HomeReportsBureau of Economic and Business Affairs2019 Investment Climate Statements...Mongolia

# 					2019 Investment Climate Statements: Mongolia			

 In this section										/

													Executive Summary											

                -  Executive Summary 
                -  1. Openness To, and Restrictions Upon, Foreign Investment   
                -  2. Bilateral Investment Agreements and Taxation Treaties   
                -  3. Legal Regime   
                -  4. Industrial Policies   
                -  5. Protection of Property Rights   
                -  6. Financial Sector   
                -  7. State-Owned Enterprises   
                -  8. Responsible Business Conduct   
                -  9. Corruption   
                -  10. Political and Security Environment   
                -  11. Labor Policies and Practices   
                -  12. OPIC and Other Investment Insurance Programs   
                -  13. Foreign Direct Investment and Foreign Portfolio Investment Statistics   
                -  14. Contact for More Information   

## Executive Summary

Mongolia’s frontier market offers investors potential investment opportunities, but questions about the independence of the judiciary and lack of input from stakeholders during rulemaking warrant caution when considering entry.  Nonetheless, tremendous mineral reserves, agricultural endowments, and potential for services growth make Mongolia an attractive destination for investors. Mongolia’s economic model of exporting minerals and importing most other goods means it does not have many protectionist proclivities, leading to a market largely free of access barriers.  Investors also face few meaningful investment restrictions in Mongolia, enjoying mostly unfettered access to the market. However, investing into politically sensitive sectors of the Mongolian economy – such as mining – carries higher risk, as the government has expropriated domestic investor assets without compensation and sought to renegotiate large-scale deals, such as the Oyu Tolgoi mine investment agreement with Rio Tinto.

The Mongolian government’s stewardship of the economy – in particular its recent responsible fiscal and monetary policies – have helped fuel rapid economic growth and a fiscal surplus, but looming debt payments beginning in 2020 will pose a risk to Mongolia’s still fragile balance of payments situation.  Economists predict growth above 6 percent in 2020, backed by strong coal exports to China and foreign investment resulting from the Oyu Tolgoi mining project. Mongolia’s service sector – especially in food service, convenience stores, and fitness – is underdeveloped, offering investors a chance to earn profits using proven business models.  Mongolia’s cashmere sector also offers investors a potentially lucrative rate of return as Mongolia scales up its production capabilities. Agriculture also shows potential, although it carries with it the difficulties of complying with various countries’ sanitary and phytosanitary standards.

Investors’ chief complaint is lack of access to officials who draft and implement legislation that affects international commerce.  Mongolia has committed to implementing the U.S.-Mongolia Agreement on Transparency in Matters Related to International Trade and Investment (known as the Transparency Agreement), which will require a public comment period before new laws and regulations become final.  It will also require ministries to respond to significant public comments. Most new laws and regulations are not yet subject to public comment before becoming final, however. One example of this is a 2019 tax reform package that was adopted without investor input.

Mongolia’s judicial system has shown signs of offering investors protection, but recent reforms that simplify the removal of judges and prosecutors raise concerns about its independence.  Investors also cite long delays in reaching judgments in business disputes, then similarly long delays in obtaining enforcement of the decisions. There are also long delays by administrative inspection bodies, such as the tax authority, which in the past have failed to act on politically sensitive decisions.  Businesses note a substantial regulatory burden at the regional level as well, although a newly created “One-Stop Shop for Investors” may potentially be useful in navigating this process. 

***Table 1***

							1. Openness To, and Restrictions Upon, Foreign Investment					

**Policies toward Foreign Direct Investment**

Mongolia generally does not discriminate against foreign investors in general or U.S. investors in particular; however, there are two major exceptions.  First, foreign investors object to the regulatory requirement, nowhere mentioned in the Investment Law, that they invest a minimum of USD100,000 to establish a venture when the Investment Law of Mongolia states that all investors in Mongolia, without reference to nationality, are subject to national treatment.  In contrast, Mongolian investors face no investment minimums. Second, foreign nationals and companies may not own real estate; only Mongolian adult citizens can own real estate. Additionally, while foreign investors may obtain use rights (excluding mining exploration and extraction licenses) for the underlying real estate, these rights last for five years with a one-time five-year renewal.  The government imposes no such restriction on its nationals**.**There are also substantial regulations on foreign entities entering Mongolia’s financial service sector.

**Limits on Foreign Control and Right to Private Ownership and Establishment**

Mongolia’s constitution and related statutes limit the right to own real estate to adult citizens of Mongolia.  However, no formal law exists vesting Mongolia’s pastoral nomadic herders with exclusive rights of pasturage, control of water, or real estate rights.  As such, rural municipalities unofficially recognize that traditional, customary access to these resources by pastoralists must be taken into account before, during, and after other non-resident users, particularly but not exclusively those in the mining sector, can exercise use and ownership rights.  Both foreign and domestic investors have the same rights to establish, sell, transfer, or securitize structures, shares, use rights, companies, and movable property, subject to relevant legislation and related regulations controlling such activities in all sectors. Mongolia generally imposes no statutory or regulatory limits on foreign ownership and control of investments.  The only exception is that the Mining Law of Mongolia allows the Mongolian Government to acquire up to 50 percent of mineral deposits deemed of strategic value to the state by parliament. Investors assert that regulatory discretion allows bureaucrats to exercise *de facto* control over use of legally granted rights, corporate governance decisions, and ownership stakes.  Finally, Mongolia has no formal or informal investment screening mechanism. 

**Other Investment Policy Reviews**

The Mongolian Government conducted an investment policy review through the United Nations Conference on Trade and Development (UNCTAD) in 2013 and a trade policy review with the World Trade Organization (WTO) in 2014.  Although the Organization for Economic Cooperation and Development (OECD) has not conducted a comprehensive investment policy review of Mongolia, it has completed economic studies on specific aspects of investment and development in Mongolia.

For the UNCTAD Mongolia investment policy review: http://unctad.org/en/pages/PublicationWebflyer.aspx?publicationid=758  .

For the WTO Mongolia investment policy review in the context of a Trade Policy Review: https://www.wto.org/english/tratop_e/tpr_e/tp397_e.htm  .   

For OECD Mongolia reports:  http://www.oecd.org/countries/mongolia  .

**Business Facilitation**

Consistent with the World Bank’s Doing Business Report, investors report that Mongolia’s business registration process is reasonably efficient and clear.  All enterprises, foreign and domestic, must register with the State Registration Office (SRO: www.burtgel.gov.mn).  Registrants obtain form UB 03-II and other required documents from the website and can submit completed documents by email.  SRO aims at a two-day turnaround for the review and approval process. However, investors report bureaucratic discretion can add weeks or even months to the process and argue more transparent adherence to the relevant laws and regulations would stabilize and streamline registration.  Once approved by SRO, a company must register with the Mongolian General Taxation Authority (GTA: http://en.mta.mn/  ).  Upon hiring its first employees, a company must register with the Social Insurance Agency (https://zasag.mn/en/m/social-insurance/contact  ).  The General Authority for Intellectual Property and State Registration (GAIPSR) reports that notarization is not required for its registration process.

