23Vol. 23, December 2022 Multilateral Economic Ties of Mongolia with its Asian Trading Partners in period of 2011-2021 Robert Dygas Professor (Ph.D), Department of East Asian Economic Studies World Economy Research Institute, SGH Warsaw School of Economics Warsaw, POLAND rdygas1@sgh.waw.pl Abstract: This article gives insight of main aspects of Mongolian’s economy related to its Asian Trading Partners namely China, India, South Korea and Japan in period of 2011-2021. To give more clarity about the main trading partners of Mongolia there are two countries: China and Russia, but the author focuses only on the Asian trading partners. The main goal is to popularise still not well known economy of Mongolia and to see how it was developed in analysed period of 2011- 2022. As the methodology of the research the author used empirical analysis based mainly on Macrobond data which also has access to Mongolian Statistics Office data and also to available world reports such OECD, UNCTAD. Besides that, the article was consulted with Mongolian Ambassador in Poland and it was enriched this way with his best knowledge regarding economy and Mongolia international trade and investment policy. The interesting aspect which was raised by the author in this article was the future state of economy of Mongolia after pandemic of SARS- CoV-2 and impact of the restrictions imposed on Russia due to the war on Ukraine. Keywords: Mongolia trade, CMREC, BRI, Eurasian Economic Union (EAEU), the third neighbour policy, APTA, CAREC JEL:F21 Introduction Mongolia a parliamentary republic is the country which borders only China and Russia and is the object of close attention not only from its geographic neighbours, but also from non-regional states referred to as “the third neighbour” according to the policy known as Mongolia’s National Security Concept adopted by Mongolia’s parliament on June 30, 1994. The main goal of this concept was to stabilize and rotect Mongolia from too much economic dependency from its two neighbours: Russia and China (Densmaa et al, 2021). This geographical and geoeconomics aspects determines Mongolia’s economy, investment and trading. In June 2016 Mongolia together with China and Russia established The China-Mongolia-Russia Economic Corridor (CMREC) as the part of Chinese Belt and Road Initiative (BRI) A R T IC L E ORCID: https://orcid.org/0000-0001-8536-0897 https://creativecommons.org/licenses/by/4.0/ Received: 19 August, 2022; Accepted: 5 September, 2022 The Mongolian Journal of International Affairs Vol.23, 2022 DOI: https://doi.org/10.5564/mjia.v23i1.2403 24 Vol. 23, December 2022 The Mongolian Journal of International Affairs with the aim to improve its economy development in Eurasian region. Almost half of the population of Mongolia lives in the capitol Ulaanbaatar which also have the effect on the economy development regarding the access to human capital which is mainly concentrated there. Besides China and Russia Mongolia has its trade and investment relations with other countries like India, South Korea and Japan. The comparison of basic data for Mongolia and its Asian Trading Partners were presented in Table 1 below. Table 1. Mongolia and Trading Partners – selected indicators 2019, 2020 and 2021 Mongolia India China South Korea Japan Population in millions and trend 3.3 1 335 1 412 51.8 125.6 Real GDP growth in % -5.3 -8.0 2.3 -1.0 -4.5 GDP per capita in USD 4060 1927 10434 31631 40193 CPI inflation change in % 3.7 4.6 0.6 1.3 0.8 Public debt per capita in USD 3029 1731 5809 13454 32300 Unemployment rate in % (U) 4.33 7.1 4.2 3.9 2.9 Government budget to GDP ratio in % (G) 15.8 12.4 16.7 18.0 21.0 Current account to GDP ratio in % (CA) -5.0 1.2 1.8 3.5 2.9 Average monthly wage in USD 440 437 1225 3496 5785 Nuclear energy share of total energy pro- duction in % 0 3.1 13.5 6 1.7 Global Competitiveness Index (GCI) 4.0 – position in ranking (2019) for 139 countries 102 68 28 13 6 Digital Transformation Index score (DTI) by Dell (2021) (0-100) N/A 64 58 N/A 38 World Digital Competitiveness score (0- 100) in 2021 40.69 55.13 84.43 89.72 73.01 SDG Index Rank 2021 (165 countries) 106 120 57 28 18 Source: Macrobond data base 2022, https://www.worlddata.info/asia/mongolia/energy-consumption.php, https://economictimes.indiatimes.com/industry/energy/power/indias-nuclear-power-capacity-of- 6780-mw-planned-to-be-hiked-to-22480-mw-by-2031-govt/articleshow/88322043.cms?from=mdr, https://www.visualcapitalist.com/ranked-nuclear-power-production-by-country/, https://www3.weforum.org/docs/WEF_TheGlobalCompetitivenessReport2020.pdf, govdata360. worldbank.org, https://www.statista.com/statistics/1042743/worldwide-digital-competitiveness-rankings-by- country/, https://www.dell.com/en-us/dt/perspectives/digital-transformation-index.htm#scroll=off&pdf- overlay=//www.delltechnologies.com/asset/en-us/solutions/business-solutions/briefs-summaries/ dt-index-2020-full-findings-report.pdf, https://dashboards.sdgindex.org/rankings, N/A = not