Discussion Brief for the Export Strategy-Maker

The National Trade Support Network

Trade promotion network in Mongolia- is it working?

1. Trade overview
2. Objectives of foreign trade policy
3. Trade liberalization
4. General principles
5. Trade policy and practical operation
6. Strengthening of trade support network 

  1. Trade overview 

Mongolia is a country which is in the transition period from a centrally planned to a market oriented economy and the Government policy is taking broad range of measures to liberalize internal and external trade and to develop the private sector. Before 1990, over 90 percent of the foreign trade of Mongolia were made with the former Soviet Union and CMEA. As a result of implementing the principles of equity, mutual benefit and liberalization the geographical distribution of the foreign trade has changed substantially and today Mongolia is trading with 71 nations of the world. Total external trade turnover of Mongolia for the first 7 months of the year 2001 equaled 469.9 million USD for which 188.6 million USD in export and 218.3 million in import. 

Although nation’s foreign trade volume has been showing steady increase due to boost of export oriented foreign investment in garment and textile industries fluctuations of world market prices on major Mongolian export products such as copper concentrate, gold and cashmere which occupies almost half of the export has led to the fact that the country has been witnessing negative trade balance for the last few years. 

 2. Objectives of foreign trade policy 

The foreign trade policy of Mongolia is focused primarily on promoting and ensuring the following purposes through the application of trade measures: 

• ensuring sustainable economic development 
• promoting the development of national industries and services; 
• ensuring national and efficient use and distribution of national resources; 
• increasing the share of the Mongolian exports on the world market, with the view to ensure better foreign trade balance 
• creating healthy and fair competitive environment 
• diversifying the national production and manufacturing; 
• improving the distribution and supply of products and goods on the domestic market; 
• increasing trade turnover; 
• contributing to the implementation of the national security policy through protecting the environment and the health of population. 

The ultimate objective of the Mongolian foreign trade policy is to promote sustainable development of social and economic growth, improve creation of job opportunities and improve living standards of the Mongolian people. 

Mongolia’s current economic policy programme focuses on reform and restructuring of the economy as a whole. Emphasis is placed on stimulating private sector-led growth and particularly on development of the small and medium sized enterprise sector. Restructuring of the state sector, privatization and the promotion of foreign direct investment are key elements of the programme. 

Since its accession to WTO in 1997, expansion of foreign trade has become the centerpiece of the Government’s economic development. There is a general recognition in Mongolia that the strengthened rules-based trading system will eventually enhance the country’s overall trade performance. However, competition in the international market place is becoming more intense and new competitive pressures are emerging in the domestic market as foreign suppliers take advantage of the liberalization of Mongolia’s import regime. Currently public and private sectors find it difficult to take advantage of new commercial opportunities in the international market as well as to fully deal with these new competitive pressures at home and abroad. 

The private sector, which has lately assumed the role as engine of future economic growth, is inexperienced and lacks the support of the public sector in export. Trade support services are neither readily available nor of the caliber required. The institutions concerned with trade are weak in trade promotion, which suffers also from the absence of an effective mechanism for public and private sector cooperation on trade issues. 

3. Trade liberalization 

Trade liberalization was one of Mongolia’s major reforms undertaken during the transition from the centrally planed economy to the market economy. As a result all entities and individuals in Mongolia were vested with the right to engage freely in trading activities and 25.000 entities were registered with the General Taxation Authority by the first quarter of 2000. 

The above facts illustrate that the foreign trade has become one of the major factors contributing to the generation of the national wealth and new jobs. Notwithstanding this certain measures are still required to create more favorable trading conditions both at the international as well as domestic level. 

 4. General principles 

Mongolia is adhering following principles in developing, reforming and implementing its trade policy: 

• Strengthening and ensuring economic security. The primary sources of the Mongolian foreign trade policy are: 1) the trade-related provisions embedded in the National Security Concept and the foreign policy concepts, 2) the commercial laws and regulations which constitute the foundation of the trade and economic legal environment. The primary objective of our foreign trade policy is to contribute to ensuring the national security through preventing negative phenomena such as becoming a raw material supply base of another country or falling under the pressure of an international organisation or any other country resulting in the dependency from or domination of them. 

