REVEAL AND ANALYSIS OF THE REGULATIONS IN THE AGRICULTURE SECTOR IN THE FRAMEWORK OF REGULATORY GUILLOTINE PROJECT IN ARMENIA

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1 REVEAL AND ANALYSIS OF THE REGULATIONS IN THE AGRICULTURE SECTOR IN THE FRAMEWORK OF REGULATORY GUILLOTINE PROJECT IN ARMENIA 5-7 DECEMBER, 2014 DILIJAN RESORT HOTEL ON December 5-7, 2014 National Centre for Legislative Regulation (NCLR) organized a 3-day outdoor workshop to reveal and analyze the regulations in the agriculture sector in the framework of Regulatory Guillotine project in Armenia. The event was organized with the support of the Austrian Development Agency (ADA), the Operational Unit of the Austrian Development Cooperation and Yerevan Office of the Organization for Security and Co-operation in Europe (OSCE). Agriculture Sector is of key importance to the Process of the Economic development of Armenia as it has become increasingly evident in the last years that the conception of both Donor organizations and policy makers regarding the role of Agriculture in economic development has undergone an important evolution, and therefore, it is now typically regarded by us as an critical and co-equal partner in the development process with the industrial sector. Thus, Agriculture plays a critical role in the Armenian economy. In addition to providing food and raw material, agriculture also provides employment opportunities to very large percentage of population for the country. The event hosted 80 participants from 10 ministries/state agencies and 15 local/international organizations such as Ministries of Agriculture and Nature protection of Armenia, National Assembly of Armenia, State Agencies ArmForest, Green Lane, Seeds Agency, Non-governmental organizations Armenian Technology Group, Agrarian Union of Shirak Region, Forests of Armenia, World Bank, OXFAM, ICARE, CARD, FFPMC, etc. 1

2 OSCE works to ensure the economic-environmental security and through the initiative to discuss and promote more effective regulatory policies, support the government efforts to tackle challenges in the sphere of agriculture, we believe our joint work together with the state authorities, international and civil society stakeholders will serve to the benefits of the society. Ambassador Andrey Sorokin Head of the OSCE Office in Yerevan The development of the agricultural sector is one of the priorities of Austrian Development Agency and in this context we are funding number of projects in Armenia. ADA as one of the main donors is supporting the Regulatory Guillotine project since its start in 2011 with the purpose to improve national competitiveness by updating Armenia s regulatory policies and policy instruments to stimulate market-driven growth. One of the overarching objectives of this important project is that especially the agriculture and forest sectors will benefit from this huge reform and therefore half of Armenia s population. Nora Alanakyan National Programme Officer of the Austrian Development Agency, Armenia Some actions are currently taken towards improvement of agriculture sector in our country the success of which is mostly dependant on the perfectness of the legal framework. Today we are hosting all the stakeholders round the table to discuss legal issues and revealing the problems, found implicit from the very first glance. Hopefully I am sure we could be able to form a comprehensive reform proposal package with your kind efforts and submit it through Regulatory Guilliotine Project to the Government which would contribute much to legal reforms currently carried out in the country. Armen Yeghiazaryan Director of the National Centre for Legislative Regulation During these sessions we studied many issues under question available in the sector that are subject to legal adjustments, and regardless the fact the NCLR could succeed handling these problems we should be alert enough to this process and try to tackle them in a shorter period by setting up an appropriate methodology for reviewing and solving such issues. Giving high importance to this event I think we will be meeting on a continuous base until we could record positive results to the raised problems. Artashes Kirakosyan Head of Staff of the Ministry of Agriculture 2

