VZCZCXRO8524
RR RUEHLMC RUEHVC
DE RUEHUM #0063/01 0350811
ZNR UUUUU ZZH
R 040811Z FEB 08
FM AMEMBASSY ULAANBAATAR
TO RUEHC/SECSTATE WASHDC 1877
RUEHBJ/AMEMBASSY BEIJING 5970
RUEHUL/AMEMBASSY SEOUL 3162
RUEHKO/AMEMBASSY TOKYO 2858
RUEHOT/AMEMBASSY OTTAWA 0571
RUEHML/AMEMBASSY MANILA 1616
RUEHLO/AMEMBASSY LONDON 0261
RUEHBY/AMEMBASSY CANBERRA 0231
RUEHVC/AMCONSUL VANCOUVER 0108
RUEHGV/USMISSION GENEVA 0368
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RHEHNSC/NATIONAL SECURITY COUNCIL WASHINGTON DC
RUEKJCS/SECDEF WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS SECTION 01 OF 03 ULAANBAATAR 000063 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
GENEVA FOR USTR 
STATE PASS USTR, USTDA, OPIC, AND EXIMBANK 
STATE FOR EAP/CM AND EB/IFD/OIA 
USAID FOR ANE FOR D. WINSTON 
MANILA AND LONDON FOR ADB, EBRD USEDS 
TREASURY FOR USEDS TO IMF, WORLD BANK 
 
E.O. 12958: N/A 
TAGS: ETRD PREL EAID ECON EFIN PGOV MG
SUBJECT: FORWARD MOVEMENT ON GSP ISSUES 
 
 
SENSITIVE BUT UNCLASSIFIED - NOT FOR INTERNET DISTRIBUTION 
 
Reftel: 07 Ulaanbaatar 0276 
 
¶1. (SBU) SUMMARY: After almost two years of prodding by Post and 
USTR, Mongolia looks set to implement a GSP Handicrafts agreement 
that will allow duty-free export to the U.S. of two Mongolian 
hand-made items.   (The five items previously covered by the 
agreement have become MFN duty-free).  Now that an internal turf 
battle over certificate of origin certification procedures and 
authority has been settled, the Ministry of Industry and Trade (MIT) 
need only produce an official letter (and model of the certifying 
stamp) that outlines the agreed upon certification procedure for the 
agreement to take effect.  The agreement will supplement the current 
handicraft-related benefits available to Mongolia, and could provide 
a basis for adding more handcrafted textiles and apparel, if 
approved by Congress during the upcoming GSP reauthorization 
process.  However, because the GOM believes that the small economic 
returns are not worth the effort, it has so far failed to actively 
promote the agreement with local producers, and will likely remain 
apathetic after the agreement's implementation. It is uncertain 
whether MIT will produce the letter as a deliverable in time for 
TIFA #4 talks on February 4. During TIFA #4, the GOM intends to 
submit a list of products generated by Mongolian businesses rather 
than the GOM for GSP inclusion and seek advice on submission 
practices.  END SUMMARY. 
 
Forward Movement on a GSP Handicrafts Agreement 
--------------------------------------------- - 
 
¶2. (SBU) The Ministry of Industry and Trade (MIT) has shown a 
palpable lack of enthusiasm for the GSP Handicrafts agreement since 
it was first proposed by USTR at the second annual TIFA talks in 
March 2006.  MIT has argued that the economic return would be 
minimal, especially when sized against MIT's real goal of an FTA, 
and doubted whether Mongolian producers could come up with enough 
handicrafts to fill even a single container for export.  (Note: One 
trip to the handicraft- and souvenir-laden fifth floor of 
Ulaanbaatar's main department store would dispel the myth that 
quantity is lacking. End Note.)  MIT dithered in soliciting 
Mongolian firms to gauge real interest, promoting the opportunity 
with local producers, or in taking necessary steps to bring the 
agreement into effect.  Post has tried to counter GOM apathy by 
explaining that although profits from exports under the handicraft 
agreement might seem small, it nevertheless had the potential to 
help some of Mongolia's most disadvantaged groups -- namely small 
scale producers and low income families. 
 
USG Spearheads Promotional Activities 
------------------------------------- 
 
¶3. (SBU) Since last year's TIFA #3, Post and USTR have vigorously 
promoted the agreement to those small and medium sized producers who 
stand to profit most (reftel).  In March 2007, Marideth Sandler, 
Executive Director of USTR's GSP program, successfully delivered GSP 
education and outreach presentations to standing-room-only audiences 
of over 200 companies (from single mothers producing felt slippers 
to a leather goods manufacture employing several hundred Mongolians) 
in Mongolia's three largest cities, Ulaanbaatar, Erdenet and 
Darkhan.  For many of the attendees, it was the first time they had 
heard about duty free export opportunities to the United States. 
 
