Mongolia’s Quest for Third Neighbours: Why the European Union?

Aside

Mongolia is beginning to attract more interest from European organisations and institutions. A Partnership and Cooperation Agreement (PCA) between Mongolia and the European Union is expected to be concluded soon, and in March 2012, NATO agreed an Individual Partnership and Cooperation Program (IPCP) with Mongolia. In October 2011, the German Chancellor Angela Merkel took time out from dealing with the financial crisis to visit the country, and the OSCE Secretary General visited in June 2012 to discuss Mongolia’s request to become a fully participating member of the organization.

Over the past two decades, European countries and institutions have had limited interest in responding to Ulaanbaatar’s calls for cooperation and partnership because of Mongolia’s remoteness and geostrategic insignificance. But European attitudes are changing, because Mongolia’s sustained commitment to democracy and to creating economic opportunities is aligned with European global objectives, and particularly the EU’s goals in Central Asia. When the EU left Mongolia out of its Strategy for Central Asia in 2007, the European Parliament urged the Council and Commission to reconsider in view of Mongolia’s substantial progress ‘in establishing a state based on democracy, human rights and the rule of law in the legion’. The Council and the Commission define Central Asia as the five post-Soviet ‘-stans’, but the European Parliament includes Mongolia as part of the Central Asian region.

Mongolia’s inclusion in the EU’s Central Asia Strategy could help the EU in its work of promoting democracy. Mongolia would value the opportunity to develop closer ties with the EU in order to balance the influence of China and Russia and advance its ‘third neighbour’ strategy. This strategy is common to most smaller states in Eurasia that have suffered as a result of the geopolitical interests of their neighbours.

This policy brief explores the reasons for Mongolia’s sustained commitment to European institutions, and especially to the EU. And it discusses the policy implications for Mongolia of a third neighbour partnership with the EU.

Reaching Out to Third Neighbours

Historically, Mongolia has been a geopolitical pivot for Japanese-Russian and Sino-Russian rivalries. Mongolia has been trying to reach out to the U.S., Japan, India and Western Europe for a long time. Up until the late 1980s, all of its attempts were crushed either by Beijing or by Moscow. But in the early 1990s, as Beijing and Moscow were forced to turn their attention to internal struggles and began to behave as benign regional powers, Mongolia succeeded in reaching out to third neighbours.

In essentials, Mongolia’s third neighbour policy is similar to the foreign policies of many other countries. It aims to develop closer political ties with powerful states in order to gain their support and recognition in international and regional politics. It promotes economic cooperation so as to diversify its foreign trade and investment. And it advances cultural ties with other states in areas such as education and religion. Mongolia’s third neighbour policy has one key difference from that of other states: it does not seek to obtain a security umbrella or pledge of mutual defence obligations unless its existence is threatened militarily. This is because of its delicate geostrategic location, neighbouring two great powers. Just as the Soviet military’s presence in Mongolia increased Chinese vulnerability in the past, military activities by third neighbours in Mongolia would trigger concerns in Beijing and Moscow.

Mongolia’s revised National Security Concept says that the third neighbour policy is aimed at developing bilateral and multilateral cooperation with developed democracies in the areas of politics, economy, culture and human security.3 The Foreign Policy Concept names the U.S., Japan, the European Union, India, South Korea and Turkey as Mongolia’s desired third partners.4 This official clarification is a result of two decades of diplomatic efforts to find third neighbours. Most of these states have responded positively to Mongolia’s outreach, but both they and Ulaanbaatar are aware of the limitations of third neighbour status.

Why the European Union?

Mongolia is an integral part of Eurasia, but it is geographically distant from Europe. However, a significant portion of Europe’s shortest air and land bridges to East Asia go through Mongolia’s territory. As a far eastern flank of Central Asia, Mongolia is at the boundary between the nomadic culture and lifestyle of Central Asia and the cultures of East Asia and China. Geographic remoteness and lack of awareness about Mongolia in Western Europe have hindered the development of any partnership between Europe and Mongolia. But European attitudes toward Mongolia have started to change.

