VZCZCXRO1723
RR RUEHLMC
DE RUEHUM #0164/01 0690355
ZNR UUUUU ZZH
R 100355Z MAR 07
FM AMEMBASSY ULAANBAATAR
TO RUCPODC/USDOC WASHDC 1217
INFO RUEHC/SECSTATE WASHDC 0901
RUEHBJ/AMEMBASSY BEIJING 5458
RUEHKO/AMEMBASSY TOKYO 2407
RUEHUL/AMEMBASSY SEOUL 2667
RUEATRS/DEPT OF TREASURY WASHDC
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHINGTON DC 0502

UNCLAS SECTION 01 OF 04 ULAANBAATAR 000164 
 
SIPDIS 
 
SIPDIS 
 
STATE PASS USTR, OPIC, AND EXIMBANK 
STATE FOR EAP/CM, EB/TTP, AND EB/IFD/OIA 
USAID FOR ANE DEIDRA WINSTON 
 
E.O 12958:  N/A 
TAGS: EINV EIND PGOV KPRV EFIN PREL MG
SUBJECT: Mongolia Customs 
 
¶1.  Summary:  While there is a bilateral Customs agreement with the 
U.S., cooperation has waned since the end of the Multifiber 
Arrangement in 2005.  Mongolia has a relatively liberal trade 
regime, with low tariffs and no quotas or onerous licensing 
requirements.  Customs is widely viewed as corrupt, an impression 
bolstered by the recent conviction of the former head and other 
officials.  Customs processing is now largely antiquated and 
paper-based, but a new ADB-funded program looks to change that. 
Mongolian Customs currently hesitates to seize IPR-infringing 
products.  End summary. 
 
U.S.-Mongolia Customs Mutual Assistance Agreement 
--------------------------------------------- ---- 
 
¶2. Mongolia and the U.S. signed a bilateral Customs Mutual 
Assistance Agreement in 1996. The agreement allows for the exchange 
of information, intelligence, and documents that will ultimately 
assist both countries in the prevention and investigation of customs 
offenses. 
 
¶3. In the heyday of the Multifiber Arrangement, Mongolian-U.S. 
Customs cooperation through the Beijing office was quite active in 
exchanging information, monitoring rules-of-origin issues on 
transshipments, and regular visits of a U.S. Customs representative 
from Beijing.  Since the MFA's expiration in January 2005, however, 
interaction has waned.  Working with our Mongolian counterparts, we 
hope to use the 2007 TIFA talks as a springboard to reinvigorating 
our customs bilateral relationship and look forward to exchanging 
ideas on how this can be achieved. 
 
¶4. As part of our efforts as broadening cooperation with Mongolian 
Customs in the spirit of the CMAA, post sponsored a week of 
enforcement training in June 2006 supported by an INL grant with 
trainers supplied by DHS/CBP's IPR Enforcement Division and USPTO. 
The training helped USG develop a clearer understanding of Mongolian 
Customs' approach to handling IPR cases.  In addition, PTO supported 
attendance of two Mongolian officials from IPOM and Customs 
respectively to attend the APEC IPR event in Los Angeles, 
California. 
 
Mongolian Customs: Basic Facts 
------------------------------- 
 
¶5. Mongolian Customs is a government agency under the Ministry of 
Finance responsible for administration of customs legislation, 
overall control on imports, exports, assessment and collection of 
customs duties and VAT, excise duties upon importation, compilation 
of customs statistics and combating customs offences.  The basic 
laws governing the customs activities are the Customs law and 
Customs tariff law, which entered into force in 1996.  The Spring 
2007 session of the State Great Hural is scheduled to consider 
unspecified revisions to these laws. 
 
¶6. Mongolia joined the World Customs Organization in 1991.  At 
present Mongolia is a contracting party to WCO Conventions such as 
Convention Establishing Customs Cooperation Council, Convention on 
Harmonized Commodity Description and Coding System, Istanbul 
Convention on Temporary Admission, and Convention on Simplification 
and Harmonization of Customs Procedures.  Mongolia is preparing to 
accede to the Convention on Mutual Administrative Assistance in 
Customs Matters. 
 
