Trade and Investment

International Conference on
Foreign Trade and Investment: Shifting Attitudes in Northeast Asia
held 26-27 February 2004

In accordance with the action plan of the Project, an international workshop entitled 'Foreign Trade and Investment: Changing Attitudes in Northeast Asia ” was held on 26-27 February 200 in Ulaanbaatar , Mongolia . The Conference was held in the big conference hall of Chinggis Khan hotel. Close to 70 scholars and government officials from Mongolia , China , Japan , South Korea , and Russia participated in the Conference.

The Northeast Asia is entering to a new period of its foreign trade and investment development. This means in the last decade most countries in the region has improved their foreign trade relations and shifted to investment relations. Therefore, the topic of the conference was chosen to concentrate on “shifting attitudes” from foreign trade to investment. Over two days, the Conference participants were engaged in discussions of key issues of foreign trade and investment in Mongolia , China , Japan , Korea and Russia and in Northeast Asia at large.

The Opening of the Conference was chaired by Dr. Ts. Batbayar, Chairman of the Board, Mongolian Development Research Center.

In his opening speech, Mr. T. Ochirkhuu, Member of Parliament and Chief of the Economic Standing Committee expressed his appreciation to MDRC and SPF for touching such a timely issue for both Mongolia and the other regional countries.

The other guests by Prof. Sumio Kuribayashi ( Japan ), by Prof. Doo Won Lee ( Korea ), Prof. Long Guoqiang ( China ) who delivered welcoming speeches also highlighted the importance of the issue and need for conducting theoretical research and develop practical policy recommendations.

Session 1 entitled “ Foreign Trade and Investment Relations in Northeast Asia ” was chaired by Prof. Long Guoqiang, Development Research Center , the State Council of People's Republic of China.

Prof. Jeong Dong Park, University of Incheon , Korea delivered keynote speech on The Northeast Asian Economic Community: Background, Necessity and Possibility. His presentation consisted of the following parts:
I. Beginning of the “New Age” in Asia and the Northeast Asia
II. Various Aspects in Establishment of a Northeast Asian Economic Community
III. Standpoints of Leading Nations on the Northeast Asian Economic Community
IV. Basic Idea of the Northeast Asian Economic Community that Begins with the Construction of SOC
V. In Place of Conclusion: The Northeast Asian Economic Community and Win – Win Game.
In the first part or “Beginning of the “New Age” in Asia and the Northeast Asia” he described “new age” in relation to characteristics of the world economy in the 21 st century, outlook of Northeast Asia in the 21 st century, e nd of Cold War and beginning of “New Age” when NAC countries (NIEs, ASEAN and China) gain power. Further he explained the emergence of p olicy issues during era of trade and poli cy issues in era of direct investment.

The second part of his speech was about various aspects in establishment of a Northeast Asian Economic Community and its difficulties including remains of the Cold War, differences of political and economic institutions, difference between developmental stages and economic power and i nitial stage of collaboration.

The most important part of his speech was standpoints of Leading Nations on the Northeast Asian Economic Community. From China 's standpoint, he pointed out chronic deficit afflicted SOE, d evelopment scheme of the Western Region, and said the Chinese government holds high expectations for the role of foreign capital. According to Prof. Park, Japan needs to resolve the problem of outworn facilities and correspond to an aging society. From Korea 's Standpoint, he described factors upon which Korea 's future development progress depends.

Prof. Park's basic ideas of the Northeast Asian Economic Community that begins with the construction of SOC were:

Special consideration must be given to the Northeast Asian region, because unlike the European Economic Community , the Northeast Asian region includes vast undeveloped areas.

It is impossible to establish a large market without the construction of SOC: harbor industry, railroad, road construction and electricity, and communications sector.

To operate Northeast Asian economic community rationally we need to, harmonize the varying standards of products from each country, establish educational institutions for government officials, and equalize the levels of higher education in each country by revamping each country's own educational system.

Northeast Asian economic community should also expand into an all-encompassing community, which covers even the non-economic sectors: unique fusion of cultures and traditions will be formed with time and increase in inter-racial marriages and mixed offspring will result.

In effect, as “walls” of national spirit get removed, a comprehensive national spirit encompassing all Northeast Asian member countries would grow. The Northeast Asian economic community will evolve into a communal society.

