Mongolia in the region: time for economic foreign policy

Author: Julian Dierkes, UBC

Mongolia has been extraordinarily successful in building a foreign policy around the Leitmotiv of ‘third neighbours’ for the past 20 years. Reinforced by the country’s democratisation and the promise of mineral resources, this foreign policy has helped Mongolia claim much more attention on the global stage than one might expect from a vast country of only three million inhabitants. Despite this success, Mongolian policymakers will have to reconsider their focus on political relations in helping Mongolia grow further and into a more diversified future.

The basis of Mongolian foreign policy involves balancing economic, military and political considerations between China and Russia. This foundation of Mongolian foreign policy has been well-maintained since 1990, especially in the absence of alternative safeguards for Mongolia’s security.

There have been flare-ups in relations with neighbours, of course, such as China’s blocking of the railroad link between the two countries over the Dalai Lama’s visit in November 2002, or the Russian grab for Mongolian uranium in 2009. But on the whole, Mongolia has been able to maintain constructive relations with its immediate neighbours.

Beyond this, the Mongolian government has successfully pursued its long-term goal of cultivating close friendships with powerful but distant countries. Among these third neighbours, the countries targeted have been Australia, Canada, members of the European Union (especially Germany), India, Japan, South Korea, Turkey and the United States.

Engaging these third neighbours has had a real impact on Mongolia’s economic, political and social development. For example, Mongolia’s per capita foreign development aid has fluctuated around US$100 since the mid-1990s, on par with aid offered to some least-developed countries. While this level of material support (particularly from European countries and the US, but more recently also from Australia) may have had much to do with the democratic turn that Mongolia took in 1990, it has been reinforced by the active Mongolian engagement of its third neighbours.

This engagement, coupled with Mongolia’s increasingly prominent involvement in UN peacekeeping operations since 2005, has also given the country a far greater international presence than might be expected. As of early 2014, Mongolia contributed roughly 1 per cent of all personnel currently deployed by the UN in peacekeeping operations (935 military experts and troops out of a total of 98,200). This visibility has found its most obvious expression in Mongolia’s accession to the Organization for Security and Cooperation in Europe (OSCE), and hosting the Community of Democracies in Ulaanbaatar in April 2013 and World Environment Day in June 2013. These are all indicators of a successful soft power deployment that is also leading to real material impacts, primarily through development aid.

Now, Mongolia’s circumstances are changing massively. Per capita GDP has grown from less than US$1000 to over US$3500 in the new millennium, and the past three years’ double-digit growth puts GDP on an upward trajectory and a likely entry into the ranks of upper middle-income countries in the near future. Accordingly, development aid to Mongolia is likely to shrink. Japanese aid will be converted from grants to loans in the near future and other programs will surely follow suit even when some countries’ contributions, like Australia’s and Canada’s, are just revving up.

As inward-bound development aid is changing, Mongolia has set up its own aid program, making food donations to North Korea in the past year. From receiving aid, Mongolia may thus be making a slow transition to providing aid.

In this transition, private enterprise and investments from abroad as well as domestic sources are playing a greater role for Mongolia’s development. Decisions about the giant Oyu Tolgoi gold and copper project will be made primarily within the management of majority owner Rio Tinto, and will be much less subject to governmental deliberations than development aid was. Mongolia continues to consider whether the government should still participate in such investments and at what level, but it is clear that foreign capital will be private capital, not foreign governmental contributions. A foreign policy that is primarily aimed at building and maintaining intra-governmental political friendship will not have much of a direct impact on such investments.

During Mongolia’s democratic period, discussions of increased economic integration with the Northeast Asian region have come and gone without having emerged as a driver of Mongolian foreign policy. There is, of course, significant potential here. But with the shift in global attention and activities from global trade negotiations to the ‘spaghetti bowl’ of numerous bilateral trade agreements, Mongolia’s nearly exclusive focus on political relations may leave it isolated from any agreements that might emerge.

While the trilateral FTA negotiations between Japan, South Korea and China are still at a preliminary stage, the fact that they have already continued for three rounds in a context of less-than-cordial relations in East Asia signals the importance that these negotiations might have in the future. There is also no obvious incentive from the perspective of the negotiating parties to include the Mongolian government. Any Northeast Asian agreement might thus freeze Mongolia out and condemn it to a fate as a mere resource supplier — a status that Mongolian policymakers are eager to escape by shifting to