Source: EURLEX
Language: en
Format: md

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# 52014SC0069

**JOINT STAFF WORKING DOCUMENT Implementation of the European Neighbourhood Policy in Armenia Progress in 2013 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 Neighbourhood at the Crossroads: Implementation of the European Neighbourhood Policy in 2013 /\* SWD/2014/069 final \*/**

  

1. OVERALL
ASSESSMENT AND RECOMMENDATIONS

This document
reports on the progress made in the implementation of the EU-Armenia European
Neighbourhood Policy (ENP) Action Plan between 1 January and 31 December 2013,
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 (EaP) Implementation
Report.

Numerous political contacts took place between the EU and the
Armenian government during 2013. The Armenian Foreign Minister visited the EU
institutions several times and a number of visits to Armenia by high-level EU
officials also took place: these included visits by Commissioner Füle in July,
and again in September together with Commissioner Vassiliou. The EU Special Representative for the South
Caucasus and the crisis in Georgia also visited Armenia several times. The
EU-Armenia Cooperation Council took place in Brussels in December.

The EU and Armenia completed negotiations on an Association Agreement, including a Deep and Comprehensive Free
Trade Area (AA/DCFTA), in July, but could not proceed with initialling it,
following Armenia’s decision to apply to join the Eurasian Customs Union with Russia, Belarus and Kazakhstan. The EU and Armenia issued a joint declaration at the Eastern
Partnership Summit in Vilnius in November 2013 at the beginning of a process of
reflection to establish the future nature of their bilateral relationship. Both
Visa Facilitation and Readmission Agreements were ratified in 2013 and entered
into force on 1 January 2014.

As a result of
progress in 2012 with reforms in the area of deep democracy and respect for
human rights, Armenia benefited from an additional allocation of EUR 25 million
under the EaP Integration and Cooperation programme in 2013, for the second
consecutive year. These funds will support civil service reform and
anti-corruption efforts, as well as border management and migration. The
procedure for concluding the Protocol on a Framework Agreement on Armenia’s participation in EU programmes advanced smoothly. On 11 December, the European
Parliament gave its consent. The Council will now decide on the conclusion of
the Protocol.

While Armenia continued to address issues related to human rights and fundamental freedoms,
further work remains necessary, especially as regards the implementation and
enforcement of legislation. The February 2013 presidential elections were seen
as having been generally well-administered and characterised by respect for
fundamental freedoms, although the final report by the Office for Democratic
Institutions and Human Rights (OSCE/ODIHR) stated that there were serious
problems with voting and counting, raising concerns about the integrity of the
electoral process. Reform efforts continued, but public mistrust of the
judicial system remained high and there was a lack of convincing results in the
fight against corruption, including among the police and judiciary. The criminal
code still did not comply with the UN Convention against Torture and there were
numerous and consistent allegations of routine use of torture and ill-treatment
in police custody. The Human Rights Defender, designated as the national
preventive mechanism under the UN Optional Protocol to the Convention against
Torture, lacked adequate resources to carry out his tasks effectively. There
was a worrying increase in cases of attacks against civil society organisations,
and inadequate follow-up by the the authorities.

Armenia continued to implement sound macroeconomic policies and structural
reforms. It made further progress towards meeting the objectives of the Action
Plan in the areas of macroeconomic policy, poverty reduction and social
cohesion. After a year of strong real GDP increase, economic activity weakened
significantly during 2013 and Armenia registered a steep rise in inflation
compounded by the impact of poor weather and a hike in the gas price set by Russia. However, Armenia’s public and external debts remain at sustainable levels. Further
growth and economic development will depend on improvement of the business
environment, sustainable fiscal consolidation and the global economic
situation.

Armenia remained highly dependent on imported primary energy sources, with
the only domestically produced primary energy being electricity from the
country’s hydroelectric plants and the Medzamor nuclear power plant (MNPP).
Because MNPP cannot be upgraded to meet internationally recognised nuclear
safety standards, its timely shutdown and decommissioning remained key
objectives for the EU. However, Yerevan postponed the original closing date of
2016 to 2026 provided that alternative replacement
capacity becomes available. Prompted by the Fukushima accident, Armenia undertook voluntary safety and risk assessments (stress tests)
with a view to ensuring the safe operation of the MNPP until its shutdown, in
close cooperation with the International Atomic Energy Agency (IAEA). The EU
used its Instrument for Nuclear Safety Cooperation to support Armenia in continuing to carry out these tests, in respect of which a report is expected to
be published in the first half of 2014.

For most of 2013, the stalemate continued in the Minsk Process,
which aims to settle the Nagorno-Karabakh conflict. Election cycles in Armenia (February) and Azerbaijan (October) affected the progress. An escalation of the arms race
and confrontational rhetoric, as well as tensions on the ground and around the
potential launch of flights to Nagorno-Karabakh, did not contribute to a
constructive atmosphere in the search for a solution. In an encouraging
development, the Presidents of the two countries reconvened in November 2013
for the first time since January 2012 at a summit in Vienna, mediated by the
OSCE Minsk Group Co-Chairs, at which they agreed to advance negotiations
toward a peaceful settlement and to meet again in the months ahead. However, despite this positive development, there was an escalation
of violence along the line of contact between the two sides in January and
February 2014. The EU continued to give its full
support to the OSCE Minsk Group Co-Chairs in their work to facilitate a lasting
settlement. The EU Special Representative for the South
Caucasus and the crisis in Georgia visited the region four times in 2013 in
efforts to help defuse tension and to explore conflict transformation
opportunities. The EU also financially supported peace-building activities
through the ‘European Partnership for the Peaceful Settlement of the Conflict
in Nagorno-Karabakh’ project, bringing together stakeholders across the
conflict divide.

There was no
real progress towards the normalisation of Armenia-Turkey relations, as
promoted by the EU without preconditions on any side, although a ‘tête-à-tête’
meeting between the two Foreign Ministers took place in the margins of the
Black Sea Economic Cooperation Organisation Foreign Ministers’ meeting in Yerevan in December.