Several factors have been critical to bringing about this change in outlook. Mongolia is determined to build an engagement with Europe, and it has kept up its efforts to create linkages ever since official relations were established with the European Union in 1989. Bilateral ties with former countries of the communist bloc and new partners of Europe have played an important role in generating support for Mongolia in Europe. Mongolia’s commitment to democracy has made the EU look more favourably on the country’s attempts to build relations. And Mongolia’s mining boom and economic growth have captured the attention of political and business interests in Europe.

A Trade and Cooperation Agreement was signed between the EU and Mongolia in 1993 and Mongolia became eligible for the Technical Assistance to the Commonwealth of Independent States (TACIS) programme in 1994. In 2001, the European Commission adopted its first Country Strategy Paper on Mongolia, outlining the EU’s priorities in dealing with the country. Three years later, Mongolia was granted a Generalized System of Preferences. The EU opened a Technical Office in Ulaanbaatar in 2006, when Mongolia joined the Asia-Europe Meeting (ASEM). In the same year, the European Bank for Reconstruction and Development (EBRD) became active in Mongolia. Mongolia’s repeated calls for cooperation with the EU, along with support from Germany, the Czech Republic, Poland, Bulgaria and others, resulted in negotiations on a Partnership and Cooperation Agreement in September 2009. The agreement is expected to be finalised this year.

For Mongolia, the EU is the ideal ‘third neighbour’. In contrast to engagement with India, Japan or the U.S, Mongolia’s partnership with the EU should not set off any strategic concerns in Beijing or Moscow. Mongolia has had traditional ties in trade and cultural exchanges with several EU members, somewhat comparable to those between Japan and South Korea. Twenty-one per cent of more than 100,000 Mongolians who reside abroad live in EU member states. And rather than a one-way donor-recipient relationship, the new EU-Mongolia partnership has the potential to offer mutually beneficial cooperation. At the annual meeting with European ambassadors in November 2011, Mongolian President Tsakhiagiin Elbegdorj, Prime Minister Sükhbaataryn Batbold and Chairman of the Ikh Khural (Parliament) Damdiny Demberel said that increased partnership with the European Union is vital in strengthening Mongolian sovereignty, democracy and the market economy. A renewed EU-Mongolia partnership would have a firm basis in common values, mutual economic benefit and contributions to global peace and security.

Common Values

Mongolia has made a consistent commitment to democratisation and the protection of human rights. It has followed a similar path of democratisation to that of Central and East European countries and it has strongly rejected Russian, Chinese and North Korean models of authoritarian rule. Mongolia is the only Asian post-communist state rated since 1991 as an electoral democracy along the lines of Central European countries. It is rated significantly higher than all former Soviet republics as well as both its neighbours.

Democracy in Mongolia has been initiated and carried out without any obligation to meet the stringent membership requirements of democracy-promoting institutions like the EU, NATO or the OSCE. Elections are seen as the only way to obtain political power. Since 1992, six parliamentary and provincial elections as well as five presidential elections have been conducted, and all were regarded as free and fair by foreign observers. Electoral procedures are under constant scrutiny. The latest revision of the Law on Parliamentary Election in 2011 introduced requirements for people to resign from public service in order to be eligible to run in an election. It provided for a mix of proportional and majority representation as well as setting out electoral quotas for women. It prohibited making monetary promises, it gave more authority to the General Election Commission and it mandated the use of biometric IDs.

Civil society activity is also on the rise. Bureaucratic malpractices are openly criticised by the public and by civil society organisations. In response to public pressure, anti-corruption efforts have been institutionalised and prominent politicians and government officials now face investigation by the Independent Anti-Corruption Authority. Meanwhile, environmental movements are becoming more important because of the environmental damage done by mining companies. Because of public pressure, the government stopped issuing mining licences, began introducing stricter environmental protection requirements and joined international initiatives such as the Extractive Industries Transparency Initiative (EITI), to which Mongolia signed up in 2010.

