RESTRICTED  WORLD  TRADE  
ORGANIZATION  WT/TPR/S/145 
15 February 2005  
 
(05-0550) 
Trade Policy Review Body  
   
 
  
 
TRADE POLICY REVIEW 
 
MONGOLIA 
 
Report by the Secretariat 
 
  
 
This report, prepared for the first Trad e Policy Review of Mongolia, has been 
drawn up by the WTO Secretariat on its own responsibility.  The Secretariat has, 
as required by the Agreement establishing the Trade Policy Review Mechanism 
(Annex 3 of the Marrakesh Agreement Establishing the World Trade 
Organization), sought clarification from Mongolia on its trade policies and 
practices. 
 
Any technical questions arising from this report may be addressed to 
Mr. Masahiro Hayafuji (tel: 022 739 5873). 
 
Document WT/TPR/G/145 contains the policy statement submitted by 
Mongolia. 
 
 
 
Note: This report is subject to restricted circ ulation and press embargo until the end of the first 
session of the meeting of the Trade Policy Review Body on Mongolia. Mongolia WT/TPR/S/145 
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CONTENTS 
    P a g e  
SUMMARY OBSERVATIONS vii 
 (1) T HE ECONOMIC ENVIRONMENT  vii 
 (2) T RADE POLICY REGIME  viii 
 (3) T RADE POLICIES AND PRACTICES BY MEASURE  viii 
 (4) T RADE POLICIES BY SECTOR  ix 
 (5) O UTLOOK  xi 
I. ECONOMIC ENVIRONMENT 1 
 (1) I NTRODUCTION  1 
 (2) R ECENT ECONOMIC DEVELOPMENTS  2 
 (3) M ACROECONOMIC POLICIES  4 
 (i) Fiscal policy 4  (ii) Monetary and exchange rate policy 5 
 (iii) Structural policies 6 
 (4) D
EVELOPMENTS IN MERCHANDISE TRADE  7 
 (i) Composition of trade 7 
 (ii) Direction of trade 7 
 (5) T RENDS AND PATTERNS IN FOREIGN INVESTMENT  10 
 (6) O UTLOOK  10 
II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVES 12 
 (1) G ENERAL INSTITUTIONAL FRAMEWORK  12 
 (2) T RADE POLICY FORMULATION AND IMPLEMENTATION  13 
 (3) T RADE RELATED LAWS AND REGULATIONS  14 
 (4) T RADE POLICY OBJECTIVES  17 
 (5) T RADE AGREEMENTS AND ARRANGEMENTS  17 
 (i) Mongolia and the World Trade Organization 17 
 (ii) Other trade arrangements 19 
 (6) F OREIGN INVESTMENT REGIME  21 
 (7) T RADE -RELATED TECHNICAL ASSISTANCE  22 
III. TRADE POLICIES AND PRACTICES BY MEASURE 23 
 (1) I NTRODUCTION  23 
 (2) M EASURES DIRECTLY AFFECTING IMPORTS  23 
 (i) Customs procedures 23 
 (ii) Tariffs 25 
 (iii) Other charges affecting imports 29  (iv) Customs valuation, preshipment inspection, and rules of origin 31 
 (v) Import prohibitions, restrictions, and licensing 31 
 (vi) Contingency measures 34  (vii) Government procurement 34 
 (viii) State trading 35 
 (ix) Other measures 35 WT/TPR/S/145 Trade Policy Review 
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   P a g e  
 (3) M EASURES DIRECTLY AFFECTING EXPORTS  35 
 (i) Procedures 35 
 (ii) Export taxes, charges, and levies 36  (iii) Export prohibitions, re strictions, and licensing 36 
 (iv) Export-tax concessions, subsidie s, free zones, and export performance 
requirements 37 
 (v) Export finance, insurance, and guarantees 37 
 (vi) Export promotion and marketing assistance 37 
 (4) M
EASURES AFFECTING PRODUCTION AND TRADE  37 
 (i) Promotion of inward foreign direct investment 37 
 (ii) Standards and other technical requirements 38 
 (iii) Intellectual property rights 39  (iv) State-owned enterprises and privatization 42 
 (v) Competition policy 43 
IV. TRADE POLICIES BY SECTOR 44 
 (1) O
VERVIEW  44 
 (2) A GRICULTURE AND RELATED ACTIVITIES  45 
 (i) Policy framework and developments 47 
 (ii) Main subsectors 47 
 (iii) Forestry 49 
 (3) M INING   50 
 (4) E NERGY   52 
 (i) Petroleum and petroleum products 52  (ii) Electricity 53 
 (5) M
ANUFACTURING  54 
 (6) S ERVICES (OTHER THAN ENERGY ) 55 
 (i) Financial services 57 
 (ii) Telecommunications 64 
 (iii) Transportation 67  (iv) Tourism 70 
REFERENCES   71 
  
