Mongolia-Japan relation has taken another leap as the two nations established the mutually beneficial economic partnership agreement (EPA) last week. The two sides agreed to lift 90 percent of import taxes on all products and goods traded between Mongolia and Japan within the course of 10 years. The EPA will take effect on June 7, 2016.
Head of the Economic Cooperation Department of the Ministry of Foreign Affairs A.Ariunaa gave an interview about the EPA.
Can you tell us what kind of products and goods will be exempt from customs tariffs?
Foreign Affairs Ministries of Mongolia and Japan exchanged notes related to the ratification of the EPA on May 8, so the EPA will come into force after 30 days. In other words, special customs tax exemption for Mongolia-Japan trade will become effective from June 7.
Mongolia will lift customs taxes on around 5,700 types of products and Japan will decrease customs tariff on some 9,300 types of products. In particular, 3,423 types of imported products to Mongolia from Japan and 8,004 types of Mongolian exported products will be immediately exempted from customs duties from the day the EPA becomes effective. I’d like to highlight that only import taxes are included in this exemption. There are a total of 9,700 types of products of 97 categories internationally. Customs taxes vary depending on the type of product from each country.
Imported cars from Japan were included in the list of goods to be completely exempted from customs tax. Which brand cars will be exempt and how much was their original customs tax?
Vehicle trade takes up a large percentage of the trade between Mongolia and Japan. According to the EPA, the five percent customs tariff on Japanese import cars, used for up to three years, will be annulled and import tax on cars used for four to six years will be annually reduced by 0.5 percent for 10 years. As for cars used for seven to nine years, their five percent import tax will be completely lifted in 2026. The two sides agreed not to exempt customs tariff on cars used for more than 10 years when imported to Mongolia from Japan.
Let me give you an example. Let’s say that an ordinary person or a car dealer buys a brand new Japanese car for 30,000 USD to export to Mongolia. That person will have to pay five percent of the vehicle’s original price, or 1,500 USD, in import tax. Thanks to the EPA, the car owner will keep the 1,500 USD, which would have been charged as import tax and contributed to the state budget. Prices of Japanese cars supplied to the Mongolian market will drop by 1,500 USD. Ultimately, Mongolian car dealers will benefit the most from the EPA.
What kind of Mongolian products have been exempt from Japanese customs tariff? How is customs tax exemption beneficial to Mongolian businessmen?
Mongolian produced sea buckthorn products, processed leather, leather, cashmere, and knitted and crocheted goods have a potential to compete in the Japanese market. As they are important fields for increasing jobs and revenue from export, the Mongolian side worked hard to open the Japanese market for these goods.
Currently, Japan imposes an average of 10 to 14 percent customs tax on Mongolian knitted and crocheted goods. By launching the EPA, customs taxes on approximately 1,200 types of knitted and crocheted goods exported to Japan will be annulled. In other words, a Mongolian business exporting a knitted product for 30,000 USD to Japan will no longer have to pay 3,000 to 4,200 USD in customs tariff; they can keep it. I hope that everyone clearly understands that customs tax exemptions vary depending on the product.
Are only Mongolian made products included in the customs tax exemption?
Yes. At least the second phase of production or processing must have been completed in Mongolia. Products produced in Mongolia or assembled in Mongolia must get a certification from the Mongolian National Chamber of Commerce and Industry. Only products with this certification will be exempted from Japanese customs tax. I advise businesses to closely work with the National Chamber of Commerce and Industry. This way, Mongolia’s national production can develop and open opportunities for increasing jobs.
Mongolia received a quota for exporting heat-processed meat to Japan within the scope of the EPA. How many businesses will be permitted to do this?
Customs tax will not be imposed on goat meat or mutton exported to the Japanese market. The 4.2 percent customs tax on canned and half processed meat products (except beef products) will be completely lifted within 10 years. It’s possible to export semi processed and canned beef products after paying a specific amount of import tax. Regardless of Japan’s large market of 127 million people, the country pays a great deal on the quality of products, especially on hygiene issues of products of animal and plant origin. Cooperation between Japanese and Mongolian businesses will depend on how well our businesses can meet Japanese standards.
The two sides believe it’s possible to do fast shipping between Mongolia and Japan as a new airport will open in Mongolia. Is it possible to develop different means of transportation other than air cargo transportation?
It’s very important for Mongolia to negotiate with neighboring countries on building transit roads because it is a land-locked country. The Ministry of Foreign Affairs is paying a lot of attention on these types of discussions and negotiations.
Mongolia, Russia and China held a trilateral meeting in Ufa city, Russia in July 2015. They signed a memorandum on compiling a guideline for constructing a trilateral economic corridor by aligning Mongolia’s Steppe Road Project with the development of China’s Silk Road Economic Belt and Russia’s Eurasia Economic Union. They also agreed to start a program for the economic corridor. The Mongolian Ministry of Foreign Affairs, Russian Ministry of Economic Development and China’s National Development and Reform Commission were assigned to develop a program for the trilateral economic corridor. The joint working group has met five times and are working fast to finalize the program as quickly as possible.
In addition, the governments of Mongolia, China and Russia have successfully concluded a meeting on the development of the Asian Highway and an overview of related international transport development programs. The three sides are preparing to sign an agreement related to this development before the end of June.
Products produced in Mongolia or assembled in Mongolia must get a certification from the Mongolian National Chamber of Commerce and Industry. Only products with this certification will be exempted from Japanese customs tax. I advise businesses to closely work with the National Chamber of Commerce and Industry. This way, Mongolia’s national production can develop and open opportunities for increasing jobs.
Is it true that the Japanese side agreed to offer special visas for businesses?
As part of the EPA, the Japanese side has promised to issue one, three and five-year visas to individuals and entrepreneurs travelling to Japan for business purposes. In particular, these short term visas will be available for anyone on a business trip, transferred to a company branch or representative office in Japan, or travelling to provide professional services.
Authorities said that they’re facing some problems in terms of engaging in a free trade with Japan due to product shortage. How will this issue be resolved?
The government is responsible for creating favorable business opportunities for individuals and the private sector. Personally, I consider that the government has fulfilled its role well.
Mongolian businesses will benefit the most from the EPA. Something called the Implementation Agreement was established between the two nations to ensure the EPA is utilized to its full capacity. During the meeting, the Mongolian and Japanese sides discussed bilateral cooperation in technological assistance, training of personnel, joint studies and research work related to the EPA.
The main cooperation fields are agriculture, industry, small and medium enterprises, infrastructure, construction and urban development, science, technology, intellectual property, tourism, environment, mining, energy, and information and communication technology.
The current annual trade turnover between Mongolia and Japan fluctuates between 300 million USD and 500 million USD. How much will this amount increase after the EPA?
According to a study conducted by an independent organization in 2010, trade turnover between the two countries is expected to increase by 50 to 60 percent in the first year the EPA is launched.