September 1, 2008｜Mongolia
Professor/Dean, Faculty of Business, Aoyama Gakuin University
Amid the global resource scarcity of recent years, “securing of resources” was added as a new plank in our country’s FTA (Free Trade Agreements) formulation. Globally Mongolia is a resource-rich country, and in that sense the possibility has increased of the formation of a Japan–Mongolia FTA, yet there appear to be three problems—the need (demand) for the underground resources present in Mongolia; the technology associated with their extraction; and transportation routes and costs.
As is commonly known, the need for Mongolia’s uranium- and copper-bearing ores is already there in the neighboring countries of Russia and China, Western countries such as Canada, along with China, are already doing extraction, and the existing transportation routes (rail routes) are connected up with China and Russia. Consequently, in the “current state of affairs” the resource trade between Mongolia and its neighboring countries via Japanese trading firms has grown promising, and the formation of a Japan–Mongolia FTA has lost its momentum.
To generalize, what a country wanting to form an FTA hopes for is an expansion of its exports to the partner country via that FTA. The economic development of an intraregional market will thereby be promoted.
Even if Mongolia were to conclude an FTA with Japan, however, “in the current state of affairs” there is little hope for Mongolia’s expansion of exports to Japan. This is because here “in the current state of affairs” means Mongolia’s major export items to Japan are only cashmere, rock salt, meat, hides and leather.
Conversely, in the “current state of affairs” it is difficult for Japan to hope for an expansion of exports to Mongolia under an FTA. This is because Mongolia is a landlocked country completely sandwiched between Russia and China; apart from a number of exceptional items, import tariffs are set low at a uniform 5%; and it is a developing country with a small domestic market of approximately 2.6 million.
I, however, think that the formation of a Japan–Mongolia FTA is only a matter of time.
There are several grounds for this. Due to space limitations, I want to mention only one of these.
The substance of an FTA is something that evolves. Regarding an FTA seen in the “current state of affairs,” although there is an image of there being one market—with the trade in agricultural produce and commodities having been completely liberalized via the eliminating of intraregional tariffs within a ten-year period—an FTA in the near future should be expected to differ from that image. What shape a future FTA would take can be understood if one looks at today’s EU.
A “future” FTA, will probably become one where—after making the protection of the global environment a precondition—the intraregional movement of services will be liberalized, to say nothing of the free trade in assets. To be more precise, because information, and finance and services will also be liberalized, with the movement of people going without saying, the problem of the tariffs which obstruct the movement of assets will become relatively small.
Even if an FTA is formed between Mongolia and Japan, the same thing can occur in the future. Therefore, the governments and private enterprises of both countries should try to consider a long-term FTA strategy, after first assessing what will happen in the case of a liberalizing of trade in services, excepting assets, between the two countries. Firstly the movement of people from Japan to Mongolia should doubtless increase. The principle actors will be tourists, having as their aim Mongolia’s natural scenery. Japanese travelers who stay from one week at the least up to one month, not on mere three-day trips, will probably increase. Naturally, as the knowhow of Japanese enterprises will be put to full use in the development of the infrastructure for this, such as international airports, accommodation and roads, they should probably also advance the liberalization of foreign direct investment (FDI) at the same time as an FTA. Along with protecting Mongolia’s high-quality, pristine natural environment, the environmental protection technology of Japanese enterprises will probably be indispensible in the Mongolian side’s taking advantage of this as a “tourist resource”, and so it will likely become a model for eco-tourism globally. With the formation of such an “environment-protecting service-trade–oriented FTA,” it will be a unique FTA, having the advantages of both countries—Japan’s environmental protection technology and Mongolia’s natural places—and without doubt will have a major impact on future FTA negotiations around the world. A private-sector–led Japan–Mongolia FTA would be expected to also have a favorable influence on Japan’s ODA (Official Development Assistance).
I cannot leave out the points of being able to arrive in the Mongolian capital of Ulaanbaatar from Narita Airport in no more than four and a half hours, and of the hospitality—an absolute must for success as a tourist center—which already has a long, unbroken tradition among the Mongolian people.