 Mongolia WT/TPR/S/145 
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CHARTS 
    P a g e  
I. ECONOMIC ENVIRONMENT 
 I.1 Product composition of merchandise trade, 1999 and 2003 8 
I.2 Direction of merchandise trade, 1999 and 2003 9 
 III. TRADE POLICIES AND PRACTICES BY MEASURE 
 
III.1 Average applied MFN tariff rates, by HS section, 2004 26 
 
 
TABLES 
 
I. ECONOMIC ENVIRONMENT 
 I.1 Main social and econmic indicators, 2002 1 
I.2 Selected macroeconomi c indicators, 1999-03 2 
 
II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVES 
 II.1 Main trade-related legislation 15 
II.2 Principal notifications under WTO Ag reements, as at 20 September 2004 18 
II.3 Mongolia's bilateral trade agreements 20  
III. TRADE POLICIES AND PRACTICES BY MEASURE 
 III.1 Legislation on tariff exemptions under certain projects 27 
III.2 Products bound at tariff rates other than 20% 27 
III.3 Structure of MFN tariffs 28 III.4 Imports exempted from the VAT 29 
III.5 Excise taxes  30 
III.6 Goods prohibited under Government Resolution No. 54 of 2001 32 III.7 Goods subject to import or export licence 33 
III.8 Export taxes for certain commodities, as of January 2004 36 
III.9 Enforcement statistics related to intellectual property, 2000-04 42  
IV. TRADE POLICIES BY SECTOR 
 
IV.1 Share of GDP by sector, 1995 and 1999-03 46 
IV.2 Share of employment by sector, 1995 and 1999-03 46 IV.3 Commitments on se rvices under GATS 55 Mongolia WT/TPR/S/145 
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SUMMARY OBSERVATIONS 
 
