FORWARD MOVEMENT ON GSP ISSUES

UNCLAS SECTION 01 OF 03 ULAANBAATAR 000063 SIPDIS SENSITIVE SIPDIS 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 E.O. 12958: N/A TAGS: ETRD PREL EAID ECON EFIN PGOV MG SUBJECT: FORWARD MOVEMENT ON GSP ISSUES SENSITIVE BUT UNCLASSIFIED - NOT FOR INTERNET DISTRIBUTION Reftel: 07 Ulaanbaatar 0276 ¶1. (SBU) SUMMARY: After almost two years of prodding by Post and USTR, Mongolia looks set to implement a GSP Handicrafts agreement that will allow duty-free export to the U.S. of two Mongolian hand-made items. (The five items previously covered by the agreement have become MFN duty-free). Now that an internal turf battle over certificate of origin certification procedures and authority has been settled, the Ministry of Industry and Trade (MIT) need only produce an official letter (and model of the certifying stamp) that outlines the agreed upon certification procedure for the agreement to take effect. The agreement will supplement the current handicraft-related benefits available to Mongolia, and could provide a basis for adding more handcrafted textiles and apparel, if approved by Congress during the upcoming GSP reauthorization process. However, because the GOM believes that the small economic returns are not worth the effort, it has so far failed to actively promote the agreement with local producers, and will likely remain apathetic after the agreement's implementation. It is uncertain whether MIT will produce the letter as a deliverable in time for TIFA #4 talks on February 4. During TIFA #4, the GOM intends to submit a list of products generated by Mongolian businesses rather than the GOM for GSP inclusion and seek advice on submission practices. END SUMMARY. Forward Movement on a GSP Handicrafts Agreement -------------- - ¶2. (SBU) The Ministry of Industry and Trade (MIT) has shown a palpable lack of enthusiasm for the GSP Handicrafts agreement since it was first proposed by USTR at the second annual TIFA talks in March 2006. MIT has argued that the economic return would be minimal, especially when sized against MIT's real goal of an FTA, and doubted whether Mongolian producers could come up with enough handicrafts to fill even a single container for export. (Note: One trip to the handicraft- and souvenir-laden fifth floor of Ulaanbaatar's main department store would dispel the myth that quantity is lacking. End Note.) MIT dithered in soliciting Mongolian firms to gauge real interest, promoting the opportunity with local producers, or in taking necessary steps to bring the agreement into effect. Post has tried to counter GOM apathy by explaining that although profits from exports under the handicraft agreement might seem small, it nevertheless had the potential to help some of Mongolia's most disadvantaged groups -- namely small scale producers and low income families. USG Spearheads Promotional Activities -------------- ¶3. (SBU) Since last year's TIFA #3, Post and USTR have vigorously promoted the agreement to those small and medium sized producers who stand to profit most (reftel). In March 2007, Marideth Sandler, Executive Director of USTR's GSP program, successfully delivered GSP education and outreach presentations to standing-room-only audiences of over 200 companies (from single mothers producing felt slippers to a leather goods manufacture employing several hundred Mongolians) in Mongolia's three largest cities, Ulaanbaatar, Erdenet and Darkhan. For many of the attendees, it was the first time they had heard about duty free export opportunities to the United States. ¶4. (SBU) In addition, Post has hosted several Digital Video Conferences with USTR to further explain GSP Handicraft agreement benefits and implementation procedures, and has translated several informational documents on GSP for distribution and Posting on the Embassy website. Among them are the Examples of the Changes Required to Transform Foreign Raw Materials and Components into Articles that Qualify for Duty-Free Treatment under GSP; Guide to Internet Resources on the U.S. Generalized System of Preferences ULAANBAATA 00000063 002 OF 003 (GSP); U.S. Generalized System of Preferences Guidebook; and Expanding Mongolia's Export Opportunities through GSP Presentation. MNCCI will soon translate the GSP Eligible Product List, the "Guide to Major U.S. Retailers," and "The Market for Handicrafts and Other Artisanal Goods" and post them on their webpage. Embassy officers have touted the benefits of GSP, along with the GSP Handicrafts Agreement during country-wide excursions and have worked with USAID funded SME development programs. Turf Battles, Red Tape Delay Movement -------------- ¶5. (SBU) Nudged to action by Post's promotional