection Reforms Division of the RA Ministry of Economy H. Ayvazyan 16. Representative of the WB Office in Yerevan K. Grigorian 17. Representative of the IFC Office in Yerevan A. Nazaryan 18. Representative of the EBRD Office in Yerevan A. Grigorian 19. Expert of the EBRD BSO S. Tsaturyan 20. International Expert of the IFC S. Glushenko 21. Expert of the IFC S. Kristassatiryan 22. Economist of the WB Office in Yerevan G. Gyulumyan 23. Head of the Information and Public Relations Department of the RA Ministry of Economy A. Khechoyan

Session was opened by RA Prime Minister Tigran Sargsyan

Before referring to the session agenda the Prime Minister presented the aim of the Council meeting to those present, emphasizing the importance of efficient implementation of inspections.

In addition the Prime Minister urged all Ministers to actively assist to the Secretariat of the Inspection Reform Coordination Council with the development and implementation of new approaches of the risk based inspections’ system in the subsequent inspection units adjunct to their Ministries.

Following the approval of the agenda (attached), the Prime Minister expressed his strong appreciation and thankfulness to the EBRD, WB and IFC for continuous assistance in implementation of inspection reforms.

The opening remark of the Prime Minister was followed by technical presentations covering the narrow substance of reforms, scope of the activities undertaken by the Inspection Reform Council Secretariat, with assistance from EBRD and IFC, as well as the next steps to continue the reforms (presented below).

During the session:

62 EBRD BSO Annual report 2011

Item 1: Presentation of the “Draft Law on Amendments on the RA Law on Inspections” ------(G. Poghosyan, T. Sargsyan)

The Executive Director of the Foundation for Small and Medium Business (FSMB) N. Mailyan stated that the private sector actively participated in the process of working out all documents that are going to be presented during the Council through monthly working group Public-Private Dialogues organized by the EBRD BSO. She attached great importance on continuing the cooperation with the State through the established practice of organizing working group and broader PPDs.

After discussions

1. It was decided to approve the presented Draft Law. 2. To instruct the RA Minister of Economy T. Davtyan a. To review the presented Draft Law in accordance with the suggestions concerning the Article of the Draft Law describing exceptions on inspections’ implementation made by the Deputy Head of the RA State Revenue Committee A Beibutyan, in particular to take into consideration other mechanisms/tools of inspections and risk based criteria in the Draft Law. b. To present the Draft Law to all interested parties for getting subsequent comments and suggestions. c. To amend the Draft Law in accordance with the suggestions made during the Council session and written comments and the final version to present to the Government staff. 3. To instruct the RA Minister of Finance V. Gabrielyan to present the proposal during the upcoming Government sitting on providing 12 million 3 hundred 91 thousand drams to the RA Ministry of Emergency Situations as a technical support for inputting risk based inspection system in the State Fire Inspectorate.

Item 2: Presentation of the methodology of risk-based inspection system of the State Hygiene and Anti-Epidemic Inspectorate of the RA Ministry of Health ………………………………………………………………………………………………… .. (T. Davtyan, G. Poghosyan, H. Kaghketsyan, T. Sargsyan)

The Executive Director of the RA Chamber of Commerce and Industry A. Vardanyan expressed appreciation regarding efforts of the EBRD BSO on facilitating PPDs in the scope of inspection reforms project and mentioned that through the BSO assistance a vital link has been developed between their member organizations and the State. After discussions it was decided to approve the presented methodology of risk-based inspection system of the State Hygiene and Anti-Epidemic Inspectorate of the RA Ministry of Health.

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Item 3: Presentation of the report on reform process in the State Fire Inspectorate ------(T. Davtyan, A. Yeritsyan, H Kaghketsyan, T. Sargsyan)

The Head of the EBRD BSO reiterated the message conveyed by the private sector representatives mentioning that during the whole process of inspection reforms’ design and implementation the EBRD BSO facilitated working group PPDs aimed at providing framework for regular consultative process through which main directions of inspection reforms have been discussed, several approaches have been worked out and joint steps for inspection reforms implementation initiated together with the private sector (in particular Business Advocacy Network and Chamber of Commerce) Inspection Reform Unit Secretariat and other donors. In addition she stated that the EBRD attaches immense importance on organizing PPDs and on behalf of the EBRD expressed hope that the Government will continue and strengthen the PPD process in the country.

The representative of the IFC A. Nazaryan mentioned that international experience proves that risk-based inspections are balanced tool to reduce administrative burden for doing business.

The economist of the WB G. Gulumyan supported the message of the IFC representative and mentioned that the implementation of risk-based inspection system was not a complicated process, the main logic behind was the political will of the State Inspectorate bodies to get ride off the old methods of working and switch to the new system.

The Prime Minister expressed his strong appreciation to the EBRD, WB and IFC for continuous assistance in implementation of inspection reforms and showed explicit support towards the comments presented by the private sector representatives and donors throughout the Council session.

After discussions it was decided to take into consideration the report on the reform process in the State Fire Inspectorate.

Item 4: Presentation of the “RA Draft Law on Urban Control and Surveillance” ------(V. Vardanyan, T. Sargsyan)

After discussions it was decided to instruct the RA Minister of Urban Development V.Vardanyan to discuss within one week period with the working group the necessity of adoption the presented Draft Law and present the results to the Prime Minister T. Sargsyan.

In addition, the Prime Minister attached great importance to the necessity of implementation of inspection reforms and urged the representatives from donor community and private sector to be very active, disseminate the information delivered during the Council within the broad circle of business associations and organizations, get feedbacks and share those with the Inspection Reform Council Secretariat and working groups.

64 EBRD BSO Annual report 2011

At the same time, the Prime Minister urged ministers to closely work with the Inspection Reform Council Secretariat and proactively support the inspection reform implementation process.

It was decided that the consecutive Council meeting will convene upon the completion of the tasks assigned during the Council session.

65 EBRD BSO Annual report 2011

ANNEX 8

MINUTES

OF THE THIRED SESSION OF THE COORDINATION COUNCIL ON INSPECTION REFORMS

held on the 12th of April, 2011 in the Government Building ------Yerevan at 16:00

Meeting was chaired by RA Prime Minister Tigran Sargsyan

List of Participants

Council Chairman

RA Prime Minister Tigran Sargsyan

Council Members 1. RA Deputy Prime Minister, Minister of Territorial Administration Armen Gevorgyan 2. RA Minister of Economy Tigran Davtyan 3. RA Minister of Nature Protection Aram Harutyunyan 4. RA Minister of Agriculture Sergo Karapetyan 5. RA Minister of Health Harutyun Kushkyan 6. RA Minister of Transport and Communication Manuk Vardanyan 7. RA Minister of Urban Development Vardan Vardanyan 8. RA Minister of Labor and Social Affairs Artur Grigoryan 9. RA Minister of Education and Science Armen Ashotyan 10. RA Minister of Energy and Natural Recourses Armen Movsisyan 11. RA Minister of Emergency Situations Armen Yeritsyan 12. RA Minister of Finance Vache Gabrielyan 13. RA Minister of Justice Hrayr Tovmasyan 14. Head of the RA State Revenue Committee Gagik Khachatryan 15. Chairman of the RA Civil Service Council Manvel Badalyan 16. Chairman of the Standing Committee on Science, Education, Culture, Youth and Sport of the National Assembly Artak Davtyan

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17. The Central Bank representative 18. Head of the Legal Department of RA Presidential Administration Araik Tunyan 19. Chairman of the Union of Manufacturers and Businessmen of Armenia Arsen Ghazaryan

20. Chairman of the Industrial and Commercial Chamber Martin Sargsyan

21. Executive Director of the Foundation for Small and Medium Business (FSMB) Narine Mailyan

22. President of the National Association of Consumers Melita Hakobyan

23. Head of the Consumer Rights Protection NGO Lusine Yakubyan

24. Chairman of Armenian Exporters Association Raffi Mkhchyan

25. Acting executive director of Small and Medium Entrepreneurship Development National Centre of Armenia Karen Gevorgyan

Participants

1. Chief of the RA Government Staff David Sargsyan

2. First Deputy Minister of Economy of RA Karine Minasyan

3. Expert of the Inspection Reforms Division of the RA Ministry of Economy Gevorg Poghosyan

4. Expert of the Inspection Reforms Division of the RA Ministry of Economy Hambardzum Kaghketsyan

5. Expert of the Inspection Reforms Division of the RA Ministry of Economy Diana Harutyunyan

6. Expert of the Inspection Reforms Division of the RA Ministry of Economy Hayk Ayvazyan

7. Press Secretary of the RA Ministry of Economy Syuzanna Hayrapetyan

Representatives of Donor Organizations

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International Finance Corporation Arsen Nazaryan – Representative of the IFC Office in Yerevan Suren Kristasatiryan – Expert of the IFC Office in Yerevan

European Bank for Reconstruction and Development Djoomart Otorbaev – Senior Advisor Investment Climate for Enterprises of EBRD Alisa Grigorian – Head of the EBRD BSO Syuzanna Tsaturyan – Expert of the EBRD BSO

Session was opened by RA Prime Minister Tigran Sargsyan

The Prime Minister presented the aim of the Council meeting to those present and referred to the session agenda.

The opening remark of the Prime Minister was followed by technical presentations covering issues raised during the previous Council (dated on 4th of March, 2011), scope of the activities undertaken by the Inspection Reform Coordination Council Secretariat, with the assistance of EBRD BSO and IFC, to follow up on the raised issues as well as the next steps to continue inspection reforms.

During the session:

Item 1: Presentation of the strategic issues of the “RA Draft Law on Amendments in the RA Law on Organizing and Implementing Inspections” ------(G. Poghosyan, T. Sargsyan)

After presentations

The First Deputy Minister Minasyan stated that according to the Prime Minister’s instruction during the last Council session, held on the 4th of March, Inspection Reform Coordination Council Secretariat experts together with the EBRD BSO and IFC experts organized discussions of the Draft Law with all interested parties from the Government for getting subsequent comments and suggestions. Based on meetings’ results subsequent changes have been made in the Draft Law and provided it to the private sector representatives for their further comments and additions. Therefore, the presented Draft Law encompasses all reasonable and acceptable suggestions from both the Government and the private sector. She then pointed out that based on frequent consultations with private sector representatives, analysis of current situation in the field of inspections as well as international best practice, the Inspection Reform Coordination Council Secretariat among other changes developed 3

68 EBRD BSO Annual report 2011 strategic amendments in the current Law on Inspections, which were being presented during the presentation.

The First Deputy Minister once again reiterated those amendments: 4. Frequency of inspections: economic entities classified in the high level group should be checked once a year, medium level - once in three years, low level - once in five years. 5. Principle of classification in risk groups: not more than one fifth of all economic entities should be classified in the high level risk groups. 6. Principle of planning inspections based on risk groups: not less than two third of all inspections should be planned to implement in economic entities from high level risk group.

Mrs. Minasyan stressed that the presented 3 amendments are key and will provide businesses with the favorable doing business environment eliminating frequent, non- substantiated redundant inspections.

The Deputy Head of the RA State Revenue Committee A. Beibutyan tried to oppose some of the presented amendments, in particular pointing out that there were specific fields of inspections that could not be implemented based on risk-based approach.

However, the Prime Minister made very clear that instead of opposing and finding examples of non-applicability of the risk-based inspection approach, the State Revenue Committee should establish an analytical department and analytical approaches should be developed to integrate the current practice of inspections to the one that will be soon introduced and will be compulsory for all inspection authorities.

After discussions

1. It was decided to approve the revised final “RA Draft Law on Amendments on the RA Law on Organizing and Implementing Inspections”. 2. The Prime Minister instructed RA Minister of Economy T. Davtyan a. To organize final revision of the “RA Draft Law on Amendments on the RA Law on Organizing and Implementing Inspections” together with RA Minister of Justice H. Tovmasyan, taking special consideration on those articles where the restrictions and eliminations of inspections were defined and be guided with the principle of protecting interests of business entities. b. To study the international experience, best practice on implementing inspections over the strategically important objects in the meantime composing the list of those objects with the RA Minister of Urban Development V.Vardanyan. c. To present the results during the next Council session.

Item 2: Presentation of the revised “RA Draft Law on Urban Control and Surveillance ”

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………………………………………………………………………………………………… .. (V. Vardanyan, T. Sargsyan)

After the presentation the Prime Minister pointed out that the Law should be written in accordance with the principles of the risk based inspections and should protect first of all interests of business entities providing favorable doing business environment.

After discussions

1. It was decided that RA Minister of Urban Development V. Vardanyan revise the presented Draft Law and circulate the revised version within the Council members for their further revisions, comments and suggestions. 2. It was decided that RA Minister of Urban Development V. Vardanyan prepare a proposal on raising multiple coefficients for base salaries of civil servants of the State Urban Development Inspectorate and submit to the RA Finance Ministry for its consideration for the period 2012-2014.

The Prime Minister concluding the Council session attached great importance to the necessity of implementation of inspection reforms in the country.

In addition, the Prime Minister urged ministers to cooperate with the Inspection Reform Coordination Council Secretariat for developing and inputting methodology of the risk- based inspections in their subsequent inspectorates.

The Prime Minister strictly mentioned that the methodology of risk-based inspections should be developed and put into the practice by all inspectorates within the timeframes mentioned in the Inspection Reforms’ Action Plan. He made clear that the heads of Inspectorates failing to meet the requirements stipulated in the action plan should be fired.

It was decided to convene the consecutive Council upon the completion of the tasks assigned during the Council session.

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ANNEX 9

MINUTES

OF THE FORTH SESSION OF THE COORDINATION COUNCIL ON INSPECTION REFORMS

held on the 29th of July, 2011 in the Government Building ------Yerevan at 15:00

Meeting was chaired by RA Prime Minister Tigran Sargsyan

List of Participants

Council Chairman

RA Prime Minister Tigran Sargsyan

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20. Chairman of the Industrial and Commercial Chamber Martin Sargsyan

21. Executive Director of the Foundation for Small and Medium Business (FSMB) Narine Mailyan

22. President of the National Association of Consumers Melita Hakobyan

23. Head of the Consumer Rights Protection NGO Lusine Yakubyan

24. Chairman of Armenian Exporters Association Raffi Mkhchyan

25. Acting executive director of Small and Medium Entrepreneurship Development National Centre of Armenia Karen Gevorgyan

Participants

1. Chief of the RA Government Staff David Sargsyan

2. First Deputy Minister of Economy of RA Karine Minasyan

3. Expert of the Inspection Reforms Division of the RA Ministry of Economy Gevorg Poghosyan

4. Expert of the Inspection Reforms Division of the RA Ministry of Economy Hambardzum Kaghketsyan

5. Expert of the Inspection Reforms Division of the RA Ministry of Economy Diana Harutyunyan

6. Expert of the Inspection Reforms Division of the RA Ministry of Economy Hayk Ayvazyan

7. Press Secretary of the RA Ministry of Economy Syuzanna Hayrapetyan

Representatives of Donor Organizations

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International Finance Corporation Arsen Nazaryan – Representative of the IFC Office in Yerevan Suren Kristasatiryan – Expert of the IFC Office in Yerevan

European Bank for Reconstruction and Development Valeriu Razlog – Head of the EBRD RO Yerevan Alisa Grigorian – Head of the EBRD BSO Syuzanna Tsaturyan – Expert of the EBRD BSO

Session was opened by RA Prime Minister Tigran Sargsyan

The Prime Minister presented the agenda of the Council meeting to those present and referred to the session agenda.

