Mongolia Customs

UNCLAS SECTION 01 OF 04 ULAANBAATAR 000164

SIPDIS

SIPDIS

STATE PASS USTR, OPIC, AND EXIMBANK
STATE FOR EAP/CM, EB/TTP, AND EB/IFD/OIA
USAID FOR ANE DEIDRA WINSTON

E.O 12958: N/A
TAGS: EINV EIND PGOV KPRV EFIN PREL MG
SUBJECT: Mongolia Customs


1. Summary: While there is a bilateral Customs agreement with the
U.S., cooperation has waned since the end of the Multifiber
Arrangement in 2005. Mongolia has a relatively liberal trade
regime, with low tariffs and no quotas or onerous licensing
requirements. Customs is widely viewed as corrupt, an impression
bolstered by the recent conviction of the former head and other
officials. Customs processing is now largely antiquated and
paper-based, but a new ADB-funded program looks to change that.
Mongolian Customs currently hesitates to seize IPR-infringing
products. End summary.

U.S.-Mongolia Customs Mutual Assistance Agreement
-------------- --------------


2. Mongolia and the U.S. signed a bilateral Customs Mutual
Assistance Agreement in 1996. The agreement allows for the exchange
of information, intelligence, and documents that will ultimately
assist both countries in the prevention and investigation of customs
offenses.


3. In the heyday of the Multifiber Arrangement, Mongolian-U.S.
Customs cooperation through the Beijing office was quite active in
exchanging information, monitoring rules-of-origin issues on
transshipments, and regular visits of a U.S. Customs representative
from Beijing. Since the MFA's expiration in January 2005, however,
interaction has waned. Working with our Mongolian counterparts, we
hope to use the 2007 TIFA talks as a springboard to reinvigorating
our customs bilateral relationship and look forward to exchanging
ideas on how this can be achieved.


4. As part of our efforts as broadening cooperation with Mongolian
Customs in the spirit of the CMAA, post sponsored a week of
enforcement training in June 2006 supported by an INL grant with
trainers supplied by DHS/CBP's IPR Enforcement Division and USPTO.
The training helped USG develop a clearer understanding of Mongolian
Customs' approach to handling IPR cases. In addition, PTO supported
attendance of two Mongolian officials from IPOM and Customs
respectively to attend the APEC IPR event in Los Angeles,
California.

Mongolian Customs: Basic Facts
--------------


5. Mongolian Customs is a government agency under the Ministry of
Finance responsible for administration of customs legislation,
overall control on imports, exports, assessment and collection of
customs duties and VAT, excise duties upon importation, compilation
of customs statistics and combating customs offences. The basic
laws governing the customs activities are the Customs law and
Customs tariff law, which entered into force in 1996. The Spring
2007 session of the State Great Hural is scheduled to consider
unspecified revisions to these laws.


6. Mongolia joined the World Customs Organization in 1991. At
present Mongolia is a contracting party to WCO Conventions such as
Convention Establishing Customs Cooperation Council, Convention on
Harmonized Commodity Description and Coding System, Istanbul
Convention on Temporary Admission, and Convention on Simplification
and Harmonization of Customs Procedures. Mongolia is preparing to
accede to the Convention on Mutual Administrative Assistance in
Customs Matters.


7. According to Mongolian Customs, the country counts 41 ports of
entry along its 4606 miles of land borders -- 29 on the Russian
border and 12 on the Chinese. However, besides being remote, all
but two of these operate on a seasonal basis only and their traffic
is limited to Russian/Chinese/Mongolian nationals and small time
"suitcase" traders. There are only two recognized "major" border
crossings, at Zamiin Uud in the south and Sukhbaatar in the north,
where the railroad crosses the borders. In addition there are two
international airports, Ulaanbaatar's Chinggis Khan International
Airport and another in the western province of Bayan-Olgii, which
serves mostly Kazakhstan. Mongolia's one railway line runs north
south between Sukhbaatar and Zamiin Uud via the capital. There is a
paved road that leads to the Sukhbaatar crossing, but a road leading
to Zamiin Uud is still under construction.


8. Mongolia serves as a transit link for the sizable trade between
the People's Republic of China and the Russian Federation. In 2004,
the Mongolian railway funneled some 4.5 million tons of transit
freight, mainly between Russia and China. In 2005, trade turnover
between China and Russia equaled US $29.1 billion, with Mongolia
serving as a conduit for much of it. Mongolia's foreign trade

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turnover reached $2.2 billion in 2005, up from $1.2 billion in 2000,
averaging a 18.3% increase year over year. 2005 total trade
turnover with the U.S. equaled $162.9 million; $118.8 million in
Mongolian exports to U.S. and $44.1 million in exports to Mongolia.
Mongolia's major trading partners are China (33% of total),Russia
(19%),and the United States (11%).


9. In addition to the U.S., Mongolian Customs has concluded
intergovernmental agreements and memorandum on mutual assistance and
cooperation in customs matters with Russia, China, Republic of
Korea, Hungary, Poland, Great Britain, Kazakhstan, Czech Republic,
Bulgaria, Turkey, Vietnam, Ukraine and Kyrgyzstan.

Customs duty
--------------


10. Mongolian Customs collects import and export duties and other
taxes according to the tariff schedule with referred HS codes. The
customs value of imported merchandise is determined according to the
methods provided for in the WTO Valuation Agreement.

-- Import Duty: Mongolia imposes a 5 percent across-the-board
customs import duty. Such goods as pedigreed animals, computers and
their parts, medical and veterinary equipment have zero rate Customs
duty. Imported wheat flour and vegetables have seasonal tariff
rates.