Security forces are under civilian control and operate within a legal framework. The most recent reform efforts have concentrated on the judiciary and the police. International human rights watchdogs say human rights are protected reasonably well. In January 2012, Mongolia abolished the death penalty. In 2011, Mongolia became the first Asian post-communist democracy to chair the Community of Democracies (CD), an intergovernmental organisation of democracies that seek to advance democratic norms and work together to support and strengthen democracy worldwide.

Mongolia and the EU have common values on democratisation and the protection of human rights. Mongolian democracy is still young and EU support would be welcome in helping to be vigilant against possible backsliding. High Representative of the EU for Foreign Affairs and Security Policy Catherine Ashton recently commented on the corruption trial of Mongolia’s former president, Nambaryn Enkhbayar:

Mongolia is a new and vibrant democracy and shares many values with the EU. We have been closely following the developments in the case of the former President of Mongolia, Nambaryn Enkhbayar. We trust that this case will be treated transparently and with full respect for democratic principles, the rule of law and human rights. The EU reiterates its full support to the strengthening of democratic processes in Mongolia.

A Gateway to the Northeast Asian Economy

Mongolia could be useful to the EU as a gateway to the northeast Asian economy. It borders with the mineral-rich Russian Far East and with north-western China. And it is close to the fertile Tumen River delta, which has the potential for economic development linked to the Korean Peninsula.

With extensive financial assistance from international financial institutions and from donors like Japan, Germany and the U.S., Mongolia has restructured its economy and accepted the principles of the market economy. Mongolia began attracting foreign investors in the mining sector in 2005. In 2009, Mongolian government signed a multi-billion dollar investment agreement on one of the world’s largest copper-gold deposits with the Western mining companies, Rio Tinto and Ivanhoe Mines. Investment agreements on the high-quality coal mine, Tavan Tolgoi, have been negotiated with American, Chinese, Japanese, Russian and South Korean mining companies. Foreign investors are also involved in exploiting other, larger deposits of uranium, coal, aluminium and rare earths, as well as in contributing to related infrastructure projects.

Mongolia sees the EU, Australia, Canada and Singapore as development models. Australia and Canada provide examples for the mining sector, while Singapore’s example presents solutions for education and housing. Mongolia is particularly interested in applying EU norms and standards because the EU has valuable experience in assisting new members who faced similar socio-economic challenges to Mongolia. Following Mongolia’s official request, the EU has created a ‘multiannual indicative plan of cooperation’ to assist in Mongolia’s implementation of European norms and standards. As Mongolia reaches out to the EU for investment, technology and norms and standards, a number of EU members have begun to look for opportunities to participate not only in mining projects, but also in other projects in Mongolia.

Peace and Security

Mongolia has similar ideas and concepts to the EU on global peace and security. Mongolia is committed to all international initiatives for the non-proliferation of weapons of mass destruction. It declared its territory a Nuclear-Weapon-Free Zone and it has made every possible effort to institutionalise its nuclear-weapon- free zone status. Mongolia joined the Proliferation Security Initiative (PSI) in 2007 and has taken several steps to improve its border security. Since 2002, Mongolia has contributed over 5,200 military personnel to UN peacekeeping operations in Africa as well as to U.S. and NATO-led coalition operations in Afghanistan, Iraq and Kosovo. Within this short period of time, Mongolia has deployed military contingents with a number of EU members and the United States. It deployed 1,200 personnel as part of a Polish contingent in Iraq. It sent 1,100 to Afghanistan with the U.S., Germany and Belgium. And it deployed over 100 in Kosovo with Belgian and French troops. Mongolia has at the moment about 400 personnel in Afghanistan. Given its modest GDP, its population of 2.7 million, the small size of its military and its ongoing contributions to UN peacekeeping, Mongolia’s commitment to peace and security is substantial.

Like the EU, Mongolia is working towards the promotion of human security norms. Human security is officially endorsed in the revised National Security Concept as one of Mongolia’s six security priorities: external, economic, domestic, human, environmental and information security. The document includes specific goals on human security priorities: public health, food security, security of living environment and protection from transnational crimes.14

Conclusion

A renewed EU-Mongolia partnership could offer constructive cooperation in the areas of democracy, economy and international peace and security.