The opening remark of the Prime Minister was followed by technical presentations covering issues raised during the previous Council (dated on 12th of March, 2011), scope of the activities undertaken by the Inspection Reform Coordination Council Secretariat, with the assistance of EBRD BSO and IFC, to follow up on the raised issues as well as the next steps to continue inspection reforms.

During the session:

3. On approval of guidelines and model patterns of working out sub-legislative acts ensuring the enactment of the RA Law “On Making Amendments to the RA Law on Organizing and Implementing Supervisions’’ (G. Poghosyan, T. Sargsyan) 2.After the discussions it has been decided 1. to approve the following points ensuring the use of the RA Law “On Making Amendments to the RA Law on Organizing and Implementing Supervisions’’:

1) methodic guideline of methodology elaboration the system of risk-based inspections, 2)methodic guideline of check lists’ elaboration, 3) model pattern and amendment guideline of the annual program of inspections, 4) model pattern and amendment guideline of the reports on inspections and studies carried out the previous year : 2. to assign the RA Minister of Economy T. Davtyan 1) to study international experience regarding SGB (self-government bodies) and the structures carrying out inspections and to submit a proposal during the next meeting of the Inspection Reform Council

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2) to submit proposal on sanctions used towards violations fixed in the result of inspections during the next meeting of the Inspection Reform Council 2. Reports on the process of inspection reforms in pilot inspectorates (H. Kaghketsyan, T. Sargsyan) 2. After the discussions it was decided to take into account the reports on the process of inspection reforms in pilot inspectorates

3.On approval of the methodology of risk-based inspections of State Labour Inspectorate (V. Dabaghyan, T.Sargsyan) 2. After the discussions it was decided to approve the methodology of risk-based inspections of State labour Inspectorate in accordance with the proposals presented at the meeting.

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ANNEX 10 MINUTES

of the Small and Medium Entrepreneurship Development Council First Meeting held on July 27, 2011 in the Government Building ------Yerevan at 14:00

Meeting was chaired by the RA Prime Minister Tigran Sargsyan

List of Participants

1. K. Minasyan, RA First Deputy Minister of Economy 2. D. Sargsyan, Chief of the RA Government Staff 3. V. Karapetyan, Adviser to the RA Prime Minister 4. L. Hunanyan,Head of Financial-Economical Department of the RA Government 5. V. Chibukhchyan, Head of the Business Environment Promotion Department of the RA Ministry of Economy 6. V. Razlog, Head of the EBRD office in Yerevan 7. A. Grigorian, Head of the EBRD Business Support Office 8. A. Vardanyan, Executive Director of the Chamber of Commerce and Industry of RA 9. K. Martirosyan, Executive Director of the Chamber of Commerce and Industry of Yerevan 10. E. Hovhannisyan, President of the Association of Armenian Freight Forwarders 11. G. Poghosyan, Coordinator of the Business Advocacy Network 12. N. Mailyan, Executive director of the Foundation for Small and Medium Businesses 13. W. Hanlon, Acting Head of the OSCE office in Yervan 14. T. Sukiasyan, representative of the OSCE office in Yervan 15. S. Tonoyan, journalist 16. G. Aghamalyan, translator

Welcoming speech

The RA Prime-Minister Tigran Sargsyan before starting the discussion of the items on the agenda said that the development of small and medium entrepreneurship (SME) has economical, political and social significance for the RA Government. Within the previous 3 years a number of actions were taken to create favorable environment for the SME development. One of the main goals of the SME development is to form middle class in the RA, for the world experience testifies that the middle class of the given country is considered to be the main driving force of the reforms’ implementation. In spite of the measures implemented during the last 3 years, there are still numerous problems and obstacles for the SME development. Therefore, the formation of the SME development Council implies constant focus on the SME sphere and this will result in revealing the problems and finding necessary solutions. The Prime Minister extended great deal of appreciation to donor organizations (EBRD and OSCE) for their assistance in the Council and secretariat formation and readiness to provide technical assistance to the Council secretariat. .

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1. Presentation and approval of agenda and the structure of the Council Secretariat

(K.Minasyan, T.Sargsyan)

The 1st item on the agenda was reported by Deputy Minister of Economy of the RA K.Minasyan. She said that the Secretariat of the SME development Council shall function through the specialists from the RA Ministry of Economy, supporting donor organizations and the members representing private sector. Afterwards she presented the following staff of the Secretariat of the SME development Council:

1) The RA Ministry of Economy – 4 representatives 2) The Business Support Office of the European Bank for Reconstruction and Development – 5 representatives 3) Organization for Security and Cooperation in Europe – 1 representative.

After the discussions it was decided to approve the agenda and the structure of the Secretariat of the SME development Council.

2. Presentation of the members representing the business community of the SME development Council

(K.Minasyan, T.Sargsyan)

Regarding the 2nd item on the agenda the following members representing the business community in the SME sector have introduced themselves

1) The Executive Director of the RA Chamber of Commerce A.Vardanyan, noting that more than 3000 organizations are members of the RA Chamber of Commerce about 70% of which are of the SME.

2) The Executive Director of the Chamber of Commerce of Yerevan K. Martirosyan noting that 1200 organizations are members of Yerevan Chamber of Commerce and the majority of them are of the SME.

3) The Executive Director of the Foundation for Small and Medium Businesses N. Mailyan said that the Fund is rather experienced in the sphere of protecting the interests of the SME.

4) The coordinator of “Business Interests Protection Network” NGO G.Poghsyan said that 25 associations and unions representing small and medium businesses are included in “Business Interests Protection Network”

5) The head of NGO “Association of Armenian Freight Forwarders” Ye. Hovhannisyan said that 14 organizations are included in AAFF NGO and more than 70 % of cargo transportation is undertaken through these 14 organizations.

6) The Head of the EBRD Yerevan office Valeriu Razlog said that the main goal of the EBRD is to support the implementation of reforms and the process of passing from transition period to market relations of countries' economies.

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7) The coordinator of economical and nature protection program of the organization for security and cooperation in Europe V.Henlone said that the international structure represented by him has successful experience in the sphere of the RA SME.

3. Presentation of the issues set for discussion by the businessmen

( K.Minasyan, T.Sargsyan)

The 3rd item on the agenda was reported by the Executive Director of the Foundation for Small and Medium Businesses Fund N. Mailyan, who submitted the following proposals of the business community:

1) to simplify the process of liquidation of legal persons using in liquidation process the principle of “One window”; 2) to simplify the process of state registration regarding giving by state register the registration numbers in Social Security Fund to legal persons at the moment of their registration; 3) to simplify the process of leasing for legal persons by means of reducing procedures; 4) to reduce payments established for micro and small enterprises for purchasing electronic signature; 5) to ensure “SME” unified definition using by the elimination of differences in definitions established by tax legislation and the RA Law “On state support to small and medium entrepreneurship”; 6) to accept the legislation changes related to business climate improvement by the end of the third term of 2011; 7) to make the reference presenting to tax authorities regarding transactions with cash checks (HDM) quarterly instead of monthly; 8) to reconsider the 6.1 article of the RA Law “On value-added tax”, removing the threshold of the determined privilege regarding VAT during importing fixed assets (equipment) by organizations; 9) to put under a ban only the appropriate disputed part of assets while solving disputes with state agencies judicially; 10) to unite the forms of reports on calculation of incomes paid to individuals by the organization (private entrepreneur, notary) represented by organizations or private entrepreneurs, undisclosed income tax calculation and compulsory social insurance payments of employers, because they are nearly the same and the amount of paid (calculated) incomes serves a basis for calculations. 11) The head of the RA Government Staff D.Sargsyan turned to two proposals of the submitted 10 ones, because they were of agenda priorities. In this relation he said that:

1)the registration number in social security fund is given to legal persons by the state register at the moment of their registration, not to the organization but to its each employee. As the submitted proposal is a problem of technical difficulties, it was offered to discuss possible solutions with appropriate specialists;

2) the reduction of payment established for purchasing e-signature is based on the number of the organizations using this system. I.e. in the system of e-signature there are

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such expenses which are to be paid by the mentioned center irrespectively the number of users. At this moment the number of e-signature system users s 6000 -6500. In addition, D.Sargsyan said that it is planned to introduce in the RA a system of e-passports and ID cards containing biometric guidelines, where there will be an opportunity for relatively low-cost e-signature.

The RA Prime-Minister Tigran Sargsyan suggested discussing the issue of foundation a fund directed at subsidy assistance of the SME which want to use e-signature system.

After the discussion it was decided to assign the First Deputy Minister of Economy of the RA K.Minasyan

1) To make the proposals made by business community the subject for discussions at the Secretariat of the SME development Council and to submit appropriate proposals at the next session of the Council; 2) To take necessary measures for opening a web-site of the SME development Council and to report on the results to the RA Prime-Minister Tigran Sargsyan. Summing up the works of the first sitting, the Prime Minister pointed out that he expects members of the council to work intensively and become channel between the Council and private sector disseminate the decisions of the Council within broad circle of business associations and organizations, get feedbacks on how those decisions are implemented in practice and share those with Secretariat.

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ANNEX 11

MINUTES

of the Small and Medium Entrepreneurship Development Council Second Meeting held on November 2, 2011 at the Government Building ------Yerevan 11:00 am

Meeting was chaired by the RA Prime Minister Tigran Sargsyan

List of participants:

Council chairman Tigran Sargsyan, RA Prime Minister

Council memebrs 1. Tigran Davtyan, RA Minister of Economy 2. Karine Minasyan, RA First Deputy Minister of Economy 3. Karen Martirosyan, Executive Director of the Chamber of Commerce and Industry of Yerevan 4. Gagik Poghosyan, Coordinator of the Business Advocacy Network 5. Narine Mailyan, Chief Executive Officer of the Foundation for Small and Medium Businesses

Invitees 1. Alisa Grigorian, Head of EBRD Business Support Office 2. William Hanlon, Acting Head of the OSCE office in Yervan 3. Tigran Sukiasyan, representative of the OSCE office in Yervan 4. Eghishe Hovhannisyan, President of the Association of Armenian Freight Forwarders 5. Tigran Harutunyan, Head of SME DNC 6. Vahe Chibukhchyan, Head of the Business Environment Promotion Department of the RA Ministry of Economy 7. Armen Yeganyan, Head of SME Development Department 8. Pyotr Maghdashyan, Communications Specialist 9. Translators

Minutes taken by Pyotr Maghdashyan, Communication Specialist

The second Council session began with welcome note from the Prime-Minister of Armenia Tigran Sargsyan. He introduced the forthcoming changes to the tax legislation, elaborated by the Government. Those changes are expected to come into force in 2012 and are aimed it improving the business climate, mainly for small and medium enterprises. Those changes will facilitate doing business in Armenia, in particular, by creating equal opportunities for various business groups, including importers and exporters and small, medium and big businesses. Those amendments will also shift the tax burden from the SMEs to big businesses.

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Among other things, as noted by the Prime Minister, is expansion of number of areas of commercial activity at privileged tax conditions for SMEs (this will mainly relate to production of food, hotels, transportation of people by mini-buses, parking lots and auto repairs), and increase of VAT refund benchmark from 100,000 AMD to 10,000,000 AMD without check-ups and audit by tax bodies. Besides, the Government will require conducting big transactions using bank transfers instead of cash operations, which will create better conditions for small and medium enterprises.

The welcome speech was followed by report by the Secretary of the Small and Medium Entrepreneurship Council Secretariat (Deputy Minister of Economy of Armenia) Karine Minasyan, who presented activities implemented by the Council Secretariat for carrying out the protocol directions of Small and Medium Entrepreneurship Council meeting of 27.07.2011. She mentioned that three issues have been resolved: a. the state registration process for business entities has been simplified: currently private enterprises get with their registration number for making social insurance payments at the state registry office immediately upon registration there (the RA Government Decree N 1122-N, accepted on August 4, 2011) b. registration of real property lease for business purposes has been simplified, and as of January 2012 the rental procedure will not need to be registered at the notary's office. In addition, the cost for renting an office will be fixed at 25,000 AMD instead of per square meter calculation, as it is done at present. The RA Law “On making amendments in the RA Law “On state registration of property rights” eliminated the provision of notary validation of leasing contracts, thus establishing one-window principle, which functions at the RA State Cadastre Committee. At the same time a unified payment for leasing contract registration has been determined. c. the cost of acquiring of e-signature for small businesses after July 2012 will go down by three times, from 15,000 AMD to 5,000 AMD. Considering limited financial possibilities of micro and small enterprises, the payment established for purchasing electronic signature hinders the entrance of those entities into the system of electronic management, which will be a must after 2013.

K.Minasyan also presented the current stage of development of web-site for informing the business circles and general public in Armenia of the undergoing economic reforms. She said that the idea is to present the complex information regarding the inspection and regulation reforms combined with information related to development of SME in Armenia. T.Sargsyan, in turn, noted, that this could make the web-site too complicated for users, and suggested to have a separate web-site presenting issues that relate to SMEs and are of interest to them. He assigned the Secretariat to work on concept for these web-sites.

The discussion then developed into considering of options on how to facilitate doing business for small and micro small enterprises. In particular, the Prime Minister noted that fees charged by the Center for Accountancy Assistance for providing accounting servicesto those entities could be reduced (currently they pay 50,000 AMD monthly, which is a burden for micro small enterprises) while simplified statement forms should be developed, as well as the number of necessary accounting documents could be decreased, to make the overall process both simpler and cheaper. T.Sargsyan assigned to the Small and Medium Entrepreneurship Development National Center to discuss this issue with the Center for

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Accountancy Assistance, which is providing services to legal entities, and propose solutions during the next Council session.

The representatives of business communities raised 3 new issues concerning facilitation of business for SMEs. In particular, they focused on creation of equal opportunities both for local producers and importers, mainly in situations where the cost of imported products is lower than that of locally produced goods. Next issue for discussion was simplification of procedures of registry of lease of real property for business purposes in State Cadastre.

On top of this, the representatives of business societies raised issue of elaboration of a protocol for putting into practice collective load transportation mechanism which will greatly reduce the export expenses for small and medium enterprises.

T.Sargsyan welcomed those suggestions and assigned the Secretariat of the Council to elaborate Government decisions for the last 2 issues in the shortest possible timeframe, as these issues can be resolved without legislative changes.

Decisions passed after the discussions:

a. Deputy Minister of Economy K.Minasyan will discuss with the Secretariat specialists the issue of reducing of tariffs for provision of accounting services to small and micro enterprises, as well simplification of report formats; b. Deputy Minister of Economy K.Minasyan will discuss the issue of information and documents to be posted on the web-site, and, according to this, post 10 issues of biggest concern for the SMEs with responses to them, and post the other information on the web-site of Ministry of Economy and/or web-site of SME DNC; c. Minister of Economy of Armenia T.Davtyan will present before 29.11.2011 to the Staff of the Government of Armenia proposal on removing of the requirement of apartment utilization profile for leasing the real estate for office use purposes; d. Minister of Economy of Armenia T.Davtyan will elaborate and circulate the proposal for regulation of collective load transportation; e. Minister of Economy of Armenia T.Davtyan in cooperation with the Head of EBRD’s Business Support Office A.Grigorian will discuss and clarify the rotation principle (percentage) of membership of the business circles representatives in the Council and finalize the proposal for respective Governmental Decree; f. Minister of Economy of Armenia T.Davtyan in cooperation with the Head of EBRD’s Business Support Office A.Grigorian will present at the next Council session a proposal on criteria for selecting of representatives of business society as members of the Council.