Prior to the presidential
elections, Armenia addressed some of the key recommendations contained in the
ENP progress report for 2012. It established a working group headed by the
Presidential Administration to submit proposals in response to the OSCE/ODIHR
recommendations on elections. OSCE/ODIHR stressed the need to proceed towards
electoral legal reforms in an inclusive manner. Further work was undertaken
after the February elections and legislative amendments were to be finalised by
the working group, the Ministry of Justice and ultimately by the National
Assembly. Armenia set up a consultative body to prepare a constitutional reform
by April 2014. It took some action against high-level corruption, but the
Ethics Commission was still not effective. It continued developing the ‘regulatory
guillotine’ programme that is expected to reduce the administrative burden as
well as opportunities for corruption. It established a new Interagency
Commission on the implementation of the Human Rights Protection National
Strategy. It adopted amendments to the law on alternative military service and
a law on equal rights and opportunities for men and women which, however, lacks
a mechanism for complaints. There were limited developments regarding reforms
in the public administration and some measures were taken to reform the
judiciary and to advance sectoral reforms and regulatory approximation to the
EU acquis.

On the basis of
this year’s report and with a view to sustained implementation of the ENP
Action Plan in 2014, Armenia is invited to:

cooperate with
and protect civil society; investigate the cases of attacks and
intimidation of human rights defenders and ensure that the perpetrators
are brought to justice;
implement the
OSCE/ODIHR recommendations concerning elections, in particular ensure a
level playing field for all candidates and avoid the use of administrative
resources for electoral purposes. Moreover, ensure pluralism in the
broadcasting media;
fully
investigate the deaths that occurred during clashes following the March
2008 presidential elections and the allegations of ill-treatment in police
custody;
finalise the
draft Law on Freedom of Conscience and Religion;
ensure respect
for the principle of non-discrimination and adopt comprehensive anti-discrimination
legislation;
continue the
reform of public administration; especially intensify the prevention of
and the fight against corruption;
intensify the
reform of the judiciary and the law enforcement;
strengthen the
implementation of governance reforms;
work towards
the earliest possible closure of the Medzamor nuclear power plant as well
as speed up the implementation of the roadmap on energy efficiency and the
target of 30 % of generated energy from renewable sources;
step up
efforts towards agreement on the Madrid Principles, as a basis for peace,
in accordance with the commitments undertaken by the Presidents of Armenia
and Azerbaijan within the Minsk Group; refrain from actions and statements
that could heighten tension and undermine the peace process;
promote an
environment conducive to progress in the conflict settlement, encourage
and support related peace-building activities;
ensure
unimpeded access for representatives of the EU to Nagorno-Karabakh and
surrounding regions in support of conflict transformation activities in
full complementarity with the efforts of the Minsk Group.

2. POLITICAL
DIALOGUE AND REFORM

Violations
persisted, although improvements were witnessed in the electoral process.
Presidential elections took place in Armenia on 18 February 2013 and
were generally assessed to be in line with international standards. At the same
time, OSCE/ODIHR Electoral Observation Mission (EOM) noted a lack of
impartiality on the part of the public administration, misuse of administrative
resources, and cases of pressure on voters. Civil society organisations also
highlighted abuse of administrative resources, bribery, inaccuracy in voting
lists, and inaction on the part of law enforcement agents. The OSCE/ODIHR EOM
final report stated that there were serious problems with voting and counting,
raising concerns about the integrity of the electoral process. The OSCE/ODIHR
EOM provided a list of recommendations for consideration by the authorities,
political parties and civil society in Armenia. These recommendations should be
read in conjunction with other recommendations offered previously by the
OSCE/ODIHR, in particular in its final report on the 2012 parliamentary
elections, and with the recommendations contained in the joint opinion on the
Electoral Code of the OSCE/ODIHR and the Venice Commission. The working group
on electoral reforms headed by the Presidential Administration made further
proposals in response to recommendations, mainly from OSCE/ODIHR. The EU gave
support to the electoral reform process.

Municipal
elections took place in Yerevan on 5 May 2013. The preliminary conclusions of a
delegation of the Congress of Local and Regional Authorities of Council of
Europe (CoE) stated that the vote was technically well prepared, but advocated
improvement of the counting process; violations, including multiple voting,
were registered. Local observers (representatives of non-governmental
organisations (NGOs)) noted psychological and physical pressure exerted on
participants in the election process, including journalists.

The President set up a
consultative body to develop a constitutional reform concept by April
2014. This body has consulted the Venice Commission and is preparing
recommendations to the President.

Regarding the independence of the judiciary, implementation
of the Judicial Reforms Strategy 2012-2016 is underway but public mistrust of
the system and its integrity remains high and needs to be addressed. There are
a number of proposed legislative amendments to the judicial code to strengthen
the independence of the judiciary. The draft criminal and civil procedure code
as well as the administrative procedures code were
submitted for intergovernmental discussion. A new Justice Academy became operational at the end of January 2014.

Despite ongoing
progress in the justice sector, delivered with support from the EU, the
influence of the executive over judicial nominations remains a concern. More
reforms are necessary in terms of access to justice including increasing
the quality of the judicial process and capacity building of staff. More
reforms are needed to promote and protect civil rights and tackle weak and
arbitrary application of the rule of law.

Regarding impunity,
no developments took place on the investigation of the deaths that occurred
during clashes following the March 2008 presidential elections. In May, the
National Assembly voted against an initiative to set up a temporary
investigation committee.

The government
generally respected freedom of association but attempts to amend the NGO
law, ongoing since 2009, continued without a clear direction. The government
will decide on a concept on the legal framework for civil society organisations
on the basis of two parallel working groups which seem to provide contradictory
recommendations. The existing law gives citizens, except military and law
enforcement personnel, the right to form associations, including political
parties and trade unions.