available 25Vol. 23, December 2022 Analysing data from Table 1 it can be concluded that Mongolia as the small Asian country has lot of areas in economy development to catch up comparing to its Asian Trading Partners. Mongolia has strong points which one of them is the access to the mineral resources such as coal, copper, natural gas, iron, aluminium and gold. Mongolia was also quite successful with fighting with COVID-19 pandemic implementing the tests and health measures recommended by The World Health Organization (WHO) (Krusekopf and Jargalsaikhan, 2021). Mongolia even though that is the landlocked country by Russia and China it plays the vital role of the transit between those two big economies although the freight transport infrastructure of Mongolia is underdeveloped and the transit charges in Russia and China are unreasonably very high (Boldbaatar and Yoon, 2012). Mongolia has its problems which need to be solved urgently. One of the big weaknesses of Mongolian economy is increasing debt since 2011 presented below in Figure 1 reaching of 7.5 billion USD in 2021. Figure 1. Mongolia Government Debt, 2011-2021 20 competitiveness-rankings-by-country/, https://www.dell.com/en-us/dt/perspectives/digital- transformation-index.htm#scroll=off&pdf-overlay=//www.delltechnologies.com/asset/en- us/solutions/business-solutions/briefs-summaries/dt-index-2020-full-findings-report.pdf, https://dashboards.sdgindex.org/rankings, N/A = not available Analysing data from Table 1 it can be concluded that Mongolia as the small Asian country has lot of areas in economy development to catch up comparing to its Asian Trading Partners. Mongolia has strong points which one of them is the access to the mineral resources such as coal, copper, natural gas, iron, aluminium and gold. Mongolia was also quite successful with fighting with COVID-19 pandemic implementing the tests and health measures recommended by The World Health Organization (WHO) (Krusekopf and Jargalsaikhan, 2021). Mongolia even though that is the landlocked country by Russia and China it plays the vital role of the transit between those two big economies although the freight transport infrastructure of Mongolia is underdeveloped and the transit charges in Russia and China are unreasonably very high (Boldbaatar and Yoon, 2012). Mongolia has its problems which need to be solved urgently. One of the big weaknesses of Mongolian economy is increasing debt since 2011 presented below in Figure 1 reaching of 7.5 billion USD in 2021. Figure 1. Mongolia Government Debt, 2011-2021 Source: Macrobond Data 2022 Taking into consideration relatively low population of Mongolia (3.3 million people) it brings a real problem to Mongolian economy to be solved out. In that sense the cost of debt increases and Mongolia’s government goes into spiral of debt to pay the interest rate. As the remedy Mongolian government established a special 5.5 billion USD financial bailout agreement with IMF, World Bank and its trading partners namely South Korea, Japan and China to reduce the debt The reason for a growing debt from 2011 was due to the model of fossil economy and too much optimism of Mongolia’s government related to the received potential revenues from mineral sector especially from coal mining industry. The Figure 2 below shows the coal production of Mongolia in period 2011-2020. 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Foreign Debt, Gross External Debt Position, General Government, Billion EUR Source: Macrobond Data 2022 Taking into consideration relatively low population of Mongolia (3.3 million people) it brings a real problem to Mongolian economy to be solved out. In that sense the cost of debt increases and Mongolia’s government goes into spiral of debt to pay the interest rate. As the remedy Mongolian government established a special 5.5 billion USD financial bailout agreement with IMF, World Bank and its trading partners namely South Korea, Japan and China to reduce the debt The Multilateral Economic Ties of Mongolia with its Asian Trading Partners in period of 2011-2021 The Mongolian Journal of International Affairs 26 Vol. 23, December 2022 reason for a growing debt from 2011 was due to the model of fossil economy and too much optimism of Mongolia’s government related to the received potential revenues from mineral sector especially from coal mining industry. The Figure 2 below shows the coal production of Mongolia in period 2011-2020. Figure 2. Mongolia coal production, 2011-2020 21 Figure 2. Mongolia coal production, 2011-2020 Source: Macrobond data 2022, BP Statistical Review of World Energy Since 2019 as it can be seen from Figure 2 the coal production has a decreasing trend. Mongolia’s debt interest rates is one of the highest which is paid by any government in the world and by the value it exceeds Mongolia’s health care and education systems budgets (Bauer et al, 2017). Another cause of the decreasing trend of coal production in Mongolia can be the global economy target to