Mongolia’s young democracy still wrestles with challenges, and the EU has experience in assisting new democracies in strengthening their institutions, the rule of law, protection of human rights and governance. One area in which the EU and its member states could help is in supporting the independence, professionalism and accountability of the judiciary and law enforcement institutions. The EU could support the development of civil society in building capacity to monitor and participate in governance. EU financial assistance would also be beneficial in providing opportunities for European and Mongolian civil society to cooperate and exchange views. Mongolia would welcome the EU’s help in encouraging and also monitoring the democratisation process. Increased foreign investment brings with it the likelihood of multinational corporations involving themselves in domestic politics. Brussels could help protect Mongolia’s democracy against intervention by serving as a neutral and reliable observer of elections, the fight against corruption and the promotion of civic and political rights.

The EU is the third largest trade partner of Mongolia, which means there are advantages for both sides in economic collaboration. The EU can assist Mongolia to incorporate key European norms and work towards economic reform, since Mongolia is still listed by the EU as a non-market economy, although the WTO, World Bank, IMF, and Asian Development Bank regard Mongolia as a free market economy. The EU is Mongolia’s most welcomed investor in the mining and infrastructure sectors, because it fits into Mongolia’s third neighbour policy, offers advanced technology and standards, and nurtures Mongolia’s economic links with European partners.

Mongolia continues to be a valuable partner for the EU on security, especially in view of its contributions to international peace and security. Human security is the area in which Mongolia has the greatest interest in collaborating and in promoting stronger international norms. Other areas for cooperation are peacekeeping and the democratic reform of security forces. Mongolia maintains experts and contingents for peacekeeping, humanitarian and disaster relief operations, which can be rapidly deployed. Mongolia’s sound civil-military relations, its experience in peacekeeping and its status as a neutral country could be of benefit to the EU and to the EU’s policy in Central Asia.

The most practical way to broaden the EU-Mongolia partnership would be to include Mongolia in the EU’s initiatives on Central Asia. The EU seems to present the only forum for Central Asian states, and potentially Mongolia, to discuss issues like democratisation, human rights and rule of law, while at the same time incorporating these matters into other policy areas such as energy and security. These issues are not dealt with in Russian-driven organisations such as the Collective Security Treaty Organisation, nor in the Russia and China-led Shanghai Cooperation Organization. And they are not taken into account in plans for the establishment of a Eurasian Union. Mongolia’s inclusion in the EU Strategy on Central Asia could provide an important local example for consolidating democracy, promoting the involvement of small states in delicate geopolitical and economic situations, and facilitating the socialisation of new generations beyond the political and cultural influence of regional great powers.

Jargalsaihan, M. (July 2012). Mongolia’s Quest for Third Neighbours: Why the European Union?. EU Central Asia, (N25). Retrieved from: http://www.eucentralasia.eu/fileadmin/PDF/PolicyBriefs/MONGOLIA_QUEST_FOR_THIRD_NEIGHBOURS_WHY_THE_EU.pdf

My Take on It
I believe that the European Union indeed will be an excellent candidate for Mongolia’s ‘third neighbour’ strategy. Aside from the vast natural resources that Mongolia possess, the country has been successful in building a free democracy with efficient market economy and relatively free of petty corruption which has characterized the region. Other  former Soviet Central Asian countries like Turkmenistan, Tajikistan, Kyrgyzstan and Uzbekistan have had long history of tyranny and totalitarian policies. The other Central Asian country that can set a shining example for Mongolia’s development is Kazakhstan. Since the fall of  Soviet regime in Kazakhstan, the country have been very successful in transitioning to a democratic free market society. In fact, the relocation of the capital from Almaty to Astana is  a lesson that Mongolia can look at pending the problems within its own capital of high pollution and poor city planning but that is a story for another day.
In conclusion, it seems that economic ties between the EU and Mongolia looks bright as the recent deals involving the European Bank of Reconstruction and Development (ERBD) and the Netherlands Development Finance Company (FMO) in addition to the Private Sector and the Government of Mongolia takes effect. This recent investment is going into the clean technology sector for harvesting of energy from wind turbines. The potential for Mongolia as an energy supplier is a very real and substantial prospect.