The constitution and the law provide for
freedom of assembly. However, in 2013 there was an increase in reports of
violence against civil activists and human rights defenders, as well as of
harassment and undue pressure on peaceful demonstrators. Violations by the
police were underlined by the Armenian Ombudsman but no perpetrators have yet
been brought to justice. During the presidential election campaign there were
also reports of local authorities hindering civil servants from attending
opposition rallies, while promoting their participation in pro-government ones.

Regarding freedom
of expression and media, criticism of government and public officials is,
for the most part, tolerated. However, a number of issues remain taboo. Human
rights defenders, journalists and others who hold minority views on
controversial issues, such as gender and non-discrimination, protection of lesbian, gay, bisexual, transgender and
intersex people (LGBTI) rights, the Nagorno-Karabakh conflict,
and abuses within the armed forces, occasionally faced intimidation,
harassment, threats and abuse.

Media
independence remained insufficient and there were no developments regarding
pluralism in the broadcasting media. Although the timeline for digitalisation
was extended, there were no other amendments pertaining to media pluralism.
Concerns over the consequences of digitalisation, namely the allocation of freed
frequencies (‘digital dividend’) remained. At the same time, internet access
improved and the legal framework removed obstacles to access and control of
content.

Armenia was ranked 94th out of 177 in the Transparency International
Corruption Perceptions Index 2013 with a slightly improved — but still very
poor — score compared to 2012. However, Armenia has not developed an anti-corruption
strategy, and although the government has mentioned plans for sectoral measures
and a future comprehensive strategy, there were no concrete developments. In
general, political power and economic interests tend to be closely interwined
in Armenian society which leads to a high degree of opacity in decision-making.
Limited action was taken against high-level corruption, but the Ethics
Commission is still not effective, and its mandate and procedures need
strengthening. The government also continued developing the ‘regulatory
guillotine’ and e-society programme, which is expected to reduce the administrative
burden as well as opportunities for corruption. Legal provisions are in place, but
results in the fight against corruption remain somewhat unconvincing, including
among the police and judiciary. Real progress in this area remains fundamental
to achieving progress in other reform areas including socio-economic
improvements.

Regarding security
and law enforcement, the government approved the 2013-2014 police
reform programme and timetable in February. In September a new independent
investigation body was announced, whose functions and role are not yet clear.

With respect to
democratic control over armed and security forces, there were concerns
about suspicious deaths in the armed forces under non-combat conditions, as
well as the practice of hazing and other mistreatment of conscripts.

Other human
rights and fundamental freedoms

In February the
government submitted an interim report in accordance with the UN Universal
Periodic Review. Armenia also signed the International Convention on the
Protection of the Rights of All Migrant Workers and Members of their Families
in September.

The Action Plan
stemming from the National Strategy on Human Rights Protection has been
pending since November 2012. In February, a new Interagency Commission on
implementation of the National Strategy provisions and Action Plan under the
National Security Council was established and will start work once the document
has been approved.

The legal definition of torture still does not include crimes
with direct or indirect involvement of public officials, nor does its
definition require any specific motive, and therefore it does not comply with
the UN Convention against Torture. There were numerous and consistent
allegations of routine use of torture and ill-treatment in police custody to
extract confessions, and there is no independent complaints mechanism to deal
with such cases in places of detention. Law enforcement institutions still
failed to afford all detainees fundamental safeguards, including timely access
to a lawyer, a medical doctor and the right to contact family members. Courts continued
to routinely approve pre-trial detention without considering alternatives. The Human Rights Defender, who has been designated as the national
preventive mechanism under the UN Optional Protocol to the Convention against Torture
was provided in 2013 with adequate resources from the budget in order to enable
him to carry out his tasks effectively.

The existing
draft law on the introduction of a probation service is expected to be
adopted in 2014 following the revision of the criminal procedural code. Poor conditions continued to persist in prisons, where insufficient
healthcare, overcrowding and understaffing were widespread. The construction of
a new prison according to EU standards was expected. The EU envisages providing
support for penal reform to improve prison conditions.

Amendments to
the law on alternative military service adopted in June established two
types of alternative service — alternative military service for 30 months not
connected with weapons and alternative labour service for 36 months not
connected with the armed forces. This allows persons convicted of conscientious
objection who were serving a sentence, or have been paroled, or whose sentence
was not applied conditionally, to apply to perform alternative service. The law
does not allow individuals to choose alternative service once they have started
military service.

No developments
took place regarding adoption of the Law on Freedom of Conscience and Religion.
Cases of discrimination against minority religious groups in the workplace,
society, and media continued to arise.

Women’s
political representation in Armenia was still very low. The Law on Equal Rights
and Opportunities for Men and Women (which lacks a mechanism for complaints)
was adopted in May by the National Assembly. However, there were protests among
certain groups regarding the concept of gender as defined in the law,
accompanied by intimidation of women’s rights defenders during August
and September. On 22 November, the Women’s Council under the Prime Minister
reaffirmed the government’s commitment to gender equality and to the UN
Convention on the Elimination of All Types of Discrimination against Women
(CEDAW). The Council also sought to ensure effective implementation of the new
law.

The prevalence
of gender-based and domestic violence remains alarming. There is still a
lack of appropriate legal measures to protect victims of violence as well as
punish the perpetrators, as the government rejected in February the draft Law
on Domestic Violence that had been in preparation for several years. Instead,
it proposed to incorporate suggested actions as part of amendments to other
codes, a step criticised by local civil society. No developments took place
regarding legislative steps to address the problem of sex-selective abortions. Armenia has one of the world’s highest levels of birth masculinity (100 female against 114/115 male
births, predominantly in central Armenia).

