Finance and Foreign Ministers lobby AUSTR Stratford for

UNCLAS SECTION 01 OF 02 ULAANBAATAR 000193 SIPDIS SENSITIVE SIPDIS STATE PASS USTR FOR AUSTR STRATFORD, T. WINELAND USDOC FOR ZHEN GONG CROSS STATE FOR EAP/CM, EB/TTP, USAID FOR ANE DEIDRA WINSTON E.O 12958: N/A TAGS: ETRD ECIN ECON PREL MG SUBJECT: Finance and Foreign Ministers lobby AUSTR Stratford for FTA, support on WTO and APEC SENSITIVE BUT UNCLASSIFIED - NOT FOR INTERNET DISTRIBUTION. ¶1. (SBU) Summary: During March 12 calls on Foreign Minister Enkhbold and Finance Minister Bayartsaikhan, Assistant US Trade Representative Timothy Stratford gently deflected calls for USG movement on a Free Trade Agreement but affirmed MCC's commitment to reaching a Compact with Mongolia. Although he remained noncommittal to GOM requests for U.S. support in joining APEC, Stratford said Mongolia's application to the WTO for a 5-year waiver on elimination of raw cashmere export taxes would receive serious consideration. End Summary. Path to an FTA: Like Stones in a Stream -------------- ¶2. (SBU) Assistant US Trade Representative Timothy Stratford paid official calls on the Mongolian Minister of Finance (and acting Minister of Industry and Trade) Bayartsaikhan and Foreign Minister Enkhbold during his 3-day visit to Ulaanbaatar as head of the American Delegation to U.S.-Mongolian Trade and Investment Framework Agreement (TIFA) talks held on March 12. Both the Finance and Foreign Ministers pushed for a Free Trade Agreement (FTA) in their meetings with AUSTR Stratford. Foreign Minister Enkhbold stated that reaching an FTA with the U.S. was a GOM priority, a key step to raising the bilateral relationship to a "comprehensive partnership level." While conceding that an FTA "would take time," Enkhbold said he hoped the U.S. and Mongolia could work on near term issues in the interim. Finance Minister Bayartsaikhan argued that, not only would an FTA further open up doors to U.S. investors, it could also help offset the growing dominance of China over the Mongolian economy. ¶3. (SBU) AUSTR Stratford replied that conclusion of an FTA was a long term objective of both countries, but that the challenge was to figure out the best way to make progress in this direction. Employing a Chinese saying about finding one's footing stone-by-stone while crossing a stream, he said he believed both sides needed to carefully ponder the next steps. FTAs are an ambitious objective, he said, with a great deal of preparation required. Both sides first need to define the gaps between where Mongolia now stands and what would be required to reach an FTA, gaps that must be closed before negotiations can even begin. Otherwise, he warned, FTA negotiations would undoubtedly fail sending a terrible message to the private sector. AUSTR Stratford also noted the current political situation in the U.S. made it difficult to secure approval for FTAs from Congress and explained that, with Trade Promotion Authority (TPA) due to expire this summer, USTR would be devoting much of its energy trying to get the TPA extended. Before that, he said, the U.S. was in no position to consider new trade agreements. ¶4. (SBU) Finally, AUSTR Stratford emphasized that strong support from American industries was crucial. "They must see a lot of opportunity in Mongolia to push Congress for an FTA." He then noted that U.S. businesses were taking an increasingly negative view of Mongolia's investment climate, pointing to this year's Fraser Institute study in which mining executives downgraded Mongolia's attractiveness for investment from 33 to 62 out of 65, where it hovers with the likes of Zimbabwe, Bolivia and Venezuela. The GOM needs to create conditions that will attract U.S. businesses, he said. "We want American companies to come here, but they need the right kind of environment." AUSTR Stratford then promised to report back to the GOM in 2 months with a recommendation for a concrete step that can be taken to get one step closer to a future FTA. MCC: High Hopes and Frustrations -------------- ¶5. (SBU) Foreign Minister Enkhbold brought up MCC in the context of the phone call between Presidents Bush and Enkhbayar a few days earlier that touched on several bilateral issues, including MCC. The fact that President Bush raised MCC before Enkhbayar had the chance to ask was a positive sign, in Enkhbold's view, but he worried that the MCC program had created huge expectations among the Mongolian people who were beginning to lose confidence in the face of continual delays. The bilateral relationship, he feared, was suffering as a result. Finance Minister Bayartsaikhan touted Mongolia's readiness to do what it takes to secure an MCC compact ULAANBAATA 00000193 002 OF 002 this year and said such a compact would open up investment possibilities for American businesses. AUSTR Stratford, who reminded his interlocutors that Deputy USTR Karan Bhatia sat on MCC's board of directors, agreed and urged both countries to move ahead aggressively on concluding a compact. Support Requested: WTO Waiver, APEC Membership -------------- - ¶6. (SBU) AUSTR Stratford took note of both the Finance and Foreign Ministers' request for U.S. support in Mongolia's application to the WTO to extend for 5-years a waiver on required elimination of raw cashmere export taxes and encouraged the GOM to quickly respond to six questions the USG had submitted to the GOM to better understand Mongolia's situation. (Note: The GOM emailed the responses to USTR on March 15.) He said the USG was taking Mongolia's request seriously, wanted to be helpful, and noted that any decision to support Mongolia's request would be precedent setting, as the USG had never before supported such a request from any country. One or two other governments could resist the idea, he warned, so the USG needed to be armed with all relevant information. ¶7. (SBU) Both Ministers requested U.S. support for Mongolian efforts to join APEC once its moratorium on new members expired, with the Foreign Minister saying it would help Mongolia focus more on regional relationships. AUSTR Stratford responded that the USG is generally supportive of Mongolian involvement in multilateral organizations, but since the status of the moratorium was still unclear, he would convey the request back to Washington. ¶8. (U) AUSTR Stratford has cleared this cable. Minton