3 DAY 1 December 5 8:30 Departure for Dilijan (address: Yerevan, Saryan 22, Haypost building) 11:15-11:45 Coffee break 11:45-12:00 Participant registration 12:00-12:30 Workshop opening Opening speech Ambassador Andrey Sorokin, Head of the OSCE Office in Yerevan Nora Alanakyan, Representative of the Austrian Development Agency Welcome speech Armen Yeghiazaryan, Director of the National Centre for Legislative Regulation Artashes Kirakosyan, Head of the Staff of the Ministry of Agriculture Martun Matevosyan, Director of ArmForest State Agency 12:30-12:50 Legislative regulations of Cooperatives, current situation and issues International best practice, comparative analysis of regulations Speaker: Nelli Harutyunyan, NCLR Expert 12:50-13:30 Discussion, Q&A 13:30-14:30 Lunch 14:30-14:50 Certification process of animal breeding in Armenia Speaker Sonya Hovsepyan, NCLR Expert 14:50-15:30 Discussion, Q&A 15:30-15:50 Coffee break 15:50-16:10 Legal regulations of seeds market: Current situation and issues Speaker: Lilit Gulkanyan, NCLR Expert 16:10-17:00 Discussion, Q&A 19:00 Dinner 3

4 Regulatory Guillotine project to implement reforms in different sectors of the Armenian economy At the beginning of the workshop Heghine Manukyan, Deputy Director of the National Centre for Legislative Regulation welcomed all Government officials, Austrian Development Agency, Organization for Security and Co-operation in Europe and the participants of the event for outstanding support to the Regulatory Guillotine Project, particularly, in the Agriculture sector and ensured, that the Project was not possible to implement without support and active involvement of Government of Armenia, Donors and public in general. She presented the aim and main achievements of the Regulatory Guillotine project in Armenia and called all participants for cooperation and active discussions. Legislative regulations of Cooperatives, current situation and issues Speaker: Nelli Harutyunyan, NCLR Expert The discussion of the RA legislative regulations on cooperatives, their present situation and problems in this field as well as the international experience and comparative analysis of regulations were one of the main topics covered during the workshop. Among the issues widely discussed was the introduction of special tax regime which does not allow legal entities to become members of cooperative. Another option has been suggested by the participants to tax each individual within the cooperative applying the margin of 58 million AMD. To be noted, for today this margin applies to the whole cooperative which impedes natural persons to become its member. Thus is much profitable for the farmer to act on his own, without meeting the margin, than enter the cooperative where the margin would be most probably met by the members. The issue of the underdevelopment of cooperatives in the sphere of plant-growing in comparison with the livestock-breeding was partially explained not so much by the legislative drawbacks but more with the necessity to perform certain PR activities or employing other mechanisms of enhancing this field. The expert has suggested defining a precise procedure of becoming a member or quitting a cooperative, as it is indispensable for performing a number of deals. As a matter of fact it is not very clearly stated if the general assembly has the authority of this kind of decisions. However as it has been mentioned by one of the participants there is already an elaborated draft of Law on Agricultural cooperation, which might partially resolve this issue. According to another participant each cooperative has its own Charter according to which it accepts the members and defines the procedure of quitting: the decision is made by the general assembly and after quitting the member gets back the money earned from its membership fee depending on the financial indicators in the end of the year. However expert holds his opinion that there should be a unified procedure defined in a legal act. 4

5 It has been suggested to consider cooperatives as commercial organizations rather than non-profit ones which is resulting from the essence of the activity. This suggestion raised active discussions and interest among the participants. Some participants opposed the suggestion, bringing the following argument that the cooperatives are not as much a business, rather than organizations that help to deal with the problems jointly, avoid unnecessary transport costs. Another argument against this change was that today the majority of cooperatives are in reality non-profit organizations. Yet another opinion was considering the problem of the cooperatives status from another angle, namely paying attention to the operations and deals that the cooperative is making during its activities. According to the participants all the cooperatives are legal entities, registered in the state registry and have certificates, list and number of the members which is constantly updating in case any change occurs. The issue of awareness of a peasant has been another important topic of discussion, as the lack of knowledge amidst many landowners, results in wrong perception of the real situation concerning cooperatives. Thus the adoption of a comprehensive Law is of great importance. In the scopes of the examination of international experience one of the participants brought the example of Germany where about 200 years ago the development of cooperatives was coming from the bottom, however nowadays this process should come from top. However the legislative reforms are only one part of the solution of a complex problem. Certification process of animal breeding in Armenia Speaker: Sonya Hovsepyan, NCLR Expert The records, identification and certification process of animal breeding in Armenia was the next topic covered during the workshop. In the scopes of the discussion, the expert has suggested making the certification procedure of breeding material optional instead of mandatory. The main reason is that nowadays even the persons, who do not need a certificate to prove the quality of the breeding material, are obliged to pass through the certification procedure. Besides the terms of providing the certificate was not clearly stated in the legal documents regulating this issue. What is more, a number of references are needed to obtain the certificate which implies additional costs for people. Other issues such as who has the authority to provide a reference stating the breeding history of the animal, as well as which companies are engaged in production of breeding materials, were also discussed. Another question was the requirement of 2 laboratory expertises on the health state of the animal. The required references can be substituted by other documents. The issue of whether or not to consider the activities in this field as a business and if so who is facing the risks were another topic of interest. According to some participants usually it is the buyer not the seller, because of informational asymmetry. 5

