Mongolia and U.S. Policy: Political and Economic Relations

Mongolia and U.S. Policy:
Political and Economic Relations
Updated October 25, 2007
Kerry Dumbaugh
Specialist in Asian Affairs
Foreign Affairs, Defense, and Trade Division
Wayne Morrison
Specialist in International Trade and Finance
Foreign Affairs, Defense, and Trade Division



Mongolia and U.S. Policy:
Political and Economic Relations
Summary
On January 10, 2006, Mongolia’s delicately balanced coalition government
collapsed and the Mongolian parliament chose a new Prime Minister in accordance
with constitutional requirements. Mongolia has seen several reshufflings of
government since 1990, the year the Mongolian People’s Revolutionary Party
(MPRP) declared the end of a one-party communist state and initiated democratic
reforms with U.S. assistance. Mongolia’s profile has been raised further by the 2005
visits of President George Bush and Secretary Donald Rumsfeld, each of whom
praised Mongolia’s democratic developments and its aspirations to use its military
forces for global peace-keeping missions.
The United States recognized Mongolia in 1987 and since then has sought to
expand cultural and economic ties. At Mongolia’s invitation, the United States
began a Peace Corps program there in 1991, which by 2007 was maintaining about
100 Peace Corps volunteers in the country. Also in 1991, following the signing of
a bilateral trade agreement, the President restored Mongolia’s most-favored-nation
(MFN) trading status — now referred to as Normal Trade Relations (NTR) — under
the conditional annual waiver provisions of Title IV of the Trade Act of 1974. NTR
status was made permanent (PNTR) for Mongolia effective July 1, 1999, obviating
the annual trade status review process.
In FY2004, Mongolia became an eligible country for U.S. assistance through the
Millennium Challenge Account (MCA), and submitted a proposal late in 2005. After
several years of consultations, the Millennium Challenge Corporation (MCC) on
June 14, 2007, issued notification to Congress initiating a 15-day consultation period
prior to commencing MCA Compact negotiations with Mongolia. On September 12,

2007, the MCC Board of Directors awarded Mongolia a $285 million aid program,


focused mainly on improving rail transportation, property rights, and vocational
education and health care. On October 22, 2007, President Bush approved the aid
package. On October 23, 2007, the U.S. and Mongolia signed an agreement to
increase cooperation in preventing nuclear smuggling.
In the Congress, H.Con.Res. 178 (Dreier) expresses the sense of the Congress
that the United States should expand trade opportunities with Mongolia by initiating
negotiations to enter into a free trade agreement. S.Res.352 (Murkowski) expresses
the sense of the Senate that the U.S. should encourage continued economic
cooperation with Mongolia, continue to work with international financial institutions
to promote economic growth in Mongolia, provide assistance to Mongolia under the
MCC, and encourage greater academic and cultural exchanges with Mongolia.
This report provides background information on Mongolia, including political
and economic conditions, the status of U.S.-Mongolian political and economic
relations, and key security and foreign policy issues.



Contents
In troduction ......................................................1
Background ......................................................2
Political Trends and Conditions.......................................2
Weak Governmental Institutions, Corruption....................2
Legislative Elections of 1996.....................................3
Instability in 1997.............................................3
Break-up of Democratic Coalition, 1998-2000 .......................4
Coalition Government Collapse, 2006 .............................5
Economic Trends and Conditions.....................................5
Trade and Foreign Direct Investment..............................7
U.S.-Mongolian Relations...........................................8
Bilateral Trade Relations....................................9
Millennium Challenge Account Eligibility.....................11
Anti-Terror and Peacekeeping Support........................12
Legislation in the 110th Congress.............................12
List of Tables
Table 1. Selected Economic Data for Mongolia..........................7
Table 2. Major Mongolian Merchandise Exports and Imports: 2006..........8
Table 3. U.S. Merchandise Trade With Mongolia: 2000-2006.............10
Table 4. Major U.S.- Mongolian Merchandise Trade Commodities: 2006....10