¶7. According to Mongolian Customs, the country counts 41 ports of 
entry along its 4606 miles of land borders -- 29 on the Russian 
border and 12 on the Chinese.  However, besides being remote, all 
but two of these operate on a seasonal basis only and their traffic 
is limited to Russian/Chinese/Mongolian nationals and small time 
"suitcase" traders.  There are only two recognized "major" border 
crossings, at Zamiin Uud in the south and Sukhbaatar in the north, 
where the railroad crosses the borders.  In addition there are two 
international airports, Ulaanbaatar's Chinggis Khan International 
Airport and another in the western province of Bayan-Olgii, which 
serves mostly Kazakhstan.  Mongolia's one railway line runs north 
south between Sukhbaatar and Zamiin Uud via the capital.  There is a 
paved road that leads to the Sukhbaatar crossing, but a road leading 
to Zamiin Uud is still under construction. 
 
¶8. Mongolia serves as a transit link for the sizable trade between 
the People's Republic of China and the Russian Federation. In 2004, 
the Mongolian railway funneled some 4.5 million tons of transit 
freight, mainly between Russia and China.  In 2005, trade turnover 
between China and Russia equaled US $29.1 billion, with Mongolia 
serving as a conduit for much of it.  Mongolia's foreign trade 
 
ULAANBAATA 00000164  002 OF 004 
 
 
turnover reached $2.2 billion in 2005, up from $1.2 billion in 2000, 
averaging a 18.3% increase year over year.  2005 total trade 
turnover with the U.S. equaled $162.9 million; $118.8 million in 
Mongolian exports to U.S. and $44.1 million in exports to Mongolia. 
Mongolia's major trading partners are China (33% of total), Russia 
(19%), and the United States (11%). 
 
¶9. In addition to the U.S., Mongolian Customs has concluded 
intergovernmental agreements and memorandum on mutual assistance and 
cooperation in customs matters with Russia, China, Republic of 
Korea, Hungary, Poland, Great Britain, Kazakhstan, Czech Republic, 
Bulgaria, Turkey, Vietnam, Ukraine and Kyrgyzstan. 
 
Customs duty 
------------ 
 
¶10. Mongolian Customs collects import and export duties and other 
taxes according to the tariff schedule with referred HS codes.  The 
customs value of imported merchandise is determined according to the 
methods provided for in the WTO Valuation Agreement. 
 
-- Import Duty: Mongolia imposes a 5 percent across-the-board 
customs import duty.  Such goods as pedigreed animals, computers and 
their parts, medical and veterinary equipment have zero rate Customs 
duty. Imported wheat flour and vegetables have seasonal tariff 
rates. 
 
-- Excise tax: According to the 2006 tax laws, the following 
imported goods are subject to excise tax at the respective specific 
rates: 
- passenger cars: USD 500-4000 depending on their year of 
manufacturing (up from 500-2000 under previous tax regime); 
- beer: USD 0.20 per liter; 
- vodka, liquors and other spirituous beverages depending on 
alcoholic strength: USD 5.00 to 6.00 per liter; 
- wines: USD 1.50 to 6.00 per liter depending on strength; 
- cigarettes and the like: USD 0.60 per 100 pieces 
- smoking tobacco and like: USD 0.30 per kg; 
- petroleum and diesel oil: USD 11-48 depending on its octane level 
and port of entry. 
 
-- The 2006 law also creates high tax rates for gaming devices 
 
-- Petroleum and Diesel Oil Tax: Petroleum and diesel oil tax of 
2140-25700 MNT is imposed on imported petroleum products depending 
on their level of octane. The petroleum tax should be collected 
within 30 days after importation. 
 
- Value Added Tax (VAT): Tax reforms effective on January 1, 2007 
reduced Value Added Taxes imposed on goods and services from 15% to 
10%. 
 
-- Export Customs duty: Camel wool, unprocessed cashmere, goat skin 
waste and scrap of iron or steel aluminum, copper, brass, waste of 
rails, wood in logs, in the rough, wood sawn or chipped lengthwise 
are subject to export Customs duty. O bligations under WTO would 
require Mongolia to phase out export duties by this year.  However, 
Mongolia will be requesting a waiver of this obligation and has 
requested USG support in this effort. 
 