build a carbon free economy. It is still rather a concept then a real option as the war in Ukraine in 2022 showed a lot of dependencies from the Russian oil and gas of such countries like Germany and France. In the opinion of some authors Mongolia can be the major exporter of the coal in the future (Sokolov et al, 2020). Even though Mongolia has 29 national parks it is one of the most polluted countries in the world due to the burning of coal and other biomass, such as wood or crop residue, in stoves. According to Macrobond data CO2 emission per capita in Mongolia in 2020 was higher then in China, India, Japan. South Korea in 2020 had almost same level of CO2 emissions as Mongolia (12 Metric Tones of CO2 per capita), while India had six times less (2 Metric Tones of CO2 per capita). Besides this Mongolia’s economy development is still very much dependant on China. One of the aim of the international trade policy of Mongolia is to be less dependant on China. Mongolia’s total foreign trade volume in 2021 reached 13.2 billion USD. According to Indian Council of Foreign Affairs the total Mongolia export share in 2021 was 85% and total import share from China was 32% (Kumar, 2022). Mongolia also lags behind in reaching the Sustainable Development Goals (SDG) of Agenda 2030 and digital transformation. In spite of the debt problems Mongolia is the country of growing interest among Asian Trading Partners and the same time Mongolia wants to be more open for the other partners from the region of Eurasia. Mongolia’s GDP growth since 2020 has increasing trend and it is between 4.0-4.5% (please see Figure 3 below) which is also the incentive for potential foreign investors. Figure 3. Mongolia’s GDP growth change Y/Y, 2011-2021 0 10000000 20000000 30000000 40000000 50000000 60000000 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Mongolia, BP Statistical Review of World Energy, Coal, Production, Tonnes Source: Macrobond data 2022, BP Statistical Review of World Energy Since 2019 as it can be seen from Figure 2 the coal production has a decreasing trend. Mongolia’s debt interest rates is one of the highest which is paid by any government in the world and by the value it exceeds Mongolia’s health care and education systems budgets (Bauer et al, 2017). Another cause of the decreasing trend of coal production in Mongolia can be the global economy target to build a carbon free economy. It is still rather a concept then a real option as the war in Ukraine in 2022 showed a lot of dependencies from the Russian oil and gas of such countries like Germany and France. In the opinion of some authors Mongolia can be the major exporter of the coal in the future (Sokolov et al, 2020). Even though Mongolia has 29 national parks it is one of the most polluted countries in the world due to the burning of coal and other biomass, such as wood or crop residue, in stoves. According to Macrobond data CO2 emission per capita in Mongolia in 2020 was higher then in China, India, Japan. South Korea in 2020 had almost same level of CO2 emissions as Mongolia (12 Metric Tones of CO2 per capita), while India had six times less (2 Metric Tones of CO2 per capita). Besides this Mongolia’s economy development is still very much dependant on China. One of the aim of the international trade policy of Mongolia is to be less dependant 27Vol. 23, December 2022 on China. Mongolia’s total foreign trade volume in 2021 reached 13.2 billion USD. According to Indian Council of Foreign Affairs the total Mongolia export share in 2021 was 85% and total import share from China was 32% (Kumar, 2022). Mongolia also lags behind in reaching the Sustainable Development Goals (SDG) of Agenda 2030 and digital transformation. In spite of the debt problems Mongolia is the country of growing interest among Asian Trading Partners and the same time Mongolia wants to be more open for the other partners from the region of Eurasia. Mongolia’s GDP growth since 2020 has increasing trend and it is between 4.0- 4.5% (please see Figure 3 below) which is also the incentive for potential foreign investors. Figure 3. Mongolia’s GDP growth change Y/Y, 2011-2021 22 Source: Macrobond data 2022, World Bank data This research analyses Mongolia’s multilateral economic ties and perspectives with China, India, South Korea and Japan during 2011-2020 including the impact of pandemic COVID-19 demanding time. The paper is structured to several parts including: introduction, literature review, research method overview, discussion and conclusion. The paper can be a starting point for further research regarding evaluation of Mongolia’s economy position in the region of Eurasia. Research Method The Mendeley research tool was used to analyse existing literature in the subject. The author made the search of the items using a key word Mongolia trade and as the result 671 positions were classified as “the most relevant”. The author has chosen from the list of 671 books and articles only those ones which corresponded