The Concluding Observations of
the UN Committee on the Rights of the Child of July 2013 noted that
there was inadequate implementation and enforcement of existing laws and
regulations in this area. The National Programme for the Protection of
Children’s Rights 2013-2016 and other strategies and plans lack adequate
financial resources and rely on funding by international organisations.Also, more efforts are necessary to reduce institutionalisation of
children, particularly from disadvantaged families and children with
disabilities. Juvenile justice still does not meet international standards.

The reform on
introduction of integrated social services, aiming to reduce poverty and ensure
full access of the most vulnerable families to social support and protection
services, is currently underway, but does not include child protection. Further
efforts are necessary as regards the introduction of the International
Classification of Functioning to enable a shift from the medical to social
model of understanding disability and special needs. According to the European
Committee of Social Rights conclusions published in 2013, Armenia is not compliant with the European Social Charter in terms of measures to eliminate
discrimination in employment and to provide protection in cases of termination
of employment. There is as yet no legislation or policy document for ensuring
that people with disabilities have effective protection against discrimination
in employment or in the fields of housing, transport, communications, culture
and leisure activities. Armenia commited to tackle this issue since the
ratification in 2010 of the UN Convention on the Rights of Persons with
Disabilities (UN CRPD).

Regarding labour
rights and trade unions, some restrictions were placed on the right to
strike, as well as restrictions for some groups (e.g. law enforcement
professionals) with regard to joining trade unions.

No comprehensive legislation on anti-discrimination
was adopted. An attempt by the Human Rights Defender to develop a draft law
(with EU advisory support) met with intense opposition from several civil and
religious organisations that accused the Ombudsman of destroying traditional
family values. The draft was not presented to the Ministry of Justice. Sexual
orientation and gender identity remained highly controversial issues in Armenia. The authorities’ response to discrimination against LGBTI people in particular
continued to be slow and inadequate. The failure to condemn attacks was
compounded by ineffective investigations and a failure to bring perpetrators to
justice.

Armenia, chairing the
Council of Europe Committee of Ministers, organised in October a high-level
conference devoted to combating racism, xenophobia and intolerance in Europe.

Judgments of the
European Court of Human Rights in relation to property rights and the use
of eminent domain in Armenia have not been enforced by the government.

In the sphere of
rights of people belonging to national minorities, state funding
for the Coordination Council of National Minorities was increased twice;
however, the financial means were distributed among the communities equally
without assessing the relevant needs or size.

Other governance-related
issues

There were
limited developments regarding public administration reform and a strong
lack of trust in the state institutions and their integrity could be sensed.
SIGMA[1]
experts have provided detailed comments to the Civil Service Council Policy
Paper that was drafted in December 2012, aimed at the development of a new or
widely amended Civil Service Law in line with European standards.

The government
expressed intentions to increase the role of local governance in implementing a
strategic framework for regional development, including the creation of a
Regional Development Fund, for which the EU is providing support. Armenia also started discussions on a possible decentralisation process, which could lead
to reducing the local governments/communities and the number of regions.

Although the
Eastern Partnership Civil Society Forum National Platform was active
throughout the year, the dialogue between the government and civil society
continued to be irregular. The EU stepped up support for Armenian civil society
in order to strengthen its capacity for monitoring the implementation of
reforms. The Eastern Partnership Civil Society Forum National Platform for Armenia adopted a political position in January 2014.

Cooperation
on foreign and security policy, regional and international issues, conflict
prevention and crisis management

In 2013 Armenia aligned itself with 19 out of 32 EU Common Foreign and Security Policy (CFSP)
declarations that the country was invited to support (35 out of 62 in 2012). Moreover,
Armenia signalled its willingness to participate in EU Common Security and
Defence Policy (CSDP) missions but has not yet sent a formal request to start
negotiations aimed at concluding a relevant Framework Participation Agreement
in the area of CSDP.

As regards the
settlement of the Nagorno-Karabakh conflict, the stalemate in the Minsk Process
persisted for most of 2013. Election cycles in Armenia (February) and Azerbaijan (October) negatively affected progress. An escalation of the arms race and
increasingly confrontational rhetoric, as well as tensions on the ground and
around the potential launch of flights to Nagorno-Karabakh, did not contribute
to a constructive atmosphere. In an encouraging development in November, the
Presidents of the two countries reconvened for the first time since January
2012 in a summit in Vienna, mediated by the OSCE Minsk Group Co-Chairs, at
which they discussed the way forward in the peace process and agreed to meet
again the months ahead. A follow up meeting at the level of the two foreign
ministers took place on 5 December in Kyiv during the OSCE Ministerial Council
and the Minsk Group Co-Chairs travelled to the region on 15-19 December to
discuss recent developments in the Nagorno-Karabakh peace process. However,
January and February 2014 saw a deterioration in the situation following an
upsurge of violence along the line of contact. The EU continued to fully
support the OSCE Minsk Group Co-Chairs in their work to facilitate a lasting
settlement. The EU Special Representative for the South Caucasus and the crisis
in Georgia visited the region four times in 2013 in efforts to help defuse
tension and explore conflict transformation opportunities. The EU also
financially supported peace-building activities through the ‘European
Partnership for the Peaceful Settlement of the Conflict in Nagorno-Karabakh’
project, bringing together stakeholders across the conflict divide.

Increased
efforts as part of the Minsk Group process are needed to finalise agreement on
the Madrid Principles as a basis for peace, in accordance with the commitments
undertaken by the Presidents of Armenia and Azerbaijan. Parties should refrain
from actions and statements that could heighten tension and undermine the peace
process, and promote an environment conducive to progress in settling the
conflict, while encouraging and supporting peace-building actions. Unimpeded
access for EU representatives to Nagorno-Karabakh and the surrounding regions
is needed to support conflict transformation activities, complementing the
efforts of the Minsk Group.

The EU has supported
activities that promote confidence and people-to-people contacts, expand
economic and business links, promote cultural and educational activities, and
facilitate the dissemination of balanced information in both Armenia and Azerbaijan.

