During the official visit by the heads of the two neighbours, it was agreed that Mongolia would increase its trade with the Russian Federation to 10 billion USD by the end of 2020, discuss a number of major projects such as upgrading Sukhbaatar-Zamyn Uud Mongolian-Russian railway network. Considering that as a professor you have been engaged in the field of foreign trade, foreign direct investments, what do you make out of these developments?This certainly is a major target for the future co-operation between the two states. In 2013 Mongolia’s exports to Russia was amounted 60 million USD, while the trade turnover between the two countries was 1.6 billion USD. Increasing trade volumes to 10 billion USD means a six fold increase. Given these targets, it would be virtually unrealistic for Mongolia to reach such a target.
What are the possible ways for increasing trade turnover to this target? In order to reach this target, it is important to resolve current issues impeding our mutual trade. Today, Mongolia’s trade deficit is 1.5 billion USD. First and foremost, trade deficit needs to be decreased. I believe there are several ways to achieve this. First, increase exports. Increase the current exports of 30 million USD to 300-600 million USD. Priority should also be placed to expanding and improving efficiency of existing joint venture mining companies between Russia and Mongolia.
Today, “Mongolrostvetmet” mining corporation only utilises one quarter of its capacity. As of June this year, the company exported about 20 thousand tons of fluorspar concentrates. If the company can reach its full potential, it can export 120-130 thousand tons of fluorspar concentrates. Much investment will be needed to intensify such projects so that they reach their full capacity.
On the other hand, Mongolia-Russian joint venture “Erdenet” copper corporation exports all of its copper concentrates to China. Even though there is interest to export to Russia, transportation costs are extremely high. Despite this, Russia itself is a major producer of copper and the demand is low. Hence, exports of copper concentrates will not be feasible to Russia.
Which other avenues exist for increasing Mongolia’s exports?Meat, skin, hides, wool, cashmere products and sheepskin coats. No doubt that Mongolia will want to increase such these products to supply the huge Siberian market. However, Russian customs tariff is high. On top of the 20-30% import tariff, there is 15% value added tax. With these high import taxes Mongolian products will not find an easy export market. During President Putin’s visit, Mongolian side made official request to provide concession on import tariffs and it is a good sign.
Since Mongolia’s exports will be supplied to Siberia, Ulaan-Ude and Irkuts regions of the Russian Federation, there can be a governmental agreement for tariff concessions. In order to facilitate the trade, Mongolia needs to attract investments from Russian Federation in mining, particularly uranium, coal and infrastructure sectors, on which already agreed several projects between Mongolian –Russian companies..
One way to balance the trade between the two countries is to bring import levels to an optimum level. Today, Mongolia imports over one billion US dollar worth of petrol from Russia. The two leaders agreed that by 2020, Mongolian railway infrastructure will modernised and dual railway system will be introduced. This effort will have an enormous impact in increasing trade turnover for the two countries.
During the visit by the Chinese President Xi Jin Ping, the two sides also agreed to boost trade relations to 10 billion USD by the end of 2020. Considering that 90 percent of Mongolia’s exports are destined for the Chinese market, this target may not be too difficult to achieve.
Today, trade turnover between China and Mongolia is 3.7 billion USD annually. Ninety percent of Mongolia’s exports are to China while 100 percent of the Erdenet and Oyu Tolgoi copper concentrates are sold to China.
Twenty-million tons of coking coal is exported to China and if the market improves, there is an opportunity to sell 40 million tons of coking coal. If the Phase II or the underground mine of the Oyu Tolgoi project commences, the current exports of 600.000 thousand tons of copper concentrates can increase two-fold or three-fold. From this perspective, the target can easily be reached.
In order to increase trade ties with the two neighbours, Mongolia will need to introduce the legal environment. There are expectations that the State Great Khural will pass the Trade Law?Law on Trade (Foreign Trade) coordination was the topic of discussion among three, four government since 2000. Mongolia is among only a few nations which does not have such law. This type of the law can coordinate issues of foreign and domestic trade, wholesale, free trade zones, free trade agreements and all issues concerning the commercial sector.
The main reason why the Mongolian economy is facing an economic downfall is the absence of export and import coordination mechanism, absence of a government agency wholly responsible for foreign trade. Currently, the state itself is highly involved in state owned companies operations and export sales.
Many for state-owned enterprises lack the necessary expertise in foreign trade and marketing, in particular they are weak in their negotiations in relation to minerals export products.
When coal and copper is purchased from Tavan Tolgoi and Erdenet, there is a certain quota set from government top officials. This is the reason why trading and exports in minerals, price determination, still the selection process for buyers remains a non-transparent process. Some mines sell their products at very low market prices and this undermines the objectives of others. These issues arise due to the absence of coordinated foreign trade. For instance, there is for a project like the Tavantolgoi coal field aspects related to production, finance and marketing are handled by separate companies hence the mines are not operating at its best profits.
In the future, there is a need to establish a state owned, privately owned and local mining companies’ consortium. Without this kind of arrangement, there will still be a China that will be the only importer while Mongolia will have many entities that operate without any coordinated policy.
There is a consortium on only the railway development but in relation to coal exports and coal processing. The work in regards to establishing a mineral commodity exchange has been delaying.
The long discussed Transit agreement recently agreed at the high level was well received by the two sides. In addition to Tianjin, Mongolian exports will be facilitated through six additional ports in China for the third market destination. How do you view this?During the recent visit to Mongolia by the Chinese President, several measures were agreed to increase Mongolian exports. There should be also finalizing a number of arrangements among the two countries’ national railway companies, customs authorities and relevant border points .
The problem exists in that Mongolia does not have enough products to exports through these ports and it would be washed coking coals going through these new channels. There might be some fluorspar concentrates and the level would not exceed 20-30 thousand tons. For this reason, it would be recommended that a special expert team is created to study which types of products and in what quantity have the opportunity to be exported through those six sea ports. Later, those researchers will need to visit the sea ports to determine the final estimates.
Even today, Mongolia has not effectively used the ten hectare land that it leases on the Chinese Tianjin sea port.
G. Iderkhangai