The keynote speech was concluded that it is necessary to organize an EU-like community in Northeast Asia and the Northeast Asian cooperation must be “win-win game” for all the countries in the Northeast Asia
Mr. D. Nachin, Senior expert of FIFTA Mongolia, first briefed about the current FDI situation in the world, and then talked about Foreign Direct Investment in Mongolia.

During the past years the Government of Mongolia has paid a significant attention to the foreign direct investment. As a result, relatively more favorable external and internal legal environment is established to provide a free regimen for the business (incentives such as tax exemptions, deductions and export encouraging policy are provided by the Foreign investment and all other related laws) which has an important impact in the increase of total amount of FDI as well as in the broadening the sectors too.

Since 1990 till the end of 2003, there were registered 3042 foreign invested companies from 73 countries with the total direct investment of about one billion USD in the country.

FDI is concentrated mainly on geological prospecting, mining and oil sectors (represents above 46% of the total FDI), trade and restaurants (13%), textile (8%), processing of animal originated raw material (7%), construction sector (7%), banking and financial services (6%) and tourism (2%).

The country has experienced diverse interests in different sectors from all over the world specifically from the East Asia and North America . China has been leading the list having about 37.9% of total investment followed by Canada (13.2%), USA (11.4%), Republic of Korea (8.1%), Japan (6.0%), Russia (3.3%) and others 20.1%. Here I note that since disclosure in 2003 FDI data in oil exploration field; this data has been incorporated to FDI in geological prospecting and mining sector.

In 2003, there are 653 companies registered with the total investment of 203.8 million USD, 17.5 per cent of the GDP, which compared to the previous year both indicators increased by 10%. Hereby, it is interesting to note that, existing in Mongolia foreign investors are re-investing, making certain contributions to the year's FDI besides new comers. For instance, in 2000-2003 by 105-140 existing foreign incorporated companies have made investment US$ 29.5-141.1 million, which comprises 28.3-69.2% of the year's FDI.

On the other hand, there was an increase in the size of private savings of our citizens, which reached around the same level as yearly FDI. It requires increasing the threshold of FDI in order to support local businessmen and improve competitiveness of their products and services. Improving competitiveness is closely linked with transfer of innovative technology and efforts should be done to use FDI for this purpose.

At present, foreign invested companies in Mongolia have created around seventy thousand jobs (cumulative data). They are also executing about half of the country's total export and paying about forty billion togrog tax revenue each year. In addition to this, the companies are supporting other industries and services (electricity, heating, telecommunication, transportation etc.) indirectly.

He also talked about future trend of FDI in Mongolia that it would be likely to expect foreign investor's growing interest to the country, especially in geological prospecting and mining by international companies (such as Cameco Gold, Ivanhoe mines, Placer Dome Inc. and others). The main ways of achieving its targets for the Mongolian Foreign Investment and Foreign Trade Agency might be professionally developed FDI advertising activities directed on attracting foreign investment to mining, infrastructure and other sectors and support activities for implementing registered/approved projects and monitoring them.

Next, Prof. Doo Won Lee, Economics Department, Yonsei University , Korea gave and interesting presentation on “ Effect of Korea-Japan FTA on Korea 's Trade with Japan : Estimation by Modified Gravity Models.”

This paper tried to figure out the effects of Korea-Japan FTA using gravity models with some variations. In the first section, he has set up a simple but conventional gravity model that can explain about Korea 's bilateral trade volume with its major trading partners. In the second section, similar gravity model with additional variables are introduced in order to figure out how IIT of Korea with its trading partners are determined. In both estimations, he has come up with expected results for most of the variables. However, the most powerful variables with high t-values were overall income level and distance. This was particularly true in the first gravity model for trade volume. The explanatory power of per-capita income and tariff rate were rather weak. Also, inclusion of variables that can capture the characteristics of economic structures have improved the general outcome of the estimation in IIT gravity model.

With regard to Korea 's FTA with Japan , this paper predicted that there would be substantial amount of trade increase between the two countries once trade distortion measures are removed as a result of FTA. In particular, most of the increase will occur in manufacturing sector's IIT activities and this will happen when NTB are removed. It means that once Korea 's trade relation with Japan became normalized as a result of FTA, there would be notable expansion of trade between the two countries. As this model does not incorporate potential trade increase that can be brought about by the dynamic effects of FTA, the actual expansion of trade can be even larger than the one predicted in the paper.