very closely to the analysed subject and period of this article. Due to the war in Ukraine it was not possible to access the articles stored on Russian data base servers of elibrary.ru. That is why only accessible literature items from other countries were taken into the analysis. In this article Macrobond data was used regarding the subject of study. The most important is the input of a review of existing literature in the subject presented further in this article. Besides that the author uses existing researches and also input from The Mongolia’s Ambassador in Poland to build his own conclusions upon economic ties of Mongolia with its Asian Trading Partners. Most of the research studies conducted till date have evaluated the bilateral economic ties of Mongolia with its Asian Trading Partners in period of 2011-2021. Very few specific studies have been conducted to understand the bilateral economic ties of Mongolia with its Asian Trading Partners such as China, India, South Korea and Japan in period of 2011-2021. Hence, there is scope for research to understand these relations and their further development. Macrobond’s data and international reports are the main recent data which helped to build up the conclusions and projections for this subject. There is no specific econometric or statistical model (e.g. multidimensional panel data analysis) which will show in the big picture the current situation of bilateral economic ties of Mongolia with its Asian Trading Partners in period of 2011-2020. -10 -5 0 5 10 15 20 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Mongolia's GDP growth Source: Macrobond data 2022, World Bank data This research analyses Mongolia’s multilateral economic ties and perspectives with China, India, South Korea and Japan during 2011-2020 including the impact of pandemic COVID-19 demanding time. The paper is structured to several parts including: introduction, literature review, research method overview, discussion and conclusion. The paper can be a starting point for further research regarding evaluation of Mongolia’s economy position in the region of Eurasia. Multilateral Economic Ties of Mongolia with its Asian Trading Partners in period of 2011-2021 The Mongolian Journal of International Affairs 28 Vol. 23, December 2022 Research Method The Mendeley research tool was used to analyse existing literature in the subject. The author made the search of the items using a key word Mongolia trade and as the result 671 positions were classified as “the most relevant”. The author has chosen from the list of 671 books and articles only those ones which corresponded very closely to the analysed subject and period of this article. Due to the war in Ukraine it was not possible to access the articles stored on Russian data base servers of elibrary.ru. That is why only accessible literature items from other countries were taken into the analysis. In this article Macrobond data was used regarding the subject of study. The most important is the input of a review of existing literature in the subject presented further in this article. Besides that the author uses existing researches and also input from The Mongolia’s Ambassador in Poland to build his own conclusions upon economic ties of Mongolia with its Asian Trading Partners. Most of the research studies conducted till date have evaluated the bilateral economic ties of Mongolia with its Asian Trading Partners in period of 2011-2021. Very few specific studies have been conducted to understand the bilateral economic ties of Mongolia with its Asian Trading Partners such as China, India, South Korea and Japan in period of 2011-2021. Hence, there is scope for research to understand these relations and their further development. Macrobond’s data and international reports are the main recent data which helped to build up the conclusions and projections for this subject. There is no specific econometric or statistical model (e.g. multidimensional panel data analysis) which will show in the big picture the current situation of bilateral economic ties of Mongolia with its Asian Trading Partners in period of 2011-2020. Literature Review on Mongolia’s Economic Relations with its Asian Trading Partners The interest about Mongolia’s economy is raising as more articles and research studies were done in period of 2011-2021. The majority of researchers who were devoted to Mongolia’s economy came from Mongolia, China, Russia, South Korea and India and as well. The natural interest among Chinese authors still is a bilateral trade between China and Mongolia. Some of them were very interested in trade tariffs and how do they impact bilateral trade overall. One of the findings was that if China imposed 1% tariffs on Mongolian export it would decrease the Mongolian export by 24% (Qinghui et al, 2021), and other was that China-Mongolia trade turnover increased 250 times in 28 years and China-Mongolia agricultural trade growth was faster than the overall development of China’s