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ANNEX 12

REPORT

(July 2011 – February 2012)

On the Activities of the SME Development Council Secretariat

The SME Development Council was founded on July 7, 2011 by the Decree N 638 of the RA Prime Minister with the aim of ensuring an effective dialogue between the Government and business circles on the issues of business climate improvement in the sphere of small and medium entrepreneurship (SME). Up today the Council has held 2 sessions: on July 27 and November 2 2011. At the sessions the business community presented a number of important issues which in accordance with the Prime Minister’s instruction, are to be studied in turns by the SME Council Secretariat and in cooperation with the business community solutions are to be worked out.

Simultaneously, through regular meetings with the business community, which are held twice a month or more often if necessary, the current issues, options of solution are discussed and new problematic issues from the SME point of view are set.

The Secretariat of the Council gets permanent technical support from EBRD BSO and OSCE.

THE ISSUES SET AT THE SESSION BY THE BUSINESS COMMUNITY AND THE MEASURES CARRIED OUT REGARDING THEM

Settled issues

Issue 1. Simplification of the process of state registration of legal entities by allocation of registration number for making social insurance payments at the time of registration by the state register

Description of the problem: Previously the “One window” principle of state registration of legal entities by the state register had not related to getting a registration number at social insurance foundation. Because of this the advantage of “One window” principle hadn't used completely and the SME entities had to waste time on getting a registration number in social insurance foundation.

In the result of carried out activities:

1. The RA Government Decree N 1122-N dated August 4 2011 was passed according to which the social insurance registration number is allocated while getting state registration certificate by legal entities. 2. Simultaneously, by the requirement of the business community the Secretariat works out a legislative package of further improvement of state registration process for legal entities. Particularly, the allocation of various information and additional services to the SMEs by state register at the time of registration as it is necessary for

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effective performance of start-up companies (the issue is presented in details in the list of the issues in the process of settlement by the Council Secretariat).

Issue 2. Simplification of leasing process for legal entities through reduction of procedures and reducing leasing charges

Description of the problem: Previously, the requirement of mandatory notarization of the leasing treaty between legal entities and requirement of state registration had made the process rather complicated and noticeably increased the required costs. The problem was particularly urgent for those SMEs who have to lease new spaces because of peculiarities of their business frequently, thus appearing again in the process of costing time and expenses.

In the result of carried out activities: By the RA Law “On making changes in the RA Law “On state registration of property rights”

 The requirement of mandatory notarization of leasing treaties has been eliminated;  “One window” principle has been established, which functions in the RA State Cadaster Committee;  A unified payment has been set for registration of standard leasing treaty, as a result of which the previous expenditures have noticeably reduced.

Issue 3. Reduction of payment for e-signature purchase for micro and small entrepreneurs

Description of the problem: In the result of establishment of e-communication culture the SME entities by different RA Laws are responsible to purchase e-signature on time. Taking into account the limited financial resources of SMEs, the amount for e-signature purchase is a noticeable financial burden for them.

In the result of carried out activities:

1. By the RA Government Decree N 115-N dated 09.02.12 the payment for e- signature purchase has been reduced from AMD 13.000 to AMD 3500 for the economic entities which are obliged to purchase e-signature from January 1, 2012. 2. Simultaneously, the RA Government plans to apply the reduced price for those organizations and sole proprietors which are obliged to submit e-reports provided by the tax legislation since 2013.

Issue 4. The information on the summary of calculations carried out by cash registers is to be submitted to Tax Inspectorate on quarterly instead of monthly basis.

Description of the problem: According to the RA Law “On application of cash registers”, entrepreneurs are obliged to submit the Tax Inspectorate information on the summary of calculations carried out by cash registers every month. Taking into account the fact that some entrepreneurs visit the Tax Inspectorate to implement their responsibilities set by legislation, once a quarter, visiting the Tax Inspectorate every month to take the mentioned liabilities cases waste of time.

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In the result of carried out activities: The RA Draft Law “On making changes in the RA Law “On application of cash registers” has been worked out and put into circulation.

As a result, with the changes made in the 7th article of the Law, since January 1, 2012 entrepreneurs may send the information on money calculations carried out by cash registers within a day through the network communication without additional visits and time waste.

Issue 5. A unified form of “Calculation of income tax by organizations” and “Employers’ reports on obligatory social insurance payments” has been elaborated for micro and small entrepreneurs Description of the problem: Currently, the forms of accounting reports on income tax and social insurance payments determined by the RA legislation contain repeated data. The entrepreneurs actually spend extra time and resources on filling in those reports. In the result of carried out activities: Changes have been made in the RA Law “On income tax” which determine that the reports on income tax and social payments are to be submitted in unified electronic way. The Law will come into effect since January 1, 2013.

Issue 6. To simplify the process of liquidation of legal entities

Description of the problem: Previously the liquidation process was complicated. In particular, the problem arose together with the artificial obstacles set during the liquidation by tax agencies. In fact, the entrepreneurs had to stay in the process of liquidation for one year on average wasting time and resources on artificial bureaucracy.

In the result of carried out activities: Changes have been made in the RA Law “On state registration of legal entities”. As a result

 Within three working days the state register makes an inquiry to tax agencies regarding the tax liabilities of the legal entity;  Absence of a respond from the tax agency within 20-day term is considered confirmation of absence of tax liabilities of the legal entity, after which the liquidation of the legal entity is considered registered and within a day the entity is given a reference on its liquidation.

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THE ISSUE WHICH ARE IN THE PROCESS OF SETTLEMENT

Issue 1. Simplification of the process of changing the functional significance of the flats

Description of the problem: Presently, the charges for leasing office spaces in business centers in Armenia are rather high. Due to this, the SMEs prefer to use flats as offices. But the legislation hinders this process for a businessman has to pass through a number of complicated procedures in different state agencies. Thus, the current practice of changing the functional significance of a flat from living into business, increases administrative burden and creates enabling environment for corruption risks.

The activities carried out by the Secretariat: 1. The RA Government Draft Law N 88 dated 02.02.2002 “On confirmation of the procedure of changing the functional significance of buildings, constructions of a part of them in the RA” has been worked out; 2. The RA Government Draft Law on making changes and amendments in the Decree N 1473-N dated August 29 2002 “On confirmation of the procedure of giving architectural design task” has been worked out. 3. The Draft Law on making changes and amendments in the RA Law “On administrative violations” has been worked out as well. The Draft Laws and the Government decision were discussed with the business community and the representatives of condominiums and were submitted to the interested state agencies. Another discussion is planned in the Municipality of Yerevan before submitting the package of legislative changes to the Council. Expected results: It is provided to reduce the administrative burden and costs caused by changing the functional significance of a flat for SMEs and sole proprietors.

Issue 2. Development of the project of combined cargo transportation procedure

Description of the problem: Presently, according to the RA Customs Service order, entrepreneurs may export products if they ensure its certain quantity. This order is practically not applicable for SMEs since the latter are not able to ensure such a large quantity taking into account their limited resources and financial means.

The activities carried out by the Secretariat: A meeting has been held with the business community and the representatives of the RA Customs Service, during which the problem was set. In the result of discussing the options of settlement, a decision was made to elaborate a form allowing combined cargo transportation and instruct the customs officers on putting it into practice correspondingly.

Expected results: It is provided to put into practice the successful experience of combined cargo transportation which will essentially boost the exporting activities of SMEs.

Issue 3. Improvement of the process of transit transportation of goods and vehicles in the Customs territory of the RA

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Description of the problem: Today the lowest number of transit transportation in the region is in Armenia. Because of legislative deficiencies, the transit transportation in the RA Customs agencies is fulfilled with artificially created delays and expenses.

The activities carried out by the Secretariat: A range of discussions has been held with a number of organizations carrying out transit transportation. Based on analysis of comments and suggestions voiced during discussions, the Draft Law of the RA Government “On making changes and amendments in the RA Government Decree N 887 dated December 27 2000” has been worked out and put into circulation.

Expected results: It is provided to create favorable conditions for effective performance of the companies engaged in transit transportation procedures and due to it stimulate the volumes of transit transportation through the RA territory.

Issue 4. During the settlements of disputes with the state agencies, arrest on an organization’s bank accounts must be imposed only in accordance with the disputed amount of sum

Description of the problem: Presently, during the settlements of disputes by the tax agency and the Compulsory Enforcement Service the whole bank account of the entrepreneur is arrested without taking into account the size of the disputed sum. In fact, such a practice interrupts the activity of the entity causing compulsory expenses, extra bureaucracy and corruption risks.

The activities carried out by the Secretariat: In cooperation with the RA Ministry of Justice, Ministry of Finance and Ministry of Economy and with the business community

1. The RA Draft Law on making changes and amendments in the RA Law “On Compulsory Enforcement” has been elaborated. Simultaneously, with the aim of practical use of the elaborated regulations regarding arrest, it has been decided to organize a training of the Compulsory Enforcement Service employees. 2. The Draft Law on making changes and amendments in the article 30.2 of the RA Law “On taxes” has been elaborated, according to which  The procedure of property arrest has been clearly regulated;  The procedure of bank accounts’ arrest has been regulated according to the concrete tax liability;  The grounds, terms and order for imposing and eliminating arrests have been specified which will free the entrepreneur from extra bureaucracy and corruption risks. 3. The forms of decisions on putting and removing arrest by the Compulsory Enforcement agencies and tax agencies have been worked out.

Expected results: The procedure of property and bank accounts’ arrest will be clearly regulated as a result the entrepreneurs, during the settlement of disputes with tax and compulsory enforcement agencies, will have an opportunity to continue their regular business activities, thus avoiding red tape, pressures from certain state agencies and corruption risks.

Issue 5. To improve the process of state registration of legal entities

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Description of the problem: After being registered at state register businessmen are not aware of further steps of their activities, in particular 1. Techniques of filling in the forms specific for their business activities; 2. The proceeding of accounting special for their activity regarding submitting reports 3. The legal acts regulating their activities; 4. The information on what tax and social insurance payments divisional department a legal entity is registered. The activities carried out by the Secretariat: In cooperation with the RA Ministry of Justice appropriate changes are being worked out in the order N 228-N “On confirmation of the form of a firm name registration, its filling in and presenting as well as submitting it to expert structure in electronic way”. Simultaneously, the draft form of the notification given to legal entities with the registration certificate has been elaborated. Expected results: The entrepreneurs will be informed on the area of their registration, as well as of the proceeding of accounting special for their activity regarding submitting reports, filling in forms and the legal acts regulating their activities.

Issue 6. Make public the information on the shareholders of joint-stock companies and/or on shares

Description of the problem: Presently, the specialized companies coordinating the register of shareholders have no right to disclose to other persons any information on shareholders or/and shares of joint-stock companies. According to the 98th article of the RA Law “On securities market”, this information is considered to be ordering information therefore it cannot be published.

Simultaneously, it is required for an entrepreneur/ investor to have complete information on other shareholders of the company from the point of view of both risk assessment and making a rational investment decision.

The activities carried out by the Secretariat: A Draft Laws “On joint-stock companies” and “On securities market” has been worked out which has been included in the agenda of four-day sessions of the National Assembly.

Expected results: The entrepreneur/investor will have an opportunity to make a right investment decision, for the information on the shareholders and shares of a joint-stock company will become open and the specialized organization coordinating the register will be obliged to allocate that information to any person on the ground of the application.

Issue 7. To discuss the application of “ShoreCap International” Ltd registered in the USA regarding cooperation and find a possible solution.

Description of the problem: A dispute has arisen between “Shorecap International” Ltd and the RA tax agency regarding the rate of tax liability of the company.

The activities carried out by the Secretariat:

1. In the regard to the issue a letter with the problem description and the cooperation proposal has been worked out and submitted to the Chairman of the RA State Revenue Committee. However, RA State Revenue Committee with an

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official letter refused the request of “ShoreCap International” Ltd to settle the issue through signing a reconciliation agreement. 2. With the aim of finding an alternate solution, a letter addressed to the RA Prime Minister has been elaborated and submitted to the Government. 3. An instruction, by the RA Prime Minister, was given to the interested ministries to study the issue and present an opinion (solution). The Ra Ministry of Economy submitted its position for benefit of settlement of the issue through signing reconciliation agreement with “Shorecap International” Ltd. The position of the RA Ministry of Finance is at the stage of discussion.

Expected results: The achievement of an agreement in the issue will contribute to the promotion of the country’s image as an attractive destination for foreign investments from the point of view of the protection of foreign investors’ interests.

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ANNEX 13

ARMENIA: BUSINESS SUPPORT COUNCIL MARKET SURVEILLANCE ADVISORY

Consultancy Contract No: C21235/ETCF-2010-08-21/03

PROJECT REPORT

Robin Croft Mawdsley Croft Consultancy International International Market Surveillance Consultants

Yerevan 18 February 2011

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ARMENIA: BUSINESS SUPPORT COUNCIL MARKET SURVEILLANCE ADVISORY

A REPORT BY ROBIN CROFT, MARKET SURVEILLANCE CONSULTANT

This is the single and final report as required under the term of the contract. However, an interim report was provided to detail the progress made during the first visit in December 2010. This report covers all Tasks covered in the second visit of nine working days from 8th to 18th February 2011.

OBJECTIVES 1. Propose comprehensive, cost-efficient and effective market surveillance procedures; and 2. Provide input to the draft Armenian State Supervision Law. 3. Take into account compliance with best EU practices in market surveillance and experience of market surveillance practices in other countries.

SCOPE

Task 1: Assess the options with regard to a more optimal cost-efficient and effective market surveillance model, including providing recommendations to improve the current organisational structure and areas of control of the MCRPI. Task 2: Design risk assessment mechanisms for MCRPI in the context of market surveillance that will be applicable for Armenia, including. 1. a mechanism of information-gathering (how to gather information effectively and which kind of information is necessary for a risk assessment) 2. a structure for a database 3. a classification of risk criteria 4. a methodology of risk assessment 5. a mechanism of inspections targeting Task 3: Design procedures for reactive market surveillance, i.e. develop a mechanism and introduce a report on reactive market surveillance applicable in Armenia Task 4: Design implementation procedures for follow-up stages of market surveillance, i.e. develop and introduce follow-up steps for various market surveillance stages using international experience applicable in Armenia Task 5: Organise and lead workshops on a risk-based inspection system Task 6: Provide advice and comments on the latest draft of the Armenian State Supervision Law

PROGRESS

INTRODUCTION The initial objective of the Consultant in December was to concentrate upon Tasks 1 & 6 but after consultation and with the agreement of the Senior Consultant, Ms Alisa Grigorian, and the main stakeholders, the State Inspectorate for the Protection of Markets [SI] and the Inspection Reform Unit [IRU] it was decided to utilise the first visit to concentrate upon Tasks 2 & 6. Task 2 was considered a major priority as all inspection visits to SME‟s were suspended until the SI has a risk based inspection procedure agreed.