The same ease of opening a business does not apply to closing a business, however.  Foreign investors generally complain about the long delays in the latter process. 

**Outward Investment**

Although the Mongolian Government neither promotes nor incentivizes outward investment, it does not restrict domestic investors from investing abroad.

							2. Bilateral Investment Agreements and Taxation Treaties					

The United States and Mongolia signed a Bilateral Investment Treaty (BIT) in 1994, with the agreement entering into force in 1997.  The BIT states that the agreement will protect U.S. investors and assist Mongolia in its efforts to develop its economy by creating conditions more favorable for U.S. private investment and thus strengthening the development of the private sector.  More information on the BIT is available from the U.S. Department of State’s website (https://www.state.gov/e/eb/ifd/bit/117402.htm).

In January 2017, the two countries certified completion of their respective applicable legal requirements and procedures for the U.S.-Mongolia Agreement on Transparency in Matters Related to International Trade and Investment (a.k.a., the Transparency Agreement), with a 2023 deadline for full implementation.  The Transparency Agreement sets out clear processes for drafting and commenting on new legislation and regulations and requires strict transparency related to laws involving trade and investment. A copy of the Transparency Agreement is available here: https://ustr.gov/sites/default/files/US-Mongolia%20Transparency%20Agreement-English-Final-As%20Posted.pdf .

Mongolia and the United States have no bilateral tax or free-trade agreements.

Information regarding the various other investment agreements that Mongolia has signed is available from the UNCTAD website: http://investmentpolicyhub.unctad.org/IIA/CountryBits/139#iiaInnerMenu  .

**Mongolia’s Taxation Regime**

Mongolia’s parliament amended the General Law on Taxation, Corporate income Tax, Value Added Tax, and personal income tax in March 2019.  Among the many changes, industry cites as especially significant a decrease in license transfer tax for land rights. A 2017 change had increased this fee to 30 percent of the gross value of the transfer of land rights involving land possession or usage, including exploration and mining licenses and rights for water, timber, pasturage, and land use in urban areas.  While the new amendments lower the fee to 10 percent of the net rather than gross value, the tax remains a disincentive for investors in Mongolia’s risk-prone resource sector. The amendments also impose a tax of 5 percent on the interest income of commercial Mongolian banks to be paid on loans and debt instruments obtained from local and foreign stock markets, decrease the withholding tax on income provided to non-residents to 15 percent, lower from 20 percent to 5 percent the tax on dividends for foreign investors, and lower from 10 percent to 5 percent the tax on financing obtained through debt instruments from initial and secondary markets.  They also simplify reporting procedures and provide relief for companies experiencing financial difficulties.

Despite these positive changes, the law was not subject to public comment, and industry has complained that parliament approved the law without its input.  This lack of engagement has in instances led to hastily written tax rules. Once such situation concerns Article 16.2 of the Corporate Income Tax (CIT) law, which states, “Taxable income shall be determined by deducting expenses specified in article 12 of this law and amount in excess of expenses determined in stabilization certificate from gross taxable income specified in subparagraphs 8.1.1, 8.1.6-8.1.11, and 9.1.1 of this law and subparagraph 9.1.4 for a bank, non-banking financial institution, and savings and credit cooperative.”  Because non-residents’ income is covered under article 17.2.9 of the CIT law and are not mentioned in this article, tax authorities do not allow them to deduct their expenses when paying taxes. As a result, foreign companies are taxed on their gross income, whereas domestic companies are taxed on their net income.

Industry also has asked that Mongolia’s Value-Added Tax (VAT) be revised in two major areas.  Businesses complain that they may not deduct the value of construction expenses against their VAT bill, which disincentivizes the construction of new facilities.  The VAT law also has not been amended to reflect the modern array of cross border services that it should cover. 

							3. Legal Regime					

**Transparency of the Regulatory System**

In September 2013, the United States and Mongolia signed the Transparency Agreement.  The agreement marked an important step in developing and broadening the economic relationship between the two countries.  Upon full implementation, the Transparency Agreement will make it easier for U.S. and Mongolian firms to do business by guaranteeing transparency in the formation of trade-related laws and regulations, the conduct of fair administrative proceedings, and measures to address bribery and corruption.  In addition, it provides for commercial laws and regulations to be published in English, improving transparency and making it easier for foreign investors to operate in the country. Parliament ratified the Transparency Agreement in December 2014, the United States and Mongolia certified that their respective applicable legal requirements and procedures were completed in January 2017, and the Transparency Agreement entered into force on March 20, 2017.  Mongolia has five years to implement fully the Transparency Agreement.A copy of the Transparency Agreement is here: https://ustr.gov/sites/default/files/US-Mongolia%20Transparency%20Agreement-English-Final-As%20Posted.pdf .

The Law on Legislation aligns Mongolia’s legislative processes with its Transparency Agreement obligations.  The law clarifies who has the right to draft legislation, the format of these bills, the respective roles of the Mongolian government and parliament, and the procedures for obtaining and employing public comment on pending legislation.  The Law on Legislation states that law initiators – i.e., members of parliament, the president of Mongolia, or the cabinet of Mongolia – must fulfill the following criteria: (1) provide a clear process for both developing and justifying the need for the draft legislation; (2) set out methodologies for estimating costs to the government related to the draft law’s implementation; (3) evaluate the impact of the legislation on the public once implemented; and (4) conduct public outreach before submitting legislation to the public.  

The Law on Legislation also requires that law initiators obtain public comment by posting draft legislation and required reports evaluating costs and impacts on parliament’s official website (http://forum.parliament.mn/projects?status=Submitted  ) at least 30 days prior to submitting it to parliament.  These posts must explicitly state the time period for public comment and review.  In addition, initiators must solicit comments in writing, organize public meetings and discussions, seek comments through social media, and carry out public surveys.  No more than 30 days after the public comment period ends, the initiator must prepare a matrix of all comments, including those used to revise the legislation as well as those not used, which must be posted on parliament’s official web site.  After passage of a new law, parliament is responsible for monitoring and evaluating both the implementation and impact of the legislation. Despite these legal requirements, law initiators do not generally follow these rules. Parliament may exempt budget and tax legislation from this law as well.

While General Administrative Law (GAL) Article 6 brings Mongolia’s regulatory drafting process into line with its Transparency Agreement obligations, the Mongolian government is not generally enforcing it.  The GAL requires ministries, agencies, and provincial governments to seek public comment by posting draft regulations on their respective websites for at least 30 days and by holding public hearings, following the rules set out in the 2015 Public Hearing Law.  The drafting entity must record, report, and respond to the public comment. The Ministry of Justice and Home Affairs must certify that each regulatory drafting process complies with the GAL before the regulations enter into force. After approval, the relevant government agency must monitor and evaluate the implementation and impact of the regulations.

Businesses complain about a high regulatory burden at the local, or *aimag*/*soum*, level.  They note a lack of knowledge among local inspectors, whom they sometimes accuse of overly frequent inspections intended to raise revenue for local municipalities.  Regional tax, health, and safety inspectors in particular have been cited as problematic. 

