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  • Mongolia’s policy towards regional economic integration
    06/27/2017

    The Government of Mongolia prioritizes stabilization of the country’s economy and regaining investors’ confidence through creating friendly legal environment, for instance, number of state institutions and councils established in charge of investors’ protection, including Investors Protection Council under Cabinet Secretariat, National Development Agency (NDA) and UB City Investors Protection Council. The Foreign Investment Protection and Promotion Agreement (FIPA) signed with Canada in September 2016, is an attempt to indicate the intention to work closely with investors.

    Sustained efforts by the Government to implement the policy and measures adopted by the Parliament have produced some positive outcomes in financial and economic terms.

    For instance, as of the first three months of 2017, the consolidated budget structural revenue, aid amount has risen by MNT 360.6 billion compared to the same period last year and the State budget revenue reached around 1.3 trillion MNT, an increase of 316.6 billion MNT. A positive balance was achieved in foreign trade and the exchange rate of the U.S. dollar has stabilized. In addition, the Parliament’s approval of amendments to the Law on Development Bank of Mongolia as well as decisive actions aimed at improving the bank’s solvency contributed to achieving these positive results.

    To reform financial system and get back to sustainable growth, the Government of Mongolia and Mongol Bank concluded preliminary agreements on implementing the Extended Fund Facility program after long and uneasy negotiations with the International Monetary Fund.

    Increasing prices of mineral products in the world market, implementing programs with the International Monetary Fund, positive attitudes from the outwards, improvement of state financial responsibility and increasing amount of re-attracted foreign investors represents clear opportunities to firmly move and implement major mining and energy projects in 2017.

    There are many value-added processing projects to stimulate the economy such as “Gold-2” project and feasibility studies of building copper ore and oil refineries.

    The draft laws on “Investment bank” and “National payments system” are set to be adopted by the Parliament of Mongolia in this session in order to increase foreign investments to domestic bank sectors, introduce international standards, develop competition, and provide stable, reliable, efficient and seamless national payments system.

    One of the major challenges of the Government to attract foreign direct investment and address the existing bottlenecks in mining commodity trade is to make precise decision and obtain tangible outcome from railroad. The main leverage to direct this task to its right path shall be the resolution of the Parliament on “State policy for the implementation of railroad transportation” which is on the agenda of the items to be discussed in this spring session.

    Although Mongolia is located at an important geographical juncture connecting Asia and Europe, we are one of 32 countries that are considered as landlocked developing economy. This geographical location of Mongolia requires us to give highest importance to the issues of developing connectivity. The level of economic development of landlocked developing countries is approximately 20 percent lower than of those countries with access to sea and cost of trade is two times higher.

    In order to successfully tackle the overall trade barriers the Government of Mongolia acceded to the World Trade Organization Trade Facilitation Agreement in November 2016.

    The Trade Facilitation Agreement (TFA), in effect since 22 February this year, is a landmark agreement for landlocked countries to ease trade processes, bring down barriers to trade and enhance the capacity of the developing world to better engage with the global trading network. The agreement aims to create a less discriminatory business environment. It also includes faster clearance procedures, enhanced conditions for freedom of transit for goods improvements, improved appeal rights for traders as well as reduced fees and formalities connected with the import and export of goods. Therefore, the TFA is expected to significantly change the global trade scenario with international customs practices becoming streamlined and easier trade movement being enforced and the Government is in the process of establishing the National Committee for implementing the agreement.

    In order to improve the connectivity and facilitate trade and investment of Mongolia, it is vital to develop hard infrastructure such as networks of roads and logistics. However, developing of soft infrastructure such as enhancement of legal environment, increasing of investment as well as capacity building of human resources is equally important. Therefore, to strengthen the regional and global cooperation and to implement specific programs directed at developing the aforementioned directions is vital.

    Today regional integration has become the general trend of global economic development. Mongolia is a landlocked developing country and therefore, one of our foreign policy priorities focused on integrating Mongolia in the regional economic integration activities.

    The first free trade agreement /FTA/ or the Economic Cooperation Agreement /EPA/ of Mongolia was concluded with Japan. Negotiations of the agreement commenced in 2012 and signed in February 2015. Full entry into force of the agreement started from 7 June 2016. Among 164 Members of the World Trade Organization, close to 500 regional trade agreements /RTAs/ was notified to the WTO. With the conclusion of the EPA between Mongolia and Japan, all WTO Members have entered into RTAs.

