Source: EURLEX
Language: en
Format: md

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# 52012SC0110

**JOINT STAFF WORKING DOCUMENT Implementation of the European Neighbourhood Policy in Armenia Progress in 2011 and recommendations for action Accompanying the document JOINT COMMUNICATION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS Delivering on a new European Neighbourhood Policy /\* SWD/2012/0110 final \*/**

  

1.
Overall assessment

This document
reports on the progress made in implementation of the EU-Armenia ENP Action
Plan between 1 January and 31 December 2011, although developments outside this
period are taken into consideration when deemed relevant. It is not a general
review of the political and economic situation in Armenia. For information on
regional and multilateral sector processes, readers should also refer to the
Eastern Partnership Progress Report. The present ENP Action Plan for Armenia was signed on 14 November 2006 and covers five years. The Cooperation Council held
in November 2011 agreed on its extension.

There was
intense political dialogue with the Armenian government in 2011, a Political
and Security Committee Political Dialogue meeting in June and a
number of mutual high level visits. High Representative and Vice-President C.
Ashton visited Armenia on 16-17 November as part of her visit to the South Caucasus region.

Negotiations on
the Nagorno-Karabakh conflict within the Minsk Group in 2011 have demonstrated
the need for further efforts by the parties to the conflict to achieve
substantial progress. Amidst increasing tension along the Line of Contact and
the Armenian-Azerbaijani border, mediation efforts resulted in marginal
progress on the mechanism proposed by the Organisation for Security and
Cooperation in Europe (OSCE) to investigate incidents along the frontlines. The EU stands ready to provide enhanced support for confidence
building measures, in support of and in full complementarity with the Minsk
Group, with a view to facilitating further steps towards the implementation of
peace.

The EU
continues to support the normalisation of relations between Armenia and Turkey without preconditions.

Within the
Eastern Partnership, the negotiations for an EU-Armenia Association Agreement
(AA) progressed at a good pace. Armenia made substantial progress in
implementing the ‘key recommendations’ for the launching of negotiations on a
Deep and Comprehensive Free Trade Area (DCFTA).

While there is
a serious effort to address issues related to human rights and fundamental
freedoms, further work needs to be done especially in the implementation of
legislation. Positive steps were taken to prepare the country for upcoming
elections, with changes in the electoral code and a presidential amnesty for
the remaining persons detained for charges related to the March 2008 events. There
are however concerns about media freedom relating to the print media
affiliation, limitations on TV broadcasting and to civil lawsuits for insult
and defamation. Despite a reform effort, public trust in the judiciary
continues to be low, and the perception of corruption is still high.

The National
Preventive Mechanism under the Optional Protocol to the UN Convention against
Torture should be further strengthened. Cases of torture and ill treatment
among military conscripts, in prison facilities and at police stations are not
adequately investigated.

As the
authorities maintained prudent macro-economic policies and introduced several
structural reforms, Armenia showed encouraging signs of recovery after the
severe recession that resulted from the international crisis in 2009. It
continued to progress towards meeting the objectives of the Action Plan in the
area of macro-economic policy, poverty reduction and social cohesion. Further
growth and economic development will depend to a large extent on the
continuation of fiscal consolidation and improvement of the business
environment.

Directives for
the negotiation between the EU and Armenia of visa facilitation and readmission
agreements were adopted in December. Negotiations started on 27-28 February. In
October 2011, the EU-Armenia Mobility Partnership was established.

Regarding
Medzamor Nuclear Power Plant (MNPP), the EU continues to request its earliest
possible closure as it cannot be upgraded to meet internationally recognised
nuclear safety standards. Armenia has not yet drawn up a detailed
decommissioning plan for MNPP. Armenia continued the safety upgrading of the
plant, which it plans to close once replacement capacity is available. Armenia is preparing the construction of a new Russian type nuclear power plant on the
Medzamor site, although financing remains a major problem. Following the Fukushima nuclear accident, Armenia expressed readiness to undertake with the EU a
comprehensive risk and safety assessment (‘nuclear stress test’) of the plant
(VVR type of the first generation), taking account of EU standards. Armenia became an observer of the Energy Community.

On the basis of this year’s report and with
a view to sustained implementation of the ENP Action Plan in 2012, Armenia is invited to:

