WORLD TRADE  
ORGANIZATION  G/C/W/571 
26 January 2007 
 (07-0371) 
Council for Trade in Goods Original:   English 
  
 
REQUEST FOR A WAIVER  
 
Communication from Mongolia
 
 
 
 The following communication, dated 22 January 2 007, is being circulated at the request of the 
delegation of Mongolia.   
_______________ 
 
 
 This communication contains a request by Mon golia for a waiver to the Council for Trade in 
Goods concerning its commitment to phase out and el iminate an export duty on raw cashmere within 
10 years of the date of Mongolia's accession to th e WTO (paragraph 24 of the Report of the Working 
Party on the Accession of Mongolia).  The waiver concerns the postponement of the implementation 
of the commitment for five years.  
 Mongolia would like to have this request on the agenda of the next meeting of the Council for 
Trade in Goods on 19 March 2007. 
_______________ 
  I. REQUEST 
1. Since its accession to the WTO in 1997, Mon golia has been pursuing the objective of 
economic growth through trade liberalization, which inevitably lays the basis for fuller integration of 
the country into the world economy.  Its membersh ip to the WTO and faithful implementation of its 
commitments as well as its involvement in multilatera l trade negotiations have proven the country's 
deep commitment to open and free trade. 
As part of its obligations to become a Member of the WTO, Mongolia had committed, inter 
alia, to phase out and eliminate an export duty on ra w cashmere within ten years of the date of its 
accession.
1  Nonetheless, due to extraordinary circumstan ces, which could not be foreseen at the time 
of its accession, Mongolia is forced to hereby re quest Members of the WTO to consider extending for 
5 additional years the period for phase-out a nd elimination of export duty on raw cashmere. 
This request is presented on the basis of th e Understanding in Respect of Waivers of 
Obligations under the General Agreement on Tariffs and Trade 1994;  as well as  paragraphs 3 and 4 
of Article IX of the Marrakech Agreement establishing the WTO. 
The cashmere industry is of an enormous economic, social and strategic importance to 
Mongolia.  Therefore, favourable consideration of this request would be of an extreme importance 
and contribution to the continuation of economic re forms and sustainable growth in Mongolia.  It 
would help Mongolia successfully balance its comme rcial, economic and social interests, promote 
                                                      
1 Paragraph 24 of the Report of the Working Party on the Accession of Mongolia. G/C/W/571 
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  investment, expand internal markets, enforce in ternationally compatible  standards and improve 
domestic supply capacities. 
The circumstances justifying the request for a waiver and the policy objectives and economic 
conditions underlying the appli cation of export duty on raw cashmere are described below. 
Mongolia will be happy to receive questions  and further discuss with interested WTO 
Members about this request. 
II. BACKGROUND 
A. 
GENERAL OVERVIEW  
In the last decade and-a-half, Mongolia has unde rtaken bold reform measures with a view to 
developing a market economy and free trade.  That is proved by the diligent and timely 
implementation of Mongolia's WTO accession obliga tions.  A review of the Mongolian trade and 
economy under the WTO Trade Policy Review Mech anism, in March 2005, confirmed the rapid 
economic reforms undertaken as part of Mongolia 's transition from a centrally-planned economy to 
market economy. 
As a result of such reforms, Mongolia can be  considered to be one of the most open 
economies in the world.  Trade liberalization me asures led to considerable reduction of tariffs, 
elimination of a number of licences, harmonization of national standards with international ones, 
strengthening legislation on trad e-related matters in line with WTO Agreements, including those on 
intellectual property rights, as well as priv atization of major state-owned enterprises.2 
Moreover, the Mongolian economy is more open than would have been necessary under its 
WTO obligations, as can be attested from the uniform import tariff of 5%, implemented in 2002, and 
well below the average bound MFN rate of 18%, co mmitted at the WTO.  There are no tariff 
escalations, tariff peaks, and no tariff quotas.  All tariff lines are bound. 
However, the Mongolian economy remains fragile  and its terms of trade should be further 
improved.  Strengthening the private sector, en suring macroeconomic stability, stabilizing export 
earnings and promoting the diversification of exports, remain essential governmental objectives. 
B. EXPORT REGIME  
Mongolia is a land-locked, small and vulnerab le economy.  Its exports and export earnings 
heavily depend on a very limited number of items , such as mineral produc ts, animal-originated 
commodities, and few textile and clothing items.  This  makes the country vulnerable to fluctuations in 
the price of those commodities.  Therefore, in creasing value addition of Mongolian exports and 
narrowing the margin of exposure to external s hocks remain major objectives of the Government. 
Exports from Mongolia are, in general, free with a limited number of items subject to 
prohibition, licensing and taxing.  Mongolia does not provide export subsidies to any exported 
products.  Export taxes are applied to a narrow range  of items such as raw cashmere, camel wool, goat 
skins, and logs, basically in the pursuance of ec onomic diversification, environmental and social 
policy objectives. 
                                                      