Mongolia and U.S. Policy:
Political and Economic Status
Introduction
The United States established diplomatic relations with Mongolia in 1987, when
it was still a Communist state, and since then has sought to expand bilateral cultural
and economic ties. In 1991, following the signing of a bilateral trade agreement, the
President restored Mongolia’s most-favored-nation (MFN) trading status — now
referred to as Normal Trade Relations (NTR) — under the conditional annual waiver
provisions of Title IV of the Trade Act of 1974. That NTR status was made
permanent (PNTR) effective July 1, 1999, obviating the annual trade status review
process.1
In 1990, the ruling Mongolian People’s Revolutionary Party (MPRP) declared
the end of the country’s one-party communist state and initiated democratic reforms
with U.S. assistance. Since then, the country has been an enthusiastic practitioner of
democratic government, although not without some difficulty. Mongolia has seen
several reshufflings of government, for
instance — the most recent on January
Country Data10, 2006, when its delicately balanced
coalition government collapsed and the
Population: 2.95 million (July 2007 est.) Mongolian parliament chose a new
Area: 1.566,500 sq km (slightly larger thanPrime Minister in accordance with the
Alaska)country’s constitutional requirements.
Location: Sandwiched between RussiaSince then, Mongolia’s profile has been
(north) and China (south)
Life Expectancy: 66.99 years (2005)raised further by the 2005 visits of
GDP: $2.8 billion (2006)President George Bush and Secretary
Resources: oil, coal, copper, molybdenum,Donald Rumsfeld. This report provides
tungsten, phosphates, tin, nickle, zinc,background information on Mongolia,
fluorspar, gold, silver, ironincluding political and economic
Primary export partners 2006: China
(67.4%); Canada (11.1%); U.S. (7.7%) conditions, the status of U.S.-
Primary import partners 2006: RussiaMongolian political and economic
(36.7%); China (27.6%); Japan (6.8%) relations, and key security and foreign
Data from CIA World Factbook, May 27, 2007;policy issues.


Economist Intelligence Unit, May 2007, and IMF.
1 See Section 2424 of The Miscellaneous Trade and Technical Corrections Act of 1999,
enacted as P.L. 106-36, effective on July 1, 1999, by Presidential Proclamation 7207.

Background
Once part of the Chinese empire, Mongolia achieved independence in 1921 in
a revolution backed by the Soviet Union. After this, the communist Mongolian
People’s Revolutionary Party (MPRP) ruled for almost 70 years, maintaining a
tenuous balance between the Soviet Union and China and receiving substantial
financial assistance from each. Public demonstrations for political pluralism in 1990
led to the resignation of the Communist MPRP government, whose leaders declared
the end of a one-party Communist state. Since then, Mongolia has been undergoing
a political and economic transition to a parliamentary democracy under new
constitutional rules adopted in 1991. After decades of dependency on Soviet aid ( at
one point worth nearly 40% of the country’s GDP), Mongolia has sought to broaden
its foreign contact and trade.
Political Trends and Conditions2
Despite the official demise of Communism in Mongolia in 1990, the formerly
communist MPRP has continued to play a dominant political role.3 In the first
popular elections ever for Mongolia’s parliament in 1990, the formerly communist
People’s Great Hural, the MPRP won 80% of the seats. In turn, the same year, this
MPRP-dominated parliament elected an MPRP member, P. Ochirbat, as Mongolia’s
first president. While a new constitution in 1992 created a new parliament (the State
Great Hural) to replace the People’s Great Hural, the MPRP also won a significant
majority in the new body. Its 71 out of a total of 76 seats gave it firm control while
Mongolia’s fledgling opposition parties remained essentially powerless. But the
balance began to tip away from the MPRP in 1994, when the party turned against
Ochirbat after he vetoed legislation passed by the parliament. When Ochirbat lost
the MPRP’s backing in Mongolia’s first direct presidential election in 1993, he ran
and won as an opposition candidate.
Weak Governmental Institutions, Corruption. Mongolia’s legal and
financial institutions remain underdeveloped and are a serious impediment to
improving the country’s economy and business climate. In part because of these
weak institutions, the existence and enforcement of laws protecting private property
is extremely limited even though the government passed a land ownership law in
2002 that allows the sale of farmland to individuals. Governmental corruption also
is becoming a more acute problem and was the subject of demonstrations and
protests during the 2005 presidential election campaign. In some respects, and with
considerable assistance from western democratic organizations, the fledgling
government has made great strides in the 15 years since it adopted multi-party


2 Sources for this section include the Far Eastern Economic Review, the Wall Street Journal,
and the Foreign Broadcast Information Service.
3 The MPRP, having shrugged off Communism, nevertheless did not officially adopt a new,
Socialist agenda until March of 1997, when it amended its party platform.

