2008 US-Mongolia TIFA, Report I: Progress on Transparency

UNCLAS SECTION 01 OF 04 ULAANBAATAR 000191

SIPDIS

SENSITIVE

SIPDIS

STATE PASS USTR, USTDA, OPIC, AND EXIMBANK
STATE FOR EAP/CM AND EB/IFD/OIA
USAID FOR ANE FOR D. WINSTON
USDOC FOR ZHEN-GONG CROSS

E.O. 12958: N/A
TAGS: ETRD PREL EAID ECON EFIN PGOV MG
SUBJECT: 2008 US-Mongolia TIFA, Report I: Progress on Transparency
Agreement

REF: A) Ulaanbaatar 0110, B) Ulaanbaatar 0050

SENSITIVE BUT UNCLASSIFIED - NOT FOR INTERNET DISTRIBUTION.


1. (SBU) SUMMARY: Mongolia and the United States held their fourth
annual Trade and Investment Framework Agreement (TIFA) Talks on
February 4, with the Mongolian side continuing its push for a Free
Trade Agreement (FTA). Assistant U.S. Trade Representative (AUSTR)
Tim Stratford explained that while the USG continues to explore ways
to deepen US-Mongolia trade relations, it was not a propitious time
to be ask Congress to approve an FTA. Stratford added that a
US-Mongolia Transparency Agreement (UMTA) would be more achievable,
and that this would sustain forward motion in the trade
relationship. Other issues discussed included problems in
Mongolia's mining sector and changes in Mongolia's legal environment
for foreign investment. This cable reviews progress and follow-up
activities related to UMTA. Septels will cover other TIFA issues.
END SUMMARY.


2. (SBU) In Washington on February 4, Mongolia and the U.S. held
their fourth annual TIFA Joint Council Meeting. AUSTR Stratford led
a U.S. delegation that included representatives from the Departments
of State, Commerce, Interior, Labor, and Agriculture, as well as the
U.S. Trade Development Agency; Embassy Ulaanbaatar was represented
by the DCM and Senior Commercial Specialist. Vice Minister of
Industry and Trade (VM) Sodbaatar led the Mongolian delegation, made
up of Mongolians from the Ministry of Foreign Affairs and the
General Customs Authority of Mongolia. The VM opened the TIFA with
the GOM's usual push for a free trade agreement. However, beyond
the simple request to negotiate an FTA, the VM's arguments lacked
the usual lengthy justifications for an FTA that have typified the
last three TIFAs.


3. (SBU) AUSTR Stratford reminded the GOM that at the previous
year's TIFA, USTR had promised to consider concrete steps to deepen
the US-Mongolia trade relationship, short of a commitment to an FTA.
The fruit of these efforts was a request in June 2007 to the GOM
that it consider negotiating a UMTA, which included a copy of the
Korean-US Free Trade Agreement's Transparency Chapter (KORUS TA) to
use as a conceptual model of the sort of agreement we were proposing
to negotiate (ref B). Both this initial proposal and subsequent
communications have made clear that the KORUS TA was meant as a
reference point for UMTA talks, as USTR recognizes that Mongolian
circumstances differ from those in the ROK. However, AUSTR
regretted any statements that might have led the GOM to think that
the USTR was imposing the KORUS TA on Mongolia without allowing for
Mongolian circumstances and capacities. He repeated that the
initial request was not a formal proposal but a way to begin
discussions on the issue. He stated that USTR should have answered
GOM concerns by offering a more thorough briefing to the GOM
regarding U.S. intentions for proposing a stand-alone TA. AUSTR
regretted that these lapses had stalled progress toward the UMTA.


4. (SBU) AUSTR Stratford explained that USTR continues to actively
seek ways to deepen the US-Mongolia trade relationship. However, in
the current environment, asking Congress for additional FTA
authority for Mongolia, or any other nation, was unlikely to be
greeted positively. AUSTR added that although an FTA remains an
unlikely outcome, a UMTA would more obtainable and would keep
momentum going in the trade relationship.