    For Mongolia, the objective of negotiating a FTA with Japan was to improve access of Mongolian goods and services to the Japanese market, to attract Japanese investment into major economic sectors such as mining, agriculture and services, and to improve the standards of domestically-produced goods through importing Japanese technology and know-how. Under the agreement, close to 15,000 tariff lines were negotiated and agreed on.

    The Government of Mongolia continues exploring opportunities of integrating into regional and global economy. After the Economic Partnership Agreement with Japan, Mongolia is currently studying feasibility of concluding such agreements with the Eurasian Economic Union, People’s Republic of China and the Republic of Korea.

    Mongolia is also set to become more active in Asia and the Pacific region. As such, it has negotiated the accession to the Asia and the Pacific Trade Agreement /APTA/ and the domestic procedures for accession are underway.

    Recently, delegates from the Ministry of Foreign Affairs and the Ministry of Energy of Mongolia attended the High-level Dialogue on Regional Economic Cooperation and Integration in Asia and the Pacific that was organized by UN ESCAP in Bangkok, Thailand on 20 and 21 April 2017. The event was attended by representatives from 33 countries of Asia and the Pacific.

    This dialogue focused on discussion of how the region can effectively pursue regional economic cooperation and integration (RECI) to support the implementation of the 2030 Agenda for Sustainable Development in Asia and the Pacific.

    The participants of the event proposed four key recommendations to advance RECI in Asia and the Pacific:

    • To enhance market integration, reduce non-tariff barriers and reach multilateral agreements by streamlining regulatory frameworks and agreeing on common standards.
    • To turn the vision of seamless connectivity in the areas of transport, energy and ICT into a reality.
    • To strengthen regional financial cooperation, in particular to improve regional economic surveillance and crisis management capacity; deepen financial markets; and deliver innovative financing solutions to support sustainable infrastructure development.
    • To address shared vulnerabilities and risks which cut across the policy spectrum - from challenges created by natural disasters, to food security, to climate change.

    Transport connectivity plays an important role for development because it connects individuals to opportunities, enlarges markets for goods and services, and strengthens people-to-people connectivity. However there are numerous challenges in achieving region-wide seamless transport connectivity, such as missing railway links, substandard roads, costly and time-consuming trans-loading of goods at border crossings, different standards, and lack of public-private and private-private interaction.

    The dialogue covered discussion on the untapped benefits and opportunities of energy connectivity and noted that great potential exists in trade and investment in transboundary energy networks in the region. Countries in the region have identified energy as the key driver for economic growth and for the reduction of poverty, but its full potential can only be unlocked by regional cooperation and integration. Enhancing national and regional energy security and sustainable energy development through energy interdependence with integration of large scale projects of renewable energy needs to become the goal of countries on regional cooperation in the region.

    One of the main documents for Mongolia’s willingness to develop infrastructure and energy connectivity is the program of establishing Mongolia-China-Russia Economic Corridor that was signed in June 2016, in Tashkent, Uzbekistan. The program contains annex with 32 projects out of which 13 projects are to develop infrastructure connectivity between the three countries.

    With the purpose of pushing forward implementation of projects of the program, representatives of the Ministry of Foreign Affairs of Mongolia, the National Development and Reform Commission of the People's Republic of China and the Ministry of Economic Development of Russian Federation held trilateral consultations in Beijing on 24th of March this year. Representatives of the three countries exchanged opinions on possibilities of setting up a trilateral cooperation mechanism for coordination of activities and also discussed priority projects for 2017.

    In order to facilitate the regional economic cooperation and address existing trade barriers with our traditional trade partner Russia, the Memorandum of understanding for cooperation between the Government of Mongolia and the Eurasian Economic Commission was signed by the parties in October 2015 and then joint working group was established for implementation of the memorandum. Mongolian side proposed to launch study on possibilities of establishing a free trade agreement between Mongolia and the Eurasian Economic Union to eliminate tariff and non-tariff barriers to trade.

    The parties continue activities of introducing the Eurasian Economic Union’s standards, technical regulations and veterinary requirements to Mongolian exporters.

    Source: Ministry of Foreign Affairs of Mongolia