politics.4 Still, Mongolia’s legislative processes remain in their infancy. It was only
in 2004, for instance, that Mongolia’s parliament, the State Great Hural (SGH),
passed measures giving parliamentary committees separate budgets, staff, and rules
of procedure. The first public hearing by a parliamentary committee was held only
in 2002, although western groups providing assistance are encouraging the SGH to
hold public hearings as a routine part of the legislative process.
Legislative Elections of 1996
Mongolia’s parliamentary elections on June 30, 1996, were the first in which an
effective, organized opposition existed to challenge the MPRP’s 75-year rule. The
“Democratic Union,” formed over a period of about five years by a coalition of eight
opposition parties, was the only party to field a clear, recognizable political platform
to challenge MPRP candidates.5 It achieved a stunning electoral victory in what was
widely regarded as a free and fair election. With 91% of the electorate turning out
to vote, the Democratic Coalition took 50 of the 76 seats, giving it a majority in the
parliament as well as the support of President Ochirbat. The new Mongolian
leadership was quoted as crediting the victory to help from U.S. political strategists
and to study of American political devices — the “Contract with America” in
particular.
Economic issues, political reform, and foreign relations dominated the 1996
election campaign. In a political strategy that many came to view as the cause of the
MPRP’s downfall, the party offered no firm prescriptions for Mongolia’s political
problems or for its relations with other countries. Democratic Union coalition
candidates, on the other hand, put forward a more specific policy agenda, vowing to
make government more transparent, sell state-owned media organizations, establish
pension plans, increase teacher salaries, and reform Mongolia’s judicial system.
Finally, the coalition placed a strong emphasis on friendship with the West —
primarily with the United States, which Mongolia calls its “third neighbor.”
Instability in 1997
Mongolia held two related elections in 1997. In the presidential election on
May 18, the results of the 1993 presidential election were reversed, and the
presidency was won by Natsagiin Bagabandi, the MPRP candidate, leaving the
government divided between the executive and the parliament. Bagabandi won with

60.8% of the vote against two other candidates: the incumbent of seven years,


President Ochirbat, from the Democratic Union coalition, which retained its majority
in the Great Hural from the 1996 elections; and Gombojav, from the Mongolian
Unity Party (MUP). On August 20, 1997, Mongolia held an interim parliamentary
election to replace Bagabandi, who had to give up his seat in the Great Hural in order


4 The International Republican Institute (IRI), in particular, has an extensive democracy-
building program in Mongolia, conducting election training programs and assisting with
parliamentary development.
5 The two largest parties in the coalition were the Mongolian National Democratic Party
(MNDP) and the Mongolian Social Democratic Party (MSDP).

to become president. Bagabandi’s former parliamentary seat was won by MPRP
member Nambaryn Enkhbayar.
To some extent, political analysts at the time regarded Bagabandi’s election as
a symbolic gesture of public frustration over the drastic and painful economic
reforms imposed by the new government after the 1996 elections. Under those
reforms, unemployment, crime, and taxes rose, while other financial and economic
policies were not entirely successful. In addition, some believed that the Democratic
coalition majority elected in 1996 did not communicate its goals and policies
effectively enough to the public to sustain its popularity in the 1997 presidential
election cycle. Most believed that Bagabandi’s election would not change the overall
direction of democratic development and reform in Mongolia. For one thing,
Mongolia’s 1991 Constitution reserves only limited powers to the President — in
principle, the power to veto — while giving most political power to the Great Hural,
including the power to appoint government ministers. Nevertheless, the Democratic
coalition’s 50-seat majority in the Great Hural, though substantial, was still one vote
short of the margin needed to override presidential vetoes.
Break-up of Democratic Coalition, 1998-2000
Mongolia’s political situation became more tumultuous in 1998, with a series
of political crises leading to much legislative maneuvering between the MPRP-led
government and the ruling Democratic coalition. On April 17, 1998, Prime Minister
Enkhsaikhan announced his resignation in the wake of public discontent over harsh
reform measures he had adopted to strengthen Mongolia’s economy. On April 23,
1998, Enkhsaikhan was replaced as Prime Minister by MNDP member Tsakhiagiyn
Elbegdorj, the majority leader in parliament, who was elected with 60 votes out of
the 76 members in the Great Hural. Elbegdorj, in turn, was forced to resign by a no-
confidence vote in the Great Hural on July 24, 1998 — making his government the
shortest in Mongolia’s brief democratic history — because of his controversial
decision on May 27, 1998, to allow the state-owned Renovation Bank to merge into
the privately held Golomt Bank. The parliamentary group of the MPRP charged that
the decision on the bank merger violated the Mongolian constitution and posed a
threat to national economic security. In the ensuing months, the ruling parliamentary
coalition struggled with President Bagabandi over the naming of a new Prime
Minister, with Bagabandi repeatedly rejecting the Great Hural’s choice of Davaadorj
Ganbold.
In December 1998, the new MNDP leader, Janlavyn Narantsatsralt, became
Prime Minister. But his government fell in scandal in July 1999. On July 30, 1999,
the Great Hural endorsed as Prime Minister Rinchinnyamyn Amarjargal, another
Democratic coalition candidate. Ultimately, in 2000, the strain of these political
crises proved too much for the Democratic coalition. It collapsed, setting the stage
for a dramatic comeback by the MPRP in parliamentary elections in July, when
MPRP candidates won 72 out of the 76 seats in the Great Hural. That month, the
MPRP leader, Nambaryn Enkhbayar, became Mongolia’s 5th Prime Minister in two
years. In December 2000, the remnants of the former Democratic coalition, including
the MNDP and the MSDP, merged to form the Democratic Party (DP). President
Bagabandi was elected to a second term as president in May 2001.