Ensure that the presidential elections scheduled for 2013
are in line with international standards by addressing the
shortcomings identified by the Office for Democratic Institutions and
Human Rights (ODIHR) of OSCE concerning the May 2012 parliamentary
elections.   
Step up efforts with Azerbaijan to reach agreement on the
Madrid Principles in accordance with the commitments made by the Presidents
of Armenia and Azerbaijan in the framework of the Minsk Group.
Provide unconditional access for representatives of the EU to
Nagorno Karabakh and surrounding regions.
Fully investigate the deaths that occurred during the clashes
of March 2008 and the allegations of ill-treatment in police custody and
violation of due process.
Ensure finalisation and implementation of the National Human
Rights Strategy and Action Plan.
Adopt amendments to the legislation on broadcasting in
compliance with the recommendations of the OSCE and the Council of Europe,
and ensure pluralism in the broadcasting media.
Finalise the draft law on Conscience and Religious Freedoms, in
line with international standards as well as the legislation on
alternative civilian service, in conformity with Venice Commission and
OSCE recommendations.
Adopt comprehensive anti-discrimination legislation, including
further steps leading to the harmonisation of legislation with the EU acquis
in the areas of gender equality and non-discrimination.
Strengthen enforcement of the Anti-Corruption Strategy and boost
capacity for combating corruption.
Strengthen the implementation of the reform agenda presented by
the Armenian authorities, including measures to reform public
administration and the judicial sector (especially increase the independence
of the judiciary, improve the training of judges, review the code of
criminal procedure, pursue the Police Reform Programme).
Continue to advance sectoral reforms and regulatory
approximation to the EU acquis in trade and trade-related areas based on
the key and additional recommendations identified in the preparation for
the DCFTA.
Work towards the earliest possible closure
of the Medzamor Nuclear Power Plant and adopt a detailed decommissioning
plan for this plant, taking into account the result of stress tests.
2.
Political dialogue and reform
Deep and
sustainable democracy

Preparations for
the 2012 Parliamentary and 2013 Presidential elections advanced. On 26 May 2011 the National Assembly approved a presidential amnesty which also led to
the release of all the opposition supporters detained in connection with the
March 2008 events following presidential elections. However, Armenian
authorities have yet to fully investigate the deaths that occurred during the
clashes and the allegations of ill-treatment in police custody and violations
of due process of March 2008. In May, the National Assembly amended the electoral code to ensure greater independence of the electoral commissions.
Opposition lawmakers dismissed the changes as insignificant and insufficient to
limit the influence of the President and his political allies. However, as the
Venice Commission and OSCE have long stated, the Electoral Code of the Republic of Armenia could provide a good basis for democratic elections, if fully
implemented. There was extensive exchange of
information between the EU Delegation and the OSCE during the process of
drafting the new amendments to the Electoral Code. Although the new code has
the potential to ensure the conduct of democratic elections, legislation alone
cannot guarantee this. It is the exercise of political will by all stakeholders
that remains the key challenge for the conduct of genuinely democratic
elections in Armenia.

In April a new law on conducting meetings,
assemblies, rallies and demonstrations was adopted, which provides for a number
of improvements to the freedom of assembly. However some provisions give
the authorities undisputed discretion to grant or deny permission for
conducting meetings and rallies. Reportedly, the government continued
systematically to restrict movement on the days of opposition rallies by
blocking the roads from the regions to the capital. Amendments to the law on
Non Governmental Organisations (NGO) tabled before the parliament in 2009
remain a concern as they might restrict freedom of association.

The main concerns on freedom of
expression and media relate to the lack of media independence, the
limitations on TV broadcasting and the continuation of lawsuits for insult and
defamation. Following the entry into force of the new law amending the ‘law on
Television and Radio’ in January 2011, the number of TV channels broadcasting
in the capital was reduced from 22 to 18. The printed media remains subject to
the political opinions of the financing bodies. The online media remained more
pluralistic, but their outreach is limited to the area covered by internet
facilities (40% of the population). The broadcasting law, amended several
times, continues to raise concerns about media pluralism. While the law
decriminalises libel and insult, it has resulted in high monetary fines for
insult and defamation. Such fines can be imposed upon media outlets following
civil suits. On 10 November, the OSCE Representative on Freedom of the Media
called upon the authorities to reform the legislation further in order to adequately
protect the media in civil defamation cases.

Despite an effort to reform the judiciary,
public trust continues to be low. Judges remain strongly influenced by
prosecutors and the executive, thus limiting the right to fair trial.
The EU is providing substantial support in this sector, including through
sector budget support (EUR 18 million).

Corruption
remains a serious problem. Transparency International ranks Armenia in 129th place out of 183 (score 2.6 out of 10) in its Corruption Perceptions
Index for 2011. The authorities have regularly and publicly expressed their
readiness to fight corruption. However, despite the adoption of certain
important legal acts (e.g. the law on Procurement, and law on Public Service),
fulfilment of obligations from the Council of Europe Group of States against
Corruption (GRECO), OECD and other international bodies, as well as the increased
number of arrests and indictments of corrupt officials, there have been no
positive changes in the perception of corruption by different segments of the Armenian
population and the government’s measures have not been sufficient to change it.
What is lacking is effective implementation. The anti-corruption coordinating
mechanism created in 2004 is weak. No institutional support or resources have
been allocated to anti-corruption work by the government. In May, the National
Assembly adopted the law on Public Service. Starting from 2012,
declarations on income and property will be submitted only by high-ranking
public officials, as well as persons related to them. This law has several
shortcomings regarding the capacity and powers of the Commission on Ethics of
High-Ranking Public Officials.