6 Observing the international experience, it can be noted that in Europe there is a tendency to avoid the mandatory standardisation. If the regulation does not add any value added, then its existence becomes unnecessary. That is why making the certification of the breeding material optional is quite well-grounded according to the expert team. Another argument in favour was that the certification does not provoke any responsibility by the side of the State in case of dissatisfaction of the buyer, therefore what is the reason of putting an obligatory requirement. However some of the participants did not share this view based on the fact that the certification is designed to solve a number of complex issues, so first of all it is necessary to understand the motives of this procedure and its main aim. The same scheme of making the certification process optional has been adopted for example in the sphere of diamond production where the GI international certification is not mandatory. Legal regulations of seeds market: Current situation and issues Speaker: Lilit Gulkanyan, NCLR Expert Legal regulations of seeds market formed another topic of the discussion during which the current situation, problems, as well as the best international practice and comparative analysis of regulations have been presented by the experts. The main suggestion was related to the elimination of the certification obligation for 10 types of seeds which only refers to the seeds used in the territory of Armenia, not the ones which are exported. But these 10 types are mainly the seeds which are very important for country s economy that is why the certification procedure of only these types is mandatory. One of the participants shed light on the reasons why the certificate is given for only 10 years. The main rational behind this decision is that many of the seeds are becoming obsolete and new ones are being planted. Therefore the list of seeds that imply certification is changing. The costs for experimental seeds-growing are unnoticeable for the businesses and at the same time very favourable for them as some seeds may not grow well in Armenia s climate. One of participants wondered whether it is possible use the same seeds in Armenia by using computer programs knowing the effect of the seeds on the equivalent soil and the same climatic conditions. However the experience showed that this did not work out as the same type of seeds demonstrates non-identical results on different lands. Thus it is important to take the seeds which are already checked because in this case the risk is lower. During the discussion the importance of the terms and the keeping conditions of the seeds has been also stressed to which all the participants have agreed. 6

7 DAY 2 December 6 9:00-9:45 Breakfast 9:45-10:00 Participant registration 10:00-10:40 Issues on forest use by individuals and businesses. Forest use permits rationale and issuing process Speaker Sonya Hovsepyan, NCLR Expert 10:40-11:40 Discussion, Q&A 11:40-12:00 Coffee break 12:00-12:20 Procedure for obtaining the certificate, issues on licensing of different agricultural products and stuff Speaker Stepan Margaryan, NCLR Expert 12:20-12:50 Discussion, Q&A 13:00-14:00 Lunch 14:00-14:30 The procedure of import, export and state registration of serosities used in Veterinary science Speaker Stepan Margaryan, NCLR Expert 14:30-15:30 Discussion, Q&A 15:30-16:00 Coffee break 16:00-17:00 Q&A (summarizing questions raised on December 5-6) 19:00 Dinner 7