Coalition Government Collapse, 2006
Mongolia’s latest political crisis was born in the 2004 parliamentary elections
when an assortment of democratic-minded parties under the umbrella title
Motherland Democracy Coalition (MDC) won 34 parliamentary seats (out of a total
of 76) to the MPRP’s 38 seats. After weeks of political gridlock, the two groups
compromised to form a workable coalition government: the Democratic Party leader,
Tsakhiagiyn Elbegdorj, became the new Prime Minister and the MPRP assumed 10
positions in Elbegdorj’s 18-member cabinet. But the troubled government struggled
with growing unemployment, allegations of corruption, and factional differences.
The increasing popular disillusionment with the coalition’s rule was reflected
in presidential elections in May 2005, when MPRP candidate and former Prime
Minister Nambaryn Enkhbayar won the presidency (a less influential, though still
powerful, position than that of Prime Minister) with 53.4% of the vote, compared to
the 19.7% garnered by his Democracy Party rival, Mendsaikhani Enkhsaikhan. On
January 11, 2006, the fragile government collapsed altogether when all 10 MPRP
cabinet members resigned in protest to what they said was the alliance’s ineffective
governance and loss of public support. The collapse was followed by days of
protests in the capital — some protesting government corruption and economic
deprivation, some accusing the MPRP of attempting to seize power for itself. The
official government response to the MPRP resignation, however, followed
established political procedures. On January 25, 2006, the parliament chose
Miyeegombo Enkhbold, MPRP chairman, as the new Prime Minister succeeding
Elbegdorj. According to reports, the Democratic Party declined the MPRP’s offer
to join in a “national unity” government and instead chose to function as an
opposition and establish a “shadow cabinet.”6 The next parliamentary elections are
in June 2008.
Economic Trends and Conditions7
Mongolia’s economy is relatively poor and agrarian, with few industries but
extensive mineral deposits. About one-third of Mongolia’s people live in poverty.
Its gross domestic product (GDP) in 2006 was $2.8 billion, and per capita GDP on
a purchasing power parity (PPP, a common measurement of living standards), was
$2,735 (equivalent to about 6.2% of U.S. levels).8 Agriculture is a major economic


6 Innes, Claire, “Democratic Party rejects offer to join new coalition government in
Mongolia,” Global Insight Daily Analysis, English, January 19, 2006.
7 Sources for this section include the Economist Intelligence Unit and the Foreign Broadcast
Information Service.
8 Purchasing power parity (PPP) data attempt to factor in price differentials between
countries (which do not get reflected by nominal exchange rate data) in order to determine
the actual purchasing power (expressed in dollars) of a country’s GDP. Using nominal
exchange rates, Mongolia’s per capita GDP in 2006 was only $870. However, the PPP data
indicated that because the cost of goods and services is much lower in Mongolia than in the
(continued...)