There was no
real progress on the normalisation of Armenia-Turkey relations, although a ‘tête-à-tête’
of the two Foreign Ministers took place in the margins of the Black Sea
Economic Cooperation Organisation Foreign Ministers’ meeting in Yerevan in December.

3. ECONOMIC
AND SOCIAL REFORM

Macroeconomic
outlook and developments[2]

Economic growth
decelerated to 3.2 % in 2013 from 7.3 % in 2012. This was the effect
of a significant decline in private consumption, the slowdown of the Russian
economy and lower agricultural output.

Inflation accelerated
from 2.5 % in 2012 to around 5.8% in 2013 on the back of significant
increases in food and energy prices. In August 2013, the Central Bank of Armenia increased its policy rate from 8 % to 8.5 % whereas in November 2013 it
brought it back to 8 % as inflationary pressures receded.

Fiscal
consolidation advanced thanks to expenditures restraint and improved revenue
collection. Despite the sharp slowdown of the economy the fiscal deficit
narrowed to 1% of GDP in 2013 compared to 1.6% of GDP in 2012.Revenue mobilisation and tax administration reforms will be key
elements for achieving further fiscal consolidation.

Armenia’s prudent fiscal policy and low cost of funding due to concessional
borrowings from official lenders created a favourable credit profile. This
enabled the successful debut issue of a USD-denominated Eurobond of 700 million
at 6 % per annum due in 2020. The loan was used to
advance the reimbursement of the USD 500 million loan provided by the Russian Federation in June 2009. The remaining USD 200 million has a three-tier use: (a)
savings, (b) lending to commercial banks for on-lending to the private sector/ small and medium-sized enterprises (SMEs), and (c) deficit financing through reducing issuance of
T-bills in 2014. This loan added only around two percentage points to the
existing public debt (43.7 % of GDP) ) as the bulk
of it was used in October 2013 for the repayment of the mentioned USD 500
million Russian loan dating from 2009. A careful fiscal
stance needs to be maintained given Armenia’s graduation from concessional
funding, which will increase financial diversification towards market-based
funding.

The country’s
external position improved marginally in 2013, but remained fragile. The
current account deficit improved to8.5 % of GDP in 2013 from 11.2 %
in 2012 as the weakening of economic activity constrained the demand for
imports. Fiscal restraint, along with exchange rate flexibility and structural
reforms, will be needed to mitigate pressures on the balance of payments and
reduce the accumulation of external debt (currently 79 % of GDP).

In September the
Armenian government announced that it would join the Eurasian Customs Union
instead of establishing a DCFTA with the EU. Although this decision led to Russia reducing energy prices for Armenia, in the long run it is expected to increase economic and
financial exposure to Russia and reduce Armenia’s resilience to economic
shocks. It could negatively impact foreign direct investment (FDI) flows from
EU countries; and may also incur costs relating to compensation due to WTO
members as Armenia adopts Customs Union tariffs.

Social
situation, employment and poverty reduction

The unemployment
rate in 2013 was estimated at 10 %, compared to
9.9 % in 2012[3], with higher unemployment in urban areas.

A new law
raising salaries in both the private and public sectors, as well as the minimum
wage, was adopted in the second half of 2013 as part of poverty reduction
efforts. Public pensions will also increase, by about 15 % on average. A
pension system reform entered into force on 1 January 2014, introducing a
compulsory accumulative system. The child poverty rate remains high, with
children with disabilities being among the hardest hit. According to UN data,
only 54.3 % of extremely poor families and 4.1 % of poor families regularly
receive benefits for families with children, which is partly due to lack of
awareness of existing support.

The shift
towards integrated social services continued, involving the Ministry of
Labour and Social Affairs and the Ministry of Territorial Administration; and
such services were introduced in the Ararat region.

In an effort to implement the National
Employment Strategy and the Action Plan 2013-2018, a
new law on employment was adopted and entered into force on 1 January 2014.

In the field of
agriculture and rural development, a strategy for sustainable agricultural
development, that includes rural development elements, continued to be
implemented. Substantial EU support will be provided from 2014, within the
ENPARD[4]
initiative; this will include development of an integrated strategy for
agricultural and rural development.

The Armenia
Development Strategy replacing the non-operational Sustainable Development
Programme 2008-2020 was launched, but the process remained at a draft stage.

4. TRADE-RELATED
ISSUES, MARKET AND REGULATORY REFORM

The EU remained Armenia’s main trading partner in 2012.[5] The EU continued to be Armenia’s biggest export and import market with respectively a 39.3 % and 23.8 %
share in total Armenian exports and imports. EU exports
to Armenia consisted mainly of machinery and mechanical appliances. EU imports
from Armenia consisted mainly of base metals (copper, iron and steel) and
mineral products (ores and slag).

Armenia continued to benefit from the special
incentive arrangement for sustainable development and good governance under the
EU scheme of generalised tariff preferences (GSP+). The total value of
preferential imports from Armenia into the EU under the scheme has increased,
from EUR 61 million in 2009 to EUR 90 million in 2012. In 2013, Armenia submitted an application to benefit from the GSP+ preferences under the new GSP
Regulation as of January 2014. The examination of the request confirmed that Armenia meets the GSP+ eligibility criteria and the application was approved by the EU. Armenia remains therefore a GSP+ beneficiary under the revised GSP scheme.

In 2013, the EU
and Armenia continued negotiations on a DCFTA. The final, concluding round of
negotiations took place in July. In parallel to the DCFTA negotiations, Armenia pursued internal reforms in trade-related areas. However, on 3 September the
President of Armenia officially announced that Armenia would join the
Russian-led Euroasian Customs Union which is incompatible with the provisions
of the DCFTA.

In July, Armenia ratified the Protocol on the amendment to the International Convention on the
Simplification and Harmonisation of Customs Procedures (Kyoto
Convention). The State Revenue Committee (SRC) Customs Strategy for 2013-2014
and the Ministry of Finance Customs Strategy for 2013-2014 were approved in
November. Before the President’s announcement that Armenia intended to join the
Customs Union, the SRC initiated a working group for aligning the new Customs
Code with the EU Customs Code. An EU twinning project supported the
strengthening of customs control procedures and enforcement in Armenia.