¶4. (SBU) In addition, Post has hosted several Digital Video 
Conferences with USTR to further explain GSP Handicraft agreement 
benefits and implementation procedures, and has translated several 
informational documents on GSP for distribution and Posting on the 
Embassy website.  Among them are the Examples of the Changes 
Required to Transform Foreign Raw Materials and Components into 
Articles that Qualify for Duty-Free Treatment under GSP; Guide to 
Internet Resources on the U.S. Generalized System of Preferences 
 
ULAANBAATA 00000063  002 OF 003 
 
 
(GSP); U.S. Generalized System of Preferences Guidebook; and 
Expanding Mongolia's Export Opportunities through GSP Presentation. 
MNCCI will soon translate the GSP Eligible Product List, the "Guide 
to Major U.S. Retailers," and "The Market for Handicrafts and Other 
Artisanal Goods" and post them on their webpage.  Embassy officers 
have touted the benefits of GSP, along with the GSP Handicrafts 
Agreement during country-wide excursions and have worked with USAID 
funded SME development programs. 
 
Turf Battles, Red Tape Delay Movement 
-------------------------------------- 
 
¶5. (SBU) Nudged to action by Post's promotional efforts, the GOM has 
finally moved to adopt the agreement, but recently stumbled when 
USTR would not accept the Mongolian National Chamber of Commerce and 
Industry as the official certifying body of handicraft items 
produced in Mongolia.  S. Demberel, MNCCI Chairman, insisted on 
safeguarding MNCCI's legally delegated certifying authority (and 
revenues generated from issuing COs).  He lobbied USTR to accept 
MNCCI as the legally authorized certifier, sending USTR a letter in 
September 2007 and meeting with Marideth Sandler in October 2007 
during President Enkhbayar's visit to the White House. 
Nevertheless, USTR explained that U.S. regulations required the 
final signature and stamp certifying origin of the handicraft 
product come from a governmental body. 
 
¶6. (SBU) MNCCI and MIT struck a face-saving compromise that will 
give the Mongolian Customs Authority final approval (along with its 
triangular stamp) on MNCCI issued Certificates of Origin.  USTR and 
Post have since asked MIT to explain the procedure in an offical 
letter to USTR.  (Note: we are still awaiting this letter from MIT.) 
 
 
Moving on other GSP Issues 
-------------------------- 
 
¶7. (SBU) In 2007, MIT drew up and submitted a list of products for 
which the GOM wished to receive GSP tariff reduction, or for which, 
in the case of Mongolian Molybdenum, it wanted added to the list of 
products eligible for GSP.  This request did not get much traction, 
because MIT's submissions lacked responses to the explicitly 
requested criteria to meet statutory requirements, as well as a 
Mongolian constituency willing and able to support MIT's 
submissions. 
 
¶8. (SBU) The case of the Molybdenum submission is instructional. 
MIT insisted on submitting Molybdenum, not because any business 
entity asked for its inclusion, but rather because MIT thought 
Mongolian Molybdenum could and should be exported to the U.S.  The 
argument for doing so was to broaden Mongolia's customer base for 
this product, which remains primarily China and Russia.  However, 
the primary exporter of this product expressed to Post and MIT that 
it had no interest in going to the effort of preparing a submission, 
leaving the MIT to do all the work.  USTR provided examples of 
proper GSP submissions, and explained in general terms what the GOM 
needed to do.  However, the GOM did not submit a formal request that 
would meet the statutory requirements, and USTR made clear that 
Mongolia's submission, which faced resistance from an American 
producer, would probably be rejected without the information.  As a 
rejection would inhibit future GOM submissions for several years, 
MIT withdrew its requests, acting on advice from Post, USTR, DOC and 
State. 
 
GSP and Trends 
-------------- 
 
¶9. (U) U.S. imports under GSP in 2006 from Mongolia totaled 
$530,116, and from January through November of 2007, totaled 
$900,545 (a 134 percent increase from the same time period in 2006). 
 Top GSP imports included tungsten concentrates (HTS 26110060) and 
 
ULAANBAATA 00000063  003 OF 003 
 
 
articles for the conveyance or packing of goods, of plastics (HTS 
39239000). 
 
Conclusion: The Power of Positive Thinking 
------------------------------------------ 
 
¶10. (SBU) Although the GOM is showing signs of progress in finally 
adopting the GSP Handicrafts agreement and may/may have it as a 
deliverable for the 2008 TIFA, Post is nonetheless worried that the 
GOM remains ambivalent about the potential benefits.  So far, the 
GOM seems to regard sealing this deal as more of a paper-pushing 
exercise than a substantive trade agreement; something that it can 
proudly bring forward to producers and the public, even if the 
immediate economic impact might be slight in the near term. 
 
¶11. (SBU) The GOM may have learned a lesson from the aborted 
Molybdenum submission.  First, although the results for GSP 
submissions in 2007 were relatively disappointing, MIT will continue 
to pursue tariff reductions available under GSP, and plans to submit 
a list of products at TIFA #4.  Still discouraging, MIT continues to 
ask Post and USTR for advice on the format for submissions, 
indicating that they have yet to use the information available to 
them for preparing and submitting GSP requests.  More guidance will 
be required before Mongolian producers and exporters make better use 
of GSP benefits and the GOM develops a sustainable in-house capacity 
to avail itself of GSP. More encouraging, MIT reports it did not 
develop its TIFA #4 list of GSP-eligible products; rather, MNCCI 
prepared the list after surveying members who produced products for 
export.  So at last, we have a private constituency that has a 
commercial stake in the GSP outcomes rather than a public entity 
with nothing to lose. 
 
¶12. USTR's Marideth Sandler, Farah Naim and Timothy Wineland cleared 
on this cable. 
 
Minton