The main point of reference on security
sector reform is Armenia’s
Strategic Security Environment, defined in the National Security Strategy and
in the Military Doctrine , which has been agreed by the National Security
Council of the Republic of Armenia and approved by decrees of the President in
2007. Within the framework of the defence reforms, the Armenian Defence Ministry
initiated a process referred to as the Strategic Defence Review (SDR) of the Republic of Armenia. The SDR is focused on the identification of existing and potential
political and military risks and threats to Armenian national security. It envisages
a detailed analysis of the Armenian national defence system and its components,
with the aim of evaluating the system’s current capabilities and ensuring that
they still meet the identified risks and threats. The review also anticipates
both short-term and mid-term developments.

Civilian control over the security forces is effective. The
Minister of Defence is a civilian. However impunity for human rights violations
committed by members of the security forces is a matter of concern. Defence
reform, in bringing more transparency, is also highlighting the problem of
abuse. The armed forces remain one of the most closed structures in Armenia with frequent reports of abuse, ill-treatment, hazing and non-combat fatalities. At
the same time the Ministry of Defence shows a higher degree of transparency by
publishing information about each incident. In comparison with previous years,
the number of ill-treatment cases is steadily declining. The military officials
also constantly assure the public about their readiness to follow up each
incident.

Conflict prevention and
confidence building

Negotiations within the Minsk Group in 2011
have demonstrated the need for further efforts by the parties to the conflict to
achieve substantial progress. Amidst increasing tension along the Line of
Contact and the Armenian-Azerbaijani border, mediation efforts continued on the
elaboration of the OSCE-proposed mechanism to investigate incidents along the
frontlines. The Minsk Group intensified its activities in the region, with
regular crossing of the Line of Contact and the Armenian-Azerbaijani border towards
the end of 2011. Despite the limited progress, Armenia and Azerbaijan remained engaged in the process. The EU enhanced its support to the negotiation process
through several political declarations, through the appointment of a new EU
Special Representative for the South Caucasus and the crisis in Georgia, and through the implementation of Confidence Building Measures. The increasing
number of incidents along the frontlines, as well as infrastructure works in
Nagorno-Karabakh (airport and highways), continue to be sources of concern.

Other human rights and
governance-related issues

There was no significant progress on
freedom of religion and belief. Although freedom of religion is generally
respected, the dominant Armenian Apostolic Church enjoys certain exclusive
privileges, and members of minority faiths sometimes face societal discrimination.
There were reports of societal abuses and discrimination based on religious
affiliation, belief, or practice, in particular of the Evangelist and Jehovah’s
Witnesses minorities in Armenia, which even led to a case before the European
Court of Human Rights.

The alternative civilian service
continues to need improvement both in legislation and in practice. The new
amendments to the law on Alternative Service were sent for the review and
attention of the Venice Commission and received negative feedback stating that
the amendments do not resolve the main problems on ensuring a truly alternative
civilian service. The current alternative service is too long (42 months
compared to 24 in military service) and remains under military
supervision. As of November 2011, sixty Jehovah’s witnesses had been convicted
for refusal of military service on religious grounds and one more is in
pre-trial detention.

In May, the government adopted Armenia’s Gender Policy Strategic Action Plan for 2011-2015 and the Gender Policy
Annual Action Plan for 2011. In June the government adopted its first National
Action Plan to Combat Gender-Based Violence for 2011-2015. The draft law on
Ensuring Equal Rights and Equal Opportunities of Men
and Women in Armenia was submitted to the parliament in December 2011 and passed first reading. The government is
revising the draft law on Domestic Violence to
bring it into line with the 2011 Council of
Europe Convention on preventing and combating violence against women and
domestic violence (not yet signed by Armenia).

The government tasked
the Ministry of Labour and Social Affairs to produce a draft law on gender-based violence by June 2012. This draft will be based
on the existing draft law on domestic violence which was drawn up on
the initiative of the Women's Rights Center NGO. The new draft should be prepared
also in the light of the Council of Europe Convention. This might mean
that the old draft will be heavily reworked. Upon
the instruction of the Prime
Minister a Working Group has been established to develop and submit to the
National Assembly a draft law on domestic violence by
June 2012.

On children’s
rights, the government has strengthened its legal framework to combat child
trafficking by substantially increasing penalties for this crime. However,
significant gaps remain in the legal framework, in its enforcement, in the
policy framework and in the programmes intended to address the worst forms of
child labour. Alternative systems of care such as community-based day-care
centres are not widely available in Armenia. Despite some steps forward, there
was no significant progress on the implementation of certain components of the
National Plan of Action on Protection of the Rights of the Child 2004-2015. In
particular, there has been no progress on the commitment to establish 25
community-based alternative day-care centres.

There are no
major difficulties on National Minorities. In February, the report by the
European Commission against Racism and Intolerance (ECRI) of the Council of
Europe recorded considerable improvements and welcomed the efforts made in the
field of ethnic-minority education and culture (such as private broadcasting
stations and kindergartens). Individuals wishing to complain about discrimination
can now turn to the Human Rights Defender. Finally, there is new legislation on
asylum and asylum seekers enjoying temporary protection have now been
recognised as refugees. However, there is no comprehensive civil and
administrative legislation against racial discrimination and there are no
provisions in the Criminal Code prohibiting organisations that promote racism.