**International Regulatory Considerations**

Mongolia is not part of any regional economic bloc but often seeks to adapt or adopt European standards and norms in areas such as construction materials, food, and environmental regulations; looks to U.S. standards for activity in the petroleum sector; and adopts a combination of Australian and Canadian standards and norms in the mining sector.  Mongolia also tends to employ World Organisation for Animal Health standards for its animal health regulations. Finally, Mongolia has a tendency to synchronize its veterinary, customs, and transport standards with China’s, its primary trade partner. 

Mongolia, a member of the WTO, asserts that it will notify the WTO Committee on Technical Barriers to Trade (TBT) of all draft technical regulations; however, as demonstrated by the failure to notify TBT about changes in the process for using certificates of origin in 2016, Mongolia has not always complied with that commitment.  

**Legal System and Judicial Independence**

Investors have complained that judges frequently avoid making controversial decisions in business disputes, preferring to delay judgment for as long as possible – sometimes years.  If a decision is made, businesses face similarly long delays in obtaining and executing an enforcement order. In some instances, cases have taken so long that by the time a business had won an enforcement order, the counterparty had already liquidated its assets and closed up.  U.S. businesses complain about similarly long delays with respect to inspection agencies, such as the Tax Dispute Settlement Resolution Council (TDSRC) as well as with other inspection agency panels, especially those related to mineral licenses and health matters.

Mongolia adopted a new regulation in April 2019 that effectively simplifies the president’s ability to remove judges and prosecutors, which the president quickly used to remove judges and prosecutors he and the government alleged were corrupt.  Transparency International wrote of the legislation, “These legal amendments undermine the separation of powers and systems of checks and balances designed to prevent abuse and ensure respect for the rule of law.” Because no major decisions involving international investors have reached the courts since the adoption of these measures, it is difficult to assess their impact on investors.  Investors should focus on whether the government continues to remove judges and prosecutors that show judicial independence as an indicator of whether they can have confidence in an independent judiciary in Mongolia.

Mongolia has adopted a hybrid Civil Law-Common Law system of jurisprudence.  Trial judges may use prior rulings to adjudicate similar cases but have no obligation to respect legal precedent as such.  Mongolian laws, and even their implementing regulations, often lack the specificity needed for consistent interpretation and application.  Experienced and dedicated judges do their best to rule in the spirit of the law in routine matters. However, statutory and regulatory vagueness invites corruption within the underfunded and understaffed judiciary, especially in cases where large sums of money are at stake, or where large foreign citizens or corporations are in court against domestic government agencies or well-connected private Mongolian citizens.

Mongolia has a specialized law for contracts but no dedicated law for commercial activities.  Contractual disputes are usually adjudicated in Mongolia’s district court system. Disputants may appeal cases to the City Court of Ulaanbaatar and ultimately to the Supreme Court of Mongolia.  Mongolia has in place several specialized administrative courts authorized to adjudicate cases brought by citizens against official administrative acts. Disputants may appeal administrative court decisions to higher trial courts.  Mongolia has a Constitutional Court, dedicated to ruling on constitutional issues. The General Executive Agency for Court Decisions (GEACD) enforces court decisions.

The Mongolian constitution specifies that non-judicial elements of the Mongolian government “shall not interfere with the discharge of judicial duties” by the judicial branch.  The Judicial General Council, composed of respected jurists, is charged with the constitutional duty of ensuring the impartiality of judges and independence of the judiciary. The Judicial General Council consists of five members, with three members respectively nominated by the first instance courts, appellate courts, and the Supreme Court, one member by the Bar Association of Mongolia, and one member by the Ministry of Justice and Home Affairs, subject to appointment by the president of Mongolia.  However, the Council lacks official authority to investigate allegations of judicial misconduct or to impose disciplinary measures on judges or other judicial sector personnel. 

**Laws and Regulations on Foreign Direct Investment**

2018 saw no major changes in the 2013 Investment Law of Mongolia.  The Investment Law frames the general statutory and regulatory environment for all investors in Mongolia.  Under the law, foreign investors can access the same investment opportunities as Mongolian citizens and receive the same protections as domestic investors.  Investor residence, not nationality, determines whether an investor is foreign or domestic. The law also provides for a more stable tax environment and provides tax and other incentives for investors.  Accordingly, most investments by private foreign individuals or firms residing in Mongolia need only be registered with the General Authority for Intellectual Property and State Registration (www.burtgel.gov.mn).

The Investment Law offers tax incentives in the form of transferable tax stabilization certificates that give qualifying projects favorable tax treatment for up to 27 years.  Affected taxes may include the corporate income tax, customs duties, value-added tax, and mineral resource royalties. 

While foreign investors say they appreciate the intent of the Investment Law, they note it does not always deliver the promised national treatment, specifically in two areas.  First, foreign nationals and companies may not own real estate; only Mongolian adult citizens can own real estate. While foreign investors may obtain use rights for the underlying land, these rights expire after a set number of years, with a limited right of renewal.  Second, foreign investors object to the regulatory requirement that they invest a minimum of $100,000 to establish a venture. Although the Investment Law has no such requirement, Mongolian government regulators have unilaterally imposed it on all foreign investors. In contrast, Mongolian investors are not subject to investment minimums.   

Investors have called on the Mongolian government to revise the law to incorporate their concerns.  

**Competition and Anti-Trust Laws**

Mongolia’s Agency for Fair Competition and Consumer Protection (AFCCP) reviews domestic transactions for competition-related concerns.  For a description of the AFCCP and its legal and regulatory powers, see the UNCTAD website (http://unctad.org/en/PublicationsLibrary/ditcclp2012d2_Mongolia_en.pdf ) and the AFCCP website (http://www.afccp.gov.mn/  ). 

**Expropriation and Compensation**

Although Mongolia generally respects property rights, the Mongolian government and parliament may exercise eminent domain in the national interest.  Mongolian state entities at all levels are authorized to confiscate or modify land use rights for purposes of economic development, national security, historical preservation, or environmental protection.  However, Mongolia’s constitution recognizes private real property rights and derivative rights, and Mongolian law specifically bars the government from expropriating such assets without payment of adequate, market-based compensation.  Investors express little disagreement with such takings in principle but worry that a lack of clear lines of authority among the central, provincial, and municipal levels of government creates occasions for loss of property rights. For example, the 2006 Minerals Law (amended in 2014) provides no clear division of local, regional, and national jurisdictions for issuances of land use permits and special use rights.  Faced with unclear lines of authority and frequent differences in practices and interpretation of rules and regulations by different levels of government, investors can find themselves unable to fully exercise duly conferred property rights.

Many of the cases alleging expropriation involve court expropriations after criminal trials in which the investors were compelled to appear as “civil defendants” but were not allowed to fully participate in the court proceedings.  In these cases a government official is sometimes convicted of corruption and sentenced to prison, and the trial court judge then orders the foreign civil defendant to surrender a license or pay a tax penalty or fine for having received an alleged favor from the criminal defendant.  In ongoing disputes involving several foreign investors, among them U.S. companies, the courts have taken property or revoked use licenses despite an absence of evidence the property or licenses were illegally obtained. 