(1) THE ECONOMIC ENVIRONMENT  
1. Mongolia's economy is currently on a 
recovery path, with stable economic growth 
and moderate inflation.  Its GDP per capita has increased from arou nd US$430 in 1997, 
the year of Mongolia's accession to the WTO, to US$450 in 2002.  Macroeconomic and 
structural reforms, including in trade policy, 
have contributed to the economy's recovery;  however, the structural reform process remains to be completed. 
2. Mongolia, formerly a centrally 
planned economy, landlocked between the 
Russian Federation and China, began its 
transition to a market-based economy in 1991. There has been impressive progress in economic and political transition;  sweeping reforms were implemented speedily, including 
farm privatization and price deregulation, 
financial sector liberalization, and significant privatization of state entities.  As a consequence, the private sector's share of GDP has increased to around 80%, compared with almost zero before the transition began in 
1991.  Laws and regulations were also 
changed to create a legal framework to support a market economy.  These reforms have also helped Mongolia to deal with various setbacks, aggravated by exogenous 
developments, such as the Soviet Union's 
collapse and termination of its aid, and the Asian and Russian economic crises in 1997 and 1998, respectively. 
3. Aggregate real GDP had rebounded 
to pre-transition levels by 2001.  While 
volatile, real GDP has grown in each year since 1993, and averaged 3.3% during 1994-03;  it grew by 4% in 2002 and 5.6% in 2003.  Growth largely reflected a turnaround in agriculture and a buoyant services sector.  
Services grew substantially, accounting in 
2003 for 61.0% of GDP (48.5% in 1999) and about half of employment.  Inflation rose to 4.7% in 2003, when unemployment also rose to 3.5%.  4. Fiscal consolidation and reforms 
would reduce Mongolia's overall budget deficits.  They declined significantly between 1999 and 2003 from 11.9% of GDP to 4.5%.  
The Government's medium-term fiscal 
objective is to reduce the overall budget deficit to 3% of GDP by 2008.  The Bank of Mongolia has focused on price and exchange rate stability, while ensuring adequate money 
supply;  it aims to contain annual CPI 
inflation to around 5%.  Mongolia moved from a fixed U.S. dollar exchange rate to a floating system in May 1993.    
5. The early market-oriented reforms, 
including establishment of an open trade 
regime and a floating exchange rate, 
significantly helped the recovery.  Available 
data on total factor productivity, a key indicator of efficiency and international competitiveness, indicate that it turned 
positive and increased from the mid 1990s as 
resource efficiency gains induced by structural reforms and a more competitive economy began driving growth.   
6. Foreign trade plays an important part 
in Mongolia’s economy.  Mongolia's exports 
and imports of goods and non-factor services 
accounted for 49.2% and 64.9% of GDP respectively, in 2003.  The Government has generally resisted protectionist pressures and adopted, by and large, open trade and 
investment regimes.  Net exports of goods and 
non-factor services have been growing strongly since 2003;  export growth was helped by higher mineral prices.    
7. With gross domestic investment 
significantly exceeding gross national saving, 
the current account balance is in substantial deficit.  It peaked at 18.1% of GDP in 2000 (excluding official transfers) before falling to 14.6% in 2003.  This largely reflected a negative trade balance, equivalent to 15.7% of 
GDP in 2003, and a relatively small services 
deficit (3.9% of GDP in 2003).  These deficits have been met by capital inflows, particularly overseas aid, official loans from bilateral and multilateral donors and, more recently, rising 
foreign direct investment.  International WT/TPR/S/145 Trade Policy Review 
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reserves accumulated continuously from 1999 
to reach US$268.2 million in 2002, but fell to US$203.4 million in 2003 (12.8 weeks of merchandise imports).  
(2) T
RADE POLICY REGIME  
8. Mongolia's overall trade policy 
objectives are to support economic growth through an active trade policy, promote the industrial, agricultural,  and services sectors, 
and increase exports.   
9. Its multilateral trade policy is focused 
on its commitments, and present negotiations, in the WTO.  Mongolia acceded to the WTO on 29 January 1997, and has accepted all multilateral agreements;  it is not a signatory 
to the Agreement on Government Procurement 
or the Agreement on Trade in Civil Aircraft.  It grants at least most-favoured-nation treatment to all WTO Members.  On accession, it bound all its tariffs under GATT 1994.  Mongolia 
also committed to eliminating, within ten years 