Allegations of torture and ill treatment
among military conscripts, in prison facilities and at police stations are
numerous and not adequately investigated. The Ombudsman has received numerous
complaints about Armenian police officers engaging in torture, other cruel and
inhuman treatment and extortion of statements from the accused by means of
violence and threats. In the army, in the period from January to November, 35
deaths were reported. Out of these, eleven cases were a result of violation of the
ceasefire regime, and others were the result of violation of statutory regulations
or security rules, accidents, suicides, or health conditions. Although the
statistics show a decrease in the number of fatalities within the military, the
nature of alleged violations resulting in fatal outcomes is worrying. Armenia ratified the Optional Protocol to the UN Convention against Torture in 2006 (OPCAT)
and, in 2008, the Human Rights Defender was designated as the OPCAT National
Preventive Mechanism (NPM). Since then, several unsuccessful attempts have been
made to establish the NPM based on the good will of the Ombudsman. In 2011, a
new Ombudsman was appointed and the process of restructuring the NPM started
anew particularly through an open call for civil society to become part of the
Expert Council for the Prevention of Torture within the NPM.

As regards civil society, non-governmental
organisations (NGOs) are concerned by government efforts to make them reveal
their sources of funding. More than 3000 NGOs are registered with the Ministry
of Justice. While the constitution provides for the right to form and join
trade unions, labour organisations are weak and relatively inactive in
practice. Civil Society Organisations have difficulties in co-operating beyond
partisan and ideological lines. The Eastern Partnership Forum Steering
Committee expressed concern over the split in two groups of its Armenia platform. This split was overcome at n the beginning of 2012.

On administrative reform, in
September the President signed a decree that officially launched the regulatory
guillotine reform, aiming at reviewing and streamlining thousands of
legislative acts, leading to more efficient bureaucracy and a clearer, more
consumer-friendly regulatory framework in many of the sectors directly
affecting citizens.

Cooperation on foreign and
security policy

Armenia continued
to align with CFSP declarations on a case by case basis. In 2011, Armenia aligned with 40 out of 82 CFSP declarations to which it was invited to subscribe.
There was intense political dialogue with the Armenian Government in 2011, a
Political and Security Committee Political Dialogue meeting in June and
a number of mutual high-level visits. High Representative and Vice-President C.
Ashton visited Armenia on 16-17 November during her visit to the region of South Caucasus.

3.
Economic and social reform
 Macroeconomic framework and
functioning market economy

The current macroeconomic situation has
greatly improved compared to the recent (2009) crisis. After a modest rebound
in 2010 (+2.1%) the GDP growth rate reached 4.6% in 2011, reflecting improved
conditions in mining, manufacturing and services as well as a rebound in agriculture.
The economy was supported by an IMF financing arrangement and exceptional donor
assistance, including Macro-Financial Assistance from the European Union worth
EUR 100 million (a grant of EUR 35 million and a medium-term loan of EUR 65
million). However, the recovery remains fragile and downside risks are
considerable.

The average inflation rate in 2011 was
7.8%, slightly lower than in 2010 (8.2%). Headline inflation reached its peak
of 11.5% in March 2011 mostly due to the global price movements.

The central government fiscal deficit in
2011 (3.6% of GDP) remained below the initial target of 3.9% of GDP. The
tax-to-GDP ratio remains low, at 16.4%, indicating high tax evasion and
problems in the tax and customs administration. The public debt-to-GDP ratio
increased to 42% in 2011 (from 39.2% in 2010), as a result of counter-cyclical
measures and of financial assistance from the international community (loans).
The external debt represents around 88% of the total public debt, thus creating
significant exchange rate vulnerability.

Driven by the relatively strong export
growth along with growth in remittances, the current account deficit is
expected to narrow to 12.2% of GDP in 2011, from 14.7% of GDP in 2010. Foreign
direct investment increased to 6.4 % of GDP (6% in 2010); it is expected to
reach approximately USD 650 million (around EUR 500 million) for the full year
(a 16% increase over 2010). Foreign reserves showed little change
(approximately EUR 1.4 billion, somewhat below five months of imports). The
banking sector appears solid and with no exposure to the EU debt crisis. The
capital adequacy ratios remained high, around 20%. The credit growth
accelerated along with the recovery. In 2011 credit grew by 35% compared with 2010,
though the credit-to-GDP ratio stayed low – 30%. Dollarisation remained high for
both credits and deposits.

The global slowdown is expected to impact on
Armenia’s economy through slowing growth in investments and remittances
(mainly from Russia), diminishing export demand, lower resource prices,
diminishing fiscal revenues and declining capital inflows. Longer-term growth prospects are also very uncertain due to
lack of diversification, low competitiveness and closed borders with two out of
four of Armenia’s
neighbour countries. The policy priorities in the short and medium term
include ongoing fiscal consolidation, the development of local capital markets
and the reduction of the level of dollarisation; on the structural side, they
include further improvement of the business climate and improvement of the
domestic competition level.

