Mongolia-Japan—Economic Partnership Agreement (EPA) ushers in new stage in bilateral relations

Mongolia-Japan—Economic Partnership Agreement (EPA) ushers in new stage in bilateral relations

Japanese Prime Minister Shinzo Abe and Mongolian Prime Minister Chimed Saikhanbileg shake hands,
following a news conference, in which the signing of a bilateral economic partnership was announced.

Mongolia and Japan established diplomatic relations in 1972. However, the relationship remained largely inactive until Mongolia entered an era of democratization and economic reforms beginning in 1990. Since then, the two countries have expanded and deepened bilateral cooperation. In the early 1990’s, Japan began actively supporting Mongolia in its efforts towards democratization and through its economic transition to a market economy, while also encouraging its self-help efforts. Moreover, Japan has not only supported Mongolia bilaterally but also at the international level. It played an active role in hosting the meetings of aid donor nations and organizations that it co-sponsored with the World Bank. As the largest official development aid (ODA) donor country, Japan has been providing extensive financial and technical assistance that amounted to ¥238.7 billion as of 2012. This has been provided to various sectors such as: industry and agriculture, public transport, road construction, heavy equipment and machine repair, repair and restoration of school facilities, kindergartens and hospitals, the development of telecommunications, business management and so on. Therefore, the Mongolian people are grateful to Japan for its valuable assistance to Mongolia, both in terms of political and material support.

Shortly after the democratic revolution in Mongolia, the two countries exchanged official visits at various levels, including reciprocal visits by the Prime Ministers of each country. This signaled the beginning of increasingly friendly relations and deepening understanding between the two countries. In 2010, on the occasion of President Ts.Elbegdorj’s visit to Japan, the leaders of Mongolia and Japan agreed to upgrade their level of cooperation from a “Comprehensive Partnership” to a “Strategic Partnership.” Through Prime Minister Abe’s visit to Mongolia in March 2013, and Prime Minister N.Altankhuyag’s visit to Japan in September 2013, the two governments established the “Japan-Mongolia Mid-term Action Plan”. The plan aims to strengthen and develop the partnership as a mutually beneficial and complementary relationship. The two governments affirmed their commitment to implement the plan by 2017. These exchanges at the high and highest levels played an important role in the bilateral relations between the countries, particularly in developing mutually beneficial ties in the economic sector. President Ts.Elbegdorj and Prime Minister Shinzo Abe have had seven talks in the last two years, and the relationship between the two has been dubbed the “Abe-Ebe partnership.” Abe proposed the “Erch (vitality) Initiative” and the “Erch Initiative plus” to support Mongolia’s efforts to boost its economy through increasing foreign investment, and by diversifying industrial and export commodities.

This year, Mongolia-Japan relations and cooperation got off to a good start as seen in a number of high-level visits from Mongolia to Japan. President Ts.Elbegdorj and Speaker of the Parliament Z.Enkhbold made official visits to Tokyo by invitation of the Japanese government, while Prime Minister Ch.Saikhanbileg made an official visit to sign the Economic Partnership Agreement (EPA) between the two countries. The EPA was signed by the Prime Ministers on the 10th of February and was ratified soon after by the parliaments of both countries. This is the first ever Free Trade Agreement entered into by Mongolia and the fifteenth for Japan. The Agreement consists of seventeen chapters and ten appendixes along with an agreement on implementation. It will serve to increase bilateral trade, investment, industrial value-added exports, and foreign exchange income in Mongolia. It is also expected to reduce tariff and non-tariff barriers, promote trade, and to simplify customs clearance as well as the movement of people between the two countries.

The EPA will be crucial for strengthening ties between the private sectors of both countries, in augmenting investment, and in creating a basis for mutually beneficial and complementary economic ties. Moreover, it is highly expected to promote and balance trade between Mongolia and Japan. According to statistical data from the Ministry of Industry of Mongolia, the total value of imports from Japan to Mongolia came to US$ 367.8 million or 7% of the total amount of foreign trade in 2014, while the value of Mongolia’s exports to Japan came to US$ 24.5 million, which was only 0.4% of all exports in the same year. Mongolia’s main export items to Japan include mineral resources such as fluorite, coal, textile products, cashmere, and meat products. Meanwhile, more than 60% of the total exports from Japan include used automobiles, machinery, construction machinery, and mining machinery. The agreement will pave the way for an increase in direct Japanese investment to Mongolia, which as of 2013, amounted to US$ 230 million.

The agreement is also important for Japan as it strives to diversify its energy sources. Before the accident at the Fukushima nuclear power station in March 2011, Japan derived its electrical power largely from nuclear energy. However, in the current climate, other sources of power are increasingly desirable. At a time when Japan is considering how to reduce its dependence on nuclear power, Mongolian mineral resources are of growing importance for Japan as it contemplates the appropriate energy mix.

Since the 1990’s, economic relations between the two countries have been based primarily on the implementation of economic cooperation in the form of ODA from Japan to Mongolia. However, this trend has been changing in recent years. The EPA is likely to breathe new life into all spheres of business cooperation allowing Mongolia and Japan to benefit from the expanded partnerships between the private sectors of both countries. The EPA is likely to increase Japan’s investment to Mongolia at both national and regional levels. This will be the most desirable outcome of the newly established EPA. This partnership is likely not to only benefit Mongolia and Japan, but will be conducive for regional cooperation and prosperity in North East Asia.

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