agricultural product trade (Zagdaakhuu et al, 2021). Besides that also multilateral trade relations and openness policy among Mongolia and other countries were 29Vol. 23, December 2022 analysed by the authors more naturally with Russia and China and they proved that neighbouring countries had a significant and positive impact on Mongolia’s trade and economic growth (Qiang et al, 2016). Moreover, Mongolia developed its trade relations with China since antient times which shows very strong ties between those two countries (Baasandulam, 2020). Some authors indicated using the Kehoe and Ruhl New Goods Margin methodology that since China joined The World Trade Organization (WTO) Mongolia opened more for trade with other countries including European Union (Amarsanaa and Kurokawa, 2021). One of the future prospects for Mongolia’s trade strategy is pointed by some authors on Eurasian Economic Union (EAEU) as the recommended way for regional integration. It is also supported by the trade theory where Free Trade Agreements (FTAs) are effective when they are signed by the countries which have a similar level of economic development (Altanchulun, 2021). It is worth to mention that for Mongolia’s ties with EAEU there was a Computable General Equilibrium model (CGE) developed where the effects of free trade agreements on Mongolia and EAEU members was analysed the main focus of the researchers in this CGE model was to analyse multilateral economic ties of Mongolia with EAEU members (Russia, Kazakhstan, Belarus, Armenia, Kyrgyzstan) from regional and sectoral perspectives. The GTAP data base was used from 2011 and there was also the assumption that non-tariff barriers of trade did not exist. The results of that research were quite surprising. The impact of FTAs on Mongolia’s and EAEU members real GDP growth was not significant, less then 1% of change in case there was a free trade between Mongolia and EAEU. Besides that Mongolia’s export volume under full liberalization decreased while import volume increased. There was a recommendation that Mongolia should accelerate its value-added exports to the EAEU and neutralize the negative effect of export volumes (Ulzii-Ochir and Vorshilov, 2016). Other researchers focused on India- Mongolia bilateral trade relations which were mainly based on the mineral trade (Shah and Rashid, 2019; Shahnawaz, 2015;) and link of Mongolia to India’s Connect Central Asia Policy (Kumar and Chatterjee, 2021) or Mongolia’s trade with South Korea as of both countries agreed to sign Economic Partnership Agreement in the future (Yoon, 2021; Pea and Pak, 2016; Sup 2004). Due to the attempt of Mongolia’s policy of open trade there is a chance to establish trade relations with other countries in Asia such as Japan, South Korea, India. Also, Mongolia’s connections to Central Asia is attracting other countries like India to develop its international trade (Stobdan, 2015). Some authors analysed Mongolia’s ties with Japan as the result of the “third neighbour” policy of Mongolia and there was a positive result of cooperation for both of the countries (Ignatov, 2020). There are also researches which try to evaluate the impact of foreign direct investment inflow on Mongolia’s economy development. M. Baasandulam (2021) using the linear regression model proved that FDI and domestic capital investment have a positive effect on Mongolia’s economic growth, and the expansion and diversification of Multilateral Economic Ties of Mongolia with its Asian Trading Partners in period of 2011-2021 The Mongolian Journal of International Affairs 30 Vol. 23, December 2022 a country’s trade and potential markets creates more economic competitiveness. Other research proved that 21 provinces of Mongolia have different types of FDI but only some of them have favourable conditions for the investment (김보라 Bora Kim, 2019). In general literature admits the strong link between FDI and economic growth but it is unidirectional (Muthusamy and Negi, 2019). Trends in Bilateral Trade between Mongolia and its Asian Trading Partners Even though Mongolia is landlocked by the China and Russia the need for international trade increase is strong. Table 2-7 below show the foreign trade of Mongolia in period 2011-2021 with also giving a structure of main imported and exported products. Overall trade balance of Mongolia is negative (see Table 3) while dy namics of the trade with Asian Trading Partners increased in analysed period. As the economy of Mongolia is fossil based the main commodities exported are natural resources and minerals (see Table 4 and Table 5). The products such cars and machines are imported mainly from South Korea and Japan (see Table 6). Table 2. Trade between Mongolia and its Asian Trading Partners, 2011–2021 (EUR millions) 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Import 2088 2259 2115 1883 1749 1456 1715 2437 2637 2264 2820 Dynamics (%) 2011= 100 100 8.2 1.3 -9.8 -16.2 -30.3 -17.8 16.7 26.3 8.5 35.1 Export 3221 3172 2801 3837 3539 3537 4686 5563 6092 4840 6681 Dynam- ics (%) 2011=100 100 -1,5 -13 19.1 11.4 9.8 45.5 72.7 89.1 50.3 107.4 Balance 1133 913 686 1954 1790 2081 2971 3126 3455 2576 3861 Source: Based on the data from CEIC data base 2022, https://insights.ceicdata.com/ Mongolia’s export share in 2011- 2022 with China is on average 85% in otal export and import is 32% on average. Increase in import of Mongolia with its trading partners is 35% while export 107% in the last decade of 2011-2021. Overall value of import of Mongolia increased 22% while overall export increased by 125% (calculation based on the data in Tables 2 and 3). 