For the Record
WTO TRADE POLICY REVIEW OF MONGOLIA
Statement by the U.S. Representative to the WTO
September 24, 2014
Thank you, Madam Chairperson.
The United States welcomes Mongolia’s head of delegation, Mr. Chuluunbat, Deputy Minister for Economic Development, other representatives of Mongolia’s government and, of course, our colleague, Ambassador Purevdorj. We appreciate the report that your team prepared for this meeting. We also thank Mongolia for its responses to our written questions, which we have examined carefully. As always, we are grateful to the Secretariat for its hard work in compiling its report.
In the 17 years since it acceded to the WTO, Mongolia has recognized the importance of market-oriented economic development, as evidenced by its focused efforts to promote economic growth, as well as its recognition of the need for increased transparency. Open and transparent trade and investment regimes will further enhance the business environment in Mongolia and improve Mongolia’s attractiveness to its trading partners and foreign investors. We recognize the particular challenges that landlocked developing countries (LLDCs) face in participating in international trade and note that the United States is committed to close cooperation with LLDCs to address such challenges – and, specifically, to continuing to work hard to advance trade and economic ties with Mongolia.
We took particular note of Mongolia’s discussion of the importance of trade facilitation to landlocked developing countries. We hope that the actions of a few will not continue to block the benefits of the Trade Facilitation Agreement to the many, including many developing countries. With regard to the Trade Facilitation Agreement, we also thank Mongolia for its hard work and commitment in submitting its Category A notification.
Trade between Mongolia and the United States has grown in recent years. In 2005, when Mongolia’s first Trade Policy Review took place, total two-way trade in goods stood at $166 million. By 2012, this figure had increased to a high of $707 million before declining in 2013. In the coming years, further growth in trade with Mongolia will likely be affected significantly by how well Mongolia handles its economic engine and its biggest economic challenge – the mining sector. We encourage Mongolia to figure out how to manage the development of its mineral resources in a manner that will ensure steady growth. It is well-known that the mining sector is the key driver of Mongolia’s economy. It is Mongolia’s major source of exports and foreign direct investment, and many of Mongolia’s imports also feed the mining sector. Since 2010, Mongolia has experienced double-digit GDP growth, led by higher commodity prices for copper, gold, zinc, coal and other minerals and by large capital inflows supporting Mongolia’s pursuit of world-class mining development projects.
Mongolia’s economy has achieved this growth despite a number of problematic challenges that impede economic development. These include inadequate transparency in regulatory and legislative processes, weak rule of law, corruption and frequent abuse of inspection, and permitting and licensing regimes to protect existing state and private sector interests. The Mongolian government’s economic policymaking has often been unpredictable, and almost always, it has lacked the transparency that foreign investors and traders need and expect in today’s global trading system.
For example, in May 2012, Mongolia’s Parliament hastily passed the Strategic Entities Foreign Investment Law, apparently in reaction to an attempt by a foreign state-owned enterprise to gain a majority interest in a coal company. Unfortunately, this law created a great deal of uncertainty about Mongolia’s investment climate. In the aftermath, implementing regulations were delayed, companies reported that they could neither register nor complete permitting actions, and investors openly questioned whether or not Mongolia was serious about attracting foreign direct investment (FDI). Following a significant downturn in FDI in 2012 and 2013, Mongolia’s Parliament passed a new investment law in October 2013, which has started to win back investor confidence. While it is hoped that some vague language in the new investment law will soon be clarified, key provisions in this law include its equal treatment of domestic and foreign investors and its provisions regarding tax stability.
Another example involves the ongoing amendment process to Mongolia’s 2006 Minerals Law, which, among other things, sets forth the regime for issuing exploration and mining licenses. In 2010, after the President of Mongolia criticized the existing minerals licensing regime, Mongolia embarked on a process to amend the entire law. This process has produced numerous proposed amendments. While changes to important laws often take time, in this case the lengthy amendment process has adversely affected the mining sector. Even though the Minerals Law remains in force, officials at all levels of government now delay or even refuse to process normal requests for extending or issuing exploration and mining licenses, ostensibly out of concern that actions taken under the current law might eventually become invalid or require alteration under the new law being considered. The effect has been to generate long and costly bureaucratic delays in several commercial sectors, which has increased investment risk. Many investors are hopeful that Parliament’s January 2014 adoption of a new State Minerals Policy will lead to greater stability in the mining sector and sound amendments to the Minerals Law.
Another problematic area involves the tendering process under Mongolia’s Public Procurement Law. Recently, companies from a number of countries, including the United States, have expressed serious concerns about inadequate transparency and lack of fairness in this process.
We are encouraged that the Mongolian government took an important step toward addressing transparency and corruption concerns in September 2013 when it signed an agreement with the United States promoting legislative and regulatory transparency in matters affecting trade and investment and calling for adherence to anti-bribery and anti-corruption principles. While the Mongolian Parliament still must ratify this agreement, once it is in effect and has been implemented, it should enhance not only trade and investment but also create an even more attractive business environment in Mongolia.
In conclusion, Madam Chairperson, we look forward to continuing our work with Mongolia to expand the U.S.-Mongolia trade and investment relationship, and we wish Mongolia a successful trade policy review.