Third US-Mongolia TIFA Joint Council, March 12, 2007, Part

UNCLAS SECTION 01 OF 05 ULAANBAATAR 000276

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GENEVA FOR USTR
STATE PASS USTR, USTDA, OPIC, AND EXIMBANK
STATE FOR EAP/CM AND EB/IFD/OIA
USAID FOR ANE FOR D. WINSTON
MANILA AND LONDON FOR ADB, EBRD USEDS
TREASURY FOR USEDS TO IMF, WORLD BANK
USDA FAS FOR N. SAKLAH

E.O. 12958: N/A
TAGS: ETRD PREL EAID ECON EFIN PGOV MG
SUBJECT: Third US-Mongolia TIFA Joint Council, March 12, 2007, Part
1 of 3


SENSITIVE BUT UNCLASSIFIED - NOT FOR INTERNET DISTRIBUTION


1. (SBU) SUMMARY: At the third annual round of TIFA talks held in
Ulaanbaatar on March 12, Mongolian trade representatives continued
to lobby for a roadmap towards an FTA with the U.S. and requested
USG support on joining APEC. Rather than a roadmap, AUSTR Stratford
instead recommended focusing on near-term steps to improve trade and
promised to report back to the GOM within two months with a
suggestion for a concrete step. He asked for the GOM's help in
getting China to live up to WTO obligations, and said the U.S.
wanted to be helpful on Mongolia's request to the WTO for a 5-year
extension of its waiver on elimination of raw cashmere export taxes.
The U.S. delegation discussed trade highlights of previous year,
encouraged Mongolia to take smarter advantage of GSP benefits, and
exchanged plans for agricultural and commercial sector capacity
building to improve Mongolia's standards system. Both sides agreed
to revive the bilateral 1996 Mutual Customs Assistance Agreement.
Septels will report on discussion of U.S. concerns about the
Mongolian trade and investment climate and a joint road trip to
promote greater use of GSP by Mongolian exporters. End summary.

Open, Frank and Business-like Talks
--------------


2. (U) Vice Minister of Industry and Trade (VMT) Ya. Sodbaatar
opened the talks by thanking the U.S. for its past support during
Mongolia's transition to a market economy. He hoped that the meeting
would be held in a very open, frank and business-like manner. He
then laid out Mongolia's goal of diversifying exports from its
current mineral and animal products base.


3. (U) The Ambassador commented that TIFA represented one of the
central pillars of the bilateral relationship. He also noted that
this year's meeting was especially notable as it was taking place
during the 20th anniversary of U.S.-Mongolian diplomatic relations.


4. (U) V. Enkhbold, Director of the Ministry of Industry and Trade's
Trade, Economic Cooperation and Policy Coordination Department, laid
out the agenda and then made the day's first pitch for an FTA,
saying it would increase U.S. foreign direct investment (FDI) in
Mongolia along the lines of NAFTA and might give the U.S. additional
access to large, growing markets in Russia and China.


5. (SBU) AUSTR Timothy Stratford opened saying the USG's overall
trade priority was concluding a successful Doha round of the WTO,
which would benefit all WTO member states. Stratford noted that
members had engaged in much quiet diplomacy to get Doha back on
track since the last official session had broken down. Other
priorities for USTR included working to renew the Trade Promotion
Authority that expires in July and getting China to live up to its
WTO obligations.


6. (SBU) AUSTR Stratford then addressed GOM requests for support
with joining APEC, which he promised to relay back to Washington,
and the request for U.S. support for Mongolia's application to the
WTO for an extension of its waiver to eliminate its export tax on
raw cashmere. Stratford said USTR wanted to help on the extension
but required answers to USTR questions on the export tax, answers
which would help the USG better formulate its position. (Note:
Since TIFA, MIT has responded to these questions.) Finally, AUSTR
Stratford announced that USTR would soon post a full-time
representative in Beijing, which would allow greater engagement with
Mongolia.

USTR: Focus on Next Steps Rather than Roadmap to FTA
-------------- --------------


7. (SBU)Enkhbold argued that an FTA would be benefit the U.S. by

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creating a stable business and legal environment for American
companies already invested in Mongolia and attract more firms. FTA,
he added, would be a powerful political statement supporting
Mongolia's democratization-one that might signal the benefits
derived from market liberalization and cooperation with the U.S. to
North Korea. Frustrated at the perceived lack of U.S. enthusiasm
for an FTA, Enkhbold urged, "We should not just talk. Words can be
forgotten so we need to act. In the future we could turn TIFA
meeting into FTA meeting, drawing a roadmap, establishing a joint
group on capacity building etc."