Yeah the U.S. is Losing but Why Exactly?

As American citizens are set to take to the polls on November 6th, 2012 for the 57th Presidential Election, the policies of both parties are still clear as mud and equally polarizing as ever. However, if you can look past the political rhetoric and character assassination, it is quite evident that U.S. is in decline. Prior to the second presidential debate, I was given two different Harvard Business Review article written by Michael E. Porter and Jan W. Virkin as part of the preparation for my International Business: Advanced Topics class midterm. Many people assume that U.S. has been in decline since the Great Recession, circa 2008. However, lot of the causes of the structural problems that U.S. faces has been brewing for over two decades now. I knew that U.S. economy was doing bad with high unemployment, high debt levels and other symptoms but now I think I have a much better understanding of the forces at play that has led to the loss of prestige by U.S.A.

First of all, the authors of the article Micahel E. Porter and Jan W. Rivkin are very credible sources that have made monumental contributions to the study of business. One example being “Porter’s FIve Forces”.

Secondly, Reading through these two articles brings a terrific scene from a riveting television series that I have been watching to the forefront of my mind. In the HBO show, The Newsroom, character of Will McAvoy, a proud Republican news anchor played by Jeff Daniels is asked to answer the question, “why would you consider America to be the greatest country on Earth?”

His response to the question was:

Ever since the conclusion of the second World War, America has been the de facto superpower in the world. The influence and supremacy of U.S. was constituted by much more than just its military might through its leadership in science, technology and it’s economy.  However, lot of things have changed since then. As the authors coined it, “the rise of the rest” have changed the business environment of the world. Now the position of U.S. as the superpower is under attack as the rest of the world is starting to catch up with U.S.A. With that being said, U.S. now faces a fundamental challenges of addressing it’s structural problems to increase it’s competitiveness in the global business environment.

Essentially, the authors theorize that due to variety of different factors like complexity of the tax code, ineffectiveness of the politicians and policy makers, weak public education, poor macroeconomic policies as well as deteriorating infrastructure and decreasingly skilled labour force that have contributed to the current position that U.S. is in. Lot of this has to do with the “culture of outsourcing” that have become a common business activity for managers within the last two decade.

For companies around the globe, the location decision is one of the most vital one. Location decision can have the potential of creating more jobs, more investment, more tax revenues and have immense implications for economic development of the region. Before companies used to ask themselves the question “Where should we locate?” However, now due to advancement in technology and communication infrastructure, business have become increasingly mobile. Moreover, back in the day a dilemma for companies was “Which countries do we want to serve?”. Thanks to technological advancements, now the question is “Where to locate each value chain?”. Because of this, the culture of relocation and outsourcing have become prominent in the minds of many policy makers and managers. That is not to say, outsourcing is a bad business decision because in lot instances moving certain low-end, labour intensive jobs to countries with cheap labour is actually the most economical decision. However, what is going to happen to the people who have lost their jobs to these relocation decisions? Well, the reading suggest that U.S. must create high-end jobs that raise the living standards of its citizens. However, in the meantime, as countries around the world develop and progress, they can vie for high-end activities from the U.S. and not just the low-end activities that offer cheap labour. It is these transfer of high-end business activities to overseas that is hurting the competitiveness of U.S. High-end business activities like research and development, sophisticated manufacturing and skill intensive are important to a countries economy because these activities bring the highest value per worker. Moreover these activities lead to more follow-on investments and technology and skill spillover for rest of the economy.

