By Pradeep S. Mehta and Prashant Sharma
A new era is expected to usher in stronger India-Mongolia ties when for the first time an Indian Prime Minister sets his foot in Ulaanbaatar on May 17. Mongolia is a country with which India shares centuries-old cultural and historical linkages. The relationship was renewed in the mid-20th century when the two countries reciprocated diplomatic relations in 1955. Since then there has been a steady but sluggish improvement in the strategic dimensions of our bilateral relationship including trade and economic cooperation among others.
In the recent past, Mongolia caught the eyes of the international community when it joined the ranks of one of the world’s fastest growing economies after registering an astounding growth rate of over 17 per cent, the highest in the world, in 2011 and an average 15 per cent in the following two years.
The reason was its mining boom which is estimated to fetch billions of dollars when new copper, gold, coking and thermal coal mining projects, Oyu Tolgoi and Tavan Tolgoi, became fully operational. Besides these reserves, a vast unexplored potential of copper, gold, petroleum, coal and uranium makes the country an attractive investment destination for Indian mining companies. If successful, it will sustain a likely boost in demand of raw materials and energy and help the Make in India initiative back home.
It is, therefore, essential to pave the way for Indian investment in the mining sector in Mongolia by reinforcing the Bilateral Investment Protection and Investment Treaty of 2001 between the two countries. Late last year, The Economist reported a dispute between the Rio Tinto, which is controlling the Oyu Tolgoi project, and the Mongolian government which has 34 per cent stake in this project, over the scale of management fees, the kinds of cost overruns and demands for tax.
Realising the economic implications and a need of creating an investment friendly climate, the Mongolian government considered its demands on tax and could review whether in future it needs stakes or just royalties. The Indian government should persuade its Mongolian counterparts to emphasise on the latter to revive the foreign direct investment inflows to Mongolia which has fallen by three-fifth in 2014. It would thus avoid getting into a Rio Tinto kind of situation.
On trade, India and Mongolia should aim for substantial increase in bilateral trade over the next five years from a mere $ 24.28 million in 2013-14. Following the Agreement on Trade and Economic Cooperation in 1994, though the two governments had reciprocated the most-favoured-nation status, their bilateral trade remained substantially low before it picked up in 2009-10 but started falling after two years.
Therefore, the question is how to enhance and sustain our bilateral trade relations. The approach should be the up-gradation of existing agreement on trade and economic cooperation to a ‘preferential market access framework’ by mutually lowering tariffs on certain commodities on which there could be possibilities of entering into long-term commodity agreements.
For example, Mongolia has the potential to fulfil resource needs of India whereas India’s assistance, particularly in the application of information technology and IT-enabled services, can help diversify mining-oriented Mongolian economy. This will help achieve ‘servicification of manufacturing’ in the mining sector and its ancillary industries in both countries and will make them more competitive.
Mongolia’s keenness in enhancing its ties with countries under its ‘third neighbour policy’ (other than China and Russia) is what India should leverage while developing bilateral and multilateral mechanisms for exploring new avenues of cooperation in Asia and the Pacific.
This policy aims to leverage the influence of Mongolia’s non-contiguous countries towards its security interests. The countries involved in Mongolia’s ‘third neighbour policy’ are prominently those who share a common space with India as members of ‘community of democracies.’
India and Mongolia can possibly carve out the roadmap of a cooperation framework where the ‘governments’ and ‘civil society organisations’ of ‘third neighbour policy’ countries seek to determine and assist Mongolia and other such countries in a comprehensive set of strategic areas including trade, investment and infrastructure development. Linking physical connectivity among Mongolia-Kazakhstan-Uzbekistan-Turkmenistan with the International North-South Corridor via Iran could be a pivot towards achieving this objective.
It is in this light one needs to see the shape that the ‘Nomadic Elephant’- an annual cooperation on joint military exercise between India and Mongolia – takes in future after this debut visit of an Indian Prime Minister and India’s quest to deepen its trade and economic integration with a country of strategic importance.
The authors work for CUTS International