sector (especially herding), accounting for about one-fifth of GDP (2005); it employs
about half of the population. Mineral production accounts for 68% of industrial
output, 46% of foreign direct investment (FDI), and 59% of Mongolia’s export
earnings.9
The collapse of the Soviet Union in the early 1990s had a severe impact on
Mongolia’s economy, which had employed Soviet-style economic policies and
heavily relied on Soviet assistance.10 After that aid abruptly ended, the economy
suffered; real GDP fell by 9.2% in 1991 and by 9.5% in 1992, leading to a significant
decline in Mongolian living standards.11 Subsequently, the central government
moved to privatize its state-owned economy and adopt other free market reforms.
From 1990 to 2006, the proportion of GDP accounted for by the private sector rose
from 4% to 80%. Such reforms enabled Mongolia to join the World Trade
Organization (WTO) in 1997.
Mongolia has struggled to reform the economy while promoting economic
growth. From 1997 to 2002, real GDP growth averaged only 2.8%.12 In 2003,
Mongolia agreed to pay Russia $250 million, an enormous sum for the government,
to resolve most of its debt obligations in an effort to strengthen investor confidence.
From 2003 to 2006, real annual GDP growth averaged 7.5%; much of that growth
resulted from increases in global metal prices (such as cooper and gold), and
relatively mild winters (which affects livestock). Global Insight, an economic
forecasting firm, estimates that real GDP rose by 7.3% in 2006 (over the previous
year) and projects that it will grow by 7.0% in 2007 (see Table 1).13 Among the
major economic challenges currently facing Mongolia are: a weak banking system,
sharp fluxes in global mineral prices, growing costs for imported energy, high
unemployment, weak rule of law, government corruption, harsh weather conditions,
and inadequate infrastructure.


8 (...continued)
United States, the actual purchasing power of its per capita GDP is actually much higher
($2,735).
9 Economist Intelligence Unit, Mongolia, May 2007.
10 Such aid accounted for about one third of Mongolia’s GDP.
11 Per capita GDP on a PPP basis fell from $4,575 in 1991 to $1,326 (a 245% drop), and
although living standards have improved, they were still 67% lower in 2006 than they were
in 1991. Source, Global Insight, Mongolia, Detailed Analysis, March 2007.
12 Economic growth was hampered by a number of factors, including severe weather
conditions in 2000 and 2001, which damaged the agriculture sector. As a result, real GDP
grew by only 1.0% in 2000 and by 1.1% in 2001.
13 Note, the Mongolian government reported even faster growth for 2006 at 8.4%

Table 1. Selected Economic Data for Mongolia

2000 2005 2006 2007(projected)


Real GDP Growth Over1.16.27.37.0
Previous Year (%)
Per Capita GDP (PPP $ Basis) 1,7962,5032,7352,958
Inflation (Consumer Price6.28.95.35.0
Index) (%)
Exports of Goods & Services0.61.52.02.1
($billions)
Imports of Goods & Services0.81.61.92.2
($billions)
Source: Global Insight.
Trade and Foreign Direct Investment
Mongolia’s merchandise exports and imports in 2006 totaled $1.5 billion and
$1.3 billion, respectively (see Table 2). The top three Mongolian exports were
copper, gold, and animal hairs. Its top three imports were oil; machinery, equipment,
and electrical appliances; and transport equipment. China is Mongolia’s largest
export market (accounting for 67.4% of total, mainly minerals), followed by Canada
(11.1%) and the United States (7.7%). Russia is Mongolia’s largest source of its14
imports (36.6% of total), followed by China (27.6%) and Japan (6.8%).
According to the Mongolian government, at the end of 2004, there were 3,042
registered foreign investment companies from 73 countries with cumulative FDI of15
about $1.2 billion. Around $237 million was invested in Mongolia in 2004; of
which 46% went into mining and oil exploration (the United States was the third
largest foreign investor in this sector), 13% into trade and services (e.g., wholesale
and retail trade, restaurants, and cafes), and 8% into light industry (mainly textiles
and apparel). China was the largest foreign investor in Mongolia in 2004, followed
by Canada and the United States (at $135.4 million).16


14 Economist Intelligence Unit, Mongolia, May 2007
15 Foreign Investment and Foreign Trade Agency (FIFTA), government of Mongolia.
16 Ibid.