Task 2: Design of risk assessment mechanisms for MCRPI in the context of market surveillance that is applicable for Armenia – completed.

Task 6: Provide advice and guidance on the latest draft of the Armenian State Supervision Law – additional advice provided during this visit.

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FEBRUARY MISSION

ACTIVITIES A number of meetings were conducted to gather information, to outline proposals and discuss the desired approach to EU market surveillance.

SCHEDULE OF ACTIVITIES 8.02.11 Meeting at BSO with Alisa Grigorian and Syuzanna [Lawyer] Meeting at IRU with Gevorg Poghosyan, Hayk Ayvazyan & Suren Kristasatiryan [IFC] plus Alisa Grigorian and Lawyer [Syuzanna] Meeting at IRU with Hayk Ayvazyan & Suren Kristasatiryan IFC 9.02.11 Meeting at SI with Ashot Ghazaryan, Alisa Grigorian, Hayk Ayvazyan & Suren Kristasatiryan 10.02.11Meeting at Ministry of Economy with Karine Minasyan, 1st Deputy Minister with Gevorg Poghosyan, Valeriu Razlog and Alisa Grigorian 18.02.11 Final meeting at EBRD with Alisa Grigorian and Syuzanna [Lawyer] and Gevorg Poghosyan, Hayk Ayvazyan 19.02.11 Workshops at Erebuni Plaza for State Market Surveillance Inspectors and Economic Entity representatives

OUTPUTS  An Interim report covering the two selected tasks [Tasks 2 & 6] for the first visit in December. This has already been delivered.  This final report covering all activities from my visit in February. This report contains sub- sections covering tasks 1, 3, 4 & 6. Task 5 requires no additional report.  Verbal advice and guidance provided to the Deputy Minister, IRU and BSO. It is important that this report is read in the light of the discussions that were held between the BSO/IRU and the consultant.  The consultant‟s previous recommendations [IFC project] are still valid and attached as Appendix X at the end of the report for completeness.

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CONCLUSION The Inspection Reform programme cannot be taken in isolation as it is interdependent upon other on-going issues. These are the improvements being planned for the quality infrastructure1 and the proposed EU Twinning programme for market surveillance [2012]. In that light it worth re- emphasising two points from the Quality Infrastructure plan:  “The quality infrastructure reform encompasses the market surveillance of non-food products. That is why the reform measures need to be synchronised with the state inspection reform.”  “There is only one way for standardisation, metrology, accreditation, testing, inspection, certification, technical regulations and market surveillance to go and it clearly points in the direction of International and European standards and practices.” The proposals and recommendations contained in this report are based upon the understanding that the aspirations expressed above continue to be the driving force behind the Inspection reform programme.

The recommendations are also aimed at producing conditions that will maximise the impact of the EU Twinning Programme scheduled to commence in 2012. The Twinning Programme will bring many additional resources that can only be fully utilised if the quality infrastructure has already implemented many of the proposed changes.

Therefore the major priority issues are as follows:

For the Government of Armenia 1. Adopt the legal reforms to support EU style market surveillance 2. Restructure the State Inspectorate for Market Surveillance Consumer Protection 3. Provide the necessary resources for the agreed reforms 4. Progress the adoption of International and European Safety Standards 5. Progress the accreditation of certification and testing bodies 6. Inaugurate a Market Surveillance Co-ordinating Committee

For the State Inspectorate 1. Develop a Business Entity database 2. Risk assess the business entities in the database 3. Develop a risk-based inspection programme 4. Develop and implement documented standard operating procedures 5. Develop an Inspector induction programme to train new recruits 6. Develop better communications with the Customs Service 7. Start a dialogue with health professionals to promote better communications

The reports that follow seek to both meet the terms of the projects objectives and to provide realistic and practical solutions to assist in the meeting of the priorities detailed above. Where options are provided; the final choices must be made by the Ministry and State Inspectorate.

1 The Strategy for the Reform of the Republic of Armenia’s Quality Infrastructure (2010 – 2020)

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ARMENIA: BUSINESS SUPPORT COUNCIL – MARKET SURVEILLANCE ADVISORY C21235/ETCF-2010-08-21/03

TASK 1 A COST- EFFICIENT AND EFFECTIVE MODEL FRAMEWORK FOR MARKET SURVEILLANCE ACTIVITIES

A REPORT BY ROBIN CROFT MARKET SURVEILLANCE EXPERT

YEREVAN February 2011

PROJECT FUNDED BY EUROPEAN BANK FOR RECONSTRUCTION AND DEVELOPMENT

Project objective

For consumer products, the provisions contained in the General Product Safety Directive [GPSD] provide the market surveillance authorities of the Member States with the minimum requirements necessary to meet their obligations. On 23 June 2008, the New Internal Market Goods Package1 was adopted by the European Parliament and Council. Part of the Package addresses the revision of the so-called New Approach to technical harmonisation. Much of the product-specific European legislation has been promulgated under the New Approach. A new Decision2 lays down a general framework for future legislation

2 Decision No 768/2008/EC of the European Parliament and of the Council of 9 July 2008 on a common framework for the marketing of products, and repealing Council Decision 93/465/EEC.

93 EBRD BSO Annual report 2011 harmonising the conditions for the marketing of products and a reference text for existing legislation. A new Regulation 765/20083 contains provisions on market surveillance, accreditation and control of products entering the EU. The Regulation came into force on 1 January 2010. Though not completely identical, these new provisions bring the requirements for market surveillance under the New Approach in line with those in the GPSD.

As the objective of this project is to suggest a more optimal cost-efficient and effective market surveillance model it must be remembered that the requirements set out in the GPSD and the New Legislative Framework from Regulation (EC) 765/2008 are already a balance between promoting the rights of business entities and protecting the health and safety of consumers.

Therefore to seek to provide additional assistance to business entities by limiting the powers of the market surveillance inspectorate can only be achieved by changing that balance at the expense of consumer rights. It can also be counter-productive as a well regulated market place is necessary so that a business entity that deals in safe products is not placed at a commercial disadvantage by one that does not take sufficient precautions to prevent dangerous products being supplied to consumers.

The only business entities that benefit from lax market surveillance conditions are those who do have no concern about the safety of the products that they supply. The use of intelligence-led and risk assessed inspection procedures provide the best protection for the majority of business entities whilst removing unfair competition from the market.

The most cost-efficient and effective approach prescribes that market surveillance should be targeted against deliberate non-compliance so that resources are not wasted on inefficient routine inspections and that compliant business entities do not face unnecessary burdens as a result. This can be encapsulated as „no inspection without a reason.‟

A frequent message from recent research was that business entities welcome inspections as an opportunity to obtain reassurance that they are doing things the right way and to get tailored advice and guidance. Small businesses can be keen to draw on inspectors‟ knowledge to help them comply.

General objectives of MS activities Efficient and effective market surveillance is the cornerstone of a successful consumer product safety policy in the EU. It seeks to ensure the free circulation of safe and otherwise compliant product in the Internal Market with the minimum regulatory burden on economic operators commensurate with that purpose. In particular the activities of the Market Surveillance authorities [MSAs] should be accountable, targeted, proportionate, consistent and transparent

Prevention of non-compliance by educating business about the applicable legislation is a key component of a cost-effective approach to market surveillance and as such communication activities by all MSAs are of great importance. This approach should also include activities that encourage compliance by those businesses that are found to be non-compliant.

Organisation of Market Surveillance The first consideration is to determine whether there is a single MSA or a number of MSAs covering different product sectors. There is then a second consideration regarding the types of products as EU product safety covers both products intended for use by consumers and those intended for a different type of use. The different directives deal with this issue in a variety of manners:  The Genearal Product Safety Directive [GPSD] and Toy Safety Directive [TSD] only covers products intended for consumers.  The Machinery Directive [MD] is very wide ranging as it applies both to machinery for use by workers at work and to machinery for use by consumers or providing a service to consumers. This directive covers hand held and fully assembled appliances that can be tested as supplied. It covers machinery that is often supplied in component form and that needs to be assembled, installed and commissioned before it is ready for use and therefore

3 Regulation (EC) No 765/2008 of the European Parliament and of the Council of 9 July 2008 setting out the requirements for accreditation and market surveillance relating to the marketing of products and repealing Regulation (EEC) No 339/93

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before it can be tested. It also covers equipment that is itself mobile or is intended to be fitted to vehicles.  The Electro-magnetic Compatibility Directive [EMC] applies to a vast range of equipment encompassing electrical and electronic appliances, systems and installations cover consumer & non-consumer use.  The Construction Products Directives [CPD] covers any product which is produced for incorporation in a permanent manner in construction works, including both buildings and civil engineering works. These products are produced for both home DIY use and the construction industry.  The Low Voltage Directive [LVD] applies to all apparatus operating on any AC supply between 50 and 1000 volts or DC supply between 75 and 1500 volts. This includes consumer products, those for industrial use as well as electrical equipment.  The Personal Protective Equipment Directive [PPE] applies to equipment intended for use in domestic, leisure and sports activities, as well as for professional use.  The Recreational Craft Directive [RCD] covers boats intended both for consumers and pleasure craft operators.  Directives covering gas fueled heating and cooking equipment; pressure equipment [PED], radio and telephone terminal equipment [RTTE] and medical devices [MDD] have mainly professional uses but products intended for consumer are also available.  Some directives cover products that only have an industrial usage such as ATEX , Cableways, Lifts and High Speed Trains.

The health and safety of workers in industrial workplaces and construction sites are often the responsibility of a specialised regulatory authority or the Labour Ministry. In these cases it is often more cost-effective and efficient to make that regulator the MSA for the safety of products intended for those types of premises. This is especially true for the non-consumer aspects of the Machinery Directive. Similarly medical devices can be the responsibility the appropriate Health Ministry or regulating authority.

Automotive products should be the responsibility of the relevant Transport Ministry or Regulatory Body.

Principles of Good Regulation This centres around five principles of good regulation. These state that any regulation should be: 1. Transparent: helping economic operators to understand what the law expects of them and what enforcement actions pertain to particular circumstances. 2. Accountable: responsible and answerable for actions taken. 3. Proportionate: actions are only taken in line with the degree of risk presented by the product or situation. 4. Consistent: similar actions are taken in similar circumstances. 5. Targeted: inspection is focused only where action is needed.

Best Practice approach is based on the following principles: 1. Taking a preventive approach to enforcement and employing effective communication strategies to advise and to protect consumers and businesses. 2. Using data capture and risk analysis to target unsafe products, services and practices and to establish enforcement priorities. 3. Taking a coordinated approach to enforcement programmes and practices across all market surveillance authorities to ensure greater operational efficiency and consistency. 4. Dealing swiftly and proportionately with problems identified to ensure offending products, services and practices present minimum risk to consumers. 5. Resolving problems at source and in a co-ordinated manner by adopting a market surveillance co-ordination approach. 6. Ensuring that market surveillance officials are appropriately trained, are aware of the economic context in which they operate, employ best practices and are supported by continuing professional development. 7. Ensuring that all policies and strategies are relevant and clearly understood by a process of appropriate consultation.

General enforcement approach

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The general approach as regards monitoring and intervention is that the MSA should be reactive by investigating complaints of alleged non compliance and instances of alleged injuries caused by consumer products and follow them up as appropriate taking into account the principle of proportionality. The MSA should also undertake proactive work on the basis of risk assessment having regard to the seriousness of potential contraventions and their frequency. This will be implemented through a risk-based inspection programme and specific intelligence-led safety initiatives or projects. Where legislation prescribes the precautionary principle, this should be taken into account. Whenever possible risk assessment should be preferred as the better basis for action and this should be embedded within the strategies of the MSA by the better regulation principles.

The MSA should seek to develop a good understanding of the regulated businesses and apply its powers appropriately. The MSA should make its enforcement policy widely known to business entities via the internet and this includes the types of sanctions that it has available for non- compliance with legislation together with an explanation of the economic entities rights.

Co-operation and Co-ordination A national Market Surveillance Co-ordination Committee (MSCC) is vital to ensure that the different MSAs can co-ordinate their enforcement activities and share information and best practice. It could also establish a MSCC Stakeholders Group for the purpose of dialogue between the members of the MSCC and business and other interested parties.

Customs Control Normally Customs and Border control authorities are not normally designated with an MSA function because they have no competence in the area of enforcing single market legislation. They do, however, have unique access to the documentation relating to imports from third countries. The information contained within customs declarations and the supporting documents can be profiled in order to target products that are likely to present a risk to consumers. Co-operation between the Customs authorities and the MSA is imperative for any risk-based and targeted approach to border control. Customs has a limited but crucial role to play whilst allowing the MSA to take a more flexible approach based on their established working practices.

Structured enforcement can be used to good effect when addressing border controls at any principal port, container terminal or border control point. There can be a chronological structure for product enforcement ahead of the peak periods of demand e.g. Christmas, Easter and other festivals.

Informing Business Entities of their legal obligations A business friendly approach dictates a preference for a preventive route towards enforcement. This approach should be based upon the view that most companies are (or seek to be) law abiding with only a small minority of business entities who seek deliberately not to comply with product safety legislation. Most non-compliance is therefore as a result of not having access to the available information or not fully understanding what is required. This can be a particular issue for SMEs who do not have the resource to keep track of regulatory developments. The MSA should therefore ensure that the information on its website is as up to date and as informative as possible. The information should cover the law, guidance material, reports of dangerous products to avoid and other relevant material.

In this context it is import to remember that Inspection visits to a business premises can be helpful in encouraging compliance by the enforcement officers imparting information on what is required. Such inspection visits can be risk based to maximise the efficiency of the resources used. This is a better approach to stimulate economic growth than the current moratorium on the inspection of SMEs.

Where a particular product or category of product poses a known risk this information can be incorporated into Safety Guidance Notices that should be provided to business entities and trade organisations and displayed on the MSA website. Media should be used to inform consumers of particular risks.

General Approach when products are found to present a risk All MSAs have a range of statutory powers to deal with contraventions. MSA should always seek voluntary compliance from an economic operator when a product is found to contravene legislation.

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If this approach fails then the MSA must take formal enforcement action to require business entities to achieve compliance in the products that they supply. Where the significance of non-compliances makes it appropriate, MSA should take more rigorous action, including the prohibition of continued marketing until the non-compliances have been rectified; withdrawal of dangerous products from the market and the recall of dangerous products from consumers.

The nature of the market surveillance enforcement action should be taken by reference to risk assessment that considers the severity and frequency of the hazards identified and the potential consequences to the health and safety on consumers. Dangerous products deserve prompt and robust action.

Quality Infrastructure Standardisation, Accreditation and Conformity Assessment bodies all have a role to play to ensure manufacturers and importers have access to the range of services necessary to assist them in complying with the requirements of safety legislation

Third-party testing, systems assessment and technical file assessments can be mandatory for conformity assessment under certain EU Directives. Conformity assessment can be inspection, quality assurance, type examination or design examination, or a combination of these.

Importers may require products to be independently tested, certified, or inspected. These assessments should be done by independent accredited bodies. The quality infrastructure for this to happen needs to be in place.

Enforcement Profile It is important that the Market Surveillance Authorities seek and maintain a high media profile so that consumers are fully aware of the MSA‟s scope and responsibilities and thus are more likely to report problems with consumer products. The input of the public is a vital source of information that must be used to inform a risk-based inspection programme that is relevant to the current state of the market. The high profile approach needs to be backed with sufficient access channels so that any increase in public response can be accommodated. This can also be achieved by closer communication and co-operation with legitimate consumer NGOs and trade organisations.