5. (SBU) AUSTR Stratford suggested that the bilateral trade
relationship would move forward under a "step-by-step approach,"
which would, over time, lead to a closer trade relationship. In
that light, we should consider working on agreements that can be
negotiated by the respective governments without immediate recourse
to legislative review. For example, we might not discuss tariff
rates, as that requires Congressional approval, whereas a UMTA would
not. USTR concluded that the approach of identifying, negotiating,
and agreeing on various elements of model FTAs would increase the
relative attractiveness of Mongolia as USG in the future, with Trade
Promotion Authority renewed, considers potential FTA partners.

Why this approach to a TA?

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--------------


6. (SBU) The VM asked if the approach outlined was typical of our
FTA processes. The GOM was concerned that this approach would be
too unconventional to lead to an FTA down the road. AUSTR explained
that the approach features both traditional and innovative elements.
Traditionally, much exploratory work/talk is done by the
negotiating parties before any FTA is publicly launched and
Congressional approval sought. Discussing hard issues before talks
go public allows both sides to settle sensitive disputes discreetly.
After many meetings with the trade partner to iron out mutually
acceptable positions, USTR takes the results of the discussions to
an USG Inter-Agency review, where all departments/agencies can
consider what has been proposed, suggest modifications, and
ultimately sign off on the process and its results.


7. (SBU) AUSTR then advised that the next step was to identify what
TA concepts work and don't work in the Mongolian context. Then, in
light of GOM observations, USTR could explain its positions,
methods, motives and approaches. Based on this dialogue, we could
then decide whether enough commonality exists between the U.S. and
Mongolia to proceed to a more formal set of talks leading to a
formal UMTA. USTR observed that this approach -- the soft way to an
agreement -- involves dialogue, not dictation. Assuming we reach
commonality, the USTR could go the USG Inter-Agency group with a
report that the USG should move on an UMTA.


8. (SBU) USTR concluded that a stand-alone UMTA is a
precedent-setting approach to trade agreements, and that this
approach has not been widely publicized because it is new. USTR
indicated that it would like to pursue it with GOM in a discreet
fashion before wide-scale public dissemination. Given the current
impediments to FTAs, USTR observed that that the unique approach
being developed for the Mongolian UMTA (and follow on trade
agreements) might become the model for trade relations between the
U.S. and other nations.


9. (SBU) VM Sodbaatar responded that the UMTA TA proposal matched
GOM aims generally; and so, the GOM would consider UMTA. The VM
explicitly said that the GOM considered the USTR'S step-by-step
approach the correct way to proceed. He further noted that early
confusion over the KORUS TA had been replaced with understanding
that the KORUS TA is a part of any FTA, and that USTR is offering it
as a first step toward an FTA. In that respect, the VM expressed a
desire to learn about other nations' experiences with TAs and TIFAs,
to ensure that Mongolia is in line with the approaches USTR employs
with the other trade partners of the U.S. (Comment: The GOM remains
wary of this process, fearing it may be nothing more than a method
to reject Mongolia's FTA ambitions. However, contacts at MIT were
enthralled by the image of Mongolia being on the cutting edge of
trade-policy formulation. End Comment.)


10. (SBU) The VM acknowledged as correct USG observations that the
US Congress, whose approval would be required for an FTA, was not
supporting additional FTAs at this time. However, the VM reminded
USTR that the GOM would probably have to seek the approval of
Mongolia's Parliament for an UMTA, although the GOM could negotiate
such a deal without parliamentary approval. The VM further
recognized that a US-Mongolia FTA was not yet ready for public
discussion, and that the GOM did do not want to move too fast and
run the risk of raising unrealistic expectations.


11. (SBU) The VM then asked for a more specific set of benchmarks
for the step-by-step process conceived by USTR. Specifically, the VM
asked what, after the TA, were the next steps. He opined that
knowing these precise steps would allow the GOM to plan near-, mid-,
and long-term approaches to the US-Mongolia bilateral trade
relationship. He added that such detailed planning would make the
approach proposed by USTR more palatable to the Mongolian people and
Parliament.


