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Sunday, April 19, 2015

Expanding the US-Armenia Economic Relationship

Stronger US-Armenia trade relations will further nurture the positive trends in Armenia, already one of the freest economies in the region, helping this nation successfully complete its transition from aid to trade as the key driver of U.S. engagement.

Current US-Armenia Relationship:

Investment Incentive Agreement (1992): provides the legal framework for operations of the Overseas Private Investment Corporation which supports and protects foreign investors through financing, guarantees, political risk insurance, and private equity investment funds.

Agreement on Trade Relations (1992): protects intellectual property and ensures fair competition.

Bilateral Investment Treaty (1992): regulates the investment climate and provides for dispute arbitration. This treaty is an integral part of the framework for expanding trade relations and is designed to encourage economic opportunities for investment, trade, and growth in both countries. It encourages appropriate market-oriented domestic policies so that private investment is conducted in an open, transparent, and non-discriminatory environment.

Generalized System of Preferences (GSP): program designed to promote economic growth in the developing world by providing preferential duty-free treatment. 91% of Armenian exports to the US, worth over $65M, are covered by GSP. In addition to being advantageous for Armenian exporters, this program keeps American manufacturers and their suppliers competitive. In 2005, three quarters of US imports using GSP were raw materials, parts and components, or machinery and equipment used by US companies to manufacture goods in the US.

Joint Economic Task Force (1999): provides a forum to further economic cooperation between the two countries, discuss trade and investment issues, advance financial and market reforms in Armenia, and identify opportunities for the US and Armenia to work together to foster long-term economic development. Over the years, the focus of the taskforce has shifted from aid to trade and represents a positive shift in US-Armenia trade relations.

Since 1992, Armenia was granted the status of Permanent Normal Trade Relations (PNTR) and joined the World Trade Organization (WTO).

Potential US-Armenia Relationship:

Trade and Investment Framework Agreement (TIFA): provides strategic frameworks and principles for high-level, government-to-government dialogue on trade and investment issues. The U.S. government has negotiated over 50 TIFAs, many of which are with developing economies and democracies, and has been on the agenda of several past meetings of the U.S.-Armenia Joint Economic Task Force. Topics of discussion and consultation include market access issues, labor, the environment, protection and enforcement of intellectual property rights, and capacity building. TIFAs are the framework within which long-term economic, monetary, and regulatory progress can be made in Armenia.

Double Taxation Treaty: needed to replace the outdated US-USSR Double Tax Treaty from 1974. The agreement was originally intended as an agreement between two hostile superpowers when commerce and trade in services were limited. The lack of an unambiguous, updated treaty is an impediment to US investment in Armenia and hinders economic relations between the countries. The US-USSR treaty is inadequate in a number of areas. First, it does not sufficiently address taxes on dividends, interest, and royalties. Secondly, an updated treaty would allow for provisions for exchange of information, as well as arbitration.

Social Security Agreement: clarifies the obligations and entitlements of workers who divide their careers between the US and Armenia. It specifically relieves the employer and employee from double social security tax and "totalizes" the employee's social security tax paid to both countries in order to receive the combined benefits in only one country.

Visa Relaxation: U.S. and Armenia have taken major steps to facilitate business travel and encourage investment, trade, training and information exchanges.

Trade Missions: overseas programs for US firms that want to explore and pursue export opportunities by meeting directly with potential clients. Trade missions are oftentimes sector-specific and are designed to meet specific business objectives such as increasing revenue or decreasing costs.

POSITION:

Consistent with calls by Microsoft, FedEx, NASDAQ and other firms doing business in Armenia, the Administration should prioritize US.-Armenia economic ties - through the negotiation of a TIFA, the signing of a Tax Treaty, the hosting of trade missions, and other means.


Spring 2015

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