May 1, 1992 | Magazine Archive

TRADE AGREEMENT WITH U.S. SETS STAGE FOR PRIVATE INVESTMENT IN ARMENIA

by David Zenian

WASHINGTON – Preferential trade and investment insurance agreements between the United States and Armenia signed in Washington April 2 will help jumpstart the Armenian economy and give it the much-needed boost toward a market economy.

Both agreements signed by U.S. Secretary of State James A. Baker III and Armenian Deputy Prime Minister and Minister of Economy Hrand Bagratian, are historic not only because they are the first of any kind between the United States and Armenia, but also the first between the U.S. and one of the newly independent states of the former Soviet Union.

The trade agreement, which does not require Congressional approval, provides for reciprocal Most-Favored-Nation (MFN) tariff treatment to the produces of each country.

It will permit Armenia, under the treaty, to export to the United States without discriminatory treatment of their goods.

In addition to providing MFN for both parties, a State Department spokesman said, the Agreement, also:

- Provides improved market access for U.S. goods and services in Armenia,

- Facilitates business by allowing free operation of commercial representations in each country and by permitting companies to engage and serve as agents and consultants and to conduct market studies, and

- Offers strong intellectual property rights protections by reaffirming commitments to the Paris Convention and Universal Copyright Convention; obligating adherence to the Berne Convention for the Protection of Literary and Artistic Works; providing copyright for computer programs and data bases and protection for sound recordings; giving product and process patent protection to virtually all areas of technology; and providing comprehensive coverage of trade secrets.

The capital insurance agreement with the Overseas Private Investment Corporation (OPIC), will provide investment insurance, project financing, and investor services for U.S. private investors in Armenia.

While the two agreements may not translate into immediate U.S. financial aid to Armenia, millions of dollars will soon be available to encourage American business in Armenia.

The potential “gold mine” is OPIC, the multi-billion-dollar self-sustaining U.S. government agency whose purpose is to promote economic growth in developing nations.

During his November 1991 visit to Washington, President Levon Ter Petrossian was assured of “U.S. support for the Armenian government’s political and economic reforms.” The White House, in a statement, said the “U.S. intended to build a strong relationship with Armenia … and to increase trade and investment through OPIC.”

Top U.S. officials recognize that, aside from short-term Western supplies of food and medicine to carry the former Soviet republics through the winter, other guarantees are needed to help ensure the long-term survival of a market economy.

This is where OPIC comes in as a natural catalyst.

“We assume the risk, so we make it as safe for Americans to invest in the Soviet Union as it is to invest in Iowa. But not enough people know about us,” says OPIC Executive Vice President James Berg.

OPIC is not a household name, but nevertheless, it is considered by many Washington insiders as a major pillar of the Bush administration’s foreign policy. Established by an act of Congress in 1969, OPIC began operations in 1971 and has since issued more than 37 billion dollars worth of political risk insurance which protects investors against such things as nationalization, partial loans and loan guarantees to 121 developing countries.

Armenia could easily become the 122nd nation, provided U.S. companies come forward with projects OPIC considers to be profitable and trustworthy.
The prospective investors should also meet strict OPIC criteria to qualify for the various financing and loan packages which are available. As a cardinal rule, all projects considered for OPIC financing must be commercially and financially sound.

According to OPIC officials, financing is provided for a wide range of enterprises under terms and conditions sufficiently flexible to permit sound development projects to be implemented. Eligible enterprises include manufacturing, agricultural production, fishing, forestry, mining, energy development, storage, processing, and certain service industries providing the host country with exceptional development benefits.

Projects in the poorer developing countries, a category where Armenia could fit, and those involving smaller U.S. firms or cooperatives as sponsors are of particular interest to OPIC.
Looking at OPIC’s 1990 activities, prospective U.S. investors could see numerous avenues where funds are available to enhance the Armenian economy. These avenues include aircraft leasing, something which Armenia could get into with a U.S. partner to improve its direct air links with the outside world. Others include hotel privatization and refurbishment, beverage production, jewelry manufacturing, computer assembly, toy manufacturing, textile yarn spinning, and food processing.

On a more sophisticated level, the introduction of modern banking to Armenia is certain to attract the attention of OPIC.

Officials at OPIC say the current wave of privatization in Armenia makes the country ideal for U.S. investment.

“Look at OPIC as the carrot in the proverbial carrot and stick situation. We encourage people to invest by protecting their money and throwing some of our own for good measure, but we cannot go out after investors, they have to come to us,” says OPIC consultant Jim Hall.

“More than 100 companies have already applied for loans to go into business in the former Soviet Union, but none for Armenia. With the green light from President Bush, we hope people will come forward with business or joint-venture ideas which we might consider financing or insuring,” he said.

Outlining the application process, he said the sponsor of a potential project interested in obtaining financing should provide OPIC with a copy of the business plan for the proposed project. To establish a general eligibility and give OPIC the basis on which it can respond to the amount and the basic terms of any financing it is willing to consider, the plan should include:

- A general description of the project.

- Identity, background, and the audited financial statements of the project’s proposed principal owners and management.

- Planned sources of supply, anticipated output and markets, distribution channels, competition, and the basis for projecting market share.

- Summary of project costs and sources of procurement of capital goods and services.
- Proposed financing plan, including the amount of the proposed OPIC participation, and financial projections, and

- Brief statement of the contribution the business is expected to make to local economic and social development.

The conditions seems stiff, but OPIC officials point out that so far 121 countries have already profited from the program and there is no reason why Armenia should not be the 122nd.

Questions concerning financing for specific projects or preliminary applications should be addressed to:

Vice President for Finance
Overseas Private Investment Corporation
1615 M Street N.W.
Washington D.C. 20527.

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