Employment and social policy

The official unemployment rate in
2011 was 6 %. Women represent almost 71% of officially unemployed persons (up
from 65% in 2010). According to a survey of the International Labour
Organisation (ILO), the estimated average level of inactivity is around 19%. At the end of November, the National Statistical Service published a
report according to which about 36% of the total population of Armenia in 2010 were below the poverty line. Poverty is more widespread in rural than in
urban areas. The governmental annual report on poverty highlights child poverty
as one of the main challenges.

The
implementation of Armenia’s Sustainable Development Programme on poverty
reduction 2008-2021 continued to be suspended in 2011. As a consequence, the adoption of the ‘Sustainable Development Strategy for the Labour
and Social Protection System’ was further postponed.

4.
Trade-related issues, market and regulatory
reform

Bilateral trade continued to improve in 2011 from the 2009
slowdown with an 18.2% increase year-on-year. EU exports to Armenia
increased by 15.7%, while EU imports from Armenia increased by 23.3%. In terms of commodity structure, however, EU imports from Armenia
are still concentrated in a few commodities (in particular, base metals formed
49.5%, mineral products 18.9% and pearls and precious stones 16.9% of EU total
imports from Armenia in 2011).

Armenia continued to
benefit from preferences offered by the EU under the special incentive
arrangement for sustainable development and good governance (GSP+)
within the EU Generalised System of Preferences (GSP). It sustained efforts to
ensure the continued ratification and effective implementation of the relevant international
conventions and to raise awareness of the GSP+ among the business community.
The regulatory approximation started in preparation for the future Deep and
Comprehensive Free Trade Area (DCFTA) negotiations will further enhance Armenia’s benefits from the GSP+ system as Armenian products will enjoy easier access to
the EU market.

Armenia made
substantial progress in implementing the key recommendations for the launch of
negotiations on a Deep and Comprehensive Free Trade Area, in particular
legislative and institutional reforms in the areas of Technical Barriers to
Trade (TBT), Sanitary and Phyto-sanitary Standards (SPS) and Intellectual
Property Rights (IPR).

Substantial EU assistance was provided on trade-related issues. The Eastern Partnership Comprehensive Institution Building programme (EUR 32 million for Armenia in 2011-2013) will help strengthen the key institutions
involved in the Association Agreement and DCFTA negotiations in the areas of
SPS, TBT and IPR.  It will be
accompanied by a budget support operation of EUR
22 million covering the same areas as well as public finance management and public sector
transparency.

In May, the 2011-2013 Programme for reforming customs
and tax systems of the State Revenue Committee was
launched. Progress was made in applying of the
WTO compliant customs valuation methods. Monitoring
of effective application should continue in this area with particular attention
to the impact on the business community. In 2011 Armenia entered into bilateral
agreements on mutual assistance with several member states. According to
economic operators no significant reductions
of paperwork for customs registration and controls were recorded in 2011. In some cases customs officials are
directly involved in commercial customs brokerage.

In the area of free
movement of goods and technical barriers to trade (TBT), Armenia prepared drafts of four fundamental laws on: technical regulation, standardisation,
accreditation and uniformity of measurements, which were finally adopted in
February 2012. It also drafted a Government programme of approximation with the
EU legislation, identifying priority sectors for approximation, with emphasis
on the economically most significant ones.

Regarding
sanitary and phyto-sanitary issues, Armenia adopted, in November 2011, a
food safety strategy and a related action plan, which aim to gradually
approximate with EU standards. It adopted legislation on: food hygiene, fishery
products, technical rules on food additives, hazard analyses of foodstuffs,
veterinary drugs and phyto-sanitary registration. Armenia strengthened
institutions including the state service for food safety. It established a risk
assessment centre, a network of specialised laboratories and trained staff
(with EU support).

Twenty-three laws
were adopted between February and April with the aim of improving the business
climate and to facilitate company establishment. Armenia ranked 55th
in the ease of doing business in the World Bank’s ‘Doing Business 2012’ annual
report, six places higher than last year reflecting a mixed performance. The
positive impact of establishing a one-stop-shop for registration and dealing
with construction permits more efficiently was mitigated by a deterioration in the
enforcement of contracts and poor access to electricity. An amendment to the law
on Joint Stock Companies improving the mechanisms for detecting conflicts of
interest and expanding the responsibility of directors was adopted in May 2011.
The Credit Bureau law was amended to improve risk assessment by the banks and
hence facilitate access to credit for Small and Medium Size Enterprises (SMEs).
Economic barriers to business entry remain high under the oligopolistic
structure of the economy.

Armenia continued to approximate its regulatory framework for financial
services by introducing mandatory motor third-party liability insurance as
of 2011. A prudential regulation on provisioning requirements on foreign
currency loans increasing the risk weighting to 150% entered into force in
January 2011. At the beginning of 2011 the Central Bank introduced capital
adequacy requirements for credit, market, and operational risks in order to
gradually move the basis of insurance regulation from Solvency I to Solvency II
over a 3 to 5 year period. From the beginning of
2011, the floor on total regulatory capital for liability, loan and guarantee
issuance insurance classes is Armenian Drams (AMD) 1.5 billion (about EUR 3 million).