Table 2. Major Mongolian Merchandise Exports and Imports:
2006
Major Commodity$millionsPercent of total
Total Exports 1,531.1100
Cooper concentrate 635.242.7
Gold and gold products270.117.6
Cashmere and cashmere products143.39.4
Total Imports 1,334.5100.0
Mineral products (mainly oil)446.333.4
Machinery, equipment, and electrical270.620.3
appliances
Transport equipment, vehicles, and spare158.511.9
parts
Source: Economist Intelligence Unit, Mongolia, May 2007.
U.S.-Mongolian Relations
Since the early 1990s, Mongolia has pursued an open and non-aligned foreign
policy, seeking supportive friendships more broadly in Asia and around the world
and taking a more active role in international organizations, particularly in the United
Nations.17 Not surprisingly given its geographical location, the land-locked country
maintains good relations with Russia and China, its two giant neighbors. As a new
democracy, Mongolia also places a high priority on cultivating good relations with
the United States, which government officials in Ulaan Bator have referred to as
Mongolia’s “third neighbor.”
The United States recognized Mongolia in 1987 and since then has sought to
expand cultural and economic ties. At Mongolia’s invitation, the United States
began a Peace Corps program there in 1991, which by 2007 was maintaining about
100 Peace Corps volunteers in the country.18 Also in 1991, following the signing of
a bilateral trade agreement, the President restored Mongolia’s most-favored-nation
(MFN) trading status — now referred to as Normal Trade Relations (NTR) — under
the conditional annual waiver provisions of Title IV of the Trade Act of 1974. NTR


17 Aside from U.N. organizations, Mongolia’s participation in international organizations
also includes the Asian Development Bank, the Asian Regional Forum, the International
Atomic Energy Association, the Pacific Economic Cooperation Council.
18 According to the Embassy of the United States in Ulaanbaatar, Mongolia.

status was made permanent for Mongolia effective July 1, 1999, obviating the annual
trade status review process, and creating a more stable trade environment.19
Mongolia remains a relatively minor (though growing) U.S. trading partner.
According to International Monetary Fund (IMF) statistics, in 2005, U.S. exports to
Mongolia totaled $21.5 million, while imports totaled $144 million.20 According to
the U.S. Department of Commerce, the most promising sectors for increased U.S.
exports to Mongolia include mining, construction, franchising, information
technology, tourism, and meat processing. On July 15, 2004, the United States
signed a Trade and Investment Framework Agreement (TIFA) with Mongolia to
boost bilateral commercial ties and resolve trade disputes. Since 1991, the U.S.
Agency for International Development (USAID) has provided around $150 million
in assistance to Mongolia. Major USAID programs have focused largely on
promoting sustainable private sector-led economic growth and more effective and
accountable governance.
One primary U.S. interest in Mongolia is in supporting the country’s ongoing
transition from a communist state to a nation with a market-based economy and a
democratically elected government. U.S. support for both Mongolia’s political and
its economic reforms has been tangible. The United States strongly supported
Mongolia when it joined the IMF, the World Bank, and the Asian Development Bank
in 1991. Congress annually has earmarked U.S. assistance amounts for Mongolia to
signal its support. In addition, in 2007, the House Democracy Assistance
Commission initiated a program of parliamentary assistance to Mongolia’s
parliament, the State Great Hural.
Bilateral Trade Relations. Mongolia is a relatively minor U.S. trading
partner. In 2006, Mongolia was the 175th largest U.S. export market (at $23 million)rd
and its 123 largest source of imports (at $114 million). From 2000 to 2006, U.S.
exports to Mongolia rose by nearly 30%, and by 5.5% from 2005 to 2006. The peak21
year for U.S. exports to Mongolia was in 2002 ($66.3 million). U.S. imports from
Mongolia peaked in 2004 at $239.1 million, but declined sharply in 2005 and 2006.22
The U.S. incurred a $90.8 million trade deficit with Mongolia in 2006. Major U.S.
exports to Mongolia in 2006 included agricultural and construction machinery,
aerospace products and parts, and donated products), while the top three imports
from Mongolia were apparel (which accounted for 91% of U.S. imports), non-
metallic minerals, and animal hairs (see Tables 3 and 4).