of the date of its accession, an export duty at the rate of not more than 30% ad valorem on the export of raw cashmere.  Mongolia has not been a party to any disputes under the WTO dispute settlement mechanism.   
10. Mongolia has not signed any regional 
or bilateral free-trade agreements.  It has been involved in various bilateral trade-related arrangements, which do not involve preferential treatment.   
11. Mongolia is currently a beneficiary of 
the Canadian, EU, Japanese and U.S. preferential schemes und er the Generalized 
System of Preferences.    
12. No restriction is imposed on the size 
and content of foreign direct investment into 
Mongolia, except that the production of weapons is prohibited.  Foreign nationals and companies are not allowed to own land in Mongolia; however,  they can lease land for up to 60 years.   
13. Mongolia's participation in trade 
negotiations and arrangements has been made difficult by its limited human, technical, and 
financial resources.  In this respect, Mongolia's trade capacity has been the subject of various technical cooperation initiatives, 
including by the WTO.  While past assistance 
from these sources has been valuable, the authorities consider that further efforts are required in a number of areas including:  training on WTO rules and regulations as well 
as Mongolia's commitments for new members 
of Parliament, who were elected in June 2004;  training on dispute settlement mechanism for lawyers;  and capacity building on the multilateral trading system for academic institutions. 
(3) T
RADE POLICIES AND PRACTICES BY 
MEASURE  
14. Since acceding to the WTO in 
January 1997, Mongolia has substantially liberalized its trade regime.  Liberalization 
has, inter alia, involved the reduction of tariff 
rates and elimination of a number of import 
licensing requirements. 
15. Mongolia employs the "transaction 
value" method of customs valuation.  It does not use preshipment inspection for customs valuation purposes.  Th e tariff is Mongolia's 
main trade policy instrument.  Most imports 
entering Mongolia are subject to an ad valorem duty rate of 5% (compared with a uniform rate of 15% in 1997).  In 2004, the simple average applied MFN tariff was 5.0%.  All tariff lines are bound;  the average bound 
rate was 18.4% in 2004.  Bound rates are 
higher than applied MFN rates for most lines, thereby according Mongolia considerable latitude to raise its tariffs within existing bindings;  in 2001, it raised its applied MFN 
rates from 5% to 7% for most products, while 
between May 1997 and September 1999, its applied MFN rates were zero.  Due to a relatively uniform tariff structure, which simplifies customs proce dures, reduces market 
distortions, and enhances transparency, there 
is no tariff escalation, and there are no tariff 
peaks.  Some agricultural products (0.3% of total tariff lines) are protected by a seasonal rate of 15%.  Different excise tax rates may Mongolia WT/TPR/S/145 
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apply between domestically produced and 
imported goods.  Mongolia has not used any anti-dumping, countervailing or safeguard 
measures.    
16. Mongolia has a few non-tariff border 
measures, such as import prohibitions and 
import licensing requirements.  Since 
Mongolia's accession to the WTO, licensing 
requirements have been substantially relaxed.   
17. Export taxes apply to various 
products, including raw cashmere, with a view to increasing domestic processing.  Export prohibitions concern drugs, narcotics, and 
certain dangerous and poisonous chemicals.   
Imports of equipment for export-oriented businesses and for foreign businesses investing in "priority sectors" are free of import duties.  Export-oriented companies are also exempt 
from VAT and excise tax;  VAT on gold sales 
was abolished in December 2001.  The Government has adopted laws establishing free-trade and economic zones since 2002.  Tax holidays are granted for export-oriented 
industries. 
18. Preferences are granted to domestic 
suppliers with regard to government 
procurement.  Mongolia is not a signatory to 
the WTO Agreement on Government 
Procurement. 
19. About 30% of Mongolia's industrial 
standards are harmonized with international standards.  More than 40% of its standards are quoted as mandatory technical 
regulations.  Mongolia has strengthened its 
legislation on intellectual property rights, with a view to assuring compatibility with international agreements.  Privatization has progressed since the early 1990s.  Competition 
policy remains weak;  there are no agencies 
authorized to enforce competition legislation.   
(4) T
RADE POLICIES BY SECTOR  
20. The contribution to GDP of 
Mongolia's different sectors has changed substantially over the last decade.  The services sector displaced agriculture to 