Investors and the legal community have expressed concerns about an act of parliament they perceive as expropriation.  In June 2016, the Mongolian Copper Company, a privately-held entity, bought 49 percent of Mongolian state-owned Erdenet Mining Corporation from the Russian state-owned company Rostec.  The non-transparent sale of this mining asset generated public controversy. Parliament nullified the transaction in February 2017, and ordered seizure of the Mongolian company’s shares.  In March 2018, Mongolia’s Constitutional Court upheld this taking but ordered the government to compensate the private company. While investors and legal experts do not dispute parliament’s powers under the constitution and statute to nationalize property, they state that parliament has no authority to undo a business transaction between two non-government or foreign parties.  They assert that the court, bending to improper pressure from parliament, delivered a decision inconsistent with Mongolia’s constitution. Consequently, they argue that this taking undermines the sanctity of contracts and may well discourage investment into other projects.

**Dispute Settlement**

*ICSID Convention and New York Convention*

Mongolia ratified the Washington Convention and joined the International Centre for Settlement of Investment Disputes (ICSID) in 1991.  It also signed and ratified the New York Convention in 1994. The government of Mongolia has accepted international arbitration in several disputes.

*Investor-State Dispute Settlement*

The U.S.-Mongolia Bilateral Investment Treaty (BIT) entered into force in 1997 (http://www.state.gov/e/eb/ifd/bit/117402.htm).  Under the BIT, the two countries have agreed to respect international legal standards for state-facilitated property expropriation and compensation matters involving nationals of either country.  The BIT effectively provides an extra measure of protection against financial loss for U.S. nationals doing business in Mongolia. In at least one expropriation case, however, the Mongolian government restored a mining license it had unilaterally modified years previously, but declined to compensate for undisputed financial loss as required by the BIT and independently required by the domestic law specifically cited in rendering the modification.  Under the BIT, such uncompensated expropriation is appealable through arbitration proceedings. However, the cost of arbitration can make it impractical for aggrieved parties.

In disputes involving the Mongolian government, investors report government interference in the dispute resolution process, both administrative and judicial.  Foreign investors describe three general categories of disputes that invite such interference. The first comprises disputes between private parties before a Mongolian government administrative tribunal.  In these cases, investors warn a Mongolian private party may exploit contacts in government, the judiciary, law enforcement, or the prosecutor’s office to coerce a foreign private party to accede to demands.  The second category involves disputes between investors and the Mongolian government directly. In these cases, the Mongolian government may claim a sovereign right to intervene in the business venture, often because the Mongolian government itself is operating a competing state-owned enterprise (SOE) or because officials have undisclosed business interests.  The third category involves Mongolian tax officials or prosecutors levying highly inflated tax assessments against a foreign entity and demanding immediate payment, sometimes in concert with imposition of exit bans on company executives or even the filing of criminal charges.

Investors have reported local courts recognize and enforce arbitral decisions, but that problems exist with enforcement.  The thinly staffed GEACD is charged with implementing the decisions and verdicts of Mongolia’s civil and criminal courts. GEACD employees often live in the jurisdictions in which they work, and are subject to pressure from friends and professional acquaintances.  A complicated chain-of-command and opportunities for conflicts of interest can weaken GEACD’s resolve to execute court judgments on behalf of foreign and domestic interests. 

*International Commercial Arbitration and Foreign Courts*

The Mongolian governmenthas consistently declared it will honor arbitral awards.  The Mongolian government and Canadian uranium mining company Khan Resources settled a high-profile expropriation dispute after a Paris arbitration panel awarded USD104 million to the Canadian company.  The parties settled for USD70 million, which the government of Mongolia paid in May 2016.

To improve Mongolia-based international arbitration, parliament passed a new Arbitration Law in January 2017.  Based on the United Nations Commission on International Trade Law (UNCITRAL), the Arbitration Law provides a clearer set of rules and protections for Mongolia-based arbitration.  The law does not, however, designate any particular organization for use by all disputants, and remains unused by a foreign entity, to our knowledge. Any organization that satisfies specific requirements set out in the law can provide arbitral services.  This change breaks the monopoly on domestic arbitration held by the Mongolian National Chamber of Commerce and Industry, which many investors criticized as politicized, unfamiliar with commercial practices, and too self-interested to render fair decisions.  Foreign investors say they prefer international arbitration but might consider domestic arbitration if the newly established domestic arbitration tribunals are seen to be fair and effective. 

The new law also limits the role of Mongolia’s courts in the arbitration process.  Previously, disputants could appeal to Mongolia’s civil courts if the results of “binding arbitration” were not to their liking.  The new arbitration law limits parties to a single appeal only to Mongolia’s Court of Civil Appeals. The Court of Civil Appeals can only reject an arbitration judgment for “serious” procedural failings or discrepancies with official public policy initiatives.  

**Bankruptcy Regulations**

Mongolia’s Bankruptcy Law defines bankruptcy as a civil matter.  Mongolian law mandates the registration of mortgages and other debt instruments backed by real estate, structures, immovable collateral (mining and exploration licenses and other use rights) and, after March 2017, movable property (cars, equipment, livestock, receivables, and other items of value).  Even though the law allows for securitizing movable and immovable assets, however, local law firms hold that the bankruptcy process remains too vague, onerous, and time consuming to make it practical. Mongolia’s constitution and statutes allow contested foreclosure and bankruptcy only through judicial (rather than administrative) proceedings.  Local business and legal advisors report that proceedings usually require no less than 18 months, with 36 months not uncommon. Investors and legal advisors state that a lengthy appeals process, perceived corruption, and government interference can create years of delay. Moreover, while in court, creditors face suspended interest payments and limited access to the asset.

							4. Industrial Policies					

**Investment Incentives**

The Mongolian government generally offers the same tax preferences to both foreign and domestic investors.  The government occasionally grants tax exemptions for imports of essential fuel and food products or for imports in certain targeted sectors, such as agriculture or energy.  Such exemptions can apply to Mongolia’s five percent import duty and 10 percent value-added tax (VAT). In addition, the Mongolian government occasionally extends a 10 percent tax credit on a case-by-case basis to investments in key sectors such as mining, agriculture, and infrastructure.  Under the Investment Law, foreign-invested companies properly registered and paying taxes in Mongolia are considered domestic Mongolian entities, thus qualifying for investment incentive packages that, among other benefits, include tax stabilization for a period of years. In 2014 parliament authorized the central bank, the Bank of Mongolia, to waive 7.5 percent of the 10 percent royalty on gold miners pay when selling gold to the Bank of Mongolia and Mongolian commercial banks through 2017.  The Mongolian government has extended this program and continues to underwrite low-interest loans from commercial banks for small- to medium-sized gold mines selling gold to the Bank of Mongolia.

Investors should note the ongoing International Monetary Fund Program has required the Mongolian government to cancel, modify, or suspend some lending schemes and tax incentives. 