8. (SBU) AUSTR Stratford responded that crafting an FTA is a
long-term, comprehensive process. Further he reminded the
Mongolians that Trade Promotion Authority expires in July 2007,
complicating matters even further. Stratford noted that Mongolia
must still address policy, procedural and legal gaps that block its
path to FTA negotiations. As important, he stated that private
sector support for an FTA was crucial to educate Congress on the
need for a US-Mongolia FTA. However, preceding this support,
Mongolia would need to improve its business environment to attract
the very American companies that would provide the business support
for any bi-lateral agreement. Simply, U.S.-Mongolian economic
relations remained insufficient to justify an FTA roadmap; instead,
Stratford recommended the two sides concentrate on the near-term
steps, which could then be analyzed at next year's TIFA meeting. He
promised to report back to the GOM within two months with
suggestions for a concrete step. Finally, he cautioned the
Mongolians against citing the USG's FTA with Jordan as a possible
model: Signed under entirely different circumstances, Congress was
not likely to approve a similar FTA again.

GOM Requests U.S. Support on WTO Export Tax Waiver
-------------- --------------


9. (SBU) Enkhbold sought U.S. support for a Mongolian request to
the WTO that its waiver on the export tax elimination requirement be
extended another 5 years. WTO obligations require Mongolia to
eliminate export taxes by 2007. However, Mongolia justifies its
request by arguing that China's unbridled importation of raw
Mongolian cashmere was destroying Mongolia's textile industry.
Mongolia's plan to build a complex cashmere factory could not
succeed if China's predatory purchasing practices continued to suck
Mongolia dry of its raw materials. Enkhbold said Mongolia valued
participation in the WTO and hoped that the organization would take
the interests of each of its members into consideration when
reaching decisions. Stratford responded that Washington knew of the
request and wanted to be helpful, but that it was urgent that the
GOM respond to six questions USTR had submitted to them so that the
USG could better understand Mongolia's position. (Note: Mongolia has
since sent responses to USTR's questions.)

Economic Cooperation Up but Trade is Down
--------------


10. (U) The U.S. delegation catalogued some of the major events of
the past year including visits from Agriculture Secretary Johanns,
Ex-Im Bank Vice President McAdams, and the agricultural counselor
and attache from the U.S. Embassy in Beijing. Also of note were the
U.S. Embassy Ulaanbaatar's organization of 17 construction firms to
attend CONEXPO 2006 in Beijing, the 44 person strong trade
delegation to the National Association of Homebuilders International
Builder's show in Orlando, Florida, and the quarterly trade
promotion discussions hosted by the DCM. Commoff listed the 2008
Las Vegas World of Concrete Expo and the Builder's Expo in Orlando
as major U.S projects on tap for the next year. Efforts to promote
imports of U.S. cosmetics and health supplements into Mongolia,
along with the export of Mongolian organic botanicals to U.S.
processors are also in the works for 2007/2008.

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11. (U) The Mongolians expressed satisfaction with the cooperation
they have received from the U.S., pointing out that the U.S. firms
were fourth among Mongolia's FDI providers and had invested some
U.S. $37 million last year alone. The recent interest of some
big-name U.S. corporations (Peabody Energy, Citigroup, JP Morgan,
Freeport-Phelps Dodge) in Mongolia was also a good sign. However, a
MIT official noted that overall trade with the U.S. had decreased
some 33 percent last year, blaming it on expiration of the
multi-fiber agreement. He hoped that future cooperation with the
U.S. would take on "new forms," i.e. an FTA. As for its near-term
plans, the official said that Mongolia intended to support its
relatively young mortgage industry and organize more trade fairs,
business meetings and Chamber of Commerce seminars.

GOM Pledges to Develop GSP Eligible Exports
--------------


12. (U) Marideth Sandler, USTR's Executive Director for the
Generalized System of Preferences (GSP) program, presented ways
Mongolian producers could take advantage of GSP benefits for
products that they may have overlooked. She encouraged the
Mongolians to ramp up efforts to export GSP-eligible products and to
enter into the bilateral certified handicraft arrangement. She also
briefly talked about the plans for her post-TIFA GSP seminars in
Ulaanbaatar, Erdenet and Darhan to educate producers and exporters
about exporting more products duty-free under GSP. The Mongolians
promised to more vigorously seek out GSP-eligible products, but they
expressed consternation over the myriad U.S. import regulations and
over the mixed answers they received on Certificate of Origin
requirements for goods passing through U.S. Customs. Both sides
agreed to closer cooperation in the future, while Sandler agreed to
look into the issue of Certificates of Origin.

DVCs, Training Exchanges Mark Capacity Building
-------------- --


13. (U) Department of Commerce's International Trade Administration
Officer for China and Mongolia, Zhen Gong Cross, described DOC
capacity building plans for the next year: a) organizing the 2007
U.S. - Mongolian Business Forum in Washington in late April; b)
continuing the digital video conferences (DVCs) with GOM trade
representatives on standards; and c) developing a possible
study/training tours to build on the DVCs. She also noted DOC's
desire to see Mongolia craft a transparent, fair and predictable
system for creating and executing both product and process
standardizations.