19 See Section 2424 of The Miscellaneous Trade and Technical Corrections Act of 1999,
enacted as P.L. 106-36, effective on July 1, 1999 by Presidential Proclamation 7207.
20 Source: U.S. Department of Commerce and U.S. International Trade Commission data.
21 The spike in U.S. exports for this year was mainly attributed by an increase in U.S. sales
of aircraft and parts, which are generally big ticket items, but whose purchases can vary
sharply from year to year.
22 From January-August 2007, U.S. imports from Mongolia were down by 33.6%, while U.S.
exports to Mongolia were up by 12.7%, compared with the same period in 2006.

Table 3. U.S. Merchandise Trade With Mongolia: 2000-2006
($ millions and percent change)
20002001200220032004200520062000/2006 % Change
Exports 17.7 12.1 66.3 20.7 28.1 21.8 23.0 29.9
Imports 116.6 143.6 161.5 183.4 239.1 143.7 113.9 -2.4
Source: USITC Database.
Table 4. Major U.S.- Mongolian Merchandise Trade
Commodities: 2006
Major Commodity$ millionsPercent Changeover 2005 (%)
Total U.S. Exports 23.05.5
Agricultural and construction machinery 4.1-15.6
Aerospace products and parts3.62,744.9
Special classification provisions (mainly2.029.1
articles donated for relief or charity by
individual or private agencies)
Total U.S. Imports113.9-20.7
Apparel 103.7-22.8
Non-metallic minerals4.7-12.7
Sheep, goat, and other fine animal hair2.0555.7
Source: USITC Database.
According to the U.S. Department of Commerce, the most promising sectors
for increased U.S. exports to Mongolia include mining, construction, franchising,23
information technology, tourism, and meat processing. On July 15, 2004, the
United States signed a Trade and Investment Framework Agreement (TIFA) with
Mongolia to boost bilateral commercial ties and resolve trade disputes. During a
TIFA meeting in 2005, the United States urged Mongolia to provide greater
transparency in the government’s decision making; improve protection for
intellectual property, simplify customs procedures, and to continue the privatization
of state enterprises, particularly in the key energy (telecommunications, and civil
aviation sectors).


23 U.S. and Foreign Commercial Service and U.S. State Department, Doing Business in
Mongolia 2006: A Country Commercial Guide for U.S. Companies, 2005.

From 1991-2004, the U.S. Agency for International Development (USAID)
provided around $150 million in assistance to Mongolia. USAID programs have
focused on two main projects which seek to promote private sector led economic
growth and efforts to achieve more effective and accountable governance; U.S.
appropriations for these two projects totaled $7.5 million in FY2007.24 Other
projects have sought to promote: tax reform, the investment climate, tourism, and
business training for rural inhabitants. Mongolia also is eligible for assistance under
the U.S. Millennium Challenge Account.
In an address to the American Center For Mongolian Studies in June 2006, U.S.
Ambassador to Mongolia Pamela Slutz called on Mongolia to lessen its dependence
on foreign assistance by promoting policies that would encourage more trade and
foreign investment. The ambassador stated that (according to the World Bank and
IMF) Mongolia had received $2 billion in assistance over the last 15 years, and that
it annually receives $300 million in aid, making it one of the world’s most dependent
countries on foreign aid.25 Mongolia has asked for a Free Trade Agreement (FTA)
with the United States.26 However, U.S. officials have indicated that Mongolia must
make major reforms of many sectors of its trade regime and legal system, and to
improve its labor conditions, before it will consider FTA negotiations.27
One primary U.S. interest in Mongolia is in supporting the country’s ongoing
transition from a communist state to a nation with a market-based economy and a
democratically elected government. U.S. support for both Mongolia’s political and
its economic reforms has been tangible. The United States strongly supported
Mongolia when it joined the IMF, the World Bank, and the Asian Development Bank
in 1991. Congress annually has earmarked U.S. assistance amounts for Mongolia to
signal its support. In addition, in 2007, the House Democracy Assistance
Commission initiated a program of parliamentary assistance to Mongolia’s
parliament, the State Great Hural.
Millennium Challenge Account Eligibility. In FY2004, Mongolia became
an eligible country for U.S. assistance through a Millennium Challenge Account
(MCA). After a consultation process, Mongolia submitted an official MCA proposal
to the Millennium Challenge Corporation (MCC) late in 2005. Since then, the MCC
has been conducting “due diligence” on Mongolia’s proposal (assessing it for its


24 This is down from $9.9 million in FY2004. See USAID, Budget, Mongolia at
[http://www.usaid.gov/policy/ budget/cbj 2007/ane/mn.html ].
25 Vision 2020: Whither Mongolia? (and Ways the U.S. Can Contribute to Growth and
Prosperity), Speech by Ambassador Pamela J. Slutz to The American Center for Mongolian
Studies Ulaanbaatar, June 8, 2006, available at [http://usinfo.state.gov/ei/Archive/2006/Jun/

15-96720.html].


