Scope Paper and Issues for Assistant Secretary Hill's June

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SUBJECT: Scope Paper and Issues for Assistant Secretary Hill's June
14-18 Visit to Mongolia

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1. (SBU) SCOPE: Assistant Secretary Hill's visit to Mongolia
fulfills the dual purposes of: 1) reinforcing the strong
U.S.-Mongolia relationship and, 2) attendance at the Asia Society's
June 15-18 Williamsburg conference (the conference is covered in a
separate memo). This visit fulfills a long-standing invitation by
the Government of Mongolia (GOM) that was made when A/S Hill visited
as part of the November 2005 POTUS delegation.


2. (SBU) MEETINGS: Separate meetings have been requested for A/S
Hill on Friday, June 15, with President Enkhbayar (over lunch hosted
by the Ambassador, also attended by Foreign Minister Enkhbold),
Prime Minister Enkhbold, State Great Hural (parliament) Speaker
Nyamdorj, and Minister of Defense Sonompil. A/S Hill will likely
first meet President Enkhbayar at the dinner hosted by the President
for the Asia Society the evening of June 15. A television interview
with a U.S.-affiliated TV station and a meeting with the local press
is planned for the final evening of A/S Hill's stay. The issues
below will likely be the main points of conversation with official
interlocutors and the press. Ambassador Minton returns to Mongolia
on June 4, and we are seeking calls on the leadership before your
visit to review his consultations in Washington and do spadework on
these issues before you arrive.

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ISSUES
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Iraq Rotation
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2. (SBU) The National Security Council (President, Speaker and
Prime Minister) likely will meet next month to consider sending an
8th rotation of 100 plus troops to Iraq. The 3-month extension of
the 7th rotation -- hastily arranged after President Bush's March 5
phone call to President Enkhbayar -- will run out July 1. Your role
may be to thank the Mongolians for a decision before the visit to
dispatch the 8th rotation, but it is as likely to be to urge them to
continue to play their vital force protection role for troops at
Camp Echo - Polish now, but possibly Georgian in the near future.
You will also have an opportunity to personally thank Mongolian
troops that have served in coalition efforts in Iraq and
Afghanistan.

Millennium Challenge Account Compact
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3. (SBU) Bilateral work on the compact has been proceeding well,
and a Mongolian team likely will go to Washington in July to
finalize the language of the agreement. This is a dramatic change
from only five months ago, when two and a half years of inconclusive
discussions on projects had led to deep frustration on both sides.
The rapid progress means that this will mostly be a "happy news"
item in official discussions, but there will be some latent angst
about the process and the transformation and shrinkage of the
compact projects from the $300 million total proposed by the
Government of Mongolia in October 2005 to somewhat more than half
that figure. The remaining projects are railroad, vocational
education and preventive health projects, with the $129 million
railroad project dominating the compact. President Enkhbayar very
much hopes to sign the compact during his proposed October trip to
Washington, but this likely depends on Congress providing MCC with
its FY 2008 funding in time. We've emphasized this point to the
government repeatedly.

North Korea
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4. (SBU) President Enkhbayar is due to visit South Korea from May
28-30. On good terms with both Koreas, Mongolia will be intensely
interested in Assistant Secretary Hill's perspective on the Six
Party Talks. Mongolia has repeatedly offered to participate in the
peace process (7PT?) and sees itself as a model for North Korea's
peaceful transformation from communism. Mongolia has said the right
things after past North Korean provocations, condemning the nuclear
test, for example. Mongolia has been extremely cooperative on DPRK
money-laundering and counterfeiting issues, but its poor law
enforcement and regulatory effectiveness has led to concern that
North Korea might turn to Mongolia as a convenient place for illegal
acts -- one reason the Embassy has advocated U.S. technical
assistance to Mongolia's fledgling anti-money laundering unit.

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Mongolia should be praised for the discreet but accommodating
assistance it provides for resettlement of North Korean refugees to
South Korea and other countries. Mongolian officials will stress
they treat this as a "humanitarian issue" and some may seek
additional U.S. funding to support refugees.

The Neighbors: Between the Bear and the Dragon
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5. (SBU) Assistant Secretary Hill's interlocutors will be
interested in U.S. views of China and Russia, and in turn should be
probed for their own perspectives. Mongolia's quest for "third
neighbors" like the United States is explained by its unenviable
geographic disadvantage as a landlocked state surrounded by these
two Great Powers. Mongolia is careful to maintain balanced, good
relations with both nations, but there is a deep wariness about the
Chinese and the dangers of economic domination by their former
occupier. Russian depravities during the Soviet period appear to be
excused because of gratitude that Russia enabled Mongolia to escape
Chinese clutches in 1921 and its construction of hospitals, schools,
road, airports, etc. -- but there are bitter memories over the very
deep economic recession in the 1990s when the Russians abruptly cut
off subsidies. Both Russia and China have noticed Mongolia's world
class deposits of minerals like copper and coal, and their companies
are clamoring for privileged access to new mines.