Trade Restrictions 
------------------ 
 
¶11. Mongolia restricts the import and export of certain items. These 
include: 
 
-- Uranium and uranium concentrates 
-- Poisonous chemicals 
-- Human blood, organs and blood products 
-- Firearms and ammunition 
-- Artifacts and cultural property, including historical, cultural, 
fossils, archeological and similar items 
-- Breeding animals, rare species of animals, animal offspring 
-- Precious metals, precious and semi-precious stones, ore, minerals 
and rare elements. 
-- Alcohol 
 
Import Documentation 
-------------------- 
 
¶12. Normally, a freight forwarder or Mongolian agent handles 
documentation requirements.  Necessary documents include the 
contract for import, license for import, cargo manifest, bill of 
 
ULAANBAATA 00000164  003 OF 004 
 
 
lading, transportation invoice, merchandise customs declaration, 
declaration of merchandise value, proof of insurance, commercial 
invoice, payment receipt, packing list, certificate of origin, 
receipt of payment for related duties and taxes, and inspection 
certificate from the responsible agency (for specific goods). 
Customs information on the U.S. Embassy website specifies what items 
require special certificates from various government agencies. 
There is a lack of consistency within customs in how regulations are 
applied. Incoming or outgoing shipments are occasionally delayed 
because of unexpected changes in paperwork requirements. 
 
Pre-Clearance Procedures 
------------------------ 
 
¶13. Goods can be cleared before the arrival of the shipment. 
Clearance is done based on paperwork accompanying the shipment.  An 
entity or individual interested in goods document pre-clearance 
should apply to a customs clearing agency.  Document pre-clearance 
is done when the goods have left the exporting country.  The head of 
local customs reviews the request and shall issue an order to the 
chief inspector to carry out document pre-clearance.  Pre-clearance 
is allowed in the following cases: 
 
-- Medical and veterinary supplies 
-- Different types of items in one shipment 
-- Goods of seasonal quality (wheat and vegetable seeds needed for 
planting) 
-- Fragile goods and/or perishable food that require special storage 
conditions. 
 
Problems with Corruption 
------------------------ 
 
¶14. While it is illegal to offer or receive bribes in Mongolia, 
customs is widely considered the most corrupt government 
institution.  In October 2005, the Customs General Administration's 
Director General, along with the Chief of one of the south border 
ports, and three customs inspectors were arrested on charges of 
accepting bribes.  They were convicted in September 2006.  Press and 
the public continue to report cases of bribery and corruption 
involving mid to high-level customs officials.  A high percentage of 
raw cashmere, wool and skins are smuggled out of the country without 
paying export duties.  Customs inspectors are bribed to look the 
other way. 
 
¶15. Although post has heard anecdotal evidence that U.S. businesses 
have had and continue to have problems with Customs, we have not yet 
received a formal complaint, thus making it difficult for post to 
approach Customs on issues of corruption affecting American business 
interests.  Mongolians ask that we provide documented cases of abuse 
when we broach the subject, but we are unable to do so. 
 
Customs System is Antiquated 
----------------------------- 
 
¶16. The current customs system is operated manually and is labor 
intensive - i.e., traders must move from one customs processing 
point to another to seek official stamping and signatures on 
paperwork.  Human intervention in this process causes delays in 
customs clearance and is vulnerable to corrupt practices. It leads 
to lack of transparency and to unpredictability. 
 
¶17. The existing capacity of the server and network system is low. 
Modern customs business processes such as risk management and 
post-clearance audits cannot be effectively or widely introduced 
because of the lack of an internet-enabled system and a centralized 
database. 
 
¶18. Mongolia's customs system will soon be upgraded through a US$5 
million equivalent project loan approved by ADB to improve 
efficiency, transparency, and sustainability in customs services and 
administration.  The loan will upgrade the system to an 
internet-based technology and integrate it into a national system 
for e-government.  It will also finance the improvement of the 
facilities at selected major customs houses and border posts. 
 
Stopping IPR Violations 
------------------------ 
 
¶19. Concerning the import of pirated goods, Mongolian officials seem 
unaware of the importance of intellectual property to Mongolia and 
of the obligations imposed by TRIPS on member states.  Mongolian 
Customs agents have told us they are hesitant to seize shipments, 
 
ULAANBAATA 00000164  004 OF 004 
 
 
saying that their statutory mandate does not allow seizure of such 
goods.  Mongolian statutory and constitutional law recognizes that 
international treaty obligations take precedence over local statues 
and regulations and the TRIPS agreement provides a legal basis 
exists for Customs to act, a fact recognized by elements of the 
Mongolian Judiciary, the Parliament, and the Intellectual Property 
Office of Mongolia (IPOM).  However, Customs lacks a system of 
trademark registrations that it could use to vet goods entering 
Mongolia's borders. 
 
Minton