VZCZCXRO9210
RR RUEHLMC
DE RUEHUM #0191/01 1190221
ZNR UUUUU ZZH
R 280221Z APR 08
FM AMEMBASSY ULAANBAATAR
TO RUEHC/SECSTATE WASHDC 2097
INFO RUEHBJ/AMEMBASSY BEIJING 6109
RUEHUL/AMEMBASSY SEOUL 3308
RUEHKO/AMEMBASSY TOKYO 2985
RUEHMO/AMEMBASSY MOSCOW 2202
RUEHOT/AMEMBASSY OTTAWA 0611
RUEHBY/AMEMBASSY CANBERRA 0269
RHEHNSC/NATIONAL SECURITY COUNCIL WASHINGTON DC
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEKJCS/SECDEF WASHINGTON DC

UNCLAS SECTION 01 OF 04 ULAANBAATAR 000191 
 
SIPDIS 
 
SENSITIVE 
 
SIPDIS 
 
STATE PASS USTR, USTDA, OPIC, AND EXIMBANK 
STATE FOR EAP/CM AND EB/IFD/OIA 
USAID FOR ANE FOR D. WINSTON 
USDOC FOR ZHEN-GONG CROSS 
 
E.O. 12958: N/A 
TAGS: ETRD PREL EAID ECON EFIN PGOV MG
SUBJECT: 2008 US-Mongolia TIFA, Report I: Progress on Transparency 
Agreement 
 
REF: A) Ulaanbaatar 0110, B) Ulaanbaatar 0050 
 
SENSITIVE BUT UNCLASSIFIED - NOT FOR INTERNET DISTRIBUTION. 
 
¶1. (SBU) SUMMARY:  Mongolia and the United States held their fourth 
annual Trade and Investment Framework Agreement (TIFA) Talks on 
February 4, with the Mongolian side continuing its push for a Free 
Trade Agreement (FTA).  Assistant U.S. Trade Representative (AUSTR) 
Tim Stratford explained that while the USG continues to explore ways 
to deepen US-Mongolia trade relations, it was not a propitious time 
to be ask Congress to approve an FTA.  Stratford added that a 
US-Mongolia Transparency Agreement (UMTA) would be more achievable, 
and that this would sustain forward motion in the trade 
relationship.  Other issues discussed included problems in 
Mongolia's mining sector and changes in Mongolia's legal environment 
for foreign investment.  This cable reviews progress and follow-up 
activities related to UMTA. Septels will cover other TIFA issues. 
END SUMMARY. 
 
¶2. (SBU) In Washington on February 4, Mongolia and the U.S. held 
their fourth annual TIFA Joint Council Meeting.  AUSTR Stratford led 
a U.S. delegation that included representatives from the Departments 
of State, Commerce, Interior, Labor, and Agriculture, as well as the 
U.S. Trade Development Agency; Embassy Ulaanbaatar was represented 
by the DCM and Senior Commercial Specialist. Vice Minister of 
Industry and Trade (VM) Sodbaatar led the Mongolian delegation, made 
up of Mongolians from the Ministry of Foreign Affairs and the 
General Customs Authority of Mongolia.  The VM opened the TIFA with 
the GOM's usual push for a free trade agreement.  However, beyond 
the simple request to negotiate an FTA, the VM's arguments lacked 
the usual lengthy justifications for an FTA that have typified the 
last three TIFAs. 
 
¶3. (SBU) AUSTR Stratford reminded the GOM that at the previous 
year's TIFA, USTR had promised to consider concrete steps to deepen 
the US-Mongolia trade relationship, short of a commitment to an FTA. 
 The fruit of these efforts was a request in June 2007 to the GOM 
that it consider negotiating a UMTA, which included a copy of the 
Korean-US Free Trade Agreement's Transparency Chapter (KORUS TA) to 
use as a conceptual model of the sort of agreement we were proposing 
to negotiate (ref B).  Both this initial proposal and subsequent 
communications have made clear that the KORUS TA was meant as a 
reference point for UMTA talks, as USTR recognizes that Mongolian 
circumstances differ from those in the ROK.  However, AUSTR 
regretted any statements that might have led the GOM to think that 
the USTR was imposing the KORUS TA on Mongolia without allowing for 
Mongolian circumstances and capacities.  He repeated that the 
initial request was not a formal proposal but a way to begin 
discussions on the issue.  He stated that USTR should have answered 
GOM concerns by offering a more thorough briefing to the GOM 
regarding U.S. intentions for proposing a stand-alone TA. AUSTR 
regretted that these lapses had stalled progress toward the UMTA. 
 