8 Issues on forest use by individuals and businesses, forest use permits rationale and issuing process Speaker: Sonya Hovsepyan, NCLR Expert The very important topic for the agriculture sector in Armenia has been also discussed throughout the workshop. That was the problems associated with forest use, namely the procedure of providing permission, the procedure of obtaining forest and felling of the forest use permits, their expedience, as well as the application of the construction permission on forest lands. This topic gave place to a fierce discussion as among the suggestions were the elimination of the mandatory requirement to sign forest use agreement to obtain the forest cards as well the forest cards per se, providing the permissions for wood harvest through a contest, elimination of the mandatory requirement of the contract, except trade contract, definition of the right of construction on the forest lands in the presence of zoning plan and according to the procedure established by Government of RA. The argument was that the realization of control over the forest use by the peasant is more artificial, and in reality because of the lack of human and other resources it is almost impossible to perform the control, and even the penalties are not preserved severely. However the elimination of forest cards does not mean any control at all: correspondent mechanisms should be elaborated. One of the important mechanisms would be the raise of awareness in the RA, and already certain international projects are organizing workshops and events on this issue. The control mechanisms over the use of forest goods were another issue which raised a big interest among the participants. The issues included the fact that there is no methodology of forest goods registry; however in the forest card the volume should be mentioned. The reality shows that despite the fact that registry process, monitoring, the accounting plans are defined by the legal act, all this does not work in practice. This situation is partially conditioned by the fact that unlike European legislation, according to the legislation of RA each person can enjoy the forest goods. In Armenia the latter is often the unique source of profit: that is why there is no necessity for forest cards, as its use is permitted by the legislation. The fee for the use of natural resources such as forest goods, according to one of the participants should be levied from the factories not from the peasants. However he stressed another problem: that is the absence of correspondent equipment for forest use which would not harm it. As a solution it was suggested to engage the Armforest organization who would sign different collaboration contracts in order to provide the necessary equipment. The issue of totally eliminating the forest cards was 8

9 received with doubt by several participants however some of them suggested eliminating forest cards only for peasants. To which other participants objected that there is no mechanisms to distinguish the businesses and physical entities and such decision may lead to corruption risks. And because much part of forest goods still remains unused, Armenia should encourage the supply and processing. However the environmental issues should be thoroughly examined before making such decisions and mechanisms should be elaborated in order to avoid harming the forest resources. As a possible solution the introduction of registration mechanisms has been suggested. If this field develops, the State revenues will increase through the taxation channel, so according to some of the participants this is a win-win scenario. The problems associated with felling of the forests were also on the agenda list. The main notion was the necessity of high quality equipment which would allow careful forest felling with minimal harm to the trees. It was suggested to introduce contests among different organizations to find the best one who would receive the right of felling the forest. After that the contest for forestation should be realized. As a successful example of international practice the experience of Latvia has been brought. However in Armenia the mechanisms of realization of the contests still does not work because of the low number of participants. Another important issue is the preservation of wood quality. The foreign investors tend to sign long term contracts and in Armenia they are allowed to sign only for a year, so they prefer not to invest. Nowadays 80% of the harvest is used as a fuel for peasants. As a business it is very unpredictable and it is indispensable to make it so. The illegal use of forest goods and harvest is another problem related to this topic. According to World Bank and FLEG program many countries, especially the developing ones, encountered the same problem, for example Romania, Moldova and other. This issue is well resolved in Georgia where the peasants are given a list of trees which can be felled and the fee for the felling. This helps to avoid corruption risks. However in the case of Armenia there is the issue of frontier villages where the main source of fuel for the population was harvest. This issue might be partially resolved if peasants from frontier villages receive 50% compensation for gas costs. However according to other participants the illegal use of forests is first 9

10 of all executed by businesses, not peasants. That is why when speaking about the illegal use of forests the businesses and individual peasants should be distinguished. One of the participants brought to the attention the necessity to differentiate the governance from the control, nowadays in Armenia the same body is issuing permissions and performs control. It was suggested also to create a unified forest fund, instead of dividing the forest lands into 3 different categories, as for example in case of forest lands under special categories the control is almost lost and illegal felling of the forests is taking place. In any case the most important objective should be preserving the forest to pass it to next generations. During the talks on the issue of giving permission for construction on forest lands, different opinions have been expressed. Some of the participants saw in it a potential threat to the forests, while others envisioned the possibilities for the eco-tourism development, which will lead to the growth of country s economy and will even permit later to solve environmental issues which nowadays are lacking financial means. The current situation is that powerful individuals manage to change the category of forest lands and start the construction, so it is suggested to create equal conditions for everyone through the organization of correspondent contests. As nowadays there are conditions that after 60 years, the constructions on the forest lands become state property, therefore only big enterprises can agree to these risks, while small and middle enterprises cannot. Moreover the public opinion will be highly important in the decision making process. In any case the permission of construction should be issued only after a thorough examination and requires a high level of caution. Another concern on this issue is that except the building that are designed to be built, new roads and infrastructure would be needed, which will be extremely harmful for the forests. So as nowadays State does not have enough resources to invest in the forestation, after several years in case of economic growth and increase of the financial possibilities there would be no forest lands left to do the forestation. One possible solution is to implement zoning schemes: this will create correspondent mechanisms to solve the issue. 10