become by far the largest, accounting for 61.0% of GDP in 2003;  agriculture declined 
from 38.0% to 20.1% of GDP, and manufacturing fell from 12.1% to 6.2%.  The services sector is also the major employer, 
accounting for 46.4% of total employment in 
2003 (39.8% in 1995), followed by agriculture and forestry with 41.8% (46.1% in 1995), and industry with 11.8% (14.1% in 1995).  These compositional changes in GDP and 
employment reflect substantial structural 
adjustment in the economy, largely in response to the comprehensive reforms undertaken in Mongolia's transition from  a centrally planned 
to a market economy.   
21. Livestock herding is the main 
agricultural activity.  Labour productivity in 
agriculture is little more than one third of the level in rest of the economy, and declining.  Some 30% of exports are agriculture based.  Agricultural reforms, including privatization 
and price de-regulation, advanced rapidly in 
the 1990s under Mongolia's transition to a market economy.  This caused substantial adjustment, largely out of crops reliant on state support, especially wheat, into cashmere and other livestock activities.  However, 
droughts and harsh winters reduced herds, 
and along with disease and malnutrition from nomadic over-grazing of state land, have reduced productivity and contributed to land degradation. 
22. Agricultural policy is directed at 
reversing declining productivity and achieving greater self-sufficiency,  especially in milk, 
flour, potatoes, and other vegetables, by promoting private participation and 
investment.  The Government intends to 
expand wheat production to meet 60-70% of domestic demand for flour.  Greater domestic processing for export of certain products, such as cashmere, meat, hides, and furs, is also a high priority.  Mongolia has, by and large, 
resisted protectionist pressures, including in 
agriculture.  Flour and certain vegetables have higher seasonal tariffs of 15% (instead of 5%), and limited state support for wheat growing has resumed through the State 
Agricultural Fund.  Un processed cashmere 
exports are taxed to provide cheaper supply to WT/TPR/S/145 Trade Policy Review 
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promote domestic processing.  However, such 
measures may have contributed to excess processing capacity, since up to half of Mongolia's raw cashmere is smuggled into 
China to avoid the tax.  Such protective 
policies, including the dominance of and at times assistance provided to the majority state-owned firm, Gobi, have stifled cashmere processing and have not expanded value-
added activity, despite benefiting processors 
through lower cashmere prices at the expense of herders.  Exports of raw hides and skins are prohibited, also with the intent of encouraging domestic processing by lowering prices to processors, but again at the expense of 
herders and with little economic merit. 
23. Forests are being depleted.  Annual 
allowable cutting quotas are set as much as four times higher than seemingly sustainable levels, and substantial illegal logging exists 
(accounting for as much as 80% of the total 
annual harvest).  Export taxes of US$150 per cubic metre constitute an effective ban on exports, and were extended from unprocessed to semi-processed timber products to promote domestic processing.   
24. Mining, mainly of gold, copper, coal, 
and fluorspar, is the economy's industrial backbone.  Mineral processing (gold and copper) accounts for two thirds of exports.  State-owned firms dominate mineral 
production, including coal.  The largest state-
owned enterprise in this sector produces copper concentrate and is a government joint venture, 49% owned by the Russian Government and 51% by the Mongolian 
Government.  Gold production has expanded 
substantially and is mined privately.  The Government aims to double mining's contribution to GDP (12.7% in 2003).  Most foreign investment is in mining.  New minerals legislation in 1997 accorded foreigners 
greater security and access to mineral 
exploration and development.   
25. The state monopoly on petroleum 
importation and distribution was abolished in 1990.  The tender for the highly indebted state-
owned Neft Oil Import Concern was concluded in early 2004.  Domestic interests 
acquired the State's 80% equity.  Oil income is exempt from income tax.  The Government aims to establish an oil refining industry.  
Restructuring of the highly indebted 
state-owned electricity sector started in 2001 with market reforms.  The former Energy Authority's operations were unbundled into 18 companies separating generation, 
transmission, and distribution.  Privatization 
efforts are continuing.  The Energy Regulatory Authority was created in 2002. 
26. The manufacturing sector, consisting 
