Mongolia, US Seek to Advance Economic Ties  

In February, the fourth bilateral economic policy dialogue between the US and Mongolia convened in Washington, DC The bilateral meeting focused on expanding trade and investment between Mongolia and the US in three key areas: critical minerals, clean energy and the digital economy.

The two countries established a strategic partnership in 2019, but their economic activities have since been disrupted by the protracted COVID-19 pandemic. More worrisome for Ulaanbaatar, the overall decline in foreign direct investment (FDI) was a significant indication that Mongolia needs to diversify investment opportunities with all “third-party neighbors,” including the United States.

Between 2021 and 2022, Mongolia and the United States appointed new ambassadors. During the bilateral Economic Policy Dialogue, Mongolian Ambassador to the US Batbayar Ulziidelger and US Ambassador to Mongolia Richard Buangan exchanged views and shared ideas on cooperation. Both sides recognized the importance of promoting economic ties and emphasizing a strong strategic partnership between Mongolia and the US.

At the same time, given the distance and logistical challenges, the United States is not among the top destinations for Mongolian mineral exports. However, there has been growing interest in US investment in Mongolia’s critical mineral sector. The recent economic agreement between Ulaanbaatar and Seoul highlights these economic directions as well.

The start-up of Rio Tinto’s $7 billion underground mega-plant at Oyu Tolgoi certainly projects an increase in the mining sector’s contribution to Mongolia’s national economy. With the successful start of the Oyu Tolgoi megamine, there is potential to extract critical minerals such as copper, tin and molybdenum. The successful renegotiation of the agreement between the Mongolian government and Rio Tinto also marks an improvement for Mongolia’s dispute resolution process, which is crucial for attracting FDI.

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The second area in which Mongolia and the United States are willing to cooperate is clean energy development. Renewable energy is an emerging market in Mongolia, but the establishment and implementation of such projects can help solve important public health problems, such as air pollution.

Investments in clean energy will naturally diversify the types of renewable energy projects. While Mongolia can adopt clean energy solutions from China and India, which have similar air pollution and public health problems, Ulaanbaatar can also use its third-neighbor relationships to gain advanced knowledge and tools from partners like the United States. If implemented efficiently, clean and renewable energy can be a game changer for a country like Mongolia with a sparse population.

While the Economic Policy Dialogue is important in promoting economic ties between Mongolia and the United States, there are shortcomings on both sides.

In 2018, one year before establishing their strategic partnership, the United States Congress initiated the Third Neighbor Trade Law of Mongolia boost bilateral trade, particularly in the export of textiles, cashmere and raw materials to the United States. One of the important incentives for Ulaanbaatar to push US-Mongolian relations to a strategic level was the economic advantage it could gain. Yet five years later, there are no signs of action. The Third Neighbor Commerce Law has not moved since 2018, when it was referred to the Chamber’s Commerce Subcommittee.

In addition, since 2018, the trade balance between Mongolia and the United States is not in Mongolia’s favor. According to the Office of the US Trade Representative.“The US trade surplus of goods with Mongolia was $106 million in 2020, a decrease of 36.9% ($62 million) from 2019. US imports of goods from Mongolia totaled $12 million in 2020, a 52.8% less ($13 million) than in 2019”.

The Third Neighboring Trade Law was supposed to address this trade imbalance by providing duty-free access to the US market for some of Mongolia’s major exports. With the bill stalled, the issue remains unresolved.

At the same time, Mongolia needs to strengthen its investment environment. He 2022 US Investment Climate Statement shed light on areas for improvement, such as dispute resolution, the unpredictable tax and regulatory burden, and other key court and judicial processes that may affect the flow of investment into Mongolia.

Despite these challenges that affect both parties, Mongolia and the United States continue to develop other areas of cooperation. In January, the two governments signed a Memorandum of Consultations (MOC) for the successful negotiation of an Air Transport Agreement, which has the potential to establish a non-stop direct flight between Mongolia and the United States.

Advancing economic ties with the United States is crucial to the foreign policy of Mongolia’s third neighbor, which seeks to reduce Mongolia’s dependence on its two border nations, China and Russia. While Mongolia’s rapprochement with “third neighbours” incorporates political, social, defense and cultural ties and commitments, economic activities, such as trade agreements and the initiation of development projects, are always at the top of the Mongolian agenda. ulaanbaatar.

From a macroeconomic standpoint, Mongolia’s escape from a mining-dependent economy is unrealistic. Therefore, investment from its third-party neighbours, in particular from strategic partners such as the United States, will likely continue to take precedence. Diversifying investment and starting different development projects that are energy efficient are smart moves that can not only strengthen Mongolia’s investment profile, but also have a sustainable and tangible result.

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