Other key areas

The new Value Added Tax (VAT) law that entered
into force in January 2011 requires
entities that have an annual turnover in excess of AMD 58.35 million to report
their VAT electronically, facilitating taxation and compliance. The
number of e-reporting companies reached 6600 in September 2011. Armenia adopted new legislation in order to remove
the discriminatory taxation between imported and locally produced alcohol and
tobacco products. The amendments to the law on Organising
and Conducting Audits entered into force in August 2011 and introduced a system
of risk-based tax audits. The auditing authorities posted on their website the
audit plan for the following year.

Armenia prepared a number of legislative changes following the United
Nations Conference on Trade and Development (UNCTAD) Voluntary Peer Review of Competition
Law and Policy. However, the new legislation is not yet fully in line with
EU standards. Armenia still needs to ensure effective implementation as well as
to address the need for capacity building of the State Commission for
Protection of Economic Competition of the Republic of Armenia (SCPEC)’s staff
and the judiciary. January 2011 saw the launch of an EU funded twinning project
aiming to enable the SCPEC to fulfil its role both in the domestic and in the
wider European context. No legal changes took place in the area of state aid.

The Government
adopted an Intellectual Property
Right's Protection (IPR) Strategy and Action Plan in June 2011. The
Observatory for Counterfeiting and Piracy met for the first time in September
with participants from the private and public sector. Public awareness and
competence of authorities have been developed through information campaigns,
training and creation of a database on judicial acts in the area of IPR.
Further efforts should particularly focus on making the customs service an
effective actor in the fight against IPR infringements, building on the
November 2011 amendment to the Customs Code. This allows for enhanced
registration of intellectual property in the customs register and the
appointment of new IPR officials. The capacity of the police to act on the
protection of IPR should continue to be enhanced. Ratification of the
International Convention for the Protection of New Varieties of Plants remains
and accession to the Patent Law Treaty and Trademark Law Treaty have yet to
happen.

In February 2011, the government approved
the paper on ‘Regulating the procurement procedure’, for the enforcement
of the law on procurement. In November 2011, the government launched an
electronic procurement system. Armenia joined the government Procurement Agreement
under the World Trade Organisation in September.

The laws on auditing and licensing
auditors were modified in May to approximate the regulatory framework with that
of the EU. A draft reform strategy submitted to the Government covers also
revision of accounting rules with the same objective.

On statistics, the Population and
Housing Census was conducted in October 2011 and first steps in setting up a
quality management system have been completed (setting up of a working group,
training implemented and workshop on metadata held). Armenia needs to implement
an agricultural census in 2012 and should ensure the appropriate financing for
this large scale and important operation.

Armenia continued
working with the EU-funded SIGMA[1]
programme on the preparation of the Strategic Development Plan in external
audit and developing draft laws on financial management and control and financial
inspection. In August 2011, the government approved the
documents concerning the standards for public sector internal audit and rules
of conduct for the public sector internal auditors to strengthen the public
internal financial control.

On enterprise
policy, Armenia approved in December the 2012 SME programme.

Substantial EU
assistance was provided on trade related issues, including in the framework of
the Eastern Partnership Comprehensive Institution Building  programme (EUR 32
million for Armenia in 2011-2013), which helped to develop an Institutional
Reform Plan (out of 3 in total) in support of DCFTA negotiations (adopted by
the Armenian government in December 2011). Also, a budget support
operation of EUR 22 million was launched at the end of 2011 in order to
accompany the reforms related to DCFTA as well as to public finance management
and public sector transparency. This was complemented by support provided
through Twinning and the “EU Advisory Group”.

5.           Cooperation on justice, freedom and security

Following adoption of the Border Security
and Border Management Strategy 2011-2015 in 2010, Armenia approved an implementation Action Plan in April 2011. Cooperation on border management with Georgia progressed through an agreement reached in February 2011 on the joint operation of
border crossing points. FRONTEX and Armenia agreed a draft Working Arrangement,
which was signed in February 2012.

A National Action Plan 2012-2016 for the
implementation of the ‘Concept for the Policy of State Regulation of Migration’
was adopted in November 2011. While there were some delays in preparing the
introduction of biometric passports, the parliament, Armenia adopted related
legislation in November 2011. In the fields of migration and integrated border
management, support continued to be provided via the EU Advisory Group.

Directives for the negotiation between the
EU and Armenia of visa facilitation and readmission agreements were
adopted by the EU in December, and negotaitions were launched on 27th
February 2012. In October 2011, the EU-Armenia Mobility Partnership was
established, proposing cooperation in four major areas (mobility, legal
migration and integration; migration and development; fight against irregular
immigration; and asylum and international protection). The Partnership will be
supported by the EU through a core project with a budget of EUR 3 million aimed
at strengthening Armenia’s migration management capabilities. Armenia indicated its interest in adding further activities related to labour and circular
migration, including for the highly-skilled. An Institutional Reform Plan was adopted
in December 2011, as a basis for providing support via the Comprehensive Institution Building programme to the preparations for the future EU-Armenia Visa
Facilitation and Readmission Agreement.

