The Tuul River snakes through the southern edge of Ulaanbaatar, Mongolia’s sprawling capital city, coiling westward until discharging into the Orkhon River near the center of the Orkhontuul sum and, ultimately, flowing into Lake Baikal in Siberia, the Arctic, and beyond. Like the Onon and Kherlen Rivers, the Tuul originates in the Khentii Mountains near the sacred Burkhan Khaldun, or “God Mountain.” According to The Secret History of the Mongols – Mongolia’s oldest literary work, chronicling the story of Temujin and his rise to become Genghis Khan (Chinggis Khaan) – the slopes of the Burkhan Khaldun served as a place of refuge, worship, governance, and ultimately burial for the world conqueror.
In the telling of anthropologist Jack Weatherford, Chinggis Khaan was more than an unprecedented and fearsome military leader: He was a nation-builder who embraced the rule of law, protected religious freedom, promoted international trade, and established new diplomatic relations among the great population centers of Asia and Europe. The Mongolian empire connected a formerly disjointed world by creating a “single intercontinental system of communication, commerce, technology and politics.” Due to Chinngis Khaan, the “globe was shaken” and a new order commenced, the historian Edward Gibbon observed.
Today, Mongolia’s reach may be less grand; but while the country faces significant challenges both domestically and regionally, Mongolia remains poised to shape the modern world. Indeed, with the United States as its partner, Mongolia can overcome its obstacles and contribute to building a “free and open” Indo-Pacific.
Mongolia must deal with substantial structural challenges. As a landlocked country with a population of only three million, the difficulty begins with geography.
All goods leaving or entering Mongolia must traverse the territory and airspace of its two more populous and powerful neighbors, Russia and China. The Trans-Mongolian Railway – Mongolia’s chief rail network – is single-track, extending nearly 700 miles from the Russian border in the north to the Chinese border in the south. When entering China, trains must switch to a new gauge, a time-consuming process.
The Russian government holds a 51 percent stake in Mongolia’s railway, an interest which hinders the development of a more efficient rail transport network. In 2016, Russia sold it 49 percent stake in Erdenet copper mine, which historically served as the country’s most important economic engine. But Moscow maintains a tight grip on the economy, supplying 90 percent of Mongolia’s energy (refined oil). This influence extends to other spheres as well. A walk through Ulaanbaatar reveals the lasting cultural legacies of Soviet rule, from the opera house to the wedding palace to the socialist murals of the Zaisan Memorial.
On the southern border, sharing the wind-swept sands of the Gobi Desert, is China. Approximately 6 million ethnic Mongols live in China’s Inner Mongolia—twice the population of Mongolia proper. With the world’s second largest economy, China receives approximately 90 percent of all Mongolian exports – such as coal, copper and other ores, crude oil, and unprocessed cashmere – and supplies Mongolia with more than one-third of its imports. China is also the country’s single largest source of foreign investment. In the words of a Congressional report, China is “Mongolia’s economic lifeline.”
This dependency has created tensions with China that spill over into other areas. For example, Mongolia has historic links to Tibetan Buddhism and the Dalai Lama, a title first created by Mongolian leader Altan Khan in the 16th century. In retaliation for the Dalai Lama’s visits to Mongolia, China has temporarily shut its borders with Mongolia and, in 2016, enacted tariffs on Mongolian products. After forcing a promise from Ulaanbaatar not to invite the Dalai Lama in the future, China’s foreign ministry boasted: “We hope that Mongolia has taken this lesson to heart.”
Expanding the Geography
One lesson learned is to expand the neighborhood. Mongolia has turned to “third neighbors” – aligned countries that do not share contiguous borders with Mongolia – for economic engagement and strategic support.
For example, through strong relationships with democratic third neighbors such as Japan and South Korea, Mongolia is working to strengthen stability and cooperation in the region. Uranium-rich Mongolia has been active in supporting nuclear non-proliferation and the peaceful resolution of disputes in Northeast Asia. In this regard, Mongolia, which balances diplomatic ties with both North and South Korea, has sought to foster stability on the Korean Peninsula. In early June, during the 6th Ulaanbaatar Dialogue on Northeast Asian Security, Japanese delegates actively sought out North Korean counterparts to lay the foundation for future negotiations on denuclearization of the nearby Korean peninsula. Japan’s efforts are particularly noticeable after the collapse of American summit diplomacy in Danang; although Tokyo’s shuttle diplomacy may be more cautious after Japanese Prime Minister Shinzo Abe’s ill-fated trip to Tehran.
