Ts.Elbegdorj, the President of Mongolia, participated in a Mongolia-Japan business forum and signed a joint statement with Shinzo Abe, the Prime Minister of Japan, agreeing in principle to establish an economic partnership agreement between Mongolia and Japan.
The agreement, negotiations of which have been going on for four years, covers broad areas such as free trade, direct investment, and intellectual property. It will be effective upon ratification by Parliament. The current economic partnership between the two countries could be described as patchy due to the low trade turnover generated by only few companies and a limited number of goods. The purpose of this agreement is to improve and take the current partnership to the next level. As an observer who took part in the visit to Japan, I am sharing my views and the conclusions I’ve drawn with regards to when we will have a comprehensive economic partnership with Japan, and what or whom the outcomes will be dependent upon.
Mongolia-Japan diplomatic relations have improved dramatically. The heads of state of the two countries are having more frequent high-level visits and have become good friends who visit each other’s home. However, the economic relations between Mongolia and Japan have been largely dominated by soft loans and economic aid between the two governments. When Mongolia had problems associated with power supply, transportation, and education, Japan fixed our power plant, supplied dozens of buses, and repaired hundreds of high schools. It is also the Japanese who are building a new airport and a hospital here in Mongolia.
As of 2013, our bilateral trade turnover was only 310 million USD, 290 million of which came from the sales of used cars by Japan, while Mongolia’s cashmere was largely responsible for the remaining 20 million. In just the past year, Japan made a total foreign direct investment of 136 billion USD internationally, whereas for over the past 20 years, they have invested only 0.5 billion USD in Mongolia. A current economic partnership map dominated by plain colors resembling economic aid has a small number of dots with different colors. These unevenly distributed dots, which look like patches, represent a small number of economic partnerships in the private sector.
The parties in the agreement are seeking to boost Mongolia’s economy, fueled by efforts from the private sector, rather than having to rely on receiving economic aid from Japan, to become a true business partner that can accompany Japan in the international market. This economic partnership agreement will be the first such agreement Mongolia establishes, whereas it will be the 15th economic partnership agreement for Japan. If we manage to fully implement the agreement, the economic and business relations between the two countries will improve in quality and positively affect the livelihood of Mongolians.
This economic partnership agreement allows us to expand our economic cooperation with Japan not only on free trade, but also in other areas such as investment and intellectual property. The main purpose of the agreement is to significantly boost bilateral trade and investment. To achieve this, Shinzo Abe put forward the ERCH Plus initiative to support industrial diversification and export promotion, while our president proposed exploring opportunities together, producing together, and aspiring to be active in the world market together.
It has also been agreed upon that Mongolians will work with a Japanese advisor to develop mid and long-term plans in order to carry out economic structural reforms and devise stable economic policies.
The agreement will eliminate Mongolia’s five percent tax on used cars imported from Japan, while Japan will either remove or dramatically reduce their 38.5 percent tax on meat purchased from Mongolia. However, it should be noted that Japan is now exporting used cars, whereas Mongolia is not exporting meat to Japan because of failure to meet international hygiene standards. The parties have also agreed to gradually reduce and ultimately remove Mongolia’s custom tariffs on all types of goods and commodities being imported from Japan over the next 10 years.
Furthermore, the agreement will reduce the taxes imposed on Mongolia’s raw materials coming from the mining industry and partially-processed products. As a result, Mongolia will export more at a cheaper cost and have a better balance of trade. There could be minor amendments over time to the agreement, with regards to considerations such as the consequences of having an increased number of left hand drive cars and ensuring that there are no mutual trade imbalances and losses due to reduced taxes. In any case, this agreement has gone forward thanks to the strong efforts of promotion and endorsement by the President, who worked harder for it than the government. The positive outcomes expected from the agreement will depend on how good a partner Mongolia can be. Japan has the third largest economy in the world and is already known for their highly developed free market, experience, and trusted partnership.
The current structure of Mongolia’s economy and the capability of government administration show that some major changes need to be made to allow this agreement to benefit every Mongolian. In order for Mongolia to become a partner who is economically organized, we need to turn those irresponsible state-owned companies who run deficits into publicly-owned shareholding companies and have them managed by technocrats rather than politicians. It will create and encourage fair competition within the private sector and the Japanese will not be pushed into partnering solely with Mongolian companies that are affiliated with government officials. Mongolia must bring its corruption level down to that of Japan.
A law needs to be developed to ban companies that are associated with government authorities from taking part in more than 50 concession agreements offered to Japan by the Government of Mongolia. Private sector projects should be promoted by their owners through relevant organizations. The government must organize it in a way that offers an equal opportunity to every private company.
There are no state-owned companies in Japan. Railroad, communications, and tobacco production companies are all privatized. Currently, Japan Post is the only state-owned company, the structure of which has changed since 2007, and it is expected to be fully privatized soon. Mongolian state-owned companies constantly take swipes at private companies, and their management gets replaced after every election.
Therefore, Mongolians hardly believe that the interim management teams of those state-owned companies can establish good partnerships with private Japanese companies that have hundreds of years of experience.
The meat we produce can meet the strict hygiene standards of Japan only when Mongolian herders work under strong partnerships with the Japanese. A month ago, Australia established a partnership agreement similar to that of Mongolia’s, after supplying meat to Japan for almost 20 years, making up one-third of their market, and holding negotiations for seven years. Under the agreement, Japan reduced the tariffs on Australian frozen beef from 38.5 percent to 19.5 percent over 18 years, while the tariffs imposed on chilled beef will be dropped from 38.5 percent to 23 percent over 15 years. In the early 1980s, Japanese companies invested heavily in Australia’s meat processing plants. Brazil’s JBS, together with Japan’s Nippon Meat Packers, control 40 percent of Australia’s meat production today. Mongolians do not really know how disciplined, hard-working, tidy, and demanding (of oneself and of others) the Japanese are. Japanese people are only seen as tourists and travelers in the Mongolian countryside. Japanese films and books need to be translated into Mongolian to spread a more accurate understanding.
Mongolia can establish an economic partnership agreement with a highly-developed country like Japan. However, once established, it will be another case to respect and implement the agreement. Mongolia has become known for disregarding its responsibilities set out by agreements that have been established. It is time for not only the Government of Mongolia but also the people, to work hard to revive our reputation. When he gave a speech in Tokyo, President Elbegdorj convinced the Japanese that Mongolians can do it. The only thing that needs to be done now is to make it happen.
Trans. by B.AMAR
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