Highlight 10/2024 – Trade-sustainability nexus: Role of the EU in the Third Neighbour Policy of Mongolia
Yesui Bayar, 5 March 2024
Foreign trade has been playing a significant role in the socio-economic development of landlocked Mongolia. In 2022, the total trade turnover reached US$ 21.2 billion (US$12.5 bln exports and 8.7 bln imports) compared to 2012 with total US$ 11.1 billion with minus balance (US$4.3 bln exports and 6.7 bln imports).
The main export destinations of Mongolia are China 84% (US$10.5 bln), Switzerland 8.2% (US$1.03 bln), Singapore 2.75% (US$345 mln), Republic of Korea 2.21% (US$277 mln), and the EU 1.1% (US$138 mln). Top EU destinations include Italy, Germany, Austria, France, and Spain. With leading export commodities such as live animals, animal origin products, textiles, textile articles, and mineral products.
Meanwhile, the main import partners of Mongolia are China 35.2% (US$3.07 bln), Russia 30% (US$2.61 bln), the EU 9.4%(US$ 823 mln), Japan 7.7% (US$674 mln), and Republic of Korea 4.87% (US$424 mln). Top EU countries include Germany, France, Poland, Italy, and Ireland. Overall, main import commodities are transport vehicle and its spare parts, machinery, equipment, electric appliances, and mineral products. Mongolia thus relies on Russia for 90% of its energy supplies.
“Third neighbor policy” was adopted in 1994, addresses the importance of Mongolia engaging with other countries beyond its neighbors, China and Russia. It highlights harmonized approach to lessen the overdependency on these two superpowers; therefore, to ensure its national security interests while pursuing economic prosperity and expansion of political ties.
In pursuit of such diplomatic strategy, as a major economic bloc, the EU plays a pivotal role in facilitating trade in Mongolia as a catalyst for responsible economic development while committing to sustainable trade practices. Based on its core principle, the EU aims to promote sustainable development through EU trade agreements, special incentives for developing countries, and trade and development policy.
Mongolia with its coldest capital on earth, Ulaanbaatar, faces unique environmental challenges such as air, water, and soil pollution, desertification, unsustainable water extraction, and habitat loss. These are caused by mining, urbanization, overgrazing, and climate change. To address such challenges, in partnership with the EU, The European Bank for Reconstruction and Development (EBRD) invests in projects promoting renewable energy, environmental conservation, and sustainable agriculture in Mongolia since 2006. By 2023, the EBRD has invested almost US$2.43 billion in Mongolia’s economic and ecological resilience through 136 projects.
Mongolia aims for a renewable energy share of 30% by 2030 of its installed capacity and is committed to reduce greenhouse gas emissions by 22.7% by 2030. Under EU’s Global Gateway Initiative, there are 2 notable flagship projects in Mongolia, mobilized through the EFSD+. First, Climate & energy and Water & waste management, aimed at enhancing country’s renewable energy capacity by investing development of wind and solar power. Second, Forest Partnership Agreement, to support Mongolia’s goal to plant 1 billion trees by 2030 to reduce deforestation, encourage forest conservation and sustainable management of recourses.
For the period of 2021-2024, under the framework of the Multiannual Indicative Programme (MIP), the EU has allocated US$33.5 million to support Mongolia in implementing employment, finance management, and tax reforms. Additionally, until 2027, Mongolia will be benefitting from GSP+ to promote sustainable economic development and good governance by receiving preferential access to the EU market.
Now, more than ever, Mongolia is becoming an interplay arena of big economies and multinational companies due to its rich mineral reserves, agricultural endowments, and proximity to Asia’s major markets. Therefore, transforming into a desirable destination for mid-term to long-term FDI. Based on its EU-Mongolia Partnership and Cooperation Agreement, the EU’s engagement in Mongolia goes beyond economic and environmental aspects. It also prioritizes inclusive development, emphasizing the importance of the shared values: democracy, rule of law, and respect of human rights. Inevitably, the EU-Mongolia relations are backbone of effective implementation of Third Neighbor Policy; thus, rudiment of Mongolia’s sustainable economic growth and ever-prosperous future.
Yesuit Bayar, Highlight 10/2024 – Trade-sustainability nexus: Role of the EU in the Third Neighbour Policy of Mongolia, 5 March 2024, available at www.meig.ch
The views expressed in the MEIG Highlights are personal to the authors and neither reflect the positions of the MEIG Programme nor those of the University of Geneva.