The public should be encouraged to report unsafe products to the responsible authorities even if they are also seeking recompense or damages through the courts or other dispute resolution methods. The issues of civil restitution and market surveillance enforcement action are separate issues but the information from the common incident is important and should be shared.

The legal basis for cooperation with customs Council Regulation (EEC) No 339/9314 formerly regulated checks on products imported from third countries. It defined rules regarding the suspension of the release of products by customs authorities and further proceedings involving market surveillance authorities. The Regulation aimed to provide market surveillance authorities and customs with the legal basis to intervene and stop the release of unsafe products and to introduce rules regarding the suspension of the release of products and the subsequent procedure.

From 1 January 2010, this Council Regulation was replaced by the new Regulation 765/2008. This new Regulation prescribes that the customs authorities can block the release of products that do not comply with legal requirements for three days. Generally the three days are used by market surveillance authorities to investigate the products to decide if they can be released, if they must be blocked or if further investigations are necessary. If the products are found to be dangerous import can be banned and customs will mark the consignment and the accompanying papers with a notice that import of the product is forbidden. Customs will also notify the customs authorities in the other Member States of the consignment.

4 Council Regulation (EEC) No 339/93 on checks for conformity with the rules on product safety in the case of products imported from third countries [12]– OJ L040, 17.02.1993, p. 1.

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EU regulations have immediate legality across all member states and do not need to be transposed into national law. This, of course, is not the case in Armenia so the Armenia Law may need to be altered accordingly.

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Proposal for an optimal cost-efficient and effective market surveillance model for Armenia

1. The principles outlined above should be the basis of the future Armenia Market Surveillance Authority so that its operational activities effective by being based on EU best practice

2. To meet the requirement to be cost efficient it is suggested that the current staff and structures be used where-ever possible.

3. The current scope of the State Inspectorate for the Protection of Markets and Consumer Rights includes a range of inspectional responsibilities for metrological, oil products and product supervision and should remain as the basis of the market surveillance authority but with certain changes.

4. The current staff have the necessary experience of visiting retail premises that should be retained but they need be retrained and new recruits added as necessary.

5. A proposed structure that has already been prepared by the Head of the State Inspectorate that will provide a good basis for the proposed model and therefore is attached as Appendix B with the current structure at Appendix A.

6. A slightly altered version is suggested at Appendix C. This has the addition of a second Deputy Head who would have operational responsibility for market surveillance. This would provide additional support for the Chief Inspector and allow the market surveillance function to be improved without distracting attention from the other functions of the Inspectorate.

7. The product supervision division would be responsible for the safety of all consumer products utilising a full EU style market surveillance approach. One division would cover Yerevan and the surrounding areas whilst a new division would cover three Marzs. All new recruits would operate within the product safety divisions.

8. The legal and monitoring division would provide support to all four front-line divisions across the Inspectorate. The monitoring division would be responsible for receiving and collating consumer complaints and developing a method of receiving reports of accidents and injuries.

9. A separate budget for the sampling and testing of products should be provided to the State Inspectorate and considered as a necessary pre-requisite for the effective operation of its market surveillance activities.

10. The Inspectorate should obtain screen-testing equipment and develop an expertise within the different product sectors especially those in which it has not operated before. 11. The control of products and machinery used in the workplace and specialist products such as medical devices and motor vehicles should be the responsibilities of the most appropriate Ministry that has staff with the necessary competence and experience.

12. The co-ordination of all market surveillance policies, inspectional programmes and enforcements activities would be through a Market Surveillance Co-ordinating Committee as envisaged in the draft law on State Supervision.

Infrastructure for market surveillance activities Performing market surveillance requires specific functions, knowledge and responses which are basically the same for all market surveillance organisations. The following issues should be considered when seeking to secure and enhance every market surveillance authorities‟ effectiveness and efficiency.

Legislative infrastructure To establish a proper and efficient market surveillance structure requires looking into the legislative and enforcement structures, and the economic aspects of enforcement bodies. Since one of the main objectives of market surveillance is to ensure equal conditions between economic operators, it

99 EBRD BSO Annual report 2011 is very important to establish a structure that enables all enforcement bodies to carry out market surveillance under the same conditions. This means the same legal powers and sufficient financial support to perform effective market surveillance within all product safety fields. The legislative framework regarding market surveillance should cover all market surveillance authorities.

Hard infrastructure To perform the tasks required for effective and cost-efficient market surveillance the organisation needs facilities and equipment:

 Information Technology (IT) systems and applications Although the administration could be paper-based, IT systems and applications are mandatory for efficiency as IT enables swift and easy retrieval of the information needed for many tasks in the process. The core of market surveillance is a chain of interdependent processes such as inspections, sampling, testing, and interpretation of results, decision making, intervention and the execution of ensuing legal processes, which may culminate in imposing sanctions or other interventions. In all these processes data is generated which is required in the next or in parallel steps. Collecting, administrating and distributing the information required within the organisation can only be efficiently done with the support of suitable IT systems. IT systems also serve to assure the quality and integrity of the data obtained.

 Laboratory capacity Monitoring the market involves taking product samples and investigating those samples in order to determine their safety. For this purpose, sufficient laboratory capacity and ability must be available. Laboratory facilities can be part of the quality infrastructure of the state or can be subcontracted. It is important that they are accredited for the products or product sectors that they test.

 Product Testing For assessing the safety properties of products, the authority needs screen testing equipment to enable it to carry out the more basic investigations on site or during desk examinations.

Staff competences and skills These include not only specific legal and technical knowledge necessary for performing the actual inspections, but also, for the organisation as a whole, knowledge of the markets and an understanding of hazard identification and risk analysis. Personnel involved in market surveillance activities must have a suitable educational or professional background and/or the necessary experience to deal with the tasks they perform in the enforcement body. In particular inspectors must show exemplary behaviour and possess a number of personal skills such as the ability to interact and communicate with consumers and business representatives in an honest, professional and diplomatic way under all circumstances. However, they must be forceful and resolute when the circumstances dictate such an approach.

Training of personnel Market surveillance authorities should set up a training programme for inspectors covering legal aspects, technical issues such as standards or other technical requirements, methods for risk assessment and skills regarding information, communication and relationship management. Ideally, practicing inspectors should convey their knowledge and experience of good practice to newcomers. The proper transfer of experience regarding best practice, approved methodology and standard operating procedures is important to advance the development of market surveillance within the authority.

Market surveillance strategy A compliance assistance approach is recommended over a strict enforcement approach as the overall compliance of business entities can be better served if sanctions are applied to businesses not willing to comply and that the businesses that want to comply but lack the competence are supported in obtaining the required. The approach should replace the moratorium of SME inspections

A risk-based inspection programme will ensure that the available resources are used in the most effective manner and will reduce the burden upon business entities to the minimum whilst providing

100 EBRD BSO Annual report 2011 reassurance for consumers. [See the separate Task 2 Report on setting up the database of business entities and using it to produce a risk-based inspection programme.]

The checking of documents approach is a very cost efficient way of doing market surveillance. A single inspector can check many products in a number of locations per day and it is a well- established fact that most dangerous products also have shortcomings in the administrative procedures. However, the examination of products must also be an intrinsic part of the inspection procedure as documents are often incorrect, incomplete or faked. Best practice combines both approaches and also ensures the inspections do not continue when sufficient evidence of compliance has been observed.

Document and product examination

Good practice will include some degree of screen-testing after the physical examination has indicated a potential hazard and before costly laboratory testing is commissioned. This is to ensure that the products sent for laboratory testing are more likely to be found unsafe. This reduces costs and speeds up the examination and testing procedures.

If the testing of a product reveals non-compliances, the recommended first step in the dialogue with the producer should be to request the technical file to determine if the shortcomings are due to design faults or production errors. This has an impact on the question of which corrective measure will most efficiently correct the shortcoming.

The requirements for technical documents are more detailed for products falling under the New Approach Directives (e.g. electrical products and toys) whereas they are more general for products falling under the GPSD.

Reactive market surveillance Information on potentially dangerous or non-compliant products may come from a wide range of sources. These can include notifications from RAPEX; injury details from hospitals and medical sources; complaints from consumers, consumer NGO‟s and business competitors plus information from the media. As such information streams are started by outside „events„, the actual response can not be planned in advance.

All these reports may suggest a range of reactions from the market surveillance authority. The MSA needs a management process to be in place to determine which response the information merits. It therefore needs the capability to improvise and that capability must be built into the organisation. [See separate Task 3 Report on reactive market surveillance.]

Proactive market surveillance It is important that the MSA also exercises a proactive approach in order to make the best use of its available resources and to seek to identify dangerous products and remove them from the market before they injure or harm consumers. [See separate Task 4 Report on proactive market surveillance.]

The two approaches need to be complimentary and well managed so that the resultant actions are guided by best practice and local knowledge and experience.

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Inspections, sampling and testing Inspections, sampling and testing are part of the primary working processes of market surveillance. Planned and consistent execution of these steps is decisive for a reliable outcome of the market surveillance process. Reliable results are necessary to assure consistent, fair and equal treatment of business entities and to retain the trust and confidence of consumers.

It is highly recommended to develop standard operating procedures for inspections, sampling and testing in a quality management system. Relevant standards that provide a framework for drafting these procedures and the requirements which they must adhere to are the ISO 17000 series. ISO 17020 provides guidelines on how to handle inspections. The first priority is to ensure that all inspection procedures are fully documented and practical guidelines are made available to Inspectors.

Inspections Inspections must be properly executed in order obtain effective results and not to jeopardise the potential legal follow-up. Attention should be paid to the following items:  how to issue an advance warning that an inspection will take place (if required in applicable laws)  formal identification of the field officer to the on-site representative of the business entity, (a multi-use warrant being better than individual certificates for each visit - if allowed by law)  adherence to any legal requirements to inform the business entity of their rights and the Inspectors powers (also require by best practice)  identification of a responsible representative of the business entity,  handing over of information material (letters or leaflets),  standard operating procedures for the examination and testing of documents and products  collecting and recording of information required in the possible legal follow-up (who, what, where, when, why)  instructions as to when and how immediate sanctions have to be taken

Sampling Market surveillance requires sampling of products for further examination and testing. The procedure for taking samples should be prescribed in a documented operating procedure defining the following  number of samples to be taken  selection of samples after a pre-check or screening test or random  sealing of samples to preclude tampering or contamination  identification of samples requirements  information about the samples that needs to be collected and recorded  documents to be requested along with the samples (i.e. declaration of conformity or technical file)  whether the sample is paid for, borrowed or taken without payment,  information to be handed to the business entity (i.e. receipt, information on the procedures followed)  reference sample that can be used for second opinion testing  procedure for forwarding the samples to the laboratory.

102 Management using key performance indicators Possible indicators to measure the performance of MSA can be divided into output and outcome indicators. Output indicators are indicators that summarise the performance of the organisation. There is no direct relationship with the intended results of the activities in terms of output. Outcome indicators are indicators that focus on the intended effect of the activities by the organisation.

Output based performance indicators could be:  number of inspections  number of products investigated  number of laboratory tests  number of measures taken against unsafe products  number of voluntary actions taken by economic operators  number of items withdrawn from the market  number of sanctions imposed  accumulated size of product batches affected by other measures  processing time (from sampling a product to concluding the case)

Outcome based performance indicators Outcome based performance indicators are more relevant, because they measure the resulting effects of the activities of the MSA, rather than its output. A suitable outcome parameter would be a measured reduction in product related injuries thanks to the activities of the MSA. To achieve this statistics need to be available that directly relate changes in the number of injuries to specific market surveillance activities.

However, the generally available statistics on product-related incidents do not identify the injuries directly caused by product non-conformities. Although obtaining information about the effect of market surveillance activities on the general health and safety of the consumers remains important, at present there is no practicable performance

Identification of Dangerous Products It is important that the MS inspectors develop a wide knowledge of the products that have demonstrated safety issues in the past and an expertise in identifying potential hazards. These hazards can then be referenced against relevant standards to confirm the dangers. Often the non-compliance will need to be confirmed by testing at a testing facility accredited for that specific type of product. The use of appropriate screen testing equipment will ensure that money is not wasted testing products that are safe.

Risk assessment to determine enforcement actions Risk assessment is the process that estimates the risk that a product with dangerous properties poses to people, animals or property. The risk in the context of the GPSD and the RAPEX guidelines focuses on risk posed to people. Other directives, e.g. the low voltage directive, have a broader definition that includes „animals and property‟ as potential victims. Directives that deal with chemical risks often also consider the risk posed to the environment. The process includes the identification of potential hazards associated in particular with the non-compliances against standards or legislation and estimation of the probability that the hazards will lead to an injury.

Principles of risk assessment

EBRD BSO Annual report 2011

The inputs, tools and output of a risk assessment process

The steps in risk assessment

Overview of the risk assessment procedure

Proportional Enforcement Actions MSA must ensure that products which present a serious risk requiring rapid intervention, including a serious risk the effects of which are not immediate, are recalled, withdrawn or that their being made available on their market is prohibited,

The decision whether or not a product represents a serious risk should be based on an appropriate risk assessment which takes account of the nature of the hazard and the likelihood of its occurrence. The

104 EBRD BSO Annual report 2011 feasibility of obtaining higher levels of safety or the availability of other products presenting a lesser degree of risk do not constitute grounds for considering that a product presents a serious risk.

The MSA should ensure that any measure taken to prohibit or restrict the product's being made available on the market, to withdraw it from the market or to recall it, is proportionate and states the exact grounds on which it is based.

For any product that could pose risks for certain persons, the MSA may need to order that they be given warning of the risk in good time and in an appropriate form, including the publication of special warnings. Should the economic entity fail or refuses to give such warnings, then the MSA should take similar action.

Prior to the adoption of such enforcement measures, the business entity concerned should be given an opportunity to be heard within an appropriate period as set out in law, unless such consultation is not possible because of the urgency of the measure to be taken, as justified by health or safety requirements or other Armenian legislation. If action has been taken without the operator being heard, the operator shall be given the opportunity to be heard as soon as possible and the action taken shall be reviewed promptly thereafter.

The decision making process can be represented by a flow diagram as indicated below and then the separate decision points can then be identified, agreed and set out in a documented standard operating procedure.

Flowchart of the decision process required to determine the most proportionate enforcement action

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Co-ordination with Customs Service Customs should play a significant role in protecting the health and safety of Armenian consumers as more and more consumer goods are manufactured in countries outside Armenia. A well-working cooperation with customs authorities will ensure that a portion of these goods can be checked at the border before they enter the internal market. Customs checks provide a more efficient way of guaranteeing that only safe products reach the consumers than traditional market surveillance where products are generally checked only after they are placed on the market Setting-up risk profiles It is not realistic to expect customs to check every single consignment.

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Instead, the customs authorities must focus on risky products by applying „risk profiles‟. The customs should also receive copies of RAPEX notifications.

A risk profile is a set of parameters that allow identifying products for further inspection. The parameters include the customs codes for the products in the consignment, the exporting country and the identification details of the exporter and the importer. The risk profile is applied to the customs declaration that must be presented to the customs authorities by the importer before the products are released.