31Vol. 23, December 2022 Table 3. Foreign Trade of Mongolia in 2011-2021, (EUR millions) 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Import 4746 5245 4789 3984 3424 3037 3848 4979 5474 4648 5793 Export 3465 3413 3216 4354 4210 4446 5501 5943 6807 6646 7821 Balance -1281 -1832 -1573 405 786 1409 1653 963 1333 1998 2029 Source: Macrobond data base 2022, Mongolia National Statistical Office data Table 4. The main commodities exported by Mongolia in period 2011-2021 Coal Tons (Metric) Copper Concen- trate Tons (Metric) Crude Petroleum Oils, Barrels Gold, Un- wrought or in Semi-Manu- factured Forms Tons (Metric) Iron Ores Tons (Metric) Zinc Concentrate Tons (Metric) 2021 16137640 1282520 4348920 17250 7106210 112620 2020 28677100 1395100 4070500 30500 8202300 134100 2019 36604100 1403600 6545200 9100 8448800 134800 2018 36264800 1436700 6189800 3400 7449000 123900 2017 33400100 1447200 7514200 14600 6257800 118200 2016 25809300 1562000 8015900 19200 6084800 126000 2015 14472700 1477800 8135200 11300 5065100 84100 2014 19499000 1379000 6885100 10000 6324700 99400 2013 18367500 649800 5243800 7600 6724500 130900 2012 20915470 574300 3567960 2800 6415940 140890 2011 21296000 575900 2553700 2600 5802000 121200 Source: Macrobond data base, Mongolia National Statistical Office 2022 Table 5. Other commodities exported by Mongolia in period 2011-2021, million EUR Date Mineral Products Raw & Processed Hides, Skins, Fur Textiles & Textile Articles 2021 6634 6 327 2020 4294 6 228 2019 5712 13 389 2018 5322 15 359 2017 4148 20 282 2016 3332 29 288 2015 3370 31 277 2014 3937 29 278 2013 2537 26 205 2012 2957 23 177 2011 3312 39 186 Source: Macrobond data base, Mongolia National Statistical Office 2022 Multilateral Economic Ties of Mongolia with its Asian Trading Partners in period of 2011-2021 The Mongolian Journal of International Affairs 32 Vol. 23, December 2022 Table 6. The main commodities imported by Mongolia in period 2011-2021 Cars (number) Energy (Tons Metric) Petrol (Tons Metric) 2021 55237 1823080 572750 2020 53087 1684900 586100 2019 69472 1722700 541500 2018 64039 1665700 435500 2017 48871 1574300 410900 2016 37738 1420200 385300 2015 37088 1384800 433500 2014 41246 1349200 416000 2013 44679 1195500 380100 2012 46403 366020 389120 2011 57580 275510 325420 Source: Macrobond data base, Mongolia National Statistical Office 2022 Table 7. Other commodities imported by Mongolia in period 2011-2021 in million EUR Food Products Mineral Products Base Metals & Articles Thereof Auto, Air & Water Transport Vehicles & Their Spare Parts 2021 536 1181 501 1084 2020 355 823 438 694 2019 398 1229 485 1042 2018 383 1162 474 786 2017 318 830 281 523 2016 315 693 202 417 2015 302 858 341 337 2014 314 1203 443 506 2013 299 1262 400 726 2012 301 1196 445 962 2011 256 982 458 1165 Source: Macrobond data base, Mongolia National Statistical Office 2022 Discussion on the Projection of Further Economic Ties of Mongolia with its Asian Trading Partners In June 2021 there were presidential elections in Mongolia won by Ukhnaagiin Khürelsükh. It was very important event as the president is responsible for shaping the foreign policy of the country. The former president Khaltmaagiin Battulga was not successful in opening Mongolia for international trade and investment (Rodionov and Ayushieva, 2020). Mongolia is one of the few countries, 33Vol. 23, December 2022 which is not participating widely in regional integration and which is deeply depending from foreign markets and imports. Mongolia manged to sign the Economic Partnership Agreement (EPA) with Japan in 2016 and The Asia Pacific Trade Agreement (APTA) in 2021. Mongolia also was actively involved in Asia-Europe Meeting platform (ASEM) in 2008-2016 and the agreement with The Council of European Union was signed in 2013 in Ulaanbaatar by Mongolia’s government and came into force in 2017. This agreement between EU and Mongolia concerned trade, economic and development assistance, agriculture, local development, energy, transport, environment and climate change. As the consequence in 2017 more then 800 EU companies invested 3.8 billion EUR in Mongolia’s market (13% of FDI inflow to Mongolia), and the trade value in 2018 was 500 million EUR (8% of Mongolia’s international trade) (Tsend and Baatar, 2020). After pandemic COVID-19 Mongolia focused more on regional cooperation with China, India, Japan