12. (SBU) AUSTR observed that it would be difficult to set a firm
schedule for progress, but that the participants should take a
positive attitude. He amplified that participants should not seek

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in the UMTA process a precise road map to an FTA; rather, a mutual
compass, guiding us in that direction. Overall, AUSTR concluded
that if the sides could quickly agree to and implement an UMTA; it
might be possible to move to the next agreement.


Next Steps on UMTA Proposed at TIFA
--------------


13. (SBU) AUSTR expressed disappointment at the lack of progress on
the TA before the 2008 TIFA, but hoped that we could make
significant progress before Mongolia's next summer holiday season,
Naadam. To that end, AUSTR proposed that the USG and the GOM hold
one or more digital video conferences (DVC) in March, in which
Mongolia could present its views on an UMTA. AUSTR invited the GOM
to ask questions regarding TAs, and to actively examine
contradictions between provisions in the KORUS TA and Mongolian
practices, capacities and expectations. Ideally, this dialogue
would yield a common set of principles about UMTA. Assuming this
commonality, USTR reps will visit Mongolia to review the finer
points of the UMTA, most likely in May or June 2008. Then USTR
would prepare a draft UMTA for GOM review. Working groups would
negotiate the specific points, and USTR would meet with the GOM as
positions firm up. Finally, with an UMTA in sight, USTR would seek
USG Inter-Agency concurrence, and MIT would do the same with its GOM
sister ministries.

Following an UMTA
--------------


14. (SBU) AUSTR Stratford noted that once we have jointly negotiated
an UMTA and begun implementation, we can consider a new FTA chapter
for discussion in much the same pattern used for the UMTA. We will
review current FTA models for the next step. This could be an
agreement on Intellectual Property rights, Competition law, etc.

Slow progress on UMTA since the February 2008 TIFA
-------------- --------------


15. (SBU) USTR proposed and the VM accepted a mid-March date for the
first DVC dedicated to advancing UMTA. The Mongolians said that
since October 2007, they had been toying with the creation of a
joint ministerial "Task Force Team" (TFT) dedicated to reviewing the
KORUS TA for the initial discussions. This TFT would then serve as
primary GOM negotiating body for UMTA. The Ministries of Industry
and Trade, Foreign Affairs, Justice and Finance would provide
personnel for the TFT, with Industry and Trade taking the lead. By
TIFA 2008, MIT counterparts had informed us that they had
unofficially identified the individuals who would serve on the TFT,
although the group had not yet met, pending ministerial approval and
the outcome of the 2008 TIFA. (Note: Per ref A, the Mongolians
explained that they planned to continue the TFT after UMTA had been
negotiated, as the GOM recognized that it would need a more or less
permanent intra-governmental structure to coordinate internal GOM
responses to bilateral trade issues. End note.)


16. (SBU) However, these apparently good intentions and concepts
have been stymied by inter-ministerial squabbling that has slowed
progress on the initial stages of UMTA. As it turned out, this turf
war was being fought long before the UMTA was suggested, but the
prospect of a specific agreement in the offing had brought the issue
to a boil. The Ministry of Foreign Affairs (MFA) asserted that it
controlled all bilateral international agreements, while MIT
asserted that it had the lead (and the expertise) on trade-related
issues. Technically, MFA had the right to make this argument, even
though MIT noted that MFA lacked any practical ability to perform
the task. The dispute percolated until the end of February, at
which point cooler heads suggested that MFA and MIT assume joint
responsibility for TFT. A decree was prepared for joint signature
by the respective ministers, which languished on their respective
desks for the last couple of weeks, at which point Foreign Minister
Oyun agreed to the deal without signing the decree, deferring to
Industry and Trade Minister Narankhuu, who took an additional week
to sign off, finally doing so on March 28. (Note: Post, at the

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request of MIT contacts, gently reminded Narankhuu, through his
personal advisor, of MIT's commitment to the UMTA process, and of
the need to sign the decree to allow the TFT to begin its analysis
and review of KORUS TA. End note.)


17. (SBU) The GOM has formally empowered its TFT, which has since
deliberated on UMTA and provided comments to post, which has
forwarded them on to USTR, in advance of the UMTA DVC, which we hope
will occur in late April or early May.

GOLDBECK