Mongolia and the United States seek to develop economic ties – The Diplomat

In February, fourth bilateral US-Mongolian Economic Policy Dialogue convened in Washington, DC. The bilateral meeting focused on enhancing trade and investment between Mongolia and the United States in three key areas: critical minerals, clean energy, and the digital economy.

The two countries established a strategic partnership in 2019, but their economic activity has since been disrupted by the long-running COVID-19 pandemic. More worrying to Ulaanbaatar, the decline in total foreign direct investment (FDI) has been a major sign that Mongolia needs to diversify investment opportunities with all “third 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 United States Batbayar Ulzidelger and US Ambassador to Mongolia Richard Buangan exchanged views and ideas for cooperation. Both sides acknowledged the importance of developing economic ties and stressed the importance of a strong strategic partnership between Mongolia and the United States.

At the same time, given the distance and logistical problems, the United States is not among the main export destinations for minerals from Mongolia. However, there is growing interest in US investment in Mongolia’s critical mining sector. recent economic agreement between Ulaanbaatar and Seoul highlights these economic areas.

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

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The second area in which Mongolia and the United States intend to cooperate is the development of clean energy. Renewable energy is an emerging market in Mongolia, but the creation and implementation of such projects can help address major public health issues such as air pollution.

Investments in clean energy 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 concerns, Ulaanbaatar can also use its relationships with third neighbors to gain cutting-edge knowledge and tools from such partners. like the United States. If implemented effectively, clean and renewable energy could be a game-changer in a sparsely populated country like Mongolia.

Although economic policy dialogue plays an important role in the development of economic ties between Mongolia and the United States, there are shortcomings on both sides.

In 2018, a year before their strategic partnership was established, the US Congress initiated Mongolian law on trade with third neighbors increase bilateral trade, especially the export of textiles, cashmere and raw materials to the United States. One important incentive for Ulaanbaatar to elevate Mongolian-American relations to a strategic level was the economic advantage it could gain. However, five years later there is no sign of action. The Third Neighboring Trade Act has not changed since 2018, when it was submitted to the House Subcommittee on Commerce for consideration.

Moreover, since 2018, the trade balance between Mongolia and the United States is not in favor of Mongolia. According to the Office of the United States Trade Representative“The U.S. merchandise trade surplus with Mongolia was $106 million in 2020, down 36.9 percent ($62 million) from 2019. U.S. merchandise imports from Mongolia totaled $12 million in 2020, down 52.8 percent ($13 million) from 2019.”

The Third Neighboring Trade Act was intended to address this trade imbalance by granting duty-free access to the US market for some of Mongolia’s main exports. Since the bill has stalled, the problem remains unresolved.

At the same time, Mongolia needs to strengthen its investment climate. 2022 U.S. Investment Climate Statement shed light on areas of improvement such as dispute resolution, unpredictable tax and regulatory burdens, and other key litigation and litigation that could impact investment inflows to Mongolia.

Despite these challenges on both sides, Mongolia and the US continue to develop other areas of cooperation. In January, both governments signed a memorandum of consultation (MOC) for successfully negotiating an air transport agreement that could potentially establish a non-stop direct flight between Mongolia and the United States.

The development of economic ties with the United States is critical to Mongolia’s third neighbor foreign policy, which aims to reduce Mongolia’s dependence on two border countries: China and Russia. While Mongolia’s engagement with “third neighbors” includes political, social, defense and cultural ties and commitments, economic activities such as trade deals and initiation of development projects are always at the center of Ulaanbaatar’s attention.

From a macroeconomic perspective, Mongolia’s exit from a mining-dependent economy is unrealistic. Therefore, investments from third neighbors, especially from strategic partners such as the United States, are likely to continue to take precedence. Diversifying investments and launching various development projects that are energy efficient are smart moves that can not only strengthen Mongolia’s investment profile, but also have sustainable and tangible results.