-- Excise tax: According to the 2006 tax laws, the following
imported goods are subject to excise tax at the respective specific
rates:
- passenger cars: USD 500-4000 depending on their year of
manufacturing (up from 500-2000 under previous tax regime);
- beer: USD 0.20 per liter;
- vodka, liquors and other spirituous beverages depending on
alcoholic strength: USD 5.00 to 6.00 per liter;
- wines: USD 1.50 to 6.00 per liter depending on strength;
- cigarettes and the like: USD 0.60 per 100 pieces
- smoking tobacco and like: USD 0.30 per kg;
- petroleum and diesel oil: USD 11-48 depending on its octane level
and port of entry.

-- The 2006 law also creates high tax rates for gaming devices

-- Petroleum and Diesel Oil Tax: Petroleum and diesel oil tax of
2140-25700 MNT is imposed on imported petroleum products depending
on their level of octane. The petroleum tax should be collected
within 30 days after importation.

- Value Added Tax (VAT): Tax reforms effective on January 1, 2007
reduced Value Added Taxes imposed on goods and services from 15% to
10%.

-- Export Customs duty: Camel wool, unprocessed cashmere, goat skin
waste and scrap of iron or steel aluminum, copper, brass, waste of
rails, wood in logs, in the rough, wood sawn or chipped lengthwise
are subject to export Customs duty. O bligations under WTO would
require Mongolia to phase out export duties by this year. However,
Mongolia will be requesting a waiver of this obligation and has
requested USG support in this effort.

Trade Restrictions
--------------


11. Mongolia restricts the import and export of certain items. These
include:

-- Uranium and uranium concentrates
-- Poisonous chemicals
-- Human blood, organs and blood products
-- Firearms and ammunition
-- Artifacts and cultural property, including historical, cultural,
fossils, archeological and similar items
-- Breeding animals, rare species of animals, animal offspring
-- Precious metals, precious and semi-precious stones, ore, minerals
and rare elements.
-- Alcohol

Import Documentation
--------------


12. Normally, a freight forwarder or Mongolian agent handles
documentation requirements. Necessary documents include the
contract for import, license for import, cargo manifest, bill of

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lading, transportation invoice, merchandise customs declaration,
declaration of merchandise value, proof of insurance, commercial
invoice, payment receipt, packing list, certificate of origin,
receipt of payment for related duties and taxes, and inspection
certificate from the responsible agency (for specific goods).
Customs information on the U.S. Embassy website specifies what items
require special certificates from various government agencies.
There is a lack of consistency within customs in how regulations are
applied. Incoming or outgoing shipments are occasionally delayed
because of unexpected changes in paperwork requirements.

Pre-Clearance Procedures
--------------


13. Goods can be cleared before the arrival of the shipment.
Clearance is done based on paperwork accompanying the shipment. An
entity or individual interested in goods document pre-clearance
should apply to a customs clearing agency. Document pre-clearance
is done when the goods have left the exporting country. The head of
local customs reviews the request and shall issue an order to the
chief inspector to carry out document pre-clearance. Pre-clearance
is allowed in the following cases:

-- Medical and veterinary supplies
-- Different types of items in one shipment
-- Goods of seasonal quality (wheat and vegetable seeds needed for
planting)
-- Fragile goods and/or perishable food that require special storage
conditions.

Problems with Corruption
--------------


14. While it is illegal to offer or receive bribes in Mongolia,
customs is widely considered the most corrupt government
institution. In October 2005, the Customs General Administration's
Director General, along with the Chief of one of the south border
ports, and three customs inspectors were arrested on charges of
accepting bribes. They were convicted in September 2006. Press and
the public continue to report cases of bribery and corruption
involving mid to high-level customs officials. A high percentage of
raw cashmere, wool and skins are smuggled out of the country without
paying export duties. Customs inspectors are bribed to look the
other way.


15. Although post has heard anecdotal evidence that U.S. businesses
have had and continue to have problems with Customs, we have not yet
received a formal complaint, thus making it difficult for post to
approach Customs on issues of corruption affecting American business
interests. Mongolians ask that we provide documented cases of abuse
when we broach the subject, but we are unable to do so.

Customs System is Antiquated
--------------


16. The current customs system is operated manually and is labor
intensive - i.e., traders must move from one customs processing
point to another to seek official stamping and signatures on
paperwork. Human intervention in this process causes delays in
customs clearance and is vulnerable to corrupt practices. It leads
to lack of transparency and to unpredictability.


17. The existing capacity of the server and network system is low.
Modern customs business processes such as risk management and
post-clearance audits cannot be effectively or widely introduced
because of the lack of an internet-enabled system and a centralized
database.


18. Mongolia's customs system will soon be upgraded through a US$5
million equivalent project loan approved by ADB to improve
efficiency, transparency, and sustainability in customs services and
administration. The loan will upgrade the system to an
internet-based technology and integrate it into a national system
for e-government. It will also finance the improvement of the
facilities at selected major customs houses and border posts.

Stopping IPR Violations
--------------


19. Concerning the import of pirated goods, Mongolian officials seem
unaware of the importance of intellectual property to Mongolia and
of the obligations imposed by TRIPS on member states. Mongolian
Customs agents have told us they are hesitant to seize shipments,

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saying that their statutory mandate does not allow seizure of such
goods. Mongolian statutory and constitutional law recognizes that
international treaty obligations take precedence over local statues
and regulations and the TRIPS agreement provides a legal basis
exists for Customs to act, a fact recognized by elements of the
Mongolian Judiciary, the Parliament, and the Intellectual Property
Office of Mongolia (IPOM). However, Customs lacks a system of
trademark registrations that it could use to vet goods entering
Mongolia's borders.

Minton