Mongolia describes the United States as its “most important” third neighbor and has leveraged its relationship with Washington to shape events on a global scale. For instance, in June, Mongolia and the United States co-sponsored the 17th iteration of Khaan Quest, a military exercise simulating United Nations peacekeeping operations involving contingents from 31 countries, ranging from Australia to Zambia. Admiral Philip S. Davidson, Commander of U.S. Indo-Pacific Command, arrived in Mongolia to open the event and underscored the geopolitical significance of Mongolia. Khaan Quest also supports the country’s ongoing participation in United Nations global peacekeeping operations(around 10 percent of Mongolia’s armed forces are serving in oversees UN peacekeeping operations). The interoperability and capacity of the Mongolian military has also been strengthened through important contributions to U.S. military and coalition campaigns in Afghanistan, Iraq, and Kosovo.
Ulaanbaatar and Washington have also supported shared goals and values in partnerships on the international stage. For example, Mongolia has held the chairmanship of the U.S.-supported Community of Democracies, an intergovernmental organization based in Warsaw that advocates for common democratic values. The countries have also cooperated in the ASEAN Regional Forum. At the United Nations, Mongolia has proven a reliable ally of the United States, consistently voting with the U.S. in General Assembly resolutions. Mongolia has also curried America’s favor by enforcing U.N. Security Council sanctions targeting North Korea’s unlawful nuclear and ballistic missile programs, as recognized in the recent U.S. Department of Defense’s Indo-Pacific Strategy Report.
At the same time, Ulaanbaatar has sought to leverage its position to facilitate discourse between Washington and Pyongyang. Over the years, the Ulaanbaatar Dialogue has provided a discrete forum for track one and track two diplomacy. As the only country in Asia to transition from communism to democracy and as a verified “nuclear-weapons-free” zone, Mongolia would be an intriguing locale should there ever be another U.S.-DPRK leadership summit.
The weight of American power also affects the balance of Mongolia’s third neighbor policy. Specifically, Mongolia has reportedly resisted becoming a full member of the Shanghai Cooperation Organization (SCO), led by Moscow and Beijing, due in part to the signal it may send to Washington and other Western capitals. Similar deliberations and ambivalence impact Ulaanbaatar’s potential participation in China’s Belt and Road Initiative (BRI). Indeed, by strengthening ties with the United States, Mongolia can resist the “push and pull” of the region and chart its own course in foreign affairs.
Strengthening the Bond
During Mongolian Prime Minister Ukhnaagiin Khürelsükh’s official visit to Washington in September 2018, the countries announced the U.S.-Mongolia Expanded Comprehensive Partnership, which signaled a deepening of the bilateral relationship, particularly in economic and commercial ties. The timing was appropriate. Since 2013, with the drop in global commodity prices and China’s economic slowdown, Mongolia has experienced a relative economic slump. Ulaanbaatar’s skyline may be dotted with tower cranes, but, according to my conversations with locals, many of those construction projects have been stalled since the earlier boom period.
American foreign investment and trade can provide a means for lifting Mongolia’s economy. On June 3, 2019, in Ulaanbaatar, during a meeting of the American Chamber of Commerce for Mongolia (AmCham), U.S. Ambassador Michael Klecheski highlighted several challenges for achieving this objective.
First and foremost, Mongolia must resolve and make clear its position on Oyu Tolgoi, the mega-mining project in the south (commonly referred to as “OT”). OT is jointly owned by the Government of Mongolia (34 percent) and Turquoise Hill Resources (66 percent, of which Rio Tinto owns 51 percent). Access to what may be one of the largest copper deposits in the world could be a boon for Ulaanbaatar, which relies on mining revenues to fund at least 30 percent of the national budget.
However, in a bow to economic nationalism, Mongolia’s Parliament has called for renegotiating the terms of OTto seek an increase the government’s ownership stake, thereby injecting uncertainty into the regulatory environment and delaying implementation of the mining development’s second phase. In addition to United States Export-Import Bank financing, the U.S. government must also consider its 35 percent American equity-ownership stake in OT. U.S. Ambassador Michael Klecheski described OT as a “bellwether” for foreign investors – a test of the prospect for tapping the country’s estimated $1.3 trillion mineral wealth, the very future of Mongolia.