The cooperation between MSA and customs authorities should also include exchanges such as information about product categories that are known often to present safety problems or basic knowledge on how to identify potentially unsafe products.

In cases where only one product category with straightforward safety requirements is targeted, it may be feasible to have the customs carry out the initial inspection of the selected products. Such an inspection can consist of checking the accompanying documents and the more simple safety requirements. The purpose of the initial inspection is to decide if the market surveillance authority should be involved or if the products can be released. The MSA should provide training to the customs authorities as well as necessary documents, such as check lists of easily detectable safety defects. 91 Counterfeiting Counterfeiting is a violation of a producer‟s intellectual property rights (IPR) but counterfeiting in itself is not an issue for the MSA. Nevertheless, counterfeit products may be of interest as such products are often of such poor quality that they pose safety problems in which case the market surveillance authority should be involved.

Conclusion The most cost- efficient and effective model framework for market surveillance activities depends upon combining an affordably structured organisation with appropriate resources and ensuring that it operates best practice procedures.

The funding of the organisation and its resources is a matter for the Ministry but the proposals made in this report are in line with the investment of many EU Member States in their market surveillance systems.

The policies and procedures suggested are based upon those recommended by Enhancing Market Surveillance through Best Practices (EMARS) project and published in their “BEST PRACTICE in MARKET SURVEILLANCE TECHNIQUES”. The full text of the manual is available for download from: http://www.emars.eu/uploads/EMARS_Best_Practice_Book.pdf

An example of an Inspection Policy is attached as Appendix D.

ARMENIA: BUSINESS SUPPORT COUN IL – MARKET SURVEILLANCE ADVISORY C21235/ETCF-2010-08-21/03

TASK 3

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REACTIVE MARKET SURVEILLANCE ACTIVITIES

A REPORT BY ROBIN CROFT MARKET SURVEILLANCE EXPERT

YEREVAN FEBRUARY 2011

PROJECT FUNDED BY EUROPEAN BANK FOR RECONSTRUCTION AND DEVELOPMENT

REACTIVE MARKET SURVEILLANCE

Reactive vs. proactive market surveillance Reactive market surveillance is normally triggered by an outside event, normally a consumer complaint or the report of an accident. The market surveillance authority must decide whether it will take up the case immediately, recorded the details for possible future action or leave it (a choice that sometimes must be made under considerable attention from parties such as the media).

If the case is taken up, an investigation usually involving an inspection visit follows and after that a risk assessment if a non-compliant products has been identified. Market surveillance authorities will often find themselves under pressure when working with reactive market surveillance; as there is a sense of urgency as the product may appear to be dangerous if it is alleged to have caused an accident and the case may attract a lot of interest from the public if it has been noticed by the media. In such cases the authority needs to ensure that it is not forced into taking inappropriate decisions or strong measures too rapidly.

Proactive market surveillance on the other hand is a planned activity derived from the long- and short- term plans of the organisation. The market surveillance inspectorate will make a project plan and set up sampling criteria which will serve as the base of selecting a number of products for investigation. The investigation will usually comprise laboratory testing and documentary checks. The results will go into the risk assessment, and the results from that will in turn go to the risk communication where adequate and proportionate measures are decided. .

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Reactive vs. proactive market surveillance The differences between proactive and reactive market surveillance are further outlined in the table below. The column „reactive market surveillance‟ is split in two columns describing „critical cases‟ and „other cases‟. In this context a „critical case‟ is understood as a case that is based on a police enquiry or a case that involves (or might involve) the media. Critical cases always need attention from the market surveillance authority – even if the authority decides not to take up the case.

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Comparison of reactive and proactive market surveillance

It is important to realise that the market surveillance authority always has the opportunity to decide if it will take up a given case or not. The authority is not obliged to investigate each and every complaint or enquiry that is presented to it. However, it will be wise to use transparent criteria in the prioritising of the enquiries. This is particularly important when dealing with potentially critical cases. Such cases should be assessed individually and the authority should prepare an explanation if it decides not to take up a case.

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It is also important to have efficient tools in place for the risk identification and prioritising of complaints and enquiries to avoid overloading the authority with irrelevant cases.

Even if reactive market surveillance activities are triggered by outside events, it is possible to some degree to predict or plan the activities. The authority may before hand decide to spend a maximum amount of resources on the activities or it may have objectives to investigate a given number of accidents each year. Furthermore, the flow of complaints or accident reports may be fairly stable or vary in a predictable manner which could also be taken into account when planning such activities.

The focus of reactive and proactive market surveillance is slightly different. The focus of reactive market surveillance activities will most often be on one specific product and the aim will be to solve a potentially emerging safety problem. The focus of a market surveillance project will be on a given product group or a given risk and the aim will be to clarify the status for the involved product group – and of course to solve any encountered safety problems with tested products.

Critical cases Another issue that emerges more often in reactive market surveillance than in proactive market surveillance is that of critical cases. The most important characteristics for critical cases are the urgency, the nature of the hazard and the media attention which can cause high pressure on the authority to „do something quickly‟. Often, such cases are started because of (serious) accidents. This implies that the product might present a serious risk so the authority has to deal with it rapidly to prevent more accidents from happening. On the other hand the authority would want to investigate the case thoroughly as the necessary measure could have a high impact on the industry – an impact that is magnified by the attention from the media. Furthermore, the authority must act in a legally correct way to avoid trouble afterwards with the producer. These contradictory conditions pose a dilemma for the authority and require that the authorities master the art of good communication – communication with the public, the media, the producer and the Government.

Information sources The reactive market surveillance activities are initiated by information from a range of different sources: accidents and fires, reports from consumers or media, reports from manufacturers, importers or retailers, notifications from RAPEX and other MSAs

Prioritising based on basic risk identification Two aspects of risk identification are particularly important in the context of reactive market surveillance. First, critical cases must be identified as such among the large number of complaints, accident reports, enquiries and RAPEX notification that the MSA might receive. These critical cases must be handled quickly to protect consumers as efficiently as possible. Second, efficient mechanisms for dealing with the rest of the information must be in place to focus the authority‟s attention on products with safety or conformity problems. Unimportant cases that were left initially may come back as critical cases if they are taken up by media or the authority may receive more complaints about the same product. In either case it will be important to be able to find all information about all previous cases to have a picture of the situation that is as complete as possible. Therefore, it is best practice to register all complaints even if no further handling takes place.

Identification of financial and human resources required for reactive market surveillance The most important single aspect when discussing resources in the context of reactive market surveillance is the MSA‟s ability to reallocate sufficient resources quickly to cope with emerging cases. The total amount of resources required for reactive market surveillance is difficult to be estimated beforehand. Experience however indicates that the share could be considerable – perhaps up to half of the resources that are available for market surveillance. It will however largely depend upon the MSA‟s ability to focus on the important cases.

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It will also be necessary to shift resources from planned projects to reactive market surveillance activities during the year. Reactive market surveillance tends to attract a lot of attention because it involves following up on accidents and other cases where urgency is necessary.

Another factor to be considered is that often such cases generate media interest. Moreover the authority must be prepared that something starting out as an investigation of a single product may evolve into an entire project with many products being investigated if it turns out that the underlying problem generally applies to an entire category of products.

THE SOLUTION FOR ARMENIA There is a need for procedures that will be able deal with the different information sources, identify the critical and non-critical cases, decide the appropriate responses and initiate the agreed enforcement actions.

Consumer complaints The first requirement is too encourage the flow of information from consumers and to make the reporting of problems easy. Continuing action should be taken to raise the profile of the State Inspectorate and to ensure that consumers are fully aware of its remit and responsibilities. The State Inspectorate already has basic for consumer complaints. This telephone number needs to promoted and a “call-centre” approach” be developed to provide consumers with first level advice regarding civil redress and to capture the relevant information regarding potential non-compliant products. Dedicated staff need to be trained and an information handling system needs to be adopted. [Details of a UK based service are included at Appendix A]

Details of Accidents and Injuries The second requirement is to develop an Accident and Injury Protocol so that details of citizens presenting at trauma centres with injuries associated with consumer products are captured. There then needs to a follow-up procedure to investigate the circumstances of the incident and determine if the injury was caused by a defect in the product, a lack of appropriate warnings or its operating or maintenance instructions.

[See attached for the following: Details of the EU Injury Database and an Accident – Appendix B Injury Reporting Protocol form for Trauma Centres - Appendix C. Guidelines for an Accident or Injury Reporting Protocol - Appendix D]

Additional Information Sources The third strand is the development of close communication links with other MSA‟s, Customs Service, Police, and Fire & Rescue Services to ensure that the appropriate persons in each service fully understand the State Inspectorate‟s remit and responsibilities and that appropriate protocols are in place to aid and encourage the rapid transmission of accurate information.

Information management To deal with all this potential information, there needs to be systems in place to ensure that the information is recorded accurately and used correctly.

Duty Officer Scheme A suggested solution for the decision making process is the adoption of a duty officer scheme. This entails a senior and fully qualified Inspector on a rota basis being charged with the responsibility of risk- assessing the information as it is received. This person then needs to make speedy and informed decisions about the appropriate enforcement actions and to be able to implement them.

Integrated Programmes The enforcement responses that are generated by the reactive approach need to be considered in the context of the activities already planned and for both sets of activities be integrated as much as possible.

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It is important that the major themes of the planned programme are not impeded by non critical reactive informed activities but that critical issues are promptly dealt with.

A flow diagram below sets out the basic stages of the decision making process and appropriate documented standard procedures should be developed and included in the State Inspectorates Quality Management System.

ARMENIA: BUSINESS SUPPORT COUNCIL – MARKET SURVEILLANCE ADVISORY C21235/ETCF-2010-08-21/03

TASK 4 PROACTIVE MARKET SURVEILLANCE ACTIVITIES

A REPORT BY ROBIN CROFT MARKET SURVEILLANCE EXPERT

YEREVAN February 2011

PROJECT FUNDED BY EUROPEAN BANK FOR RECONSTRUCTION AND DEVELOPMENT

Product focused market surveillance Traditionally market surveillance on non-foods consumer products has been product focused, due to legislation that formulates product requirements. To prove an offence, it must generally be shown that the product does not comply with the safety requirements of a given directive.

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Demonstrating non-compliance usually requires laboratory investigations, which can be performed more efficiently when a series of products is tested. Therefore, there is a strong incentive to work in projects on specific products. This approach is proactive as projects can be selected for their relevance to consumer safety, planned in advance, and tuned for maximum efficiency.

Reactive market surveillance together with a product focused approach is the framework currently used by most MSAs in the EU.

Risk focused market surveillance Market surveillance activities can also follow a risk based approach. Since the first priority of most market surveillance authorities is the protection of the consumers‟ safety and health, the goal of prioritising the activities can be the reducing of specific risks. Where information is available (for example from accident statistics) indicating that specific hazards are prominent in determining the risks of products for consumers, attention can be directed towards reducing these hazards. An MSA can target market surveillance at reducing fire hazards for instance by undertaking activities focused mainly on products with a potential fire hazard.

Of course, this approach converges with the product oriented approach, because it requires the identification of consumer products that are potential fire sources and the subsequent checking of these types of products.

Business focused market surveillance Especially in the context of market surveillance of the food chain, inspections are business focused, since businesses along the chain from ‟farm to fork„ decisively influence the safety of the foods they are handling. Food legislation tends therefore to be system oriented and market surveillance is also targeted at the operational management and the quality systems in place.

A number of recent developments in this area could be important for the non-food product safety field as well. There is an emerging framework that is based on the reasons businesses have for complying or not complying, in conjunction with approaches to improve the incentives to comply. This provides important levers for market surveillance to direct efforts at those „high risk‟ businesses more likely to violate the applicable requirements. A high risk business in this context is defined as being known from previous findings or from available data as potentially non-compliant with the rules. Aiming resources at those businesses that are most likely not in compliance improves the efficiency of market surveillance and is also in line with the developments in Member States where the governments try to reduce the inspection burden on „good‟ companies and direct market surveillance towards the non-compliers. Screening projects – market monitoring Screening projects are a special category of market surveillance actions. The main purpose of a screening project is to monitor the status of a particular part of the market, for example a product category, a category of businesses or a category of risks. MSA will obtain information for future targeting and most likely will find non-compliant products as well. Screening projects will often form the first part of a market surveillance action to allow the authority to gather knowledge about a particular area and thus increase the efficiency of the action.

Targeting of market surveillance An information-led selection of product categories for market surveillance actions ensures that the market surveillance activities contribute maximally to product safety. Making the right choice avoids expending resources on activities that only marginally contribute to product safety. After selecting what to do the question of where to do it has to be addressed.

The normal practice of market surveillance comprises inspection visits to conduct checks economic operators that trade in the selected products. Limited resources do not allow checking all the operators active in the market segments that need to be covered. The market surveillance authorities must therefore decide which operators should be checked. The choices made determine the effectiveness of the market surveillance efforts to a considerable extent. Targeting market surveillance at those operators that are most likely to break the rules is more effective than inspection of randomly selected businesses.

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This is also in line with Armenian political priorities concerning ‘inspection reform’ and the wish to reduce the administrative burden on Armenian industry.

Most market surveillance authorities take their information about the past behaviour of specific economic operators into account when targeting their actions. A systematic approach is needed and the building of a risk-assessed database of business entities is central to this approach.

THE SOLUTION FOR ARMENIA There is an approach that combines elements of both reactive and proactive market surveillance. This would have in place the reactive procedures already mentioned in the Report on Task 3 and would compliment them with a risk-based targeted inspection programme and a number of specific screening or enforcement projects. The targeted inspection programme would be derived from the risk-based business entity database when it is fully operational. The determination of the frequency of inspection visits is better controlled through such a procedure that being dictated by law.

The first stage in the development of targeted inspections would be to develop a programme in the first year to visit all manufacturers and importer of products that are subject to safety provisions. This would provide valuable information that would be used for future targeting and would assist both the MSA and the respective trade sectors to begin to understand the implications of EU style market surveillance. The following annual programmes would make full use of the information contained in the business entity database and the MSAs improved knowledge of the market and potential unsafe products. The annual inspection programme would run along side a number of screening or enforcement projects that would target those product sectors where historically many unsafe products are found. These include hand-held electrical products, electrical adaptors, toys, children‟s nursery products and imitation food products. The products selected would be those for which appropriate safety standards are already approved and for which accredited testing facilities were available. The interaction of the two approaches is shown below:

MSA Annual Plan Annual Report

Projects

Targeted inspections Reactive Activities Complaints Accidents

RAPEX Customs Monthly Operational Plans Project A

Check lists It is best practice to draw up check lists for those requirements that should be checked by the market surveillance inspector. Such lists will help the staff in carrying out the right tests for all products. In general, the check list would normally include:  clear identification of the product: product description  clear identification of company under inspection: name, legal entity, address etc.  checks on the presence of CE-marking  checks of the declaration of conformity: its availability and detailed specifications of the items required to be inspected (if applicable)  availability of the technical file (if applicable)  checks of the labelling requirements, with detailed specifications of all items to be checked (obligatory labelling, obligatory safety warnings etc.)