¶4. (SBU) AUSTR Stratford explained that USTR continues to actively 
seek ways to deepen the US-Mongolia trade relationship. However, in 
the current environment, asking Congress for additional FTA 
authority for Mongolia, or any other nation, was unlikely to be 
greeted positively.  AUSTR added that although an FTA remains an 
unlikely outcome, a UMTA would more obtainable and would keep 
momentum going in the trade relationship. 
 
¶5. (SBU) AUSTR Stratford suggested that the bilateral trade 
relationship would move forward under a "step-by-step approach," 
which would, over time, lead to a closer trade relationship.    In 
that light, we should consider working on agreements that can be 
negotiated by the respective governments without immediate recourse 
to legislative review.  For example, we might not discuss tariff 
rates, as that requires Congressional approval, whereas a UMTA would 
not.  USTR concluded that the approach of identifying, negotiating, 
and agreeing on various elements of model FTAs would increase the 
relative attractiveness of Mongolia as USG in the future, with Trade 
Promotion Authority renewed, considers potential FTA partners. 
 
Why this approach to a TA? 
 
ULAANBAATA 00000191  002 OF 004 
 
 
-------------------------- 
 
¶6. (SBU) The VM asked if the approach outlined was typical of our 
FTA processes.  The GOM was concerned that this approach would be 
too unconventional to lead to an FTA down the road.  AUSTR explained 
that the approach features both traditional and innovative elements. 
 Traditionally, much exploratory work/talk is done by the 
negotiating parties before any FTA is publicly launched and 
Congressional approval sought.  Discussing hard issues before talks 
go public allows both sides to settle sensitive disputes discreetly. 
 After many meetings with the trade partner to iron out mutually 
acceptable positions, USTR takes the results of the discussions to 
an USG Inter-Agency review, where all departments/agencies can 
consider what has been proposed, suggest modifications, and 
ultimately sign off on the process and its results. 
 
¶7. (SBU) AUSTR then advised that the next step was to identify what 
TA concepts work and don't work in the Mongolian context.  Then, in 
light of GOM observations, USTR could explain its positions, 
methods, motives and approaches.  Based on this dialogue, we could 
then decide whether enough commonality exists between the U.S. and 
Mongolia to proceed to a more formal set of talks leading to a 
formal UMTA.  USTR observed that this approach -- the soft way to an 
agreement -- involves dialogue, not dictation.  Assuming we reach 
commonality, the USTR could go the USG Inter-Agency group with a 
report that the USG should move on an UMTA. 
 
¶8. (SBU) USTR concluded that a stand-alone UMTA is a 
precedent-setting approach to trade agreements, and that this 
approach has not been widely publicized because it is new.  USTR 
indicated that it would like to pursue it with GOM in a discreet 
fashion before wide-scale public dissemination.  Given the current 
impediments to FTAs, USTR observed that that the unique approach 
being developed for the Mongolian UMTA (and follow on trade 
agreements) might become the model for trade relations between the 
U.S. and other nations. 
 
¶9. (SBU) VM Sodbaatar responded that the UMTA TA proposal matched 
GOM aims generally; and so, the GOM would consider UMTA.  The VM 
explicitly said that the GOM considered the USTR'S step-by-step 
approach the correct way to proceed.  He further noted that early 
confusion over the KORUS TA had been replaced with understanding 
that the KORUS TA is a part of any FTA, and that USTR is offering it 
as a first step toward an FTA.  In that respect, the VM expressed a 
desire to learn about other nations' experiences with TAs and TIFAs, 
to ensure that Mongolia is in line with the approaches USTR employs 
with the other trade partners of the U.S.  (Comment: The GOM remains 
wary of this process, fearing it may be nothing more than a method 
to reject Mongolia's FTA ambitions.  However, contacts at MIT were 
enthralled by the image of Mongolia being on the cutting edge of 
trade-policy formulation. End Comment.) 
 
¶10. (SBU) The VM acknowledged as correct USG observations that the 
US Congress, whose approval would be required for an FTA, was not 
supporting additional FTAs at this time.  However, the VM reminded 
USTR that the GOM would probably have to seek the approval of 
Mongolia's Parliament for an UMTA, although the GOM could negotiate 
such a deal without parliamentary approval.  The VM further 
recognized that a US-Mongolia FTA was not yet ready for public 
discussion, and that the GOM did do not want to move too fast and 
run the risk of raising unrealistic expectations. 
 
¶11. (SBU) The VM then asked for a more specific set of benchmarks 
for the step-by-step process conceived by USTR. Specifically, the VM 
asked what, after the TA, were the next steps.  He opined that 
knowing these precise steps would allow the GOM to plan near-, mid-, 
and long-term approaches to the US-Mongolia bilateral trade 
relationship.  He added that such detailed planning would make the 
approach proposed by USTR more palatable to the Mongolian people and 
Parliament. 
 