**Foreign Trade Zones/Free Ports/Trade Facilitation**

The Mongolian government launched a free trade zone (FTZ) program in 2004.  Two FTZ areas are located along the Mongolia spur of the trans-Siberian highway:  the northern Russia-Mongolia border town of Altanbulag and the southern Chinese-Mongolia border town of Zamiin-Uud.  Both FTZs are relatively inactive, still pending development. A third FTZ is located at the port of entry of Tsagaannuur in the far western province of Bayan-Olgii bordering Russia.  Mongolian officials also suggest that the New Ulaanbaatar International Airport (NUBIA), expected to commence operations in 2019, may host an FTZ. Observers have noted that Mongolia’s FTZ program has failed to prosper due to lack of implementing regulations based on international best practices and insufficient resources to develop human capacity and appropriate on-site infrastructure.  

**Performance and Data Localization Requirements**

Mongolia does not legally require foreign investors to use local goods, services, or equity, or to engage in substitution of imports.  The government applies the same geographical restrictions to both foreign and domestic investors. Existing restrictions involve border security, environmental concerns, and local use rights.  The government does not impose onerous or discriminatory visa, residence, or work permit requirements on U.S. investors – although foreign and domestic firms must meet certain industry-specific local hire requirements.  Neither foreign nor domestic businesses need to purchase from local sources, export a certain percentage of output, or use foreign exchange to cover exports.

The Mongolian government strongly encourages but does not legally compel domestic sourcing of material inputs, especially for firms engaged in natural resource extraction.  The 2014 amendments to the 2006 Minerals Law of Mongolia state that holders of exploration and mining licenses should preferentially supply extracted minerals at market prices to Mongolian processing facilities and should procure goods and services and hire subcontractors from business entities registered in Mongolia.  Although there are no formal enforcement procedures to ensure local sourcing, investors occasionally report that central, provincial, or municipal governments slow down permitting and licensing until domestic and foreign enterprises make some effort to source locally. Hiring Mongolians essentially becomes a legal necessity considering the Mongolian government requirement that employers seeking work visas for foreign employees demonstrate that their workforces comprise the same percentage of domestic hires suggested in Mongolia’s procurement law.  

Despite pressure to source locally, foreign investors generally set their own export and production targets without concern for government-imposed targets or requirements.  Mongolia does not require technology transfers. The government generally imposes no offset requirements for major procurements. Investors, not the Mongolian government, make arrangements regarding technology, intellectual property, and similar resources, and generally may finance as they see fit.  Except for a currently unenforced provision of the amended Minerals Law of Mongolia requiring mining companies to list 10 percent of the shares of the Mongolian mining company on the Mongolian Stock Exchange, foreign-invested businesses are not required to sell shares to Mongolian nationals. Equity stakes are generally at the discretion of investors, Mongolian or foreign.

In cases where investments are determined to have national impact or raise national security concerns, the Mongolian government may restrict the type of financing that foreign investors may use, their choice of partners, or to whom they sell shares or equity stakes.  Investors and local legal experts note that the system by which the Mongolian government regulates these transactions lacks a clear statutory basis and transparent, predictable regulatory procedures.

Investors can locate and hire workers without using hiring agencies as long as hiring practices follow Mongolia’s Law on Labor.  Mongolian law requires companies to employ Mongolian workers in certain labor categories where it has been determined that a Mongolian can perform the task as well as a foreigner.  This law generally applies to unskilled labor categories and not fields in which a high degree of technical expertise not existing in Mongolia is required.

The Mongolian government has no forced localization policy for data storage; no legal requirements for IT providers to turn over source code or to provide access for surveillance; and no rules or mechanisms for maintaining a certain amount of data storage at facilities within the territory of Mongolia. 

							5. Protection of Property Rights					

**Real Property**

The Mongolian constitution provides that “the State shall recognize any forms of public and private properties.”  The constitution limits real-estate ownership to adult citizens of Mongolia, though that limitation does not apply to “subsoil,” a term not expressly defined in the constitution.  Mongolian civil law allows private Mongolian citizens or government agencies to assume property ownership or use rights if the current owner or holder of use rights does not use the property or the rights.  In the case of use rights, revocation and assumption is almost always written into the formal agreements covering the rights. Squatters may also under certain circumstances claim effective property ownership of unused structures.

Although foreigners and non-resident investors may own permanent physical structures and obtain use rights to land and resources, only Mongolian citizens may own the surface land, and only in municipalities.  Such land ownership does not include ownership of or access to surface or subsurface resource rights, which remain with state. Outside municipalities, the state owns the land and resources. The state may lease access to those resources to public and private entities, according to the relevant statutes.

Ownership of a structure vests the owner with control over the use rights of the land upon which the structure sits.  Use rights are granted from periods of three to sixty years depending on the particular use right. However, foreign nationals or foreign companies can obtain a land use right for no more than 10 years:  a five-year lease term with a single five-year renewal. Although Mongolia has a well-established register for immovable property – structures and real estate – it lacks a central register for use rights; consequently, investors, particularly those seeking to invest in rural Mongolia, have no easy way to learn who might have conflicting rights.  Complicating matters, Mongolia’s civil law system has yet to develop a formal process for apportioning multiple use rights on adjacent lands or adjudicating disputes arising from conflicting use rights.

Mongolian law allows creditors to recover debts by seizing and disposing of property offered as collateral.  Mongolian law mandates that mortgages and other debt instruments backed by real estate, fixed structures, and other immovable collateral be registered with the Immovable Property Office of the State Registration Office (SRO:  www.burtgel.gov.mn  ).  Mongolian law began allowing movable property (cars, equipment, livestock, receivables, and other items of value) in March 2017 to be registered with SRO as collateral.  Investors report that the immovable property registration system is generally reliable, but the movable property system continues to experience capacity issues and suffers from non-transparent, arbitrary regulations that limit access.  At this point, the Mongolian government has no accurate figure for land with clear titles.

**Intellectual Property Rights**

Film, television, and digital content from the United States enjoy strong copyright protection in Mongolia, while the music and publishing industry is slowly making progress in reaching licensing agreements with organizations using its content.  Use of pirated software by Mongolian government ministries, as well as by home-use consumers and business, remains a major problem, however.  Patent protection for pharmaceutical and medical device importers is virtually non-existent, with trademark law their only recourse.  Law enforcement continues to prosecute intellectual property (IP) cases, highlighting a willingness by Mongolian prosecutors and police to attack the problem.

Film content from the United States is strongly protected in Mongolia, with unlicensed viewing of such content rare.  Mongolia’s Internet Service Providers (ISPs) quickly block access to internet addresses of offending sites once they are listed by the Intellectual Property Office of Mongolia (IPOM).  The IPOM has worked with Mongolia’s Communication Regulatory Commission (CRC) to shut down more than 600 offending websites, including 28 in 2018.

Pharmaceuticals and medical devices effectively lack patent protection in Mongolia.  Approval of pharmaceuticals for import requires a certificate from the Ministry of Health (MOH), which Mongolia’s customs agency then verifies.  For pharmaceuticals from “Category A” countries (i.e., developed countries including the United States), the MOH accepts FDA or other regulatory health agency approval as equivalent in Mongolia; for other countries, the drug must be accepted and sold in at least three other countries.  The panel also reviews pricing and checks for a Good Manufacturing Practices certificate, but there is no patent linkage system in place.  Even if there were, there is no separate law in Mongolia regarding pharmaceutical patents, and the current backlog of patents is between 18 and 24 months.