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 any additional requirements, for example requirements for which measurements must be performed in the field  name of the involved inspector

ARMENIA: BUSINESS SUPPORT COUNCIL MARKET SURVEILLANCE ADVISORY C21235/ETCF-2010-08-21/03

TASK 6 [Part 2] Current laws controlling Market Surveillance & Revised Draft Republic of Armenia Law on State Supervision

A REPORT BY ROBIN CROFT MARKET SURVEILLANCE EXPERT

YEREVAN FEBRUARY 2011 PROJECT FUNDED BY EUROPEAN BANK FOR RECONSTRUCTION AND DEVELOPMENT

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OBJECTIVE 1. To comment upon changes necessary to suitably amend the existing laws to allow EU style market surveillance to commence as soon as possible. 2. To comment upon the draft RA Law on State Supervision.

This report meets the requirements of Task 6 expected from the Consultant as set out in the terms of reference for Armenia: Business Support Council – Market Surveillance Advisory and, in additional, meets the request made by Deputy Minister of Economy, Karine Minasyan at the meeting on 10th February 2011.

INTRODUCTION This report seeks to provide guidance upon the necessary amendments that would need to be made to the existing RA Laws to allow a risked-based EU style of market surveillance to commence whilst the discussions and consultation on draft replacement laws continue.

This report also seeks to provide further advice and comments on the latest draft provided to me of the Armenian State Supervision Law. I understand that this draft is a revised version of the draft that I commented upon in December 2011.

ADVICE REGARDING NECESSARY AMENDMENTS TO EXISTING LAWS

The legislation for market surveillance is derived from three laws covering conformity assessment, conformity testing and consumer protection and a Government Decision:  The RA Law on Organizing and Implementing Audit – 2000  The RA Law on Conformity Assessment- 2004  The RA Law on Protection of Consumer Rights – 2001  Government of RA Decision 524-N: Approval of the Statute and Structure of the State Inspectorate of Market Surveillances and Consumer Rights Protection - 2003

Comment: The conformity assessment law envisages a system that really needs a better Quality Infrastructure than is currently available. It does not clearly distinguish the market surveillance function of the State Inspectorate from those of normal conformity assessment being undertaken for manufacturers and importers to establish that their products meet the appropriate technical regulations and are safe.

Advice: These issues need to be considered in the context of modernising the Quality Infrastructure and ensuring its fitness for purpose to meet the requirements of the draft Law on State Supervision.

Comment: The consumer protection law does cover the safety of products and distinguishes between quality and safety. Unfortunately it does not recognise importers and as such does not place any responsibilities upon importers for conformity compliance. The responsibility for only providing safe products to consumers is shared between the manufacturer and the seller. This may work for products produced an Armenia but would leave all the responsibility for the safety of imported goods with the seller. This does not accord with the responsibilities of importers as set out in the New Approach Directives and the General Product Safety Directive who assume responsibilities very similar to those of a manufacturer.

Advice: Draft an amendment to clarify the responsibilities of importers. This concern should be addressed as soon as possible as the most likely source of a significant amount of dangerous products will be from countries that export products to Armenia.

Comment: The Government Decision sets out the structure, objectives, functions and powers.

Advice: Amendments and additions to this decision could emphasis that a risk-based targeted approach to the determination of inspection visits and their frequency was a necessary function of the State Inspectorate‟s working practice as was the use of documented procedures. [Checklists]

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It could add the production of an annual inspection and testing programme to the functions of the State Inspectorate.

It could also stipulate that enforcement actions resulting from the discovery of non-compliant products be determined in accordance with the principals of proportionality, consistency and transparency.

Comment: The Audit [Inspection] law seeks to control all audit and testing procedures under a single system. The law covers the activities of 29 Governmental agencies including licensing bodies that are authorised to carry out inspections. This has produced a system that is not well suited to market surveillance and does not meet many of the best practice requirements.

A market surveillance inspection is more concerned with the products manufactured, imported, distributed and sold rather than aspects of the business entity that are important to other inspection regimes. Market surveillance only becomes interested in documents in as much as they relate to the conformity compliance or chain of supply.

However, this law has a number of Annexes relating to specific auditing or product sector circumstances. One option would be to add a 5th Annex relating to product safety and market surveillance.

Advice: A number of the proposed Articles in the draft law on State Supervision are specifically focused upon product safety and market surveillance issues. These Articles suitably amended as suggested below could form the basis of the suggested additional Annex to the Law on State Inspection.

The Articles to be considered are contained in Chapter 4 Articles 15 -35 suitably amended and restricted to the essential matters for an interim period.

The aim will be to ensure that the following basic attributes of the EU Acquis for market surveillance are incorporated into the necessary law and Government decisions:

1. The Market Surveillance Inspectorate should conduct the following:  Collection of complaint and injury information relating to the safety of products  Development of a database of details of business entities  Production of a risk-assessed inspection and testing programme  Regular inspection visits to all high risk business entities  Visits to medium and low risk business entities in accordance with an agreed and published frequency timetable.  Ensuring that the length and scope of all inspection visits is proportionate to the degree of non- compliance discovered.  Use documented procedures to control the conduct of the Inspector during the inspectional visit.  Use of random spot checks in emergency situations.  Use comprehensive or joint inspections whenever possible to reduce the number of separate inspections to business entities.  Conduct unannounced/covert visits to study trade practices.  Carrying out the examination, sampling and testing of products to assess their safety during inspectional visits.  Use of risk assessment to determine proportionate enforcement actions in relation to dangerous products.

2. Any market surveillance system should provide the MS Inspectors with the following legal powers to:  Enter trade and business premises upon production of official identity and mission documents  Inspect goods and documents  Take samples & make test purchases  Request other documentary information to establish supply chains  Seize and detain goods and documents as evidence  Copy business entities‟ books for evidence  Issue suspension notices to prohibit the sale of dangerous goods

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3. Additional powers to deal with unsafe products should be given to the Inspectorate or the Ministry with safeguards to avoid abuse to include :  Informing consumers about dangerous products  Banning the sale or importation of dangerous products  Ordering producers to recall or withdraw dangerous products  Institute criminal proceedings in the Courts to seek:  Appropriate sanctions  Forfeiture of dangerous goods  Destruction of forfeited goods  Ban their export or re-export

ADVICE RE DRAFT RA LAW ON STATE SUPERVISION

GENERAL Comment: I still have reservations concerning the advisability of seeking to control a wide range of State supervisory functions under a single set of legal requirements. The fundamental principles in Chapter 1 clearly should apply to all State Supervisory Authorities. [SSA]. But it appears to me that the “fitness to operate” and “financial probity” requirements that may pertain to the inspections conducted by educational or financial SSAs are very different to the market surveillance type of inspection required to determine if products are safe. Advice: See comments in Report on Task 1 for further explanation of the role of market surveillance.

Article 16: Publication of Annual Inspection Programme Comment: In sub-paragraph 5 it is not clear if it is intended to include the details of the Business Entities to be the subject of inspectional visits in the Annual Inspectional Programme. Advice: These details should not be made public in advance of the visit if at all.

Article 17: Frequency of Inspections Comment: I am not sure how this requirement will be interpreted in the case of a SSA that has different operating divisions. IF the SSA for market surveillance has Metrology, Fuel and Product Safety divisions would a visit by Inspectors from the Metrology division count as the “allowed“ or would all three divisions be allowed visits if the Business Entity operated in all three product sectors? Advice: Greater clarification is required.

Article 18: Preparation of Inspections Comment: The requirement to determine the duration of the inspection by stating the both the closing date of the inspection and its duration may place an adverse burden upon the Business Entity as the Inspector may seek to fill the whole of this stated time period whereas from an inspectional perspective the full amount of time is not needed. Advice: This remark is made in accordance with my contract requirement to “Assess the options with regard to a more optimal cost-efficient and effective market surveillance model.

Article 21: Conducting of Inspections Comment: In relation to the Head of the Business Entity [HBE], there is no definition of “the person replacing him/her”. Is this somebody who has to be specially nominated by the HBE or just the most senior member of staff in the premises at the start of the visit? I think that the latter should be the intention and this confirmed in an appropriate definition.

If not the whole signing in process is too bureaucratic and could be a burden upon the HEB or his/her replacement having to travel to the business premises to allow a visit to commence that may only last a short period of time and find no non-compliances. Busy economic operators will have a better use for their valuable time.

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The requirement would be better stated as requiring the Inspector to provide all the necessary documentation to the most senior member of staff and to be able to commence the inspection immediately.

Advice: To do otherwise will cause unnecessary delay and will not be a cost-effective use of the Inspectorates resources and could be a waste of the HEB’s time.

Article 23 Comment: There are two sub-paragraphs numbered 4

Article 24: Measures of Responsibility Imposed in the Result of Inspection Comment: The opening line of sub-paragraph 1 is missing.

It is not clear who can impose the liability measures detailed in sub-paragraph 2. Is it the Inspector, the Chief Inspector or the Inspectorate?

Also these measures do not include the power to seize dangerous products which may be necessary to ensure that dangerous products do not continue to be marketed. Advice: This article should be reviewed in the light of the above comment

Article 26: Prohibition of Circulation of Dangerous Products Comment: It may be necessary for the Inspector to seize products in circumstances where the Business Entity is likely to fail to comply with an order issued under this Article. This would be the only effective action to prevent the circulation of dangerous products. Advice: This article should be reviewed in the light of the above comment.

Article 33: Non-Planned Inspection Comment: The “Occurrence of emergency situation” is a very subjective phrase; for instance would it cover products notified through RAPEX and the launching of a series of “unplanned inspections” by the SSA to determine if similar products are available in Armenia. Advice: In order to protect the Business Entities, the interests of consumers and the responsibilities of the SSA further clarification is necessary.

Article 34: Follow up Inspection Comment: This article mentions both follow up inspections and Supervisory inspections with any definition of the latter or explanation of the difference. Advice: This article should be reviewed in the light of the above comment.

Article 35: Appointment of Expert Examination and Sampling Procedure Comment: The requirement to take two identical samples is not always possible. How would this article cover the situation where only a single example of the product is available but upon examination by the inspector there is a real suspicion that it is dangerous?

Also if there are two or more example but the products are expensive; this requirement will place a burden upon the Business Entity as he/she may lose the opportunity to sell the product and make a profit. Advice: Greater clarification is required.

Article 36: Appointment of Expert Examination and Sampling Procedure Comment: The requirements regarding the testing of the second sample may not be very helpful in the case of the product safety. It is not unusual to find a defect present only in a limited percentage of the products; there the absence of the defect in the second sample is meaningless to the danger presented by the first sample. Advice: Some additional detail to cover this eventuality is required; perhaps this could be added to Article 42

Article 36: The Study

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Comment: Sub-paragraph 5 states “In the result of study the inspector cannot apply responsibility measures”. This could create a conflict with EU Equis as the MSA is charged with taking appropriate and proportional enforcement action to remove unsafe products from sale, have them withdrawn from supply and recalled from consumers. The discovery of a single non-compliant product during a study visit may provide sufficient evidence to require such enforcement actions to be commenced. Advice: Additional detail is required to cover this eventuality; which could also be an issue in respect of food safety.

Article 46: Rights of State Supervision Exercising Persons Comment: The Inspector may need to seize and detain dangerous products either to retain them for evidence or to prevent them from being marketed after he leaves the premises. This would align with the comment made in respect of Article 26. Advice: This article should be reviewed in the light of the above comment

Article 50: Public Protection of Rights of Citizens and Business Entities Comment: The proposed right for NGO representatives to be present in the inspection process has a potential to cause confidentiality issues, will place an additional burden upon the Business Entity, will lengthen the duration of the visit and is not allowed in any EU Directive. Market Surveillance is the sole function of the appropriate inspection body. Advice: This right should be removed.

Article 51: Transitional Provisions Comment: These are not clear. What happens if the Market Surveillance Authorities progress towards the requirements for the database; risk assessed inspection planning and checklist at differing speeds? Advice: Redraft giving greater clarity in the event of a phased approach to inspection reform. RECOMMENDATIONS FROM CONSULTANT’S FIRST REPORT

Recommendations for the improvement of the Armenian framework for Market Surveillance

Immediate actions 1. Renewed efforts should be taken to raise the profile of the State Inspectorate on Market Surveillance and Consumer Rights Protection so that consumers are more likely to report problems with consumer products. The input of the public is a vital source of information that must be used to inform a risk based inspection programme that is relevant to the current state of the market. This proposed initiative would have to be backed with sufficient access channels so that any increase in public response can be accommodated. The public should be encouraged to report unsafe products to the responsible authorities even if they are also seeking recompense or damages through the courts. The issues of civil restitution and market surveillance enforcement action are separate issues but the information from the common incident is important and should be shared.

2. The current business entity database operated by the State Statistical Service should be assessed as the basis for an integrated database available to more market surveillance inspectorates or the State Statistical Service be given the task of providing reliable and appropriate information on a regular and timely basis without further requests or decisions to those market surveillance inspectorates that indicate a need. This information should be used to develop an inspection programme that prioritises manufacturers and importers.

3. The State Inspectorate on Market Surveillance and Consumer Rights Protection is provided with an interim budget to cover compliance testing and travel costs so that it can begin to provide a higher degree of protection to consumers across the whole of Armenia. The amount required is matter for the budget holder and the budget provider but should be based upon the true cost of testing and likelihood of non-compliant products being identified based upon previous performance. Many member states make the cost of such testing recoverable from the product producer or importer if the product is found to be non-compliant.

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4. The State Inspectorate on Market Surveillance and Consumer Rights Protection focus the access to better information and these new resources on checking compliance by importers of consumer goods into Armenia. High priority should be given to ensuring that compliance inspection visits are made to all relevant manufacturers and importers before further consideration is given to other parts of the supply chain. This would be developed as part of the risk assessed inspection programme and would also be implemented if non-compliant products are found at retail level.

5. The State Inspectorate on Market Surveillance and Consumer Rights Protection should concentrate any retail compliance checks that are considered appropriate upon the safety characteristics of specific products that can be readily identified by visual examination alone such as: a. the presence of draw strings in the hoods of outer garments intended for children; b. the presence of small magnets in toys; c. novelty cigarette lighters; d. the lack of appropriate warnings and instructions for power tools; e. the presence of DMF sachets in leather shoes or furniture; f. essential safety requirements that can be measured without disassembling the product; g. any non-food consumer products reported through RAPEX that have physically identifiable points of non-compliance.

6. The State Inspectorate on Market Surveillance and Consumer Rights Protection should be given powers and a budget to purchase consumer products for further examination and testing. This process, known as “test purchasing” is a necessary and efficient part of European market surveillance. Visual inspection in the store cannot always detect evidence of non-compliance that a quick and partial disassembly would reveal. For instance the problem of extension electricity cables not being fitted with earthing or grounding wires. It is also the only effective method of checking whether the proper instructions and warning always accompany products when they are supplied to consumers. Of course, suitable checks and balances would need to be in place to prevent abuse but a well managed organisation must be able to control its staff.

7. State Inspectorate on Market Surveillance and Consumer Rights Protection should risk assess non- compliant products to establish the level of danger that they present to consumers and seek to establish the source and extent of supply with a view to taking appropriate enforcement action against similar products and providing information to the public. This is fundamental to the principle of proportionality and has to be done before enforcement action is takend in each and every case. This work would assume the highest priority and would be conducted instead of the pre-planned inspection programme.