¶12. (SBU) AUSTR observed that it would be difficult to set a firm 
schedule for progress, but that the participants should take a 
positive attitude.  He amplified that participants should not seek 
 
ULAANBAATA 00000191  003 OF 004 
 
 
in the UMTA process a precise road map to an FTA; rather, a mutual 
compass, guiding us in that direction.  Overall, AUSTR concluded 
that if the sides could quickly agree to and implement an UMTA; it 
might be possible to move to the next agreement. 
 
 
Next Steps on UMTA Proposed at TIFA 
----------------------------------- 
 
¶13. (SBU) AUSTR expressed disappointment at the lack of progress on 
the TA before the 2008 TIFA, but hoped that we could make 
significant progress before Mongolia's next summer holiday season, 
Naadam.  To that end, AUSTR proposed that the USG and the GOM hold 
one or more digital video conferences (DVC) in March, in which 
Mongolia could present its views on an UMTA. AUSTR invited the GOM 
to ask questions regarding TAs, and to actively examine 
contradictions between provisions in the KORUS TA and Mongolian 
practices, capacities and expectations.  Ideally, this dialogue 
would yield a common set of principles about UMTA.  Assuming this 
commonality, USTR reps will visit Mongolia to review the finer 
points of the UMTA, most likely in May or June 2008.  Then USTR 
would prepare a draft UMTA for GOM review.  Working groups would 
negotiate the specific points, and USTR would meet with the GOM as 
positions firm up.  Finally, with an UMTA in sight, USTR would seek 
USG Inter-Agency concurrence, and MIT would do the same with its GOM 
sister ministries. 
 
Following an UMTA 
----------------- 
 
¶14. (SBU) AUSTR Stratford noted that once we have jointly negotiated 
an UMTA and begun implementation, we can consider a new FTA chapter 
for discussion in much the same pattern used for the UMTA.  We will 
review current FTA models for the next step. This could be an 
agreement on Intellectual Property rights, Competition law, etc. 
 
Slow progress on UMTA since the February 2008 TIFA 
--------------------------------------------- ----- 
 
¶15. (SBU) USTR proposed and the VM accepted a mid-March date for the 
first DVC dedicated to advancing UMTA.  The Mongolians said that 
since October 2007, they had been toying with the creation of a 
joint ministerial "Task Force Team" (TFT) dedicated to reviewing the 
KORUS TA for the initial discussions.  This TFT would then serve as 
primary GOM negotiating body for UMTA.  The Ministries of Industry 
and Trade, Foreign Affairs, Justice and Finance would provide 
personnel for the TFT, with Industry and Trade taking the lead.  By 
TIFA 2008, MIT counterparts had informed us that they had 
unofficially identified the individuals who would serve on the TFT, 
although the group had not yet met, pending ministerial approval and 
the outcome of the 2008 TIFA.  (Note: Per ref A, the Mongolians 
explained that they planned to continue the TFT after UMTA had been 
negotiated, as the GOM recognized that it would need a more or less 
permanent intra-governmental structure to coordinate internal GOM 
responses to bilateral trade issues. End note.) 
 
¶16. (SBU) However, these apparently good intentions and concepts 
have been stymied by inter-ministerial squabbling that has slowed 
progress on the initial stages of UMTA.  As it turned out, this turf 
war was being fought long before the UMTA was suggested, but the 
prospect of a specific agreement in the offing had brought the issue 
to a boil.  The Ministry of Foreign Affairs (MFA) asserted that it 
controlled all bilateral international agreements, while MIT 
asserted that it had the lead (and the expertise) on trade-related 
issues.  Technically, MFA had the right to make this argument, even 
though MIT noted that MFA lacked any practical ability to perform 
the task.  The dispute percolated until the end of February, at 
which point cooler heads suggested that MFA and MIT assume joint 
responsibility for TFT.  A decree was prepared for joint signature 
by the respective ministers, which languished on their respective 
desks for the last couple of weeks, at which point Foreign Minister 
Oyun agreed to the deal without signing the decree, deferring to 
Industry and Trade Minister Narankhuu, who took an additional week 
to sign off, finally doing so on March 28. (Note: Post, at the 
 
ULAANBAATA 00000191  004 OF 004 
 
 
request of MIT contacts, gently reminded Narankhuu, through his 
personal advisor, of MIT's commitment to the UMTA process, and of 
the need to sign the decree to allow the TFT to begin its analysis 
and review of KORUS TA. End note.) 
 
¶17. (SBU) The GOM has formally empowered its TFT, which has since 
deliberated on UMTA and provided comments to post, which has 
forwarded them on to USTR, in advance of the UMTA DVC, which we hope 
will occur in late April or early May. 
 
GOLDBECK