Free Trade Regimes

Quick facts

Introduction

Mongolia constantly proves itself to be in a global market. Mongolia is persistently discussing to enter bilateral and multilateral agreements and actively participates in the process of regional integration. Till to this day, Mongolia has established Foreign Investment Protection and Promotion Agreement with 43 countries and Double Taxation treaties with 26 countries. Moreover, Mongolia is the member of the Seoul Convention establishing the Multilateral Investment Guarantee Agency and Washington convention on the Settlement of Investment Disputes.

Consequently, in April, 2014, Mongolia has introduced its investment policy and the law to UN Conference on Trade and Development /UNCTAD/ releasing “Mongolian Foreign Investment Policy Review”. The overall feedback was positive, followed by recommendations and suggestions towards the Government of Mongolia. The main concern that UNCTAD was having is resource curse, followed which the recommendations were made. Firstly, to avoid macroeconomic instability, the Government of Mongolia has to determine new objectives and tools of a comprehensive FDI strategy. Secondly, necessity for new regulatory and institutional reforms for foreign and local private sector development. And lastly, Mongolia should develop programs for achieving diversification through FDI and other activities of foreign companies.

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

In the year of 2015, Mongolia has completed Mongolia-Japan Economic Partnership Agreement /EPA/ negotiations, which became the Foreign Trade Agreement of Mongolia. As any other EPA agreement, Mongolia- Japan EPA has created an open door to both markets, which eventually increase the competitive index of Mongolia and the FDI with the increase of import and export between two countries. Therefore, Mongolia has made another step to become a big player in the global market.

Trade Policy

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

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

Import prohibitions, restrictions, and licensing

Under the Customs Law of Mongolia, the importation of goods into Mongolia is not subject to restrictions, except for import licensing which applies to few products. Importers must register with the tax authorities; registration with the IPNRO is also required for the purposes of customs clearance.

Import licenses are required for imports of certain products, including:

• Chemicals;
• Human blood and organs;
• Explosives and guns etc.

Import licenses for restricted products are issued by the respective government ministries, such as:

• Ministry of Environment and Tourism
• Ministry of Education, Culture Science and Sport
• Ministry of Food, Agriculture and Light industry
• Ministry of Health

Customs duties

Customs duty means an amount of tax levied on, collected from or paid for goods entering or leaving Mongolia. The Customs duties have the following types:

• Ad valorem
• Specific
• Combination of the two above
• Any of the first two above which entails higher amount of duty.

Most of the imported goods in Mongolia are subject to 5% ad valorem Customs duty while some others are subject to seasonal duties. Certain goods for export are subject to specific Customs duties. Any person (physical or legal) engaged in foreign trade is liable to pay Customs duties as well as some other taxes and fees upon importation or exportation of goods.

Customs duties incentives

• Pursuant to the Customs Law of 2008, the following items are exempt from Customs duties in Mongolia:
• Appliances for special use by the disabled and artificial organs and accompanying spare parts;
• Goods for humanitarian assistance and similar donations;
• Equipment, facilities, materials, raw materials, appliances, petroleum, diesel fuel for oil exploration, exploitation and use according to an agreement made with the Government on product sharing in oil sector;
• Mongolian national currency manufactured in foreign countries;
• Goods for official use by foreign diplomatic missions, consulates, the United Nations and its specialized agencies;
• Travelers’ personal effects;
• Blood, blood products, body and organs to be used for medical purposes;
• Gas fuel, designated containers, equipment, special machinery, facilities and equipment;
• Civil aviation aircrafts and accompanying spare parts; and
• Personal items for use by the head of the foreign diplomatic missions, diplomatic, technical and service staff and their family members deemed necessary to move into the host country.
• Raw materials and reagent substances that not produces in the country, needed to produce new products in the foreign and domestic market by innovation projects
• Machinery and equipment, materials, raw items, spare parts, auto fuels or diesel oils imported for use in oil exploration, mining, extraction or exploitation to be carried out under product-sharing contract concluded with the Government in oil sector;
• Unconventional petroleum oil and oil-related reports, other samples and petroleum oil
• Other goods as stipulated in law or international treaty;
• Goods exempted from the duties and taxes under the international treaties of Mongolia

Documentation and procedures

In order to facilitate the trade process “one-stop” services are provided at the major customs points of the country. These services are intended to make it possible to complete all the necessary customs documentation and clearance procedures in a single location.

Customs clearance for export and import consists of the following steps:

1. Preparing and providing customs document for declaration of goods.
2. Customs inspection of customs documents.
3. Inspection of the goods and means of transport.
4. Levying customs duties and other taxes and payments thereto.
5. Granting permission and releasing goods to cross customs border.

The Japan-Mongolia Economic Partnership Agreement (EPA)

The Japan-Mongolia Economic Partnership Agreement (EPA) entered into force on June 7, 2016, which was signed on February 10, 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 the both countries, and to deepen the mutually beneficial economic partnership in a wide range of areas, leading to further vitalization of the economy of Japan and Mongolia. Importance of EPA is:

• To facilitate trade, to increase trade turnover and to ease the customs services between two countries;
• To reduce non-tariff barriers;
• To transfer and relocate Japanese high technology;
• To attract and increase Japanese investment and to export value added industrial products to Japan;
• Mongolia decreases import tariffs on 5,700 goods and Japan decreases tariffs on 9,300 goods directly and step by step basis.

Asia-Pacific Trade Agreement

After a long negotiation and domestic procedures for Mongolia’s accession to the Asia-Pacific Trade Agreement (APTA), Mongolia is going to become the seventh member of the Agreement from September 2020. The accession of Mongolia is supposed to be effective from 1 January 2021, so Mongolia will reduce tariff for exports from other APTA member countries and be benefited from concessions by other member countries. Since APTA is the first plurilateral agreement and only the second regional trade agreement concluded by Mongolia

Generalized system of preferences /GSP+/

Besides strategic location between two giant emerging markets of Russia and China, Mongolia provides a much easier business environment than either of its neighbors. Since July, 2005, Mongolia became eligible for importing to the EU market without any duties or quantitative restrictions. As a result, there is an opportunity to supply over 7200 product items to all 28 EU member countries (for instance, all types of textiles and knitted products, skin and hides, wool and cashmere, beverages, spirits, wooden items, electronic goods, shoes, carpets, copper and copper products, iron and iron products, just to name a few). In this relation, it is certain that not only domestic enterprises but also foreign invested industries will benefit and it is with no doubt that their numbers will also grow.