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

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(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

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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