• Linking with foreign trade policy aims and objectives. Any decision and actions aimed at regulating trade activities undertaken by government and non-government organizations within the legal framework are to be guided by the above mentioned aims and goals. 

• Taking into consideration trends prevailing in the world trade relations, continuing the policy of trade liberalization and maintaining trade relations on the basis of principles of mutual equality and benefit are seen to be important for ensuring the growth of the national economy. 

• Complying with WTO aims and legal system. Today, when the WTO provides equal legal regulations to the multilateral trade system and expands the role and functions of trade diplomacy in international relations, there is a need emerging for Mongolia to reflect its interests in and coordinate its activities with this organization. As a member of the WTO, Mongolia avoids undertaking of any individual actions which contradict the aims of the WTO. The individual actions are needed the decisions will be made on following criteria: whether the expected outcomes resulting from the implementation of certain actions/ for example, increasing or decreasing tariffs/ comply with the WTO laws and regulations 

• Complementing other trade related actions, policy objectives and reciprocity on the development of national social and economic sectors. The foreign trade policy should be implemented in close relationship with national industrial and service development policy, programs, projects, and other policy related actions and should compliment activities on the implementation of the aims reflected in those policies. 

• Ensuring transparency and openness of trade related laws and regulations, disseminating information to business sector. In order to expand foreign trade and economic relations of Mongolia, the government is pursuing the policy of ensuring stability of domestic laws and regulations regulating trade, is broadly promoting and ensuring transparency of information dissemination and research on foreign and domestic business environment, and working on the intensification of information exchange. 

 5. Trade policy and practical operation 

Tariff policy. Mongolia shall follow the principles in processing and implementing the customs tariff policy on import goods and products based on non-discrimination and reciprocity. Namely 

• The main principle is developing and pursuing a rational tariff system that reflects the necessity and peculiarity of every specific economic sector. It is vitally important to gradually change the tariff policy that is budget revenue oriented into a rational tariff system in order to enhance foreign trade and create a favorable structure of production and consumption. Therefore, it is appropriate to research carefully when making any decisions in changing the tariff system the final impact on every economic sector that will be involved in the entire economy and customs tariff rather than considering the influence on the state budget only. Accordingly Mongolia will adopt the following basic policies: setting a lower customs tariff on the industrial machinery and equipment that would support Mongolia’s industries encouraging tariff policy the manufacturing of the value added finished products and setting higher customs tariff on products which are produced and are able to be produced in Mongolia, however, keep the tariff within the obligations owed to the WTO. Also Mongolia takes into consideration the world’s common tendency related to customs tariff on tobacco, alcohol and attempts exquisite goods and tries to reflect it in its customs tariff policy. 

• Lowering the customs tariff as the competitiveness of an economic sector, benefiting from the customs tariff, increases. Economically promising and important sectors and fields may be protected and supported for a certain period of time, and as the competitiveness and quality of the finished product increases the customs tariff rate of similar and substituting products will be lowered stage by stage. 

• Coordinating and interconnecting the customs tariff system with the real foreign trade conditions and environment. As a developing country, Mongolia will consider that if the customs tariff will be much lower than those of other countries (especially, the major trade partners) and if the customs tariff is not lowered proportionately in conjunction with the change of other countries tariffs there will be negative impacts on domestic economic sectors. 

• Mongolia shall follow the WTO tariff laws and regulations and shall abide by the ceiling binding rates indicated in the WTO Schedule of tariffs. Under the Customs Tariff Law (1996) Mongolia maintains tripple column tariff system consisting of the ordinary, MFN and preferential rates, and some 260 tarifflines are included in the WTO Schedule. The Mongolian ceiling binding under the WTO, except for those items stated otherwise in the WTO Schedule, is 20 percent. The tariff Schedule and the commitments therein shall be taken into consideration when policy decisions are made. 

• In following the above principles Mongolia will take into account the fact that tariffs are the only lawful under the WTO instrument for affording protection to domestic producers vis-à-vis foreign competitors. Mongolia will respect its obligations before the WTO to reduce the protection of domestic producers through regular tariff negotiations with other WTO member countries. 