Second, Washington is seeking full implementation of the bilateral Transparency Agreement, signed in 2013 and entered into force in 2017. Designed to improve Mongolia’s investment climate, the agreement makes new laws and regulations affecting international commerce subject to a 60-day public comment period and requires those laws to be published in English, similar to the U.S. federal rulemaking process. The Office of the U.S. Trade Representative (USTR) described the Transparency Agreement as representing the “first time that the United States has concluded a stand-alone agreement addressing transparency in matters related to international trade and investment.” During discussions under the Trade and Investment Framework Agreement (TIFA) in April, the USTR raised concerns that Mongolia was behind schedule in setting up the electronic system for notice-and-comment rulemaking and Ambassador Klecheksi raised the issue again at the AmCham meeting.
Third and more broadly, Mongolia must show progress in battling corruption making regulatory decision-making less opaque. Transparency International, the non-governmental organization that measures public corruption, ranked Mongolia 93 out of 180 countries under the 2018 Corruption Perception Index, alongside Kosovo, Macedonia and Albania in Eastern Europe and Panama and Columbia in the Americas. In its most recent statement on the investment climate, the U.S. Embassy in Ulaanbaatar urged Mongolia to “stem constant, non-transparent amending of legal and regulatory rules, which frustrates Mongolia’s ability to stabilize its business environment and risks losing the FDI Mongolia needs to grow” by taking steps such as “[rooting] out the pervasive corruption threatening the foundational institutions of democracy.” Such actions would also help Mongolia with demands called for under its program with International Monetary Fund.
The United States is attempting to assist in the public reform process by training judges and prosecutors and awarding a second Millennial Challenge Corporation compact. Worth $350 million, the compact will support economic development by improving the water supply of Ulaanbaatar. But more can be done. For example, through the Global Procurement Initiative, the U.S. Trade and Development Agency can assist Mongolia with instituting best practices for procurement and avoid the “debt traps” and corruption that may be associated with other forms of infrastructure development in the region. In addition, Washington can explore using new authority under the so-called “BUILD Act” – signed into law by President Trump last September – to provide alternative investment sources and technical assistance for infrastructure projects.
Interestingly, the U.S. Congress has taken the lead in furthering the economic bond with Mongolia. On April 10, 2019, Congressman Ted Yoho (R-FL) re-introduced the Mongolia Third Neighbor Trade Act (H.R. 2219), which authorizes duty-free treatment for certain articles imported from Mongolia, namely cashmere wool. Mongolia produces over a third of the world’s raw cashmere, but most Mongolian raw cashmere is exported to China, and the United States buys nearly all of its cashmere products from China. Through this legislation, Congressman Yoho and like-minded bipartisan allies like Senator Ben Cardin (D-MD) are seeking to bypass China, increase trade between the United States and Mongolia, and strengthen Mongolia’s economic sovereignty. AmCham members visited Washington in late June to meet with the Trump administration and Congressional leaders to push for the new law. Jay Liotta, who serves on AmCham’s advisory board and has been on the ground in Mongolia for the past two decades, described to me the significance of the legislation: “The Third Neighbor Trade Act will build a direct relationship between the American consumer and the Mongolian people, who currently rely upon the industry to provide income to over 100,000 people, 90 percent of whom are women, and 80 percent of whom are people below the age of 35.” Indeed, if Mongolia is to build its future, consolidate its democracy and avoid the resource curse, the country will need to diversify its economy, and the United States is in a position to help.
Old Story, New Image
If you follow the Tuul’s stony riverbed to the outskirts of Ulaanbaatar, you arrive at Chinggis Khaan International Airport. In the terminal, above the comings and goings of the modern world, hangs a portrait of the 13th century hero with a benevolent gaze. One irony is that Chinggis Khaan himself never allowed his own portrait to be drawn during his lifetime, so his serene repose is merely artistic fancy. Another is that the impact of Mongolia on the contemporary globe, if not misunderstood, is widely underappreciated.
This legacy, like the future of Mongolia, is changing before our eyes. After nearly 70 years as a Soviet satellite state, the country has made a peaceful transition to democracy and embraced free market reforms. Mongolia is now authoring a new chapter in world history. In partnership with the United States, Mongolia can retell an old story with a new image – that of a 21st century state that upholds the rule of law, promotes tolerance, encourages international trade, and bridges diplomatic relations among divided nations. With the promise on its horizon, beneath its eternal blue sky, perhaps Mongolia will someday be said to have left the world “shaken” once again. That would be an irony worth pursuing.