With regard to
reforms in the area of free
movement of goods and technical regulations,
EU projects provided recommendations for approximation with EU horizontal and
vertical legislation. A draft law adopting the EU procedures for conformity assessment
and a draft law on toy safety were submitted to the government. The Ministry of
Urban Development was preparing a draft law on construction and construction
products. In January 2014, the government approved a draft law on market
surveillance and a draft law on general safety of non-food products. A draft law on liability for defective products has yet to be adopted. Armenia developed and approved draft procedures in
the form of checklists in three product sector areas, namely toy safety,
cleaning detergents and tobacco, while 19 other checklists were being prepared.

In the sanitary
and phyto-sanitary area, Armenia continued to implement its Food
Safety Action Plan endorsed in 2011 and carried out awareness-raising
activities. Armenia approved an inspection methodology based on consideration
of the degree of risk from imported foodstuffs. The government endorsed
procedures for banning importation of plants and plant products in the event of
non-compliance with phyto-sanitary requirements and for conducting state
control of imported foodstuffs. Armenia began to supply appropriate equipment
for the food safety checkpoints at the border. The government requested support
from the EU and the Food and Agriculture Organization (FAO) for upgrading the
food safety laboratories.

Armenia advanced to 37th place[6]
(out of 189 economies) in the ease of doing business ranking in the World Bank’s
‘Doing Business 2014’ annual report. Armenia made progress with regard to
starting a business and paying taxes. Yet a number of areas affecting the business
climate in Armenia still require further improvement, such as enforcing
contracts, paying taxes, getting electricity and trading across borders. Armenia ranks 79th (out of 148) in the World Economic Forum ‘Global Competitiveness Report
2013-2014’. Armenia was ranked very low in indicators such as intensity of
local competition, effectiveness of anti-monopoly policy, burden of customs
procedures, and judicial independence. Other major problematic factors for
doing business were corruption, access to financing, inefficient government
bureaucracy, tax regulations and rates. Improvements in these areas could help
stimulate growth in the private sector, especially for SMEs.

In the area of company
law, an assessment conducted by the World Bank considered International
Financial Reporting Standards (IFRS) to be too complicated for small and medium
enterprises (SMEs). Armenia started to look into simplification of the
reporting requirements for SMEs. The 2012 consolidated IFRS guideline (Red
Book) was translated into Armenian. A programme on strengthening auditing and
reporting in the countries of the Eastern Partnership (STAREP) was launched in
October.

As a follow-up
to the concept paper on regulating economic competition in financial
services adopted in 2012, Armenia drafted a regulation on anti-competitive
agreements in the financial sector, as well as a regulation on concentrations
of financial organisations. In May the Central Bank of Armenia, with the support of the Financial Stability Institute and the Group of Banking Supervisors
from Central and Eastern Europe (BSCEE Group), held a three-day seminar to
discuss the Basel III essential principles. Some Basel III norms were being
considered for implementation in 2014.

No substantial
regulatory changes could be noted in the areas of establishment, movement
of capital and current payments.

Other key areas

Armenia replaced individual income tax and
mandatory social security payments with the Unified Income Tax. To ensure
implementation of the Action Plan and improvement of the business climate, Armenia is encouraged to implement further reforms in tax administration, as well as in tax
policy and legislation.

No progress was
made in the adoption of State Aid Control legislation. Amendments to a law
on protection of economic competition were forwarded to the government.

With EU support, Armenia launched an Intellectual Property Rights (IPR) Enforcement Information Centre and published a collection of
statistical information on IPR infringements for 2011 and 2012 on the centre’s
website. The government prepared proposals for amendments to relevant laws on
IPR enforcement. A copyright law was being revised by the government. In
September Armenia ratified the Patent Law Treaty and Trademark Law Treaty. Ratification of the International Convention for the Protection of
New Varieties of Plants is still pending. To ensure
implementation of the Action Plan, Armenia needs to finalise the legal
framework for enforcement and further build the capacity of the IPR Units in
customs and police services, as well as implement the geographical indications
system.

Together with
the anti-corruption area, reforms in the area of procurement are slow.
The 2012 report of the Chamber of Control, issued in March, indicated systemic
problems in the procurement system. There is a widespread lack of efficiency
and effectiveness in the procurement systems; moreover, the introduction of an
e-procurement system has not yet been accomplished. In order to address the
deficiencies, Armenia is developing a new initiative for e-procurement system
reform within a new time frame of 2013-2015.

In the area of statistics,
Armenia conducted a pilot Agriculture Census in November 2013 and will
conduct a full census in 2014. Armenia published the results of the 2011
population census and developed a new, more user-friendly dissemination
database. Quality declarations for all 134 statistical products were compiled
and published. The revision of the statistical law was launched. To make
further progress in implementing the Action Plan, Armenia is encouraged to
continue with reforms in information dissemination, demographics, labour
market, poverty, environment and other statistical fields.

The public
financial management systems were further reformed in 2013. Measures taken included
a new income tax model linked to the ongoing pension reforms, development of
tax-related indicators, adoption of a new Law on Budget Systems and Training of
Internal Audit Staff. A Public Expenditure and Financial Accountability (PEFA)
Self-Assessment was carried out. An EU twinning project for reforms in public
internal financial control was prepared. The Public Debt Management Department
of the Ministry of Finance and Economy benefited from EU support to strengthen
the newly created functional structure. Limited developments took place
regarding the implementation of the Action Plan for programme-based budgeting
reforms due to delays in approval of the new Law on Budget Systems. Implementation
of the recommendations on the enhancement of fiduciary control of
non-commercial organisations was also delayed. Reforms in the field of external
audit have shown no substantial progress despite support from the EU and
other donors. Further accountability and transparency progress requires
involvement of non-state actors in the budgeting process.