This paper wash highly interesting especially for academics: professors, researchers, and lecturers.

Prof. Naran from University of Hohhot , Inner Mongolia, gave an extensive overview of Chinese Investment in Mongolia . Her presentation was highly informative about Chinese investment interest in Mongolia (industry fields), number of joint ventures, and future perspectives.

Session 2 entitled “WTO and NEA countries” was chaired by Prof. Sumio Kuribayashi, Tokyo International University .

In the beginning of the session, Mr. B. Galsandorj, Department Director, Ministry of Trade and Industry , Mongolia , gave presentation on “Current Review and Future Trends of Mongolian Foreign Trade.” His presentation was useful to understand policy trends of the Government of Mongolia on foreign trade.

Then, Prof. Long Guoqiang, Senior Fellow and Deputy-Director General Department of Foreign Economic Relation Studies, Development Research Center, The State Council of P.R. China delivered speech on “ Chinese Foreign Trade after Joining WTO.” This was a wonderful work based on broad research.

According to Prof. Guoquiang, the entry into WTO brings both advantages and disadvantages to China , but in general the advantages exceed disadvantages. Research works show that in the coming ten years, the entry into WTO will cause China 's yearly GDP growth rate to be about 0.5% higher than that rate in bench mark situation. The advantages and disadvantages are not equally distributed among different industries. As is indicated by the analyses of agriculture, the manufactory industry and the service industry respectively, there are great uncertainties in terms of the alteration of advantages and disadvantages. There may be a relatively big gap between the advantages that an industry shall enjoy theoretically and the advantages that it actually enjoys, and it cannot be precluded that this industry may find itself situated in a passive situation; on the contrary, for an industry that shall be exposed to relatively strong negative impacts theoretically, there is also great potential for transformation of challenges into opportunities.

Dr. Alexandr Goryunov, Senior Research Fellow, Economic Research Institute, Khabarovsk , gave a brief presentation on “ Russia on the Way to WTO: Problems and Prospects.”

As per Prof. Goryunov, to get admitted to WTO, a country should meet the level of openness of its foreign economic sphere in accordance with the requirements set by GATT/GATS. That is why the point regarding the entrance of Russia into WTO, is the conformity of the foreign economic policy and its constituent parts to the norms of WTO. To date, it has already done much of work to conform the appropriate sections/parts of the Russian legislation to the requirements of WTO. So far, the State Duma of the Russian Federation has already adopted 300 out of 340 amendments to the existing legislation, which were subject of agreement with a WTO working group on Russia 's admission to this organisation. However, there is a number of principal moments in the Russian foreign and home/internal economic regime that do not satisfy Russia 's partners in the negotiations regarding Russia 's entry into WTO.

One of the main problems of Russia at this stage of negotiations on entry into WTO is the insufficient level of quantitative and qualitative assessment of potential consequences of admission to WTO for the national economy as a whole. There is no sufficient data/information for comprehensive estimation in absence of actual agreements on regime/management of quantitative tariff specifications while the negotiations on the major non-tariff restrictions are under consideration.

Prof. Goryunov deems that it is necessary to bring more attention to the problem of Russia 's entry into WTO, because of the level of involvement of Russia in the world economy, and the liberalization of the foreign economic policy of the country leading to very serious consequences for its economy.

The last but not least presenter of the session was Mr. S.Nemekhbayar, Project officer, GTZ Cooperation in the Field of International Trade Policy-WTO. His topic was on Mongolia and WTO.

As Mr. Nemekhbayar pointed out the outcomes of WTO accession were positive on Mongolia 's economy: 1) consumption, government expenditure, investment, exports and imports volume increased; 2) expectation that WTO accession promotes foreign investments didn't appear in the growth; and 3) GDP increased seeing the significant increases in personal consumption, exports and imports.

He also warned that although the economy of WTO member country has a tendency to raise in the long run, Mongolia 's lack of export diversifications could cause vulnerability to the economy. Therefore, export diversification is essentially required in near future.

The session was interesting to the audience as it compared interaction of three countries, China , Russia and Mongolia , with WTO.

