THREE PROBLEM CLAUSES IN THE INVESTMENT LAW

I.Otgonjargal

The Government of Mongolia is committed to increasing foreign investment and submitted a draft Investment Law to Parliament last June. The motion to discuss the long[1]awaited bill was considered in the general session of Parliament on January 5, 2024, but was postponed for a week due to different positions of some members of the Parliament and the Government on the land and investment thresholds included in the bill.

The following week, the Democratic Party group in Parliament took a pause in debate on the bill, prompting a second postponement.

The former Mongolian President Kh. Battulga handed over to Parliament Speaker G. Zandanshatar the demands made on behalf of the Democratic Party against the draft Investment Law. Disregarding the new and improved provisions contained in the draft Investment Law, dissent over the foreign investment thresholds and land use provisions soon spilled outside State House and onto social media. The fact that it is being debated before the elections hinders the draft Investment Law.

Parliament Speaker G. Zandanshatar at the beginning of his speech concluding the autumn session emphasized the Investment Law. “The Parliament received 156 written proposals to postpone the adoption. of the Investment Law. Thousands of signatures of citizens were also collected. Due to the opposition of the people, the discussion of the draft Investment Law is postponed.

However, I would like to remind that the leaders of the political parties in the Parliament agreed that the Investment Law should be discussed together with the Law on Sovereign Wealth Fund, the Law on Regional Development and the Law on Chamber of Commerce and Industry. Therefore, the draft needs to be improved before the discussion”.

The Ministry of Economy and Development emphasizes that the revised draft Investment Law developed by the Government has become a more liberal law in terms of regulation and scope of application. This law is not only for foreign investors, but it also applies to all legal entities making investments in the territory of Mongolia.

The Foreign Investment Law was first adopted in Mongolia in 1993. The Investment Law, approved in 2013, is currently in force.

The new draft law presented this time can be defined as a law expanding the economic impact of investments. The draft includes many new provisions that were absent in previous laws, such as protection of investor rights, quick and easy resolution of property disputes, reduction of duplicative inspections by government agencies, digital regulation, removal of previous restrictions and elimination of duplication of other laws.

During the second postponement of the discussion of the draft law in the autumn session, representatives of the Mongolian Chamber of Commerce and Industry and representatives of Chambers of Commerce of the European Union, Germany, the United Kingdom and the United States expressed support for changes to the Investment Law.

ON LAND

Provisions on land use by foreign investors were included in the original 1993 law.

The 1993 Foreign Investment Law provides that foreign investors may use land for up to 60 years, with an option to extend for 40 years beyond that period. In 2013, the revised Investment Law included provisions on land use as well as possession. Land can be possessed and used for up to 60 years, and after this period can be extended once for 40 years.

However, a provision on land possession added to the 2013 Law was deemed unconstitutional and not included in the new bill submitted to Parliament. Minister Ch. Khurelbaatar said: “There have been no other land-related changes that people are talking about. However, this provision contradicts the provisions of the Land Law, which states that “a foreign enterprise has the right to use land for a special purpose, for a certain period of time and under special conditions. This period shall be determined by the government. The government is working to fix this issue.”

ON MINIMUM CAPITAL REQUIREMENTS

The $100,000 capital threshold for foreign investors was not included in this draft law. In accordance with the requirements set by FATF, Mongolia stopped opening bank accounts for investors related to the $100,000 threshold in 2019-2021 as part of anti-money laundering measures. Because of this, criticism has spread in society that foreigners come with almost no money, are called investors and enjoy privileges compared to Mongolians.

In addition, opponents of the draft law feared that removing the threshold for foreign investment would lead to an influx of masses of people from our southern neighbor.

In reality, there is no legal and economic environment in Mongolia where a person who comes with one million MNT can be called an investor.

ON THE BANKING AND FINANCIAL SECTOR

The 2013 law restricts investment by foreign state-owned companies in three sectors: first, banking and finance; second, mining; and third, media and telecommunications.

This restriction is not included in the new draft law, which led to conflicting opinions. In particular, opponents objected to the liberalization of the banking and financial sectors.

The debate on whether it is right or wrong to allow foreign banks to enter Mongolia has been going on for more than a decade. It has also been eleven years since Bank of China opened its representative office in Mongolia.

Today, officials, economists and experts are still discussing the advantages and disadvantages of foreign banks coming to Mongolia. On the other hand, addressing these issues within the policy of diversifying Mongolia’s economy, creating a favorable investment environment and attracting investment will play a key role in the entry of foreign banks.

Despite Parliament’s failure to discuss the revised draft Investment Law at the autumn session after a decade, the Government of Mongolia is firmly committed to the policy of creating a favorable legal environment for investment.