The report on
the implementation of the Small Business Act for Europe (SBA), which was
published in October 2012, concluded that despite some improvements, the small
and medium-sized enterprise (SME) sector still needed a strong and viable
development strategy and effective policy implementation mechanisms. Key areas to
be given priority are SME financing, innovation and export promotion. Progress
over time (covering the period from 2012 to 2015) will be reviewed in the
second round of the SBA Assessment. Armenia also committed itself to take part
in the follow-up project focusing on implementation of recommendations in
certain sectors in order to enhance their competitiveness.

The EU continued to provide considerable support for trade-related
reforms through budget support, high-level advice, technical assistance, TAIEX,
and twinning. However, following Armenia’s announcement that it was to join the
Eurasian Customs Union, the overall portfolio of EU trade-related assistance
was reduced.

5.
COOPERATION ON JUSTICE, FREEDOM AND SECURITY

The first
construction works for the modernisation of the Bagratashen, Bavra and Gogavan
border crossing points between Armenia and Georgia were officially inaugurated
in September. Substantial EU support was allocated to this major integrated border
management project. National identity cards became compulsory in January
2014.

Implementation
of the EU-Armenia Mobility Partnership and the 2012-2016 National Action
Plan on Migration continued. This led to the introduction of a ‘one-stop
shop’ for returning Armenian migrants, providing for a clear single entry point
with a referral mechanism to existing reintegration assistance, and the launch
of a skills-based labour platform targeting both job-seekers interested in
becoming circular labour migrants and EU employers wishing to recruit from
abroad. The EU provided support for migration management and reintegration
through twinning and other projects.

The EU-Armenia Readmission
Agreement was signed in April. The Agreement was ratified by the Armenian
National Assembly in November, together with the already signed Visa Facilitation
Agreement. Both agreements entered into force on 1 January 2014.

In late 2013,
the State Migration Service, with support from their counterparts in Romania, drew up amendments to the Law on Refugees and Asylum in the form of draft
Standard Operating Procedures on the temporary reception centre for
asylum-seekers. The absence of free legal aid for asylum-seekers remains an
issue of concern. Meanwhile, the influx of Syrian refugees increased. Out of 327
persons seeking asylum between January and December 2013, 285 were from Syria. Syrian asylum-seekers benefit from a simplified procedure, but increased
transparency and accountability in the procedure is necessary. The overall
number of persons coming to Armenia from Syria since the beginning of the conflict
is estimated at more than 11 000, with most of them applying for Armenian
citizenship or a residence permit rather than for asylum.

Progress was made in addressing human
trafficking. The government approved the National 2013-2015 Programme on
combating trafficking, aimed at improving identification and support mechanisms
for victims of trafficking through legislative reforms, as well as financial
and capacity-building efforts.

Activities in the cybercrime
area continued with EU support.

Regarding the fight against drugs, work started on a
new drugs strategy and action plan covering the period from 2013 onwards, but documents have not yet been
approved. Following Armenia's request in May to sign a Memorandum
of Understanding with the European Monitoring
Centre for Drugs and Drug Addiction (EMCDDA), necessary steps are currently
ongoing. Armenia appointed a
national correspondent to the EMCDDA.

Concerns persist
on the draft data protection law; the designation in the draft of police
and the security service as supervisory bodies is not in line with EU
standards, notably with the independence requirement.

As regards
judicial cooperation in civil matters, the 1965 Hague
Convention on Service Abroad of Judicial and Extrajudicial Documents in Civil
and Commercial Matters came into force in February.

6. TRANSPORT,
ENERGY, ENVIRONMENT, THE INFORMATION SOCIETY, RESEARCH AND DEVELOPMENT

The government
adopted a concept for liberalisation of the country’s air transport
sector in June, following the bankruptcy of the national carrier. Armenia expressed an intention to launch negotiations on a Common Aviation Area Agreement between
the EU and Armenia. On 14 May, the government signed a working agreement with
the European Aviation Safety Agency covering cooperation in all aspects of the
regulation of civil aviation safety.

The construction
of the North-South road corridor, supported by the EU through the Neighbourhood
Investment Facility, progressed. Armenia is yet to join the European Agreement
concerning the International Carriage of Dangerous Goods by Road (ADR). In May,
Armenia joined the Convention on Transit Trade of Land-locked States and the
Convention and Statute on Freedom of Transit.

The
implementation of the 2010 Action Plan on Energy Saving and the 2011
Roadmap on Energy Efficiency continued, with Armenia aiming for 30 % of
electricity generation to come from renewable sources by 2025. As the country
considered that the costs of solar technologies were still too high, it focused
on hydro- and wind-based projects. Armenia participated in the EU-funded
INOGATE programme, which provided the country with technical assistance
concerning electricity and gas standards and tariffs, as well as the
development of sustainable energy sources. EU-supported stress tests were
carried out on the nuclear power plant at Medzamor, and their results were
presented in October; they will be peer-reviewed. No steps were taken towards
energy market liberalisation.

New EU-funded climate change regional projects were launched
in 2013, including Clima East and Climate Forum East.

With regard to
governance of the environment, no progress was made. There were no
significant developments concerning legislation to prevent deterioration of the
environment. Concerning the use of natural resources, the main change was that
administrative responsibility for forestry was transferred to the Ministry of
Agriculture. Armenia participated in the Eastern European, Caucasus and Central Asia component of the EU Water Initiative and in all regional projects on
transboundary water management.

Capacity
building in the area of disaster risk reduction and civil protection
continued through EU support targeting the National Platform, relevant
ministries and vulnerable groups, including children with disabilities.

As regards information
society, the second plenary meeting of the EaP Electronic Communications
Regulators’ Network was held in Yerevan in October, hosted by the Public
Services Regulatory Commission (PSRC) of Armenia. In September, the Ministry of
Transport and Communication approved the programme and implementing schedule
for the development of e-commerce in Armenia. An e-police system for traffic
fines and driving licences was implemented, as well as an e-civil component for
all civil status registrations and online identification by ID cards.