and South Korea. Due to the war in Ukraine and the restrictions put on Russia the investment and trade relations between Mongolia and Russia are getting weaker which may have negative impact on Mongolia’s economy if there is no further integration of Mongolia with Asian Trading Partners and such organizations like APEC or ASEAN to offset the outcome of sanctions on Russia Mongolia is not ready yet to join APEC due to the internal problems to fulfil the APEC’s standards and requirements of structural reform, good governance, improve effectiveness (Tsend and Baatar, 2020). Mongolia should increase its involvement in Central Asia Regional Economic Cooperation Program (CAREC) finance by Asian Development Bank (ADB) especially in transport and trade infrastructure to be better connected with its Asian Trading Partners (China, India, South Korea and Japan). Some other multilateral organizations such as Eurasian Economic Union (EEU) formed by Russia, Belarus and Kazakhstan due to the war in Ukraine and economic sanctions on Russia will not be beneficial to the further development of Mongolia. That is why Mongolia needs to find the best way of cooperating with its neighbours countries and Asian Trading Partners. Multilateral trade among China- Mongolia-Russia is being expanded with each year. Mongolian trade and openness policy significantly impacted the exports and imports of China and Russia. China is the main partner of exports in mining, wool, and cashmere market, while Russia is the main partner in imports of petroleum and food products with Mongolia. There is a strong link among Mongolia, China and Russia by the investment corridors as the outcome of Chinese Belt and Road Initiative (BRI) where one of the six investment corridors should pass through Mongolia (gas transit project from Russia to China). The future of this project is unknown as there is a war on Ukraine which may put this project on hold. That is why the reasonable alternative for Mongolia can be a multilateral relations with India, Japan and South Korea. Mongolia and India hold the historical legacy and have a strong social linkages. Mongolia holds a key position in India’s Act East and Connect Central Policy to Multilateral Economic Ties of Mongolia with its Asian Trading Partners in period of 2011-2021 The Mongolian Journal of International Affairs 34 Vol. 23, December 2022 counter China’s expansionist policies in North-East Asia. India is likewise in talks with Mongolia to have more prominent collaboration in the hydrocarbons and steel sector. During a virtual meeting, Indian Minister Pradhan praised leadership for their speedy approvals on the pending green field Mongol Refinery Project, built under a Line of Credit from the Government of India which is expected to complete by 2022 (The Hindu Business Line, 2021). However, the achievement or failure of India’s Connect Asia Policy will depend upon India’s political as well as its diplomatic will to transform India’s interest in regional integration in reality (Kumar and Chatterjee, 2021). Mongolia’s relations with South Korea has also a long tradition starting from 1990 but the trade volume between those two countries is still low. The economic treaty between Mongolia and South Korea was signed in 2016. Mongolia is in constant trade deficit with South Korea, and the deficit amount was growing since 2018 also due to the pandemic COVID-19. South Korea had a surplus of 250 million USD in a trade with Mongolia in 2021 (Yoon, 2021). Until October 2020 Mongolia imported from South Korea mainly tobacco and cigarettes (10% of total export of South Korea), motor vehicles for the transport 28 See: Yonhap News, 30 October 2020, https://en.yna.co.kr/view/AEN20201030003700320?section=news of goods, petroleum oil and oils obtained bituminous minerals, beauty or make-up preparations and pharmaceuticals. South Korea imported from Mongolia mainly the mineral resources and the wool and will further expand its investment and mineral resource development in Mongolia. South Korea is currently promoting the New Northbound Policy, which aims at expanding the economic zone that connects to the Eurasian Continent, so it may be potential opportunity for Mongolia to develop its economy and position in the region. It is also inline with the new policy of Mongolia to become less dependant from China and Russia trade and to have more economic relations with The Asian Trading Partners such as South Korea, India and Japan. To attract more interest of South Korean investment to Mongolian market the Mongolia’s government started to fight also with the corruption to make Corruption Perceptions Index (CPI) lower but it is still much lower in ranking then South Korea. Mongolia should lower its trade tariffs with South Korea based on APTA agreement to utilise the opportunity for its economic growth. Under the deal, South Korea should have reduced tariffs by an average 33.4 percent on 2,797 items, while Mongolia should cut tariffs