While in the past law enforcement has seized trademark-infringing drugs, simply dropping the trademark infringement still allows the importer to bring the drug in despite it being on patent.  This contributes to a high rate of counterfeit drugs.  Medical devices encounter similar problems.

There are trademark infringing areas in Mongolia, including stores that distribute counterfeit apparel.  However, due to a lack of formal complaints by rights holders, law enforcement has not focused on these areas.  Mongolian law treats IPR violations below $19,000 (50 million MNT) as a misdemeanor subject to civil litigation.

For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles:  http://www.wipo.int/directory/en/  

							6. Financial Sector					

**Capital Markets and Portfolio Investment**

The Mongolian government imposes few restrictions on the flow of capital into and out of any of its markets and, despite previous, unsuccessful attempts to require businesses to channel all transactions through Mongolian commercial banks, has respected IMF Article VIII by imposing no restrictions on payments and transfers for international transactions.

Mongolia’s capital markets remain underdeveloped, with little to no ability to trade futures or derivatives.  The state-owned Mongolian Stock Exchange (MSE: http://mse.mn/en  ) is the primary domestic venue for generating capital and portfolio investments.  The government also has limits on the participation of foreign banks in the financial services sector.  

**Money and Banking System**

Of the 13 commercial banks currently operating in Mongolia, four large banks are majority owned by both Mongolian and foreign investors.  These banks – Golomt, Khan, Khas, and Trade and Development Bank – collectively hold approximately 77 percent of all banking assets or about $9.7 billion as of end of 2018.  The banks operate branches throughout the country and are regularly audited by one of the big four international accounting firms.  Mongolian commercial banks had rates of non-performing loans averaging 10.4 percent in December 2018, an increase from December 2017’s 8.5 percent.  The four major commercial banks generally follow international standards for prudent capital reserve requirements, have conservative lending policies, up-to-date banking technology, seem generally well-managed, and are open to foreigners opening bank accounts under the same terms as Mongolian nationals.  In addition, foreign investors, including the International Finance Corporation (Khas, Khan) and Goldman Sachs (TDB), have equity stakes in several of these four banks.  While there are no legal prohibitions, the Mongolian government generally discourages majority foreign control of any local commercial bank or foreign establishment of local branch operations.  Mongolia’s commercial banks also face the challenge of maintaining correspondent relations with U.S.-based banks.  Local bankers report that correspondent banks are terminating their Mongolian relationships because of the perceived weak financial regulatory oversight in Mongolia and the corresponding high costs of compliance for the limited revenue generated from the small number of Mongolian transactions.

**Foreign Exchange and Remittances**

The Mongolian government employs a liberal regime for controlling foreign exchange.  Foreign and domestic businesses report no problems converting or transferring funds aside from occasional, market-driven shortages of foreign reserves; however, some banks have warned of difficulties maintaining their U.S. correspondent banking relationships due to high compliance costs related to Mongolia’s ongoing efforts to improve its anti-money laundering enforcement.  Mongolia’s national currency, the tugrik (denoted as MNT), is fully convertible into a wide array of international currencies with its relative value fluctuating freely.

The 2009 Currency Law of Mongolia requires all domestic transactions be conducted in MNT unless expressly excepted by the Bank of Mongolia.  Regulation prohibits the listing in Mongolia of wholesale or retail prices in any fashion (including as an internal accounting practice) that effectively denominates or otherwise indexes those prices to currencies other than the MNT.  Hedging forward mechanisms available elsewhere to mitigate exchange risk for many national currencies are generally unavailable in Mongolia given the small size of the market. Letters of credit in a variety of currencies are available for trade facilitation.  The Mongolian government has in the past resorted to paying for goods and services with promissory notes that cannot be directly exchanged for other currencies. 

***Remittance Policies***

Businesses report no delays in remitting investment returns or receiving inbound funds.  Most transfers are completed within a few days to a week. However, in response to occasional currency shortages, most often of U.S. dollars, commercial banks can temporally limit the amounts they exchange daily, transmit abroad, or allow to be withdrawn.  Remittances sent abroad are subject to a ten percent withholding tax to cover any potential profit, income, or value-added tax liabilities. 

**Sovereign Wealth Funds**

Mongolia’s Ministry of Finance currently manages two sovereign wealth funds (SWF):  the Fiscal Stabilization Fund and the Future Heritage Fund. Both are to be funded through the diversion of mining sector revenues.  The Fiscal Stabilization Fund is intended to divert revenues that might promote boom and bust cycles of spending; however, Mongolia’s recent fiscal crisis all but depleted this fund.  The Future Heritage Fund, a SWF similar to the Norwegian SWF (Pension Fund Global), is designed to accumulate mining revenues for the future and invest the proceeds exclusively outside Mongolia.  The Ministry of Finance and the IMF project the Future Heritage Fund will start accumulating $104-125 million annually in 2022, coinciding with increased revenues from the Oyu Tolgoi copper and gold mega mine.

							7. State-Owned Enterprises					

The Mongolian government maintains various state owned enterprises (SOEs) in the banking and finance, energy production, mining, and transport sectors.  The Government Agency for Policy Coordination on State Property (PCSP: http://www.pcsp.gov.mn/en  ) manages the non-mining and non-financial assets.  The Ministry of Finance manages the State Bank of Mongolia and the Mongolian Stock Exchange, and SOE Erdenes Mongol holds most of the government’s mining assets.  The PCSP does not provide a complete list of its SOEs. Investors can compete with SOEs, although in some cases an opaque regulatory framework limits both competition and investor penetration.  Both foreign and domestic private investors believe the current government approach to regulating SOEs favors Mongolian SOEs over private enterprises and foreign SOEs. Although many private companies have been created or registered in Mongolia in recent years, including foreign private companies, the Mongolian government has also created several dozen SOEs over the same period.  The 2006 Minerals Law of Mongolia (amended in 2014) and the 2009 Nuclear Energy Law grant the government the right to acquire equity stakes ranging from 34 percent up to 100 percent of certain uranium and rare earth deposits deemed strategic for the nation.

Businesses have cautioned against the growing role of state-owned enterprises in the private sector, which they see as having the potential to crowd out business opportunities and limit investment in a free-market economy driven by an open private sector.  Specifically, they worry the Mongolian government’s desire to maximize local procurement, employment, and revenues may compromise the long-term commercial viability of mining projects.  Investors also question the Mongolian government’s capacity to execute its fiduciary responsibilities as both owner and operator of mines. Observers are concerned that the Mongolian government waives legal and regulatory requirements for state-owned mining companies that it imposes on all others.

Generally, approval for relevant environmental and operating permits for private coal mines in Mongolia takes at least two years.  However, there are indications that the Mongolian governmenthas exempted the Erdenes Tavan Tolgoi mining operations from regulatory requirements imposed on other operations.  Preferential treatment for SOEs creates the appearance that the Mongolian governmenthas one standard for its SOEs and another for foreign-invested and private domestic invested companies, and it also provides SOEs with substantial cost advantages via a more lenient interpretation or outright waiver of legal requirements.