Regarding audiovisual
policy, Armenia’s broadcasting legislation does not meet standards and
recommendations of the Council of Europe and the OSCE, as it does not ensure
pluralism in the broadcasting media.

Research and
innovation were among the main priorities during Armenia’s chairmanship of the Black Sea Economic Cooperation Organisation from July to
December. Armenia increased its participation in the Seventh Framework
Programme (FP7) to 45 projects covered by a total EU contribution of EUR 3.22
million. Three new FP7 projects (R2I-Research to Innovation) involving Armenian
stakeholders were launched, supported by EU funding of around EUR 3 million and
aiming at fostering research-industry partnerships, supporting Armenian
capacities in the innovation domain and facilitating the commercial
exploitation of research results. A new FP7 regional project, the INCONET EaP,
involving the National Academy of Sciences, was launched in September for three
years with a view to preparing the transition to Horizon 2020 and promoting
cooperation opportunities which this new programme will bring. Armenia officially confirmed its interest in association to Horizon 2020.

7.
PEOPLE-TO-PEOPLE CONTACTS, EDUCATION AND HEALTH

The state
programme on education development 2011-2015 was adopted in June 2011 and is
currently the reference point in terms of strategic goals, objectives and
indicators.

Review of the
Law on Education was launched; the government intends to extend compulsory
education as of 2014 from 9 to 12 years, in order to address the problem of an
average of 4 000 students who fail to complete secondary education on an
annual basis.

The ‘Supplementary
and Continuing Education Strategy 2013-2017’ was approved by the Ministry of
Education and Science in December 2012 upon consultation with other public
institutions, NGOs and social partners’ organisations. The strategy includes
proposals for amendment of the national legislation concerning the Supplementary
and Continuing Education Strategy, including new concepts and procedures for validation
of non-formal and informal learning.

Positive developments took place
in implementing higher education reforms. One of the main achievements
was the development of the National Qualifications Framework. Armenia is hosting the Bologna and BFUG (Bologna Follow-Up Group) Secretariats from 2012 until 2015
and organised the education ministerial session of the Informal Eastern
Partnership Dialogue in September. It will also host the 2015 Ministerial
Conference in this context. Steps were taken towards the development of
mechanisms for financial support to students and an improved system of higher
education funding.

Armenia was more actively involved in the Tempus programme, with a
total of 40 ongoing projects. 18 projects, out of which six coordinated by an
Armenian institution, were selected in 2013. Students and staff from Armenia received 196 scholarships to study at a European higher education institution under
nine new Erasmus Mundus partnerships. In addition, 20 students were
awarded scholarships to take part in Erasmus Mundus joint Masters courses of
excellence. These included 20 additional scholarships awarded under a special
window for EaP countries. Since 2007, 11 institutions and 21 individual
researchers have benefited from Marie Curie Actions supporting
researchers’ training, mobility and career development.

The reform of vocational
education and training (VET) continued in line with the objectives of the ‘Reforms
Programme and Action Plan for 2012-2015’ with EU assistance through a major sector
support programme. Significant achievements and positive impact were
registered, especially at the institutional capacity-building level, as well as
in establishing links between demand and supply for VET training and employment
at the local/regional level. Additional EU support will be provided for
inclusion of youth with special needs and provision of equal access to quality
VET education, as well as expansion of the reforms to the rest of the system.

Armenia officially joined the ‘eTwinning plus’ action for
schools supporting school collaboration through the use of information and
communication technologies. 41schools and 208 teachers from Armenia are registered and 33 schools are involved in projects so far.

Armenian youth
and youth organisations continued to participate in the Youth in Action
programme. For 2013, additional funds were provided to
the programme, in the form of an ‘Eastern Partnership Youth Window’. In
2013, 425 projects involving 1212 young
citizens of Armenia were selected.

Under the EaP Culture
programme, 15 regional projects are being implemented in Armenia to strengthen the capacities and role of the cultural sector through the
development of regional cooperation. A workshop involving stakeholders
from the cultural sector took place in the context of the consultation process
for the Preparatory Action on Culture in EU External Relations. In August, Armenia hosted the European launch of the European Heritage Days (a joint action of the European
Commission and the Council of Europe) in Yerevan, in the context of the
Armenian Presidency of the Council of Ministers of the Council of Europe.

Armenia was actively involved in cross-border
cooperation through the Black Sea Economic Cooperation Organisation and
held the chairmanship during the second half of 2013, with a meeting of
Ministers held in Yerevan in December. In addition, several cross-border
cooperation projects relevant to Armenia were started through the Black Sea
Basin Joint Operational Programme in the fields of tourism, environment and
culture.

The EU
Delegation organised bi-monthly meetings for civil society cooperation
and it maintains a web interface for civil society consultations.

Concerning health
sector reform, a concept paper on ‘Healthcare Policy’ was drafted and several
decrees on epidemiological control and analysis were adopted. A campaign on
HIV-AIDS testing and prevention was carried out with EU support. Policy-makers
from Armenia participated in a multi-country workshop on the EU acquis
on prevention and control of communicable diseases.

[1] Support for Improvement of Governance and Management is a joint
initiative of the EU and the OECD, principally financed by the EU.

[2]
Figures are from the national
statistical office, the central bank, the IMF or Commission Staff estimates, as
indicated in the Statistical Annex. When other data sources are used these are
then indicated.

[3] Data are related to the persons aged 15-75

[4] European Neighbourhood Policy for Agriculture and Rural Development

[5] Data for 2013 was not available at the time of writing.

[6]
Comparison is made with the ‘Doing Business 2013’ ranking, which was adjusted
for changes in methodology and any revision of data due to corrections. For
more information, see http://www.doingbusiness.org

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