Rising U.S. Investment Interest
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6. (SBU) U.S. companies have also noticed Mongolia's minerals --
and Mongolia may see big advantages in having non-neighbors develop
its economy, and in the better mining practices of Western firms.
U.S. coal giant Peabody has official advocacy support from the
Commerce Department for a role in the development of the Tavan
Tolgoi coal deposit. Phelps Dodge is partnering with the Mongolian
government to explore for new copper deposits near Erdenet, Fluor is
the contractor developing Rio Tinto/Ivanhoe's Oyu Tolgoi copper/gold
mine, and the local Caterpillar distributor's business may boom as
new mines get developed. It should be noted, however, that mining
companies' assessment of Mongolia declined sharply in 2006, due to
passage of a confiscatory "windfall profits tax" on copper and gold
and amendments to the mining law that envisaged the government
taking a 34-50% equity share in major new mining projects. Investor
confidence has recovered somewhat after the government and Rio
Tinto/Ivanhoe reached a tentative deal on Oyu Tolgoi in April, but
remains fragile.


7. (SBU) For its part, Mongolia is enamored of concluding an FTA
with the United States, and formally asked USTR in March to agree by
the end of 2007 to a roadmap toward an eventual FTA. Mongolia is
convinced that an "FTA lite" could be concluded with them on the
basis of their political ties with the U.S., skipping over the messy
business of meeting usual U.S. benchmarks for FTA readiness.
Assistant USTR Tim Stratford told them in March that, for a variety
of reasons, a bilateral FTA wasn't possible, but committed to
finding some concrete step the U.S. and Mongolia could take toward
freer trade and investment. USTR has identified a possible step and
is vetting it internally. The step may be unveiled to the
Mongolians shortly before Assistant Secretary Hill arrives.


8. (SBU) We suggest that A/S Hill endorse USTR's concrete step, and
note our support for Peabody's involvement in the Tavan Tolgoi coal
project.

Peace Corps: Give Us More!
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9. (SBU) Mongolia has one complaint about the Peace Corps: there
aren't enough Volunteers here. Instead of 100, Mongolia would
prefer 1000. As Prime Minister from 2000-2004 and as President,
Enkhbayar has been particularly appreciative and supportive of Peace
Corps activities in Mongolia, and vocal in asking for more
Volunteers be sent. The incoming Peace Corps Volunteer classes in
2006 and again this year will set new highs. After his April visit
here, Peace Corps Director Tschetter committed to a gradually
increasing number of Volunteers, with each new class being about 10%
larger than its predecessor.

Deliverables for President Enkhbayar's Trip
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10. (SBU) Both the President and the Foreign Minister will likely

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focus heavily on the agenda for Enkhbayar's notional October trip.
As to timing, it is unlikely that the White House will have firm
dates until much later in the summer. From Enkhbayar's standpoint,
having won the internal Mongolian government struggle over who would
take the honors, signing the MCA Compact is a nearly essential part
of a successful trip.


11. (SBU) There is a good selection of other potential
deliverables. A problematic one is MFA's desire that the trip
include signing of the "Comprehensive Partnership Framework
Agreement" (CPFA) it proposed during DAS Christensen's visit here in
January. Not only are some of the contents nonstarters -- like
reference to an FTA -- the document is meant to be legally binding,
despite our warnings that this would be much more difficult for the
U.S. and not of any apparent advantage in a document which would be
largely declaratory statements of intentions to work together more
closely. Rather than carp at or edit down the Mongolian draft CPFA,
however, we suggest that, with the NSC's concurrence, Assistant
Secretary Hill suggest instead that the two sides should work toward

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a good presidential Joint Statement over the next few months.


12. (SBU) There are also a mix of other issues which have a good
chance of being ready by October, with work by both sides.
-- In early June, the U.S. and Mongolia will also discuss revisions
to a draft agreement on military cooperation, which will reaffirm
the commitment to work together as Mongolia reorients its military
toward international peacekeeping operations.
-- The U.S. has told Mongolia through the UN that we are interested
in assisting them to be able to meet UN Security Council Resolution
1540, on the control of WMD. This would be done as part of the
Department of Energy's "Second Line of Defense" program. A draft
MOU on the cooperation is undergoing interagency clearance on the
Mongolian side, and a U.S. team would visit to discuss the program
after the Mongolian side is ready to commit to the MOU.
-- The Mongolian government also has approved negotiating a PSI ship
boarding agreement with the U.S., and the GOM is coordinating
interagency positions on the U.S. draft before asking a U.S. team to
visit. MFA interlocutors express confidence the agreement could be
ready before October.
-- On a unilateral note, INL has earmarked $670,000 in FY 2008 for a
new program of law enforcement assistance. An INL officer will
visit next month to investigate possible focuses. Reference to this
new assistance could be made in October.


13. (SBU) Finally, we think it would be useful for Under Secretary
Dobriansky to visit Mongolia, hopefully before President Enkhbayar
comes to Washington. The breadth of U.S. and Mongolian cooperation
in the areas in her portfolio -- Community of Democracies Convening
Group, democracy/human rights, refugees, trafficking in persons,
HIV/AIDs, etc. -- illustrate that the truth of the "comprehensive
partnership" description for the relationship. A visit by the Under
Secretary would be a unique opportunity to work these issues and to

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highlight cooperation shortly before President Enkhbayar's U.S.
visit. Stating Under Secretary Dobriansky's intention to visit
Mongolia would be a useful step during the A/S Hill visit.

Goldbeck