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Wednesday, July 6, 2011

Mongolia Briefing is a magazine and daily news service about doing business in Mongolia. We cover topics relating to the Mongolian economy, the market in Mongolia, foreign direct investment and Mongolian law and tax. It is written in-house by the foreign investment professionals at Dezan Shira & Associates

Mongolia, Japan to Launch Free Trade Talks

Mar. 14 – Japan and Mongolia agreed on Monday to launch talks on a bilateral free trade agreement and to provide Ulaanbaatar with economic aid, officials said.

Japanese Prime Minister Yoshihiko Noda and his Mongolian counterpart Sukhbaatar Batbold, who is on a six-day visit to Japan from Saturday, also agreed that the two countries will boost cooperation in the development of natural resources and infrastructure, according to a joint announcement released after their meeting in Tokyo.

The matter was on the agenda last year as well, but it was stalled when Japan’s prime minister at the time, Naoto Kan, had to deal with the major crisis triggered by the March 2011 natural disasters.

Buoyed by a wave of foreign direct investment to exploit its extensive, but largely untapped, natural resources, Mongolia’s gross domestic product surged 17.3 percent last year—up from 6.4 percent in 2010. The rapidly-growing North Asian nation, wedged between China and Russia, has no free trade accords with other countries.

Batbold told reporters that his meeting with Noda was “very fruitful for the strategic partnership” of the two countries, achieving an important “first step” in promoting bilateral trade and investment.

“I expect bilateral investment to double in three to four years while bilateral trade should see a three-fold increase in within five years after the planned FTA takes effect,” Batbold said in an interview with Kyodo News earlier this year.

Batbold also said at that time that Mongolia hoped to receive Japanese technology and expertise for a plan to build its first nuclear power plant.

Mongolia has more than 1.5 million tons of uranium deposits, which it is eager to profit from with the help of foreign investors with expertise in the nuclear energy field. Japan has one of the largest nuclear industries in the world and produces an incredible amount of spent fuel annually, which explains its desire to strike a deal with Mongolia.

Additionally, Japanese multinational corporations such as Toshiba and Hitachi are hoping to secure lucrative contracts to help build Mongolia’s first nuclear reactors. Batbold reaffirmed this as a natural area of cooperation, stating that “Mongolia is rich in resources and Japan has high technology.”

Japan, one of Mongolia’s major donors, also said it will provide a total of about 2.74 billion yen (US$33 million) in aid to help the emerging country’s development.

Of the total, 1.55 billion yen (US$19 million) will be provided under a low-interest loan package and the rest are grant-aid programs.

According to its prime minister, Mongolia is very interested in establishing new air routes and more frequent services linking Mongolia with Japan and other regional destinations.

“It is very important for Mongolia. This is one of the bottlenecks for growth,” he said.

Currently, there are only two nonstop flights a week between Tokyo and the capital city of Ulaanbaatar, both via MIAT Mongolian Airlines.

The prime minister met Sunday with senior officials of All Nippon Airways (ANA), which entered a strategic cooperation accord with Mongolia’s privately held Eznis Airways in May 2011.

“ANA is considering adding direct flight service between Japan and Mongolia and may decide to do so as soon as this year,” said Bayanjargal Byambasaikhan, chief executive of Mongolian conglomerate Newcom Group LLC, which owns Eznis.

“The Mongolian economy is growing, and we need more diverse ways of connecting to the rest of the world,” he said in an interview with The Mainichi Daily.

In 2010, Japan’s exports to Mongolia, mainly cars and other industrial products, amounted to 13.97 billion yen, while its imports from the resource-rich country stood at only at 2.09 billion yen.

Mongolian exports to Japan mainly consisted of textiles – in particular, semi-processed cashmere, cashmere garments and camel wool blankets. Exports of these commodities accounted for 40.5 percent of total cumulative exports.

Mongolia’s import structure from Japan also had a limited number of commodity groups with dominance of machinery/electrical and cars. The shares of these items accounted for 45.5 percent and 35.8 percent of total cumulative imports from Japan, respectively.

At the same time, imports of optical, photographic, measuring, checking, and medical instruments, clocks and watches, musical instruments and parts thereof accounted for 6.4 percent of total imports from Japan, whereas those of plastics/rubbers and metals accounted for 3.7 percent and 2.8 percent, respectively.

However, it should be noted that Mongolia’s import commodities from Japan were dominated by commodities supplied on the governmental loan and grant aid of Japan to Mongolia. The imports on commercial bases only accounted for 36.5 percent of the total.

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