11 Procedure for obtaining the certificate, issues on licensing of different agricultural products and stuff The procedure of import, export and state registration of serosities used in Veterinary science Speaker: Stepan Margaryan, NCLR Expert Finally two more topics have been discussed: the procedure of obtaining licences in Agriculture sector and the procedure of import, export and state registration of serosities used in Veterinary. The main suggestions made by the expert were the substitution of the licensing procedure with the introduction of notification system and establishment of a single window system in the procedure of providing certificates for import and export of serosities. These suggestions however caused several questions, for example the process of controlling the employees lists of organizations, or the location and its change of the organizations, as well as the process of reformulation in case of the elimination of the license requirement. The response was that the labor contracts are still to be presented upon request, whereas the location changes of the businesses have to be notified according to the notification scheme, so that issue is resolved. The control mechanisms have to be even strengthened in case of elimination of the license. Another issue raised by the participants is the way of controlling the unsafe activities of the business as the first checks are made only 12 months after the notification, from the other point there is no single body that has the authority to perform the checks. However the notification system permits to save time, as only 5 working days are required to get the preliminary permission unlike of license which requires 23 working days. The notifications system has already been adopted in public utilities sector. Therefore the only question if any additional risks are created because of the notification system, because some of the 11

12 participants agreed that neither the licensing procedure can guarantee the proper control over business activities. However certain corrections should probably be made, for example elaboration of a system to check the professional qualifications of the employees, as mentioned by one of the participants. The process of entering in the Eurasian Economic Union also may lead to certain changes, because in several sectors the procedure of licensing is introduced, so the elimination of license may not correspond to the Charter of Eurasian Economic Union. Currently the authorized body tries to maintain its policy in line with the Union s requirements. Also the inclusion of plant protection sector has been suggested and accepted. The other suggestion referring to the registry of serosities and laboratory expertise also raised an active discussion among the participants. They namely accented the importance of international certification of serosities in case of which the laboratory expertise would not be much needed. Moreover it has been spoken about 3 countries from which the imported serosities do not need special registration or expertise, however instead there is a documentation burden, and often it implies so many costs that it is easier to pass the laboratory expertise. On the other hand some of the participants stated that the serosities should be necessarily registered no matter if they pass the expertise in laboratory or not. In the end of the workshop participants have made several suggestions on the necessity to update and implement the methodology referring to the topic of seeds, to choose the most rational opinion and use that. Other participant was for the option of being conservative in terms of changes in regulations referring to seeds and animal breeding materials. One of the most commonly expressed opinions is that the environmental concerns should prevail over the business interests. From environmental perspective the activities should be either not harming at all, or harming in minimal ways. When referring to the issue of construction permission the forest land, the future influence of today s decisions should be taken into consideration, as well as interests of ordinary citizens. Finally the development of eco-tourism was considered by the participants to have a big potential. 12

13 DAY 3 December 7, :00-12:00 Discussion on the provided recommendations 12:00-13:00 Summing up 13:00-14:00 Lunch 14:00 Departure for Yerevan The workshop on Revealing and Analysis of the Issues in Agriculture sector in the framework of Regulatory Guillotine project in Armenia was a big program organized by the NCLR that brought together a great number of interested stakeholders from state agencies, international organizations and private sector. The 3-day event addressed a number of issues and reform proposals, as well as boosted an active discussion among the participants. It also established a further cooperation with all participants and became a ground for better dialogue and collaboration. 13