Free Trade Regimes

Brief facts

Introduction

Mongolia constantly proves itself to be part of the global market. Mongolia; with discussions to enter bilateral and multilateral agreements, and actively participating in the process of regional integration. To date, Mongolia has established Foreign Investment Protection and Promotion Agreements with 43 countries and Double Taxation treaties with 26. Moreover, Mongolia is a member of the Seoul Convention establishing the Multilateral Investment Guarantee Agency, and the Washington Convention on the Settlement of Investment Disputes.

In April 2014, Mongolia introduced its investment policy and law to UN Conference on Trade and Development (UNCTAD) and released the ‘Mongolian Foreign Investment Policy Review’. The overall feedback was positive and accompanied by recommendations and suggestions to the Government of Mongolia. UNCTAD’s main concern was the ‘resource curse’, which prompted the recommendations that were made. Firstly, to avoid macroeconomic instability, the Government of Mongolia had to determine new objectives and tools for a comprehensive foreign direct investment (FDI) strategy. Secondly, the need for new regulatory and institutional reforms; for foreign and local, private sector development. Lastly, Mongolia should develop programs for achieving diversification through FDI, and other activities of foreign companies.

In September 2014, the second review of the trade policies and practices of Mongolia took place and was the basis for a report by WTO Secretariat, and another by the Government of Mongolia. The reviews were similar to UNCTAD`s, which again reinforced the importance of establishing a comprehensive FDI strategy.

In 2015, Mongolia completed the Mongolia-Japan Economic Partnership Agreement (EPA) negotiations; the first Foreign Trade Agreement of Mongolia. Like other EPAs, Mongolia-Japan EPA created open doors to both markets; to increase the competitive index of Mongolia and develop the FDI with increases in imports and exports between the two countries. With that, Mongolia made another step to become a bigger player in the global market.

Free Trade and Economic Zone

Mongolia’s long-term objective in relation to free zones (FZ) is to reach global competitive levels, whilst the medium and short-term objectives are to develop the free zone infrastructure and set international standards for accessibility as currently all the FZ are lacking in infrastructure and struggling to achieve its potential. In Mongolia, FZs offer special regimes in multiple areas to promote development of business, trade and economy.

Currently, there are four free zones in Mongolia

Investment opportunities in Free Trade and Economic zone

Legal Framework

The Free Zone Law (2015) regulates the establishment, reorganization, and dissolution of free zones, incentives covering taxes, customs, entry/exit clearance, registration of legal entities and individuals, and employing foreign nationals. Under the Free Zone Law, the Parliament has a authority to establish a free zone in Mongolia, determine its location, the size of the territory, direction, and type of activities. In the FZ, wide range of activities such as production, services, tourism, trade, international banking, finance and lotteries can be carried out in accordance with the requirements set by the laws of Mongolia. Furthermore, special regimes shall be implemented in FZs.

List of main special regimes applicable for FZs

Trade Policy

Mongolia is a member of World Trade Organization (WTO) and World Customs Organization (WCO). As a member of WTO, Mongolia applies Most-Favored Nation* (MFN) tariffs to WTO member states and other countries with international treaties.

Mongolia has a free trade regime, with no quotas or onerous licensing requirements.

• WTO member since 1997, with a liberalized trade regime
• Import and export activities regulated by the Customs Law of 2008
• Japan-Mongolia Economic Partnership Agreement of 2015

Trading partners

Mongolia has traded with over 160 countries worldwide in 2022, but China is historically the biggest trading partner. In 2022, trade with China alone has reached 13.7 billion USD, 64.3% of Mongolia’s total trade turnover. The second biggest trading partner is Russia, with Switzerland following.

Trade (USD million, 2021 to 2022)

Mongolia’s main export partner is China. In 2022, products exported to China accounted for 84% of the total exports. Other main export partners in the recent years have been Switzerland, Singapore, Republic of Korea and UK.

Free Trade Agreements

 The Japan-Mongolia Economic Partnership Agreement (EPA)

The Japan-Mongolia Economic Partnership Agreement (EPA) entered into force on 7 June, 2016. It was signed on 10 February, 2015 in Tokyo, following the completion of respective necessary legal procedures in both countries. The Japan-Mongolia EPA is expected to promote liberalization and facilitation of trade and investment between both countries. It is also expected to deepen the mutually beneficial economic partnership in a wide range of areas, leading to further vitalization of the economy of Japan and Mongolia.

The EPA contains 11 chapters on trade of goods and services, customs procedures, trade facilitation, electronic commerce, investment protection, movement of persons, competition, IP protection, dispute resolution and improvement of business environment.

Important aspects of the EPA include:

• Facilitation of trade, to increase trade turnover and ease customs services between the two countries.
• Reduction of non-tariff barriers.
• Transfer and relocation of Japanese high technology.
• Attraction and increase of Japanese investment, and export to Japan of value-added industrial products.

According to this EPA, Mongolia has agreed to reduce import tariffs on 5,700 types of goods, and Japan has agreed to reduce import tariffs for 9,300 types of goods from 97 groups.

Asia-Pacific Trade Agreement (APTA)

Mongolia has ratified the APTA on 12 December 2019 which came into force from 1 January 2021. According to the offer list of Mongolia for accession, MFN duty of 5% and Margin of Preference** (MOP) of 10% – 30% apply for 366 types of products listed in the following groups.

The European Union’s Generalized Scheme of Preference (EU GSP+)

In 2005, EU GSP+ status was granted to Mongolia based on the ratification of the international conventions on human rights, labor rights, protection of the environment and good governance. Mongolia enjoyed a preferential rate on trade and tariff from 37 developed countries based on the certificate of origin. According to GSP+ assessment by EU commission, Mongolia’s GSP+ preferential exports to the EU mainly consist of apparel and clothing, furniture and toys, wool and fish. Apparel is the most dominating export good to EU, accounting for 95% of the exports using GSP+ preferences.

*Normal non-discriminatory tariff charged on imports (excludes preferential tariffs under free trade agreements and other schemes or tariffs charged inside quotas).

**Percentage of tariffs, by which tariffs are reduced on imports from one contracting parties to another as a result of preferential treatment.

Bilateral Investment Treaties (BITs)

Source: UNCTAD

Treaties with Investment Provisions (TIPs)