8. The consultant has been advised that the Prime Minister has placed a moratorium upon compliance checks being made on SME‟s. This restriction be reviewed and if considered no longer appropriate be dropped or at least modified so that evidence of non-compliance could trigger enforcement visits.

It should be noted that recent research in the UK has revealed that many SME‟s do not find market surveillance visits intrusive or an unwelcome burden. This view is linked to a strategy to inform and educate that is attached to retail compliance visits. Product specific information packs are often provided to complement an inspection doctrine that does not seek to punish minor technical infringements or simple mistakes. First offences are normally dealt with by way of an informal warning or a written caution, again dependent upon the degree of risk. This approach still allows for decisive and effective enforcement action to be taken in cases of serious risk or deliberate non- compliance for major commercial advantage.

SME‟s often do not have the time or resources to ensure that they have up to date information. They see this access to free and professional advice to issues such as changes in legislation, Government decisions and latest consumer trends as a real and tangible benefit. Indeed the entrepreneur can use the compliance visit as an opportunity to raise questions of compliance in respect of any future initiatives that he has planned.

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9. Closer co-operation between the State Inspectorate on Market Surveillance and Consumer Rights Protection and the Customs Service should be encouraged and facilitated to enable joint actions to be taken at the major Inland Customs Clearance Depots. Effective market surveillance should be focused on identifying non-compliant products before they can be placed on the market. Imported products, particularly those from countries with a history of supplying dangerous, are better inspected at the import stage.

10. Closer co-operation between the State Inspectorate on Market Surveillance and Consumer Rights Protection and the Health Service be encouraged and facilitated so that details of accidents involving consumer products can identified and information be shared.

11. Closer co-operation between the State Inspectorate on Market Surveillance and Consumer Rights Protection and NGO‟s engaged in Consumer Protection be encouraged and facilitated so that details of consumer problems involving unsafe products can identified and information be shared.

12. The State Inspectorate on Market Surveillance and Consumer Rights Protection should immediately investigate the sharing of information and best practice with the State Inspectorate responsible for food safety.

13. The three above recommendations should be developed on an informal basis but encouraged by the appropriate ministries until a more formal institutional approach can be developed. However, the emphasis must be clearly centred upon delivering action rather than meeting to talk about possible reasons for inaction. This responsibility would be later taken over by the consultant‟s proposed Market Surveillance Committee.

14. The current depth of experience, competence and past performance of the Inspectors of the State Inspectorates should be subjected to a training needs analysis to determine the nature and degree of any additional training that is considered necessary. Suitable training should be developed to meet the identified needs. The emphasis should be on practical training to enable Inspectorate staff to be better able to identify non-compliance products and to risk assess their danger to consumers. Managers may also need training in respect of programme development and management, target setting and performance measurement.

15. The current list of the goods and services subject to mandatory conformity assurance that is published by the national body should be checked to determine if the requirements are in line with conformity requirements as set out in the appropriate EU directive if such goods are controlled by a product sector directive. Products controlled only by the GPSD in the EU are not subject to any mandatory conformity assessment process.

16. The intent of these new initiatives should seek to reorganise the current State Inspectorate on Market Surveillance and Consumer Rights Protection without waiting for legislation change and to establish by internal Ministry management a Market Surveillance Inspectorate that displays the following characteristics:  Publish Inspection & Prosecution policies.  Publish an Operational Plan with performance targets.  Maintain a risk assessed database of business entities.  Use documented inspection procedures.  Develop a Quality Management System.  Provide advice to manufacturers & importers.  Receive complaints of non-compliance.  Produce an annual risk-based inspection programme.  Produce an import assessment programme.  Target monitoring of consumer products for non-compliance.  Conduct accident & injury analysis.  Produce an Annual Report with performance results.  Develop a staff training programme.

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 Liase effectively with other MS agencies.  Liase with trade, import & consumer bodies

Medium term actions [2-3 years]

17. A review of the current laws to prove a clearer and more detailed legal basis for market surveillance should consider the following options:  Work within the existing laws but with additional Government or Ministerial Decisions to clarify areas of uncertainty and to eliminate any overlap; or  Amend the existing laws to better reflect the requirements of market surveillance; or  Draft a new Market Surveillance Law and exempt market surveillance from the requirements of the current laws.

18. A new or revised law should aim at establishing an effective and efficient market surveillance system by focusing on the following:  Assigning clear responsibilities over the various product sectors.  Providing for mandatory co-ordination between various Inspectorates.  Setting out the powers and duties of the Inspectorates.  Determining appropriate procedures for test purchasing, sampling and testing that are more appropriate for market surveillance activities.  Providing an appropriate range of enforcement actions.  Providing suitable resources and budgets.  Including the Customs Service in the Market Surveillance framework

19. A preferred model for a proposed market surveillance framework should be decided and set out in detail before the provisions of a draft law can be properly decided. Particular attention should be paid to EU Regulation 765 and EMARS “Best Practice Techniques in Market Surveillance”.

20. The Market Surveillance Inspectorate should conduct the following:  Regular visits to all places where products are offered for sale, stored for sale or put into service – based on risk assessment.  Regular and random spot checks.  Comprehensive inspections.  Examination, sampling and testing of products.

21. Any market surveillance system should provide the MS Inspectors with the following legal powers to:  Enter trade and business premises  Inspect goods and documents  Take samples & make test purchases  Request other documentary information to establish supply chains  Seize and detain goods and documents as evidence  Copy business entities‟ books for evidence  Issue suspension notices to prohibit the sale of unsafe goods

22. Additional powers to deal with unsafe products should be given to the Inspectorate or the Ministry with safeguards to avoid abuse to include :  Inform consumers about unsafe products  Ban the sale or import of unsafe products  Order producers to recall or withdraw non-compliant goods  Institute criminal proceedings in the Courts  Forfeiture of non-compliant goods  Destruction of forfeited goods  Ban their export or re-export

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23. Consideration should be given to the introduction of a legally established Market Surveillance Committee with the overall responsibility for cooperation and coordination of all the Inspectorates that have market surveillance responsibilities. Its remit should include:  Mapping out the responsibilities of the Market Surveillance Inspectorates in each product sector.  Detailing any area of duplication or gaps in coverage.  Developing common inspection and enforcement strategies.  Coordinating market surveillance planning.  Developing joint actions between the various MS Inspectorates  Sharing information and the results of activities.  Supporting the use of best practice.  Developing an integrated business entity database for shared use by all market surveillance inspectorates.  Developing an Accident Notification Protocol and an Accident & Injury Database.

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ANNEX 14

MINUTES Donor Coordination meeting UN House

28 March 2011

Participants: • Ms. Dafina Gercheva, UN Resident Coordinator/UNDP Resident Representative (Co- chair) • Mr. Tigran Davtyan, Minister of economy of the Republic of Armenia (Co-chair) • Ms. Karine Minasyan, First Deputy Minister of economy of the Republic of Armenia • Mr. Garegin Melkonyan, Deputy Minister of economy of the Republic of Armenia • Mr. Artak Baghdassaryan, Department of Economic Policy and Strategies Development,Ministry of economy of the Republic of Armenia • Ms. Syuzanna Hayrapetyan, Press secretary, Ministry of economy of the Republic of Armenia • Dr. Jatinder Cheema, Chief of Mission, USAID • Mr. Tyce Shidelen, Project development officer, USAID • Mr. Jean-Michel Happi, Country Director, World Bank • Mr. Jean-Christophe Gayrand, Head of Finance, Contracts and Audit Section, EU Delegation • Mr. Guillermo Tolosa, Representative of International Monetary Fund • Mr. Johnny Antle, Chief of US Defense Threat Reduction Agency in Armenia, US embassy • Ms. Susanna Yeghiazaryan, Yerevan Program Assistant m US Defense Threat Reduction Agency in Armenia • Ms. Diana Ghazaryan, Cooperative Threat Reduction Advisory and Assistance Services Support in Yerevan • H.E. Mr. Hans-Jochen Schmidt, Ambassador of Germany to Armenia • Mr. Ioannis Dermentzoglou, Head of economic and commercial department, Greek embassy • Mr. Alexander Posilkin, Third secretary, Russian embassy • Mr. Julien Velcof, Economic attaché , French embassy • Mr. Pablo Bonissone, First Secretary, Italian embassy • Ms. Irina Kausch, GIZ “Private Sector Development in South Caucasus” project coordinator • Mr. Aram Babayan, GIZ, Senior Advisor on Food Safety, Export and Investment Promotion • Ms. Varsenik Mnatsakanyan, GIZ, Economic and Financial Policy Expert • Mr. Garik Hayrapetyan, UNFPA Assistant Representative • Ms. Irina Papieva, Country Programme Coordinator for DPR, WHO • Ms. Ilona Ter-Minasyan, IOM, Head of Office • Ms. Kristina Galstyan, IOM

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• Ms. Zara Allaverdyan, Senior National Programme Officer, SDC • Ms. Anahit Simonyan, UNIDO Head of Operations • Ms. Laylee Moshiri, UNICEF Representative • Ms. Maria Dotsenko, UNDPI Representative • Mr. Valeriu Razlog, EBRD (European Bank for Reconstruction and Development) • Ms. Alisa Grigoryan, Head of the EBRD Business Support Office • Ms. Larisa Minasyan, Executive Director, OSI • Mr. Eduard Melkonyan, National Security Council of the Republic of Armenia • Mr. Arsen Nazaryan, International Finance Corporation • Mr. Armen Baibourtian, UNRC Senior Advisor • Ms. Tatevik Koloyan, Executive Associate to UNRC/UNDP RR (meeting secretary)

Minutes:

UN RC/UNDP RR Mrs. Gercheva welcomed the participants to the first for 2011 donor coordination meeting in its new format, co-chaired jointly by the Minister of economy of the Republic of Armenia Mr. Tigran Davtyan and UN RC. Mrs. Gercheva presented the meeting agenda, as follows:

1. Revision of the Sustainable Development Program 2. Export promotion 3. Aid Coordination

The Minister of Economy welcomed the participants, informing that in the course of donor coordination meetings, he would present the priorities and development needs of the Government of Armenia seeking donors’ assistance in addressing those needs.

1. The Minister briefed on the Sustainable Development Programme (SDP) background and current state, highlighting that the SDP was prepared in 2008 and represents Government’s vision for development until the year 2025. However, after the global economic crisis hit Armenia in the last quarter of 2008, the SDP became old dated and there is a need for its urgent revision. The minister stressed the importance of having a strategic document which charts the main vision for country’s long term development and serves as a basis for the Government midterm and annual planning, budgeting processes. The minister informed that the revision process will be lead by the Ministry of Economy with the support and assistance provided by UNDP. Ministry’s focal point for this process is Mr. Artak Baghdassaryan.

The Minister informed that the timeline for SDP revision is very limited. The revised document has to be submitted to the Prime Minister and the Cabinet for final approval by the end of 2011. Therefore, the first draft should be ready for discussion and consultations by end of May the latest. The period June- August will be used for soliciting comments and inputs to the revised draft of the SDP.

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The Minister invited donors who would be interested to support the process by providing funding, technical assistance or other type of aid to inform the focal point in due time. He also indicated that all types of support are very much welcome and appreciated.

2. The minister also presented the second document- “Export oriented industrial policy”, which is under preparation and should be intrinsically linked to the SDP. He informed that export promotion and having export oriented economy is one of the main Government’s priorities. The minister briefed on certain tools that the Government can put into use to facilitate export promotion (e.g. adopting conducive legislation, improving tax and customs administration, applying tools such as tax incentives, technical assistance, financial assistance, mobilizing donors’ assistance). Against this background the Minister addressed the donors with a request for support towards the preparation of this strategic policy paper.

Summing up the key messages the Minister pointed out: Urgent need for donors support towards the revision of the SDP and preparation of export promotion policy paper.

Dr. Cheema, USAID mission director, informed that USAID has the sources for technical assistance for SDP revision however they would like to know the key areas. Dr. Cheema also informed that USAID would also start a new project in June 2011, targeting the export industry of the country, thus USAID could cover certain components of the export promotion policy document.

World Bank (WB) country director Mr. Happi informed that the WB was ready to support the Government in SDP revision, and asked whether it would not be more useful, instead of updating the SDP, to elaborate a midterm policy document for 5 years, which would help to prioritize and sequence the development. He informed that WB is already involved in export promotion activities in the country, and that they stand ready to support the Government in the development and implementation of the policy paper on export promotion. WB country director expressed WB readiness to lead some of the tasks with co-leaders.

Mrs. Gercheva reconfirmed UNDP’s commitment to provide the necessary resources, however they would need to know the exact key areas and timeline.

UNICEF also expressed an interest to support the SDP revision process.

H.E. Mr. Hans-Jochen Shmidt, the ambassador of Germany to Armenia, talked about the EU- Armenia cooperation, mainly the Deep and Comprehensive Free Trade Agreement (DCFTA) that could be linked to the export promotion policy paper. The Minister briefed about the close cooperation with the EU on DCFTA within the framework of the EUAG project, and confirmed that it should be one of the points in the policy paper, describing briefly the Government actions on that matter.

Mr. Jean-Christophe Gayrand, Head of Finance, Contracts and Audit Section of the EU Delegation to Armenia, informed that the EU Delegation could contribute to the elaboration of export promotion policy paper, especially since it is linked to DCFTA, and that he would check

128 EBRD BSO Annual report 2011 the possibility to provide also financial contributions. On this note the minister informed that the export promotion policy paper would be prepared mainly with the ministry’s resources and experts, however they would welcome donors’ technical support.

Ms. Anahit Simonyan, Head of UNIDO Operations, expressed UNIDO’s interest to contribute to the development of the export promotion policy paper.

UN RC/UNDP RR Mrs. Gercheva stressed the importance of having a broad based consultative process engaging all relative stakeholders in the review of the revised SDP AND ensuring adequate capture of comments and inputs provided. The Minister confirmed that such a mechanism will be put in place and the process will be steered and oversight by the Prime Minister and the SDP board.

Ms. Irina Kausch, GIZ “Private Sector Development in South Caucasus” project coordinator, informed that they could provide financial assistance for the export promotion document only with technical assistance; and GIZ could also provide expertise since GTZ had participated in the making of PRSP.

The minister requested all interested donors to contact Ministry focal point Mr. Artak Baghdassaryan on the same day to further organize a working group meeting; and appointed Mr. Hayk Mirzoyan, Head of industrial department of the ministry as focal point for coordinating the works on the export promotion policy paper.

3. Mr. Armen Baibourtian, Senior Advisor to the UNRC, briefed the participants on Armenia’s progress towards the implementation of the Paris Declaration on Aid Effectiveness. He informed that even though Armenia has not yet officially signed the Declaration, the GoA and donor community participated in the 2011 Monitoring Survey of Paris Declaration. The Minister informed the participants that all the necessary steps for signing the Paris Declaration have been made and the process will be completed shortly. He expressed his strong support to the aid effectiveness global agenda and the Paris Declaration. The need for having proper information management systems for aid coordination was raised and discussed, and on this note Mr. Baibourtian also briefed on the recent meeting with Synergy International Systems. The Minister of economy reiterated Armenian Government’s commitment to sign the Paris Declaration on Aid Effectiveness in the nearest future.

It was agreed that during the next donor coordination meeting, which will take place in three months time, there will be a brief update on Armenia’s progress towards the adoption of the Paris Declaration.

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