by an average 24.2 percent on 366 items28. Foreign Direct Investment Mongolia from one side has the strict investment law securing the investment of one country should not exceed 1/3 of the total foreign direct investment.. Looking at the perspective of a reality it is a dead law which has no reference to China – the main investor in Mongolia (prior to 2009, more than 60% of total foreign investment came from China alone). China and Russia are the only two neighbour countries of Mongolia and it was also revealed that the partner countries located 35Vol. 23, December 2022 too far away from Mongolia pay little attention to and play a small investment role in Mongolian FDI (Mungunzul and Chang, 2018). Mongolia’s FDI inflow had downward trend in period 2010 - 2018 and the FDI outflow was increasing, but the country had problems with high foreign debt, budget deficit, unemployment and exchange rates. The main focus of FDI inflow to Mongolia was mining sector which had a highest GDP share of nearly 27% in 2018 (Baasandulam, 2021). The Oyu Tolgoi project worth started in 2011 was the core of mining industry investment in Mongolia made by Netherlands and British Virgin Islands. It is in the South Gobi region known as the one of the biggest deposit of copper and gold in the world. Oyu Tolgoi is jointly owned by the government of Mongolia, which has 34% ownership, and Turquoise Hill Resources, which owns 66%. Rio Tinto owns 50.8% of Turquoise Hill Resources and manages the operation on behalf of the owners. The underground production process is going to be started in the first half 2023. Such a strong dependence of Mongolia’s economy development on just one sector (mining) can cause a problem of its instability. Besides unitary Mongolia’s economy structure the main dominant contributor (investor) is China. The Table 8 shows the Foreign Direct investment inflows from chosen Asian Trading Partners (India, China, Japan, South Korea) to Mongolia between 2011 and 2020, where China had a share of 83% of FDI inflow considering FDI Trading Partners inflow to Mongolia. Table 8. Foreign direct investment inflows from chosen Asian Trading Partners (India, China, Japan, South Korea) to Mongolia between 2011 and 2020 (EUR billions) 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 FDI inflow stock, Mongo- lia–Trading Partners 10.36 13.38 14.50 16.17 21.45 23.18 23.55 24.01 26.12 27.13 FDI – posi- tion* -8.92 -12.70 -13.96 -16.29 -18.56 -15.13 -14.73 -17.26 -19.43 -19.22 * Equity and reinvested earnings and other capital (Net) Source: Macrobond data base, Mongolian National Statistical Office 2022 Empirical results suggest that higher world income, higher prices for Mongolian exports and increased FDI inflows have led to improved export performance in Mongolia. There is no statistical evidence to suggest that trade liberalisation and improved provision of basic infrastructure have had any impact on Mongolia’s export expansion (Davaakhuu et al, 2015). Besides mining sector the next FDI focus of Asian Trading Partners was a banking (mainly with Japan and China) and tourism sectors (mainly with South Korea). The FDI inflow impacted also the local development of the business in Mongolia. The Table 9 shows the number of registered and active companies in Mongolia in period 2014-2021. Multilateral Economic Ties of Mongolia with its Asian Trading Partners in period of 2011-2021 The Mongolian Journal of International Affairs 36 Vol. 23, December 2022 Table 9. Number of registered companies and active ones in Mongolia in period of 2014-2021 Registered Active Active% 2021 228411 96336 42% 2020 200451 95950 48% 2019 187783 94425 50% 2018 170178 85761 50% 2017 155077 78597 51% 2016 141514 72194 51% 2015 126568 64309 51% 2014 113610 59851 53% Source: Macrobond data base, Mongolia National Statistical Office 2022 The results regarding the active companies operating in Mongolia could be much worse if FDI inflow would be stopped. It is still good result for such a small country to have 96336 businesses active in 2021, but the innovation level is still low measured by the number of submitted patents to Filling Office in the period of 2013- 2020 (please see Figure 4). Figure 4. Patent applications by Filling Office 30 Source: Based on Macrobond data 2022, World Intellectual Property Organization Conclusion The main conclusion is that Mongolia has a chance to be the important economy player in world if implements the policies and reforms suggested by the APTA and other international trade organizations to solve the problem of the increased debt and pollution. Mongolia can be a leading exporter of the mineral resources and gold in the region. As the war on Ukraine continues it does not help Mongolia due to its economy dependence on Russia and China. “The Third Neighbour” policy is critical to be implemented and develop trade relations with Mongolia’s Asian Trading Partners (India, Japan, South Korea). 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