2 As of the end of 2005, close to 80% of GDP was produced by the private sector.  G/C/W/571 
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  C. MANUFACTURING  
Economic growth of the country heavily relies on the exploitation of natural endowments and 
the use of agricultural resources and land.  However,  the share of different sectors in Mongolia's GDP 
has changed dramatically over the last decade.   While in 1995 manufacturing (mainly processing 
industries) contributed to 12.1% of the GDP of Mo ngolia, that share has been constantly declining, 
accounting for only 4.4% in 2005.  In 2005, the annual decline was of 24.1% over the previous year. 
Employment in the manufacturing sector has, inevita bly, reflected that decline, too.  By 2005, 
the number of employees in manufacturing fell by half as compared to 1995.  In 2005, jobs in manufacturing accounted for 4.7% in total employment as compared to 9% in 1995. 
D. E
NVIRONMENTAL CONCERNS  
Ensuring sustainable and coherent national deve lopment is the cornerstone of development 
objectives of the Government of Mongolia.  Unbala nced growth of exports of raw cashmere led to 
inequitable growth of goat heads that already surpass the sustainab ility by Mongolia's pasture lands;  
this causes extensive environmental damages and desertification.3  From the total land area of 11,483 
thousand hectares affected by degradation 10,586 t housand applies to pasture lands.  The size of 
Mongolia's pasture land had decreased by 943 thous and hectares (or by 8.2%) from 11,529 thousand 
to 10,586 thousand during the period between 2003 and 2005.   Continuation of this trend could lead to 
devastating environmental damages.4  Therefore, the Government considers it vitally important to 
regulate the growth of goat heads. 
III. JUSTIFICATION 
Cashmere is one of the most strategic and import export products of Mongolia.  In 2005, 
textile industry (including cashmere processing) c ontributed 4.5% to gross industrial output and 
cashmere exports accounted for 9% of total expor ts, making cashmere products the third largest 
exports of Mongolia. 
Nonetheless, the sector has been facing seri ous difficulties.  The share of textile 
manufacturing fell by 4.2% as compared to its 2002 level and the share of cashmere exports in total 
exports decreased by 5% vis-à-vis  2001 level.  Employment in the industry was reduced by half over 
the last few years:  from 7,000 in 2003 to 3,500 in 2005. 
 Existing difficulties such as remoteness from more lucrative markets, high transportation 
costs, severe changes in weather, coupled with  the phasing out of the Agreement on Textiles and 
Clothing in 2005, as well as increased fierce comp etition for raw materials from abroad had an 
enormous negative impact on the whole economy as  well as the textile sector.  A great number of 
textile and cashmere processing firms were induced to exit the industry.  Increased exports of raw 
wool, cashmere, leather, hides and skins have resu lted in the lack of necessary raw materials and a 
further plunge in the utilization capacity of livestock-based processing industries.  About 60% of companies went out of business due to the outflow of raw materials compared to 2003. 
 Despite this outlook, the Government of Mong olia believes that the cashmere industry has a 
huge potential to contribute to the growth of the economy, employment at both the herder and the 
                                                     
 
3 Goat heads 2002 accounted to 9,134 thousand.  By 2005, they grew to 13,267 thousand, or by 
1.5 times those in 2002.  This rapid increase in the number of goat heads caused devaluation in the quality of cashmere. 
4 Goats graze the grassland in a particular manner that can cause land degradation. G/C/W/571 
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  manufacturing levels and ultimately to sustainable development.
5  The continuation of the application 
of export taxes to exports of raw cashmere is funda mentally important to sustain the industry in this 
difficult period.  Their elimination at this junc ture would add a further burden to local processing 
firms.  
 Export taxes are not prohibited under WT O Agreements. They are well-known policy 
instruments which can effectively provide incentives for the local processing of raw materials.  They 
may assist in adding value to exports, bri nging greater export earnings and increasing the 
diversification of exports, thereb y contributing to an overall reduc tion of the economic vulnerability 
that affects the Mongolian economy. 
 
 Finally, the application of export taxes on ra w cashmere also serves environmental objectives 
as it contributes to the regulation of goat heads and is part of governmental efforts to fight environmental damages and desertification (see Environmental concerns
 above). 
 
SPECIFIC MEASURES AND ENVISAGED RESULTS  
 The continued application of export taxes to th e exports of raw cashmere is part of a broader 
development policy planned by the Government of Mongolia.  For instance, the Government aims at 
setting up industrial and technological parks with a view to building industrial competitiveness of 
Mongolian industries;  creating employment for about  17,000 people, thus contributing to reduction of 
poverty;  and promoting regional development.  Fo r this, a comprehensive Integrated Programme is 
planned to be implemented with technical assistance of UNIDO and other donors.  The Programme 
aims at building industrial competitiveness and trad e capacities of agro-industries, including cashmere 
industry, and setting up cleaner produc tion and environment management. 
  In addition to export taxes, other specific measures projected under the Programme include:  
improving the quality of Mongolian raw cashmere through strengthening testing laboratories, 
improving health and quality species of Mongol ian livestock (especially , goats) and supporting 
environmental performance of the industrial sector.    Preserving export tax on raw cashmere would ultimately contribute to improving industrial 
competitiveness;  creating employment;  improving liv estock health and quality of raw materials;  
enforcing internationally compatible standards;  ensuring equitable utilization of pasture lands;  as 
well as to coherently providing social welfare services to herders.   The Government of Mongolia, thus, seeks the support of WTO Members for a favourable 
consideration of this request 
 
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5 The extent of this potential has been confirmed, fo r instance, in a study by UNIDO, which stated that 
the wide range of livestock-based industries in Mongolia offered good prospects for sustained manufacturing 
growth.  "Mongolia possesses ample excess capacity in most sub-sectors, which can be quickly revived with minimal investment in new equipment.  It has ready acces s to the rapidly expanding ec onomies of China, Korea, 
and Southeast Asia, as well as Russia.  It has relatively developed industrial skills and substantial previous 
experience in operating and managing a modern manufact uring sector.  These factors can re-establish the 
manufacturing sector as a growth engine and provide productive employment" Integrated Programme of 
Technical Cooperation with Mongolia,  Government of Mongolia and UNIDO.