mainly of food, beverages, textiles and clothing, has been substantially restructured.  
State ownership in manufacturing (e.g. 
cashmere products) remains significant.  The Government has prioritized as key industries copper and meat processing, leather and cashmere products, carpets, and wool.  
Removal of clothing quotas by the United 
States, Mongolia's major market, in 2005 may threaten production if foreign joint ventures leave as a result. 
27. Mongolia made various GATS 
commitments as part of its accession to the 
WTO.  Several banking crises in the 1990s 
closed major banks and required costly government-funded rescue plans.  However, the level and rising value of bank and other non-performing loans raises prudential 
concerns.  Prudential requirements and 
supervision, especially of banks and non-bank financial institutions, are being strengthened along with institutional capacity and corporate governance, based on international 
practices.  There are no non-prudential 
restrictions on foreign banks or other financial institutions, including insurance companies.  Bank privatization, including sales of assets to foreign interests, has advanced.  State ownership has fallen from 60% in 2001 to 
currently 4%, and bank assets are 31% 
foreign owned.  Two insurance companies have been fully privatized, the largest to a consortium with overseas interests, in 2003. 
28. The majority state-owned Mongolia 
Telecom (MT), has a statutory monopoly on Mongolia WT/TPR/S/145 
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domestic basic telecommunications until 2015.  
International calls were deregulated in 2002.  There are two mobile operators.  Prices, including those of mobile services, are 
regulated on a full-cost-recovery basis, and 
cross-subsidies apply to basic services.  New legislation in 2001 laid the foundations for further deregulation, by creating in 2002 the Communications Regulatory Committee and 
introducing interconnection and other 
competition safeguards.  However, the MT monopoly greatly limits their practical significance.  Government policy is to end this as soon as possible, subject to re-negotiation of an agreement concluded in 1995 with Korea 
Telecom on the terms of MT's privatization.  
Transportation services, other than domestic air services, are heavily regulated, and restructuring, including private participation, is envisaged.  The national air carrier and 
railways are state-owned.   
(5) O
UTLOOK  
29. The Government aims to achieve 
annual real economic growth of 5.5-6.0%.  This was achieved ahead of schedule in 2003 (5.6%), and higher growth is forecast.  Latest 
official projections are for growth of 8.1% in 
2004, revised upwards from 6.0% due to continued agricultural expansion and rising mineral exports in value terms due mainly to higher commodity prices, and 6.1% in 2005 
and 2006.  However, inflation (CPI) is 
expected to rise substantially above the central bank's guideline rate of 5% to double-digit levels, at least in 2004.  The share of government expenditure is projected to fall to 
42.1% of GDP in 2005 and 40.6% in 2006. The overall budget deficit is forecast to rise 
from 5.0% to 5.5% of GDP in 2005 and to decrease to 4.8% in 2006.  The trade deficit is expected to fall in 2004 to 14.5% of GDP and 
to 13.9% in 2005, helped by continued 
merchandise export growth of 17.7% in 2004 and 9.5% in 2005.  
30. The Government recognizes the need 
for Mongolia to diversify its industrial 
structure into manufacturing and services;  the 
concentration of its current economic base mainly in mining and agriculture make it vulnerable to fluctuations in world commodity prices and weather conditions.  While agriculture is of particular importance to 
Mongolia, pronounced declines in many 
commodity prices in the past decade have meant that, by and large, agricultural exporters face declining terms of trade;  if this downward trend continues over the long term, 
increasing volumes of these products may 
need to be exported in exchange for the same value of manufactured goods and services.  Mongolia's future economic performance will also depend to a large extent on external factors, such as the pace of recovery in the 
world economy, including especially growth of 
its main markets, China and to a lesser extent Russia.  Of greatest importance, however, to Mongolia's longer-term growth prospects will be its own policy efforts to ensure 
macroeconomic stability and to implement 
structural and other economic reforms needed for sustainable growth.  This will require further improvements in Mongolia's capacity to attract FDI, conti nued trade liberalization, 
in particular resisting protectionist pressures 
to raise tariffs and re-introduce agricultural assistance, as well as strengthening of the financial sector.