Session 3 entitled “Regional Development and Free Trade/Economic Zone Issues” was chaired by Prof. Jeong Dong Park, University of Incheon, Korea.

The first speaker was Prof. Sergey Luzyanin from Russia-China Analytical Center Institute of the Far East, Russian Academy of Sciences. He talked about “Problems of Economic Security and Sustainable Development in East Asia .” Among economic security and sustainable development issues, the main focus was given on energy supply.

According to Prof. Luzyanin, in the context of Russia 's interests, the energy supplies' security is determined by the following factors and trends. These are successful conclusion of the talks on North Korea in Beijing and the commencement of energy cooperation on the Korean Peninsula ; solution of problems around Datzin oil project; successful accomplishment of the Kovykta project; further development of the Russo-Chinese cooperation in the field of power supplies and trade.

He concluded that the issue of collective discussion of most sharp issues of power supplies' security along with elaboration of appropriate recommendations is at high importance in order to come to correct decisions. The discussion should be carried out with the participation of Russia, China, Japan, USA, South Korea, Mongolia and other countries in the framework of various economic forums.

Mr. B. Enebish, Ministry of Finance and Economics, Mongolia presented on “Regionalised Development of Mongolia and Foreign Trade and Investment.” He briefed about the Parliament of Mongolia policy on economic regional development to ensure social balance, utilize fully and adequately land and its resources at the world market, and expedite the country's development and international cooperation possibilities. A system of five regions such as Western, Khangai, Central, Eastern and Ulaanbaatar were identified in the country. Mr. Enenbish said that such as system was based on environmental and historical needs of the nation in order to provide environmental and social balances. Further he talked about perspectives, development opportunities and importance of the cooperation with NEA region in order to develop this concept on practice.

At the end of his speech, he thanked the MDRC and Sasakawa Foundation of Japan for holding this important conference and was sure that recommendations and outcome of the conference will play crucial role designing state policy and most importantly in defining regional development issues.

Mr. D. Erdenebat, Altanbulag Free Trade Zone Administration gave speech on “Opportunities to invest in Free Trade Zone.” His speech was based on Altanbulag Case, yet-to-be built free trade zone on the north border of Mongolia .

If last year his presentation described more necessities to build free trade and economic zones and their legal foundations, this year he talked more about actions: investment opportunities, government efforts to attract local and foreign investment into the Zone and biddings some of which had already been launched.

The Closing of the Conference was chaired by Mr. B. Bathishig, Chief of the Mongolian President's Chancellery.

The draft of earlier distributed Conference Policy Recommendations for policymakers and practitioners was extensively discussed and adopted.
The Recommendations consisted of the following four parts:

  1. Foreign Trade and Investment Relations in Northeast Asia
  2. World Trade Organization and Northeast Asian Countries
  3. Mongolia in Trade and Investment of the Region. Mongolia and WTO
  4. Regional Sustainable Development and Free Trade/Economic Zone in Mongolia .

of the conference offer the following recommendations to the Mongolian Government:

A long-term strategy shall be developed for proper linking the Mongolian economy with international and regional countries market and developing as an attractive country for trade and investment of the world. A policy to create a macroeconomic environment that will assist Mongolian industries to increase competitiveness and to realize potential gains in trade with Northeast Asian economies will be the basic for this strategy. With this, it is important to:

· Undertake comprehensive dialogue and discussions with Northeast Asian countries on promotion trade and direct investments with and into Mongolia

· Discuss issues of utilization of ODA sources for lowering of transport costs, promotion of marketing efforts for Mongolian exports, especially new manufacturing goods' exports in their markets with Northeast Asian countries

· More active cooperation with the private sector on the elements of the trade, investment and manufacturing development strategy

· Recognize government's role in providing physical infrastructure that the private sector cannot finance itself, particularly in rural areas

· Diversifying the export commodities as well as the foreign markets

· Establish shared public-private mechanisms for implementing the agreed policies and investment programs

· Lowering the tax burden for business, extend the same privileges to domestic investors to avoid discrimination and level of playing field

· To reduce the cost of doing business

· Take decisive measures to prevent of animal deceases and improve the poor hygienic and sanitation standards

· Improve the financial markets, trade and investment promotion services from government agencies as well as from institutions

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