Mongolian SOEs will source from foreign firms only when inputs are not available locally or cannot be produced competitively in Mongolia.  SOEs and private enterprises are under political pressure to source locally as much as possible and often resort to creating local Mongolian shell companies to act as domestic storefronts for foreign-sourced goods.  This unofficial requirement adds inefficiency and cost to serving the Mongolian market. Finally, Mongolia is not yet a party to the WTO Procurement Agreement, although it remains an observer.

**Mongolian Compliance with OECD Guidelines on Corporate Governance of SOEs**

Mongolian SOEs do not adhere to the OECD Corporate Governance Guidelines for SOEs; however, they are technically required to follow to the same international best practices on disclosure, accounting, and reporting as imposed on private companies.  When SOEs seek international investment and financing, they tend to follow these rules. Many international best practices are not institutionalized in Mongolian law, and SOEs tend to follow existing Mongolian rules. At the same time, foreign-invested firms follow the international rules, causing inconsistencies in corporate governance, management, disclosure, and accounting.

The SOE corporate governance structure is clear on paper:  an independent management answers to an independent board of directors, which reports to the Government Agency for Policy Coordination on State Property (PCSP:  http://www.pcsp.gov.mn/en  ).  In reality, government officials note that management and board of director operations and appointments are subject to political interference.    

**Privatization Program**

Parliament’s 2016 National Action Plan references privatizing some state-held assets, but the government has yet to identify the specific assets to privatize or the process to implement privatization.  The Mongolian government routinely floats the possibility of privatizing through sales of shares or equity in the Mongolian Stock Exchange, the national air carrier MIAT, the Mongol Post Office, and other properties but so far has sold only 30 percent of the Mongol Post Office to private buyers through an initial public offering on the bourse.  While stating it welcomes foreign participation in privatization efforts, the Mongolian government has not clarified a tendering process for the privatization of state assets not to be sold via the stock exchange. Mongolia has no plans to privatize its power or rail systems. The latter is jointly held with the government of Russia, but the law does allow private firms to build, operate, and transfer new railroads to the state.

							8. Responsible Business Conduct					

The concept and practice of responsible business conduct in Mongolia is still in its infancy.  Most international companies make good faith efforts to work with local communities. The larger firms tend to follow accepted international responsible business conduct practices and underwrite a range of related activities across Mongolia; however, smaller companies, lacking sufficient resources, often limit responsible business conduct actions to the locales in which they work.  Generally, firms adopting responsible business conduct are perceived favorably, at least within the communities in which they operate. Nationally, responses range from praise from politicians to cynical condemnation by certain civil-society groups that allege responsible business conduct is no more than an attempt to buy public approval. Public awareness of responsible business conduct remains limited, with only a few NGOs involved in responsible business conduct promotion or monitoring, and those concentrated on such large projects as the Oyu Tolgoi mega-mine project.

Given Mongolia’s high social-media penetration, businesses may be unaware that discussions regarding their activities could be ongoing on social media sites such as Facebook.  Investors should take care to monitor social media discussions to ensure information about their activities is being portrayed accurately.

							9. Corruption					

Observers generally agree that corruption remains widespread in Mongolia.  Although the law provides criminal penalties for corruption by officials, the government does not always implement the law effectively and corruption continues at all levels.  Private enterprises commonly report instances in which government employees pressure them to pay bribes to transfer use rights, settle disputes, clear customs, ease tax obligations, act on applications, obtain permits, and complete registrations.  Although the constitution and law provide for an independent judiciary, NGOs and private businesses report that judicial corruption and third-party influence continue. Factors contributing to corruption include: conflicts of interest, lack of transparency, limited access to information, an inadequate civil service system, low salaries, and weak government control of key institutions.

Mongolia’s new criminal code, effective July 1, 2017, introduced stricter liability for corruption and corruption-related offenses for public servants and government officials.  These laws extend to the immediate families of government officials. The laws also require government officials to disclose their assets to the Independent Authority Against Corruption (IAAC:  http://www.iaac.mn/home?lang=en  ).  In addition, the government in March 2017 developed a three-year action plan to implement the National Program Combatting Corruption adopted in November 2016.  The Anti-Corruption Law has been bolstered by several amendments since its 2006 passage; however, the government has passed no legislation dedicated to protecting NGOs and others investigating and reporting government corruption.  Although Mongolia has a relatively free press that allows NGOs and reporters to publicize findings, recourse to criminal libel and defamation laws may permit officials accused of corruption to use the threat of criminal prosecution to silence critics.  Finally, Mongolia imposes no statutory requirement on companies to establish internal codes of conduct that, among other things, prohibit bribery of public officials. U.S. and other foreign businesses have reported that they accept the need for and have adopted internal controls, ethics, and compliance programs to detect and prevent bribery of government officials.

The IAAC is the principal agency responsible for investigating corruption, assisted at times by the National Police Agency’s Organized Crime Division.  The IAAC follows a standard operating procedure for ensuring that investigations of corruption allegations are handled correctly. The IAAC has publicly reported on its recent successes, including its reform of the government tender process to permit only electronic tender submissions and the blacklisting of companies violating rules of government procurement.  It airs a weekly awareness program on Mongolian National TV to inform the public of its anti-corruption activities.

In addition, Mongolia has signed and ratified the UN Anticorruption Convention (UNAC:  https://www.unodc.org/unodc/en/corruption/ratification-status.html  ) but not the OECD Anti-Bribery Convention.

The U.S. Embassy in Ulaanbaatar would not recommend any particular industry group or non-profit for vetting of potential local investment partners.  Normally, local legal firms provide such services. A partial list of local legal firms is here: https://mn.usembassy.gov/u-s-citizen-services/arrest-of-a-u-s-citizen/.

***Resources to Report Corruption***

Government agencies responsible for combating corruption:

**Independent Agency Against Corruption (IAAC)**

District 5, Seoul Street 41Ulaanbaatar, Mongolia 14250Telephone:  +976-70110251; 976-11-311919Email:  contact@iaac.mnWeb:  http://www.iaac.mn/home?lang=en  

Local “watchdog” organization:

**Transparency International Mongolia**Tur-Od Lkhagvajav, Chairman of the Mongolian National ChapterZorig Foundation, 2nd floorPeace Avenue 17, Sukhbaataar DistrictUlaanbaatar, MongoliaTelephone:  +976 9919 1007; +976 9511 4777; +976 95599714Email:  lturod@gmail.comWeb:https://www.transparency.org/country/MNG  

							10. Political and Security Environment					

The Mongolian political and security environment is characterized largely by peace and stability.  Crime is low in Ulaanbaatar, although there are cases of petty theft and assault. U.S. investors are generally warmly welcomed in Mongolia and by the Mongolian people.

For larger and potentially politically sensitive projects, investors should note that opposition party members of parliament have justified cancellation of contracts on the basis that parliament should have ratified the original decisions.  Given Mongolia’s vibrant democracy, investors into these types of projects should take care to understand whether they have a deal that can survive a change in government party control.

							11. Labor Policies and Practices					

The Mongolian labor pool of nearly 1.4 million workers – of whom 811,500 live in urban areas and 519,800 in rural areas – is generally educated, young, and skilled.  Unskilled labor is abundant but shortages exist in most professional categories requiring advanced degrees or vocational training, including all types of engineers and professional tradespeople in the construction, mining, and services sectors.  Foreign-invested companies address these shortages by providing in-country training to their staff, increasing salaries and benefits to retain employees, or hiring expatriate workers with specific skills and expertise unavailable in Mongolia.