26 In the 109th Congress, legislation was introduced, include H.Con.Res 244, and S.Con.Res.
111, calling on the United States to expand trade opportunities with Mongolia and to seek
an FTA.
27 See, keynote address by Ambassador Pamela J. Slutz before the 8th Annual Investors
Conference and Prime Minister’s Roundtable, the North America-Mongolia Business
Council, September 12, 2005, Ulaanbaatar, Mongolia, available at
[http://mongolia.usembassy.gov/09122005.html ].

suitability, technical viability, and compliance with MCC environmental and other
guidelines), after which bilateral negotiations are expected to begin on a final MCA
Compact agreement. During her visit to Mongolia in January 2007, the Managing
Director of the MCC, Frances Reid, reaffirmed that it was the U.S. intent to conclude
an MCA agreement with Mongolia in 2007. On June 14, 2007, the MCC issued
notification to Congress initiating a 15-day consultation period prior to commencing
Compact negotiations with Mongolia. On September 12, 2007, the MCC Board of
Directors awarded Mongolia a $285 million aid program, focused mainly on
improving rail transportation, property rights, and vocational education and health
care. On October 22, 2007, President Bush approved the aid package during a visit
to Washington, DC, by Mongolian President Nambaryn Enkhbayar after the two
presidents signed an MCC Compact.
Anti-Terror and Peacekeeping Support. Mongolia was an early political
supporter of the U.S. global anti-terror effort, as well as an early logistics supporter,
offering training opportunities and overflight clearances for U.S. forces. Mongolia
has contributed troops, engineers, and medical personnel to Operation Iraqi Freedom
since April 2003. At the request of the United States, Mongolian forces also are
participating in training artillery units of the Afghan National Army. U.S.
appreciation for this assistance led in part to last year’s visits to Mongolia by
Secretary of Defense Donald Rumsfeld (in October 2005) and President George Bush
(in November 2005) — the first U.S. Defense Secretary and U.S. President ever to
visit Mongolia. President Bush’s visit resulted in a Joint Statement reaffirming the
U.S.-Mongolian “comprehensive partnership between their two democratic countries28
based on shared values and common strategic interests...” In 2006, Mongolia
expanded its global peacekeeping activities by sending a contingent of 250 soldiers
to protect the U.N. war crimes tribunal in Sierra Leone, a platoon to participate in the
NATO mission in Kosovo, and by helping to serve as U.N. observers in Sudan and
Ethiopia/Eritrea.
On October 23, 2007, the U.S. and Mongolia signed a memorandum of
understanding to increase cooperation in preventing nuclear smuggling by allowing
the U.S. to install radiation detection equipment in Mongolia and at several of its
border crossings. In addition, the two sides signed the Proliferation Security
Initiative Shipboarding Agreement, which would allow either side to request the
other to confirm the nationality of a U.S. or Mongolian flagged vessel, and possibly
detain the ship or its cargo, in order to prevent the proliferation of weapons of mass
destruction (WMD).29
Legislation in the 110th Congress. There are two bills that specifically
address U.S. relations with Mongolia. H.Con.Res. 178 (Dreier) expresses the sense
of the Congress that the United States should expand trade opportunities with
Mongolia by initiating negotiations to enter into a free trade agreement (FTA).
S.Res.352 (Murkowski) expresses the sense of the Senate that the U.S. should
encourage continued economic cooperation with Mongolia, continue to work with


28 November 21, 2005, [http://www.whitehouse.gov/news/releases/2005/11/

20051121-1.html ].


29 See U.S. Embassy in Mongolia website: [http://mongolia.usembassy.gov/].

international financial institutions to promote economic growth in Mongolia, provide
assistance to Mongolia under the MCC, and encourage greater academic and cultural
exchanges with Mongolia (adopted by the Senate on October 18, 2007).