Non-tariff measures. Interconnected and coordinated application of the tariff and non-tariff regulations that bolster liberal trade while strengthening competitive environment is seen to be more effective for the economy. Since the Tokyo Round the GATT/WTO member countries have been negotiating the non-tariff measures with the view to make their own trade regulations more liberal, making the non-tariff measures less trade restrictive. This was to ensure non-impairment by the non-tariff measures of the trade liberalization effects achieved through the tariff reduction. Mongolia will observe the above principles as well. 

• If unavoidably necessary, for protecting any economic sector, Mongolia will be endeavoring to resort to tariffs, and avoid the use of quantitative restrictions and prohibitions. 

• Improvement of standards’ systems and non-use of them for any trade restriction is important for introducing technology into social and economy. 

• The use of licensing system and sanitary regulations for the purpose of protecting the safety and health of human, animal and plant life, and their application without posing any barrier to open trade would ensure more stable economic development in the future. 

• Mongolia will observe and respect its responsibilities under multilateral environmental agreements and the WTO. In accordance with the objectives of ensuring sustainable development as set out in the Rio Declaration and other relevant agreements on the environment, Mongolia will be attaching high importance to the introduction a new, environmentally friendly technology. 

• It's very important to improve and develop sound rules of origin, as well as rational taxation and customs valuation systems and use them so that they do not pose any unnecessary barrier to trade. 

Loan guarantee, soft loans, tax relieves and exemption, direct financial support and government procurement. Government will be examining and ensuring the compliance of Mongolia with the WTO rules in this respect. Ministries or agencies within the frame of their policies should be working out the amount and form of subsidies. Government may seek for the possibilities of providing some support to a certain field and sector until such time when its products gain relatively credible position in the world market. This may prove to be beneficial for the development of the export-oriented production. In case of the subsidized imports which cause or threaten to cause damages to the like domestic products or which could substitute domestic production, Mongolia may impose counterveiling duties on such imports. Should the activities carried out by the importer be of dumping nature, and thus cause or may cause damages to the domestic producters, Mongolia, taking into account the relevant requirements, may undertake antidumping measures. 

Government procurement. Since the Government is a big customer influencing the market supply and demand correlations it is crucial for the government to develop better coordinated goods and services procurement policies. In doing such activities the government ought to comply with general rule of fair competition. 

Project implementing companies and organizations involved in important infrastructure sectors that have heavy dependence on foreign aid and loans (telecommunications, transportation, communications) are to be selected on the basis of open and fair international tender biddings and this would be of a future influence to sectors strengthening and improving their quality. 

 6. Strengthening of trade support network 

Trade support network in Mongolia is weakly developed and the number of trade support institutions is very limited. The trade promotion services are provided mainly by trade representatives attached at overseas Embassies and the Chamber of Commerce and Industry of Mongolia and Foreign Investment and Foreign Trade Agency. They provide services in few areas, mostly organizing overseas and domestic trade fairs, business missions, seminars, contacts, trainings, registration, documentation, providing with economic, trade and legal informations etc. Many important services such as targeted market research, trade intelligence, product design, quality management, trade financing are still missing or under supplied. Current network is not effective enough, due to lack of suitable legal regulations and clear operating guidelines, lack of qualified and skilled human resources, accumulated experiences and fair competitions. Most of the recently formed non-governmental business and product associations are lacking both in trade promotion skills and financial recources and are working mainly for doing business and for their own survival. 

Estabilishing more effective trade support network is of vital importance for Mongolia. The following steps are required to be taken in order to build basis of an effective trade support network in Mongolia: 

• Establishment of an information exchange network on a regular basis among private and public sector entities 

• Assessment of export growth industries which will help to identify network members to be involved 

• Determination of the trade support services needed by enterprises within high priority export sectors and allocation of responsibilities among members 

• Establish economic and trade imformation exchange network on regular basis among private and public sector entities including trade related ministries, agencies and NGO’s 

• Definition and division of responsibilities of trade support institutions 

• Create export support fund and export support unit withing the main trade support institutions 

• Development of institutional and coordination capacity 

• Cooperation with ITC and UNDP in working out a program on most effective and suitable trade support network