In December 2011, Armenia adopted a National Strategy to improve the effectiveness of the fight against organised
crime, and is also developing a National Programme for Fighting against
Terrorism and a police reform programme for 2012-2014. Progress was registered
in the fight against money laundering with the preparation of
legislative amendments to support the implementation of relevant international
standards. In July 2011, Armenia hosted the 19th sitting of the
Egmont group of Financial Intelligence Units. The first EU-Armenia Drugs
Dialogue took place on 7 September 2011.

The Criminal Code was amended in April 2011
in relation to combating trafficking in human beings, toughening
punishment for trafficking in children and persons with mental health problems.
Armenia is strengthening police capacity to combat trafficking in human
beings, including through training for policemen in cooperation with
international organisations and NGOs, and raising public awareness. The process
of ratification of the 2007 Council of Europe Convention on the Protection of Children against Sexual Exploitation and Sexual
Abuse signed in September 2010 is still ongoing. An Anti-Trafficking Board was
established under the Ministry of Territorial Administration.

Armenia signed up
to the 1981 Council of Europe Convention for the Protection of Individuals on
Automatic Processing of Personal Data and the Additional Protocol on
supervisory authorities and trans-border data flows in April 2011. Effective
protection of personal data forms a fundamental prerequisite in promoting
cooperation with EUROJUST, EUROPOL and EU member states.

On police and judicial cooperation, two
important Hague Conventions concerning family law, such as the 1980 Hague
Convention on the Civil Aspects of International Child Abduction and the 1996
Convention on Parental Responsibility and the Protection of Children were
submitted to the parliament for ratification.

In the area of asylum there were no significant
developments during the reporting period. While the refugee legislation in
force is very close to EU standards, effective implementation remains a
challenge.

6.           Transport, energy, environment, the information society,
research and development

Armenia continued to implement its 2009-2020 transport strategy. Substantial progress was
made on the implementation of the Digital Tachograph System. The production and
issuing of tachograph cards have started. Despite improvements, road safety
remains a challenge. In July 2011, Armenia became a full member of the Organisation
for International Carriage by Rail. In 2011 Armenia strengthened also regional
rail cooperation through signature of several sectoral agreements. In the air sector, Armenia has not yet fully removed restrictive
commercial and regulatory measures in order to improve aviation efficiency and
connectivity.

Armenia started updating its energy strategy. The EU continues to
request earliest possible closure of the Medzamor Nuclear Power Plant (MNPP),
as it cannot be upgraded to meet internationally recognised nuclear safety
standards. Armenia continued the safety upgrading of MNPP, which it plans to
close once replacement capacity is available. There is not yet a detailed
decommissioning plan. Armenia continued preparations to build in the period
2012-2017/18 a new nuclear power plant on the Medzamor site. Following the Fukushima nuclear accident, Armenia expressed readiness to undertake with the EU a
comprehensive risk and safety assessment (‘nuclear stress test’) of MNPP,
taking account of EU standards. In October 2011, Armenia became an observer
under the Energy Community Treaty. It increased the use of renewable sources,
in particular hydropower. In May 2011, Armenia adopted a renewable energy
roadmap and in September a hydro-energy programme. More efforts are needed on
energy efficiency. Armenia explored the possibilities to use domestic shale gas
and oil shale resources. Armenia is planning a North–South electricity grid
with its neighbours and has done further on interconnections with Georgia and Iran. Armenia continued rehabilitating the Abovyan underground gas storage, energy networks
and thermal power plants. Armenia and Iran initiated plans to construct an oil
product pipeline.

On climate
change, the Government adopted a five-year action plan for the
implementation of the UN Framework Convention on Climate Change
(UNFCCC). No new Clean Development Mechanism project was registered at the UN
level, leaving the total number of registered projects at five. Armenia is encouraged to build capacity and engage in the
new carbon market mechanism to be developed following the 17 Session of the UNFCCC
Conference of Parties (COP 17). Armenia is also encouraged to fully implement the Cancun and Durban agreement and in particular
devise a low carbon development strategy including update information on target
or actions that it will implement.

Armenia started
preparing a new environment action plan post-2012. The parliament adopted
amendments on environmental impact assessments, partly covering strategic
environmental assessments. These amendments limit the list of activities
subject to environmental impact assessment, reduce the time allowed for the
assessment and limit public participation. Armenia also amended the air management law, inter alia to include the best
available techniques concept as well as a law on solid
waste management and sanitary cleaning. A
list of endangered species was compiled. Armenia prepared draft laws
on chemicals and clean production. The Fourth Meeting of the Parties to the Aarhus Convention decided
that Armenia failed to comply with the Convention’s requirements on public participation in
decision-making regarding the Teghut copper mine
exploitation, and made recommendations to the Government to strengthen and
clarify procedures for public participation. The Government adopted a Decision on measures to
fulfill its commitments under
international environmental conventions, including the Aarhus Convention. There were no significant developments on Armenia’s
ratification of, or accession to, relevant Conventions and Protocols of
the United Nations Economic Commission for Europe.