According to the authors, lot of businesses are relocating outside of the U.S. because of two main reason. Firstly, poor policies that don’t tackle innate and unnecessary weaknesses in the American business environment is driving lot of businesses out of U.S. Secondly, lot of companies are overlooking the current and latent advantages that U.S business environment. They see the situation in U.S. as more or less “fixed” and cannot be improved upon. Moreover, they underestimate the hidden costs of relocating.

In any business environment, the profitability of operation is dictated by several important factors like wage levels, skill availability, utility rates, taxes, shipping costs, subsidies, local productivity and supervision costs. However, as the rest of the world progress many emerging economies around the world are starting to see rising wages, increasing transportation and logistical costs and shortening product lifecycle. So in essence the characteristics that made China attractive in the past are starting to deteriorate. This presents a opportunity for U.S. to attract and retain high-end business activities back to America. According to study conducted by Deloitte in 2011, “83% percent of all R&D sites opened in China or India from 2004 to 2007.” The multinationals that were surveyed above cited that they made these decisions based on better availability of skilled labour, strong government support instead of more obvious reason of lower cost.When the authors surveyed Harvard Business School Alumni about their experiences with location decisions, they indicated that most commonly considered alternatives were China, India, Brazil, Mexico and Singapore as well other less obvious choices like Turkmenistan and Suriname. They cited that the most common reason for these location decision was low wages.

However, lot of these companies have underestimated the hidden costs of offshoring. In fact, according to research done by AMR Research, “56% of companies experienced increase in total landed costs.” The above statistic make sense as common savings like lower wages, lower benefits and lower energy costs are immediately visible. However, other hidden costs that is associated with lower skilled labor force such need for more supervision, higher scrap rate or lower productivity will not be immediately visible during operation. Moreover, other factors like obsolescence cost affect the company’s ability to react to changing trends in the business environment. And especially for a country built on entrepreneurial culture like U.S. protection of intellectual property presents a tough challenge for companies outsourcing activities overseas.

So how can U.S fix this situation? Well, the first step is realizing that there is a problem in the first place. Lot of multinationals that shift locations often overlook the fact as the authors succinctly puts it “Productivity improvements are often rooted in investments in individuals, innovation teams and infrastructure as well as in long term relationships with local suppliers and supporting institutions.” In essence as companies have become more global, their connection to the local communities have weakened over time. Therefore, in an effort to address this managers and policy makers must take proactive roles in finding solution.

Fact of the matter is is that U.S. is still the world’s most productive large economy and it’s largest market for sophisticated goods and services, which stimulates innovation and  acts as a magnet for investment all across the globe. To maintain its position of a leader in the world, U.S. must firstly address its weaknesses in the business environment. Complexities like U.S.’s overtly complicated tax code and lack of cooperation between government and business raise the cost of doing business in America significantly. Secondly, U.S must protect its core strengths like the entrepreneurial culture of creation and commercialization of new ideas by streamlining regulations that hold up innovation. Thirdly, policy makers and managers must address and eliminate trade and investment distortions that disadvantage U.S. And lastly, government and businesses must work collaboratively to enhance it’s competitiveness by offering compelling value proposition of talent, tech-know-how, and supporting institutions. In the long run, decreasing influence of U.S will hurt the world economy. Therefore, politicians must drop the political rhetoric and get things done instead of just being concerned with their next election.

So do I believe America is still the greatest nation in the world? Yes because I still believe it is the land of opportunity and diversity but then again I am an optimist just like Michael E. Porter and Jan W. Rivkin.

 Works Cited:

Sorkin, A. [HBO: Newsroom]. (2012, June 24). Newsroom [Video file]. Retrieved from      http://www.youtube.com/watch?feature=player_embedded&v=YI7Oq8y-jXA

Porter, M. & Rivkin, J. (2012) Choosing the United States: In contests to attract high-value business activities, the U.S. is losing out more than it should. Harvard Business Review. http://hbr.org/2012/03/choosing-the-united-states

Porter, M. & Rivkin, J. (2012) The Looming Challenges to U.S. Competitiveness. Harvard Business Review. http://hbr.org/2012/03/the-looming-challenge-to-us-competitiveness