efforts, the GOM has finally moved to adopt the agreement, but recently stumbled when USTR would not accept the Mongolian National Chamber of Commerce and Industry as the official certifying body of handicraft items produced in Mongolia. S. Demberel, MNCCI Chairman, insisted on safeguarding MNCCI's legally delegated certifying authority (and revenues generated from issuing COs). He lobbied USTR to accept MNCCI as the legally authorized certifier, sending USTR a letter in September 2007 and meeting with Marideth Sandler in October 2007 during President Enkhbayar's visit to the White House. Nevertheless, USTR explained that U.S. regulations required the final signature and stamp certifying origin of the handicraft product come from a governmental body. ¶6. (SBU) MNCCI and MIT struck a face-saving compromise that will give the Mongolian Customs Authority final approval (along with its triangular stamp) on MNCCI issued Certificates of Origin. USTR and Post have since asked MIT to explain the procedure in an offical letter to USTR. (Note: we are still awaiting this letter from MIT.) Moving on other GSP Issues -------------- ¶7. (SBU) In 2007, MIT drew up and submitted a list of products for which the GOM wished to receive GSP tariff reduction, or for which, in the case of Mongolian Molybdenum, it wanted added to the list of products eligible for GSP. This request did not get much traction, because MIT's submissions lacked responses to the explicitly requested criteria to meet statutory requirements, as well as a Mongolian constituency willing and able to support MIT's submissions. ¶8. (SBU) The case of the Molybdenum submission is instructional. MIT insisted on submitting Molybdenum, not because any business entity asked for its inclusion, but rather because MIT thought Mongolian Molybdenum could and should be exported to the U.S. The argument for doing so was to broaden Mongolia's customer base for this product, which remains primarily China and Russia. However, the primary exporter of this product expressed to Post and MIT that it had no interest in going to the effort of preparing a submission, leaving the MIT to do all the work. USTR provided examples of proper GSP submissions, and explained in general terms what the GOM needed to do. However, the GOM did not submit a formal request that would meet the statutory requirements, and USTR made clear that Mongolia's submission, which faced resistance from an American producer, would probably be rejected without the information. As a rejection would inhibit future GOM submissions for several years, MIT withdrew its requests, acting on advice from Post, USTR, DOC and State. GSP and Trends -------------- ¶9. (U) U.S. imports under GSP in 2006 from Mongolia totaled $530,116, and from January through November of 2007, totaled $900,545 (a 134 percent increase from the same time period in 2006). Top GSP imports included tungsten concentrates (HTS 26110060) and ULAANBAATA 00000063 003 OF 003 articles for the conveyance or packing of goods, of plastics (HTS 39239000). Conclusion: The Power of Positive Thinking -------------- ¶10. (SBU) Although the GOM is showing signs of progress in finally adopting the GSP Handicrafts agreement and may/may have it as a deliverable for the 2008 TIFA, Post is nonetheless worried that the GOM remains ambivalent about the potential benefits. So far, the GOM seems to regard sealing this deal as more of a paper-pushing exercise than a substantive trade agreement; something that it can proudly bring forward to producers and the public, even if the immediate economic impact might be slight in the near term. ¶11. (SBU) The GOM may have learned a lesson from the aborted Molybdenum submission. First, although the results for GSP submissions in 2007 were relatively disappointing, MIT will continue to pursue tariff reductions available under GSP, and plans to submit a list of products at TIFA #4. Still discouraging, MIT continues to ask Post and USTR for advice on the format for submissions, indicating that they have yet to use the information available to them for preparing and submitting GSP requests. More guidance will be required before Mongolian producers and exporters make better use of GSP benefits and the GOM develops a sustainable in-house capacity to avail itself of GSP. More encouraging, MIT reports it did not develop its TIFA #4 list of GSP-eligible products; rather, MNCCI prepared the list after surveying members who produced products for export. So at last, we have a private constituency that has a commercial stake in the GSP outcomes rather than a public entity with nothing to lose. ¶12. USTR's Marideth Sandler, Farah Naim and Timothy Wineland cleared on this cable. Minton