The Regional Environmental Centre (REC)
for the Caucasus continued its activities in 2011 inter alia in the
fields of information and public participation. The REC founders agreed in
October 2011 that they want to see it enhance its role in the South Caucasus
Region in the years to come. They tried to find a solution to the REC’s debt
problem and agreed that it could be beneficial to convert the REC into an
inter-governmental regional organisation.

In the field of
civil protection, Armenia
intensified the cooperation with the countries from the region and the exchange
of best practices with the EU in the field of disaster prevention, preparedness
and response through its participation in the EU Programme for Prevention of,
Preparedness for, and Response to natural and man-made disasters.

Progress on
regulatory reform in the Information Society area remained modest. The Public
Services Regulatory Commission (PSRC) plans to
introduce mobile number portability in 2012, but the
operators are not yet technically ready. In May 2011, the fixed telephony
market was opened up to competition. In June, the PSRC
allowed VivaCell-MTS to use radio frequencies for wireless broadband
internet services.

Investment in research
and innovation in Armenia continues to remain at relatively modest levels. Armenia continued to increase the number
of applications to the 7th Framework Programme for Research and Technological Development (FP7). 24 Armenian research organisations are involved in
22 FP7 projects, receiving over EUR 1.27 million of EU funding. The most successful projects are in the Marie Curie Fellowship
actions, research infrastructures, international cooperation actions and Information
and Communication Technology research. Armenia strengthened its FP7 Contact Point network. Nomination of additional FP7 contacts, particularly for the Cooperation Programme sector themes
would be welcome.

As
regards regional development, focus of future Pilot Regional
Development Programmes is being discussed with the government, on the
basis of its regional development strategy. Greater attention to regional
policy dialogue with the EU will help Armenia maximize the benefits of
these programmes.

7.           People-to-people contacts, education and health

A National Education Development Strategy
for 2011-2015 was presented to the parliament. In May 2011, Armenia adopted legislation with, inter alia, the aim of bringing licensing and certification in
line with the international framework and the principles of the Bologna
Process. In June 2011, Armenia approved a Strategy ensuring financing for Higher
Education and a corresponding Action Plan.

Higher education reform continued to
benefit from EU-Armenia cooperation in this field through the Tempus IV
programme support, with two additional projects selected covering the
development of university-enterprise partnerships and migration and skills. Armenia also
continued its active participation in academic exchanges and cooperation
through the Erasmus Mundus programme in the academic year 2011-12 with
the award of a total of 49 scholarships and mobility grants. Seven institutions
and six individual researchers from Armenia are currently participating in Marie
Curie actions supporting researchers’ training, mobility and career
development. For the second time, in 2011 a Jean Monnet module was
awarded to Yerevan State University to increase understanding of European integration, language, culture and identity.

The reform of vocational
education and training (VET) continued with substantial EU assistance (EUR 15 million)
through a Sector Support Programme. Armenia further consolidated reforms in
the areas of teacher training and refurbishment of vocational training colleges, quality assurance, strengthening business-education relationship,
introduction of life-long learning principles and improvement of
legal-normative environment for continued education. In
June, the government adopted
the National Qualification Framework, with eight levels of qualifications and
related descriptors. The related Training Fund
established by the end of 2011 is still understaffed and operationally weak.

Preparations
began for the participation of Armenia in the eTwinning component of the Comenius
programme, the EU programme for interconnecting schools, foreseen for 2012,
with the selection of the partner support agency and an assessment of potential
beneficiaries/schools.

Armenian cultural organisations participated in seven annual cooperation projects financed under
two calls by the Culture
Programme in 2009 and 2010 dedicated to the
ENP-countries who have ratified the 2005 UNESCO Convention on the Protection
and Promotion of the Diversity of Cultural Expressions. The Eastern Partnership
Culture Programme’s Regional Monitoring and
Capacity-Building Unit carried
out a first visit to Armenia in November 2011.

The Youth Parliament of the Armenian
National Assembly started its work in May 2011, with support from the EU Advisory Group. Armenian youth
and youth organisations continued benefiting from the exchange opportunities
offered by the Youth in Action programme, involving
about 380 Armenian young people and youth workers in 2011.

Health reform in Armenia continued with a view to improving, within the
limited available financial means, access to (in particular for the rural
population), availability of and quality of healthcare services. The country
has introduced co-payment financing mechanisms in health care. State child
health voucher/certificate programme has been introduced assuring
free-of-charge hospital care for children under seven. Out-of-pocket payments
remained significant. Armenia launched the development of a health strategy. Armenia continued, after a World Health Organisation review, to address the burden of
tuberculosis.

[1] SIGMA is a joint
initiative of the OECD and the European Union, principally financed by the
EU. SIGMA supports European Union candidates, potential
candidates and European Neighbourhood
countries in their public administration reforms.

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