14. (U) A USAID representative reviewed efforts to develop
Mongolia's business and trade capacity, including the crafting of
tax reform and anti-corruption legislation last year. In addition,
AID reported on its work with multiple GOM agencies-including
Customs, the Tax Authority, the State Special Inspection Agency, the
Ministry of Health, and the Ministry of Trade-to create the "Single
Window" for trade. The "Window" aims to streamline and regularize
the export-import processes for traders, which should lower the
opportunities for corruption and increase efficiency.


15. (U) USTR's Timothy Wineland announced approval for a U.S. Trade
Development Agency project to bring 14 Mongolian officials to the
U.S. on an orientation visit to study federal, state, and local
methods for setting standards for health and safety, environmental
control, and products in the mining, construction, and equipment
manufacturing sectors. The GOM was pleased with the news and pledged
to start preparations for the visits. The GOM hoped to see the idea
applied to other areas where Mongolia needed capacity building, such
as in trade analysis, budget and finance or mining sector
management. Both sides agreed to maintain a dialogue on the issue.

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16. (U) D. Gerel from the Mongolian National Center for
Standardization and Metrology then updated the group on efforts to
improve standards applications and development, including two DVCs
with U.S. counterparts last year and a new draft law on revising
standards legislation to be submitted to the Mongolian Parliament in
May.

APHIS Continues Capacity Training
--------------


17. (U) Dr. Theresa Boyle, from APHIS Beijing, reported a U.S.
agricultural firm's interest in exporting bovine semen to Mongolia.
APHIS would be working with Mongolian counterparts to negotiate the
required protocols. Dr. Boyle also highlighted recent and future
capacity building training programs sponsored by APHIS for Mongolian
participants; "Avian Influenza (AI)," "International Foreign Animal
Disease Diagnostic (IFADD) Course," "High Pathogenic Avian Influenza
(HPAI) Diagnostic Training" and a "Pest Risk Analysis Workshop."


18. (U) Ts. Purevkhuu from the Ministry of Food and Agriculture
agreed that Mongolia had benefited from the knowledge and experience
it had received from the U.S. and was currently working to
disseminate throughout Mongolia what it had learned from the
APHIS-sponsored events. All provinces in Mongolia, for example, had
received training on Avian Influenza (AI). Perevkhuu requested more
training on highly infections animal diseases, noting that Mongolia
recently saw its first case of Ovine Pulmonary Adenomatosis. (Note:
APHIS has offered to test Mongolian samples for this and other
animal diseases gratis, if the Mongolians can get the samples to the
US.) He also said the GOM would work to translate APHIS materials
for educational purposes, but they were unsure of the copyright
issues involved.

Reviving the 1996 Mutual Customs Assistance Agreement
-------------- --------------


19. (SBU)Both sides agreed to reinvigorate the bilateral 1996 Mutual
Customs Assistance Agreement, which had fallen dormant since the
expiration of the Multi-Fiber Agreement in 2005. Econoff voiced
disappointment that the relationship had waned and pledged to work
with the GOM to increase cooperation. He then reviewed some of the
training programs the Embassy had sponsored over the past year as
evidence of continued U.S. commitment to aid Mongolian Customs in
fighting IPR violations and illicit trafficking: a) a workshop on
IPR enforcement sponsored by INL and delivered by a DHS/CBP and PTO
team; b) PTO support of the attendance of two Mongolian
representatives at the APEC IPR seminar in Los Angeles; c)
attendance of a Mongolian Customs official at the PTO's IPR
Enforcement Academy; and d) a conference on illicit trade in
wildlife conducted by representatives from the U.S. Fish and
Wildlife Service.


20. (SBU) Econoff highlighted several areas where improvement of
Mongolian performance was necessary-including but not limited to the
prevalence of corruption among customs officials, the lack of
proactive enforcement of IPR regulations, and the antiquated state
of customs processing. Ms. Chinbat of the Customs General
Administration (CGA) responded, noting CGA commitments to comply
with international best practices: a) Mongolia's acceptance of the
WCO Framework of Standards; b) joining the Kyoto Convention on
Simplification; c) posting customs-related laws on the Internet; and
d) cooperation with the South Korean government, USAID and ADB
(Note: the ADB is providing a US$ 5 million loan to upgrade CGA
systems. Chinbat finished by asking for increased U.S. assistance,
either bringing trainers to Mongolia or sending Customs personnel to
the U.S. for long term training on issues such as commercial fraud,
management, money laundering, safety standards and trade in

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prohibited goods.


21. (U) This cable has been cleared by USTR, ITA, and APHIS.

Goldbeck