Mongolian labor laws are not particularly restrictive.  Investors can locate and hire workers without using hiring agencies, as long as hiring practices follow the 1999 Law on Labor of Mongolia.  The Law on Labor requires companies to employ Mongolian workers in all labor categories wherever the Ministry of Labor and Social Protection determines a Mongolian can perform the task as well as a foreigner.  This provision generally applies to unskilled labor categories. If an employer seeks to hire a non-Mongolian laborer and cannot obtain a waiver from the Ministry of Labor and Social Protection for that employee, the employer can pay a monthly waiver fee.  Depending on a project’s importance, the Ministry of Labor and Social Protection can exempt employers from 50 percent of the waiver fees per worker. However, employers report difficulty in obtaining waivers, due in part to public perceptions that foreign and domestic companies refuse to hire Mongolians in the numbers that they should.

Because Mongolia’s long, cold winters limit outdoor operations in the infrastructure development, commercial and residential construction, and mining exploration sectors, employers tend to use a higher degree of temporary contract labor than companies that can operate year-round.  The law allows employers and employees to use these short-term contracts.

The Law on Labor allows workers to form or join independent unions and professional organizations of their choosing and protects rights to strike and collective bargaining.  However, some provisions restrict these rights for foreign workers, certain public servants, and workers without formal employment contracts, though all groups have the right to organize.  The law protects the right of workers to participate in trade union activities without discrimination, and the government has protected this right in practice. The law provides for reinstatement of workers fired for union activity, but this provision is not always enforced.  Some employees occasionally face obstacles forming or joining unions, and some employers have taken steps to weaken existing unions. For example, some companies use the portion of employees’ salaries deducted for union dues for other purposes rather than forwarding the monies to the unions.  Some employers have prohibited workers from participating in union activities during working hours, contravening the law. There also have been some violations of collective bargaining rights, as some employers refuse to conclude collective bargaining agreements in contracts.

The Law on Labor allows employers to fire or lay off workers for cause.  Depending on the circumstances, however, severance may be required and workers may seek judicial review of their dismissal.  Investors and legal experts report that Mongolia’s courts usually support employee claims, especially when the plaintiff or defendant is a foreign business.  The statutory severance package requires employers to pay laid off workers one month of the contracted salary, but fired workers receive no severance. Laid off or fired workers are entitled to three months of unemployment insurance from the Social Insurance Agency.

The International Labor Organization (ILO) has expressed concern about child labor practices and variations between Mongolian law and international labor standards.  Authorities report that employers often do not follow the law, requiring minors to work in excess of the permitted hours per week and paying them less than the minimum wage.  The General Agency for Specialized Inspections (GASI: http://eng.inspection.gov.mn/) enforces all labor regulations; however the agency is understaffed.  GASI inspectors are authorized to compel compliance with labor statutes, but its limited capacity, combined with the growing number of privately owned enterprises (over 170,000), limits enforcement.  Additional information on the ILO conventions ratified by Mongolia is available on the ILO website (http://www.ilo.org/dyn/normlex/en/f?p=1000:11200:0::NO:11200:P11200_COUNTRY_ID:103142  ).

Mongolia and the United States do not have a signed trade agreement that covers their respective labor practices.

							12. OPIC and Other Investment Insurance Programs					

The United States Overseas Private Investment Corporation (OPIC) offers loans and political risk insurance to U.S. investors active in most sectors of the Mongolian economy, ranging from education to logistic services to finance.  For a list of active OPIC projects in Mongolia, go to:https://www.opic.gov/opic-action/active-opic-projects  .  In addition, OPIC and Mongolia have signed an Investment Incentive Agreement that requires the government of Mongolia to extend national treatment to OPIC-financed projects in Mongolia.  The agreement is available online here: http://photos.state.gov/libraries/mongolia/5/business/1990_OPIC-Investment-Incentive-Agreement-with-Mongolia.pdf .  For example, under this agreement mining licenses of firms receiving an OPIC loan may be pledged as collateral to OPIC, a right not normally bestowed on foreign financial entities.  The U.S. Export-Import Bank (EXIM: www.exim.gov  ) offers programs in Mongolia for short-, medium-, and long-term transactions in the public sector and for short- and medium-term transactions in the private sector.  Mongolia is also a member of the Multilateral Investment Guarantee Agency (MIGA: https://www.miga.org/  ).

South Korea, Canada, the Russian Federation, Japan, China, Poland, Hungary, and Austria have provided investment and trade financing for their firms in Mongolia.  In addition, the European Bank for Reconstruction and Development and the International Finance Corporation  have supplied significant financial support for Mongolian investments.

							13. Foreign Direct Investment and Foreign Portfolio Investment Statistics					

*Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy*

*Table 3: Sources and Destination of FDI**

Note:  The Government of Mongolia has never tracked where the beneficial ownership of a given investment actually terminates.  The government only records where the company claims its domicile. The U.S. Embassy is aware of numerous cases where foreign entities active in Mongolia do not incorporate in their countries of origin but rather do so in third countries, largely for tax mitigation purposes.  Consequently, although Mongolia’s data and the IMF’s, respectively, suggest that much of Mongolia’s investment originates from such places as the Netherlands or Singapore, much of the investment comes from other jurisdictions, including but not limited to the United States, Australia, Canada, Russia, and China.

*Table 4: Sources of Portfolio Investment*

							14. Contact for More Information					

The Economic and Commercial SectionU.S. EmbassyP.O. Box 341Ulaanbaatar 14192, MongoliaTelephone:  +976-7007-6001Email: Ulaanbaatar-Econ-Comm@state.gov

## View report by:

### On This Page

                    -  Executive Summary 
                    -  1. Openness To, and Restrictions Upon, Foreign Investment   
                    -  2. Bilateral Investment Agreements and Taxation Treaties   
                    -  3. Legal Regime   
                    -  4. Industrial Policies   
                    -  5. Protection of Property Rights   
                    -  6. Financial Sector   
                    -  7. State-Owned Enterprises   
                    -  8. Responsible Business Conduct   
                    -  9. Corruption   
                    -  10. Political and Security Environment   
                    -  11. Labor Policies and Practices   
                    -  12. OPIC and Other Investment Insurance Programs   
                    -  13. Foreign Direct Investment and Foreign Portfolio Investment Statistics   
                    -  14. Contact for More Information   

Tags

Bureau of East Asian and Pacific AffairsBureau of Economic and Business AffairsMongolia

Back to Top

01 / Select a Year

02 / Select Sections	

                  -  Select All Sections 

03 / Select Countries You can add more than one country or area.

                - White House
                - USA.gov
                - Office of the Inspector General
                - Archives
                - Contact Us

follow us
FacebookXInstagramYouTubeFlickrGovDelivery

              - Privacy Policy
              - Accessibility Statement
              - Copyright Information
              - FOIA
              - No FEAR Act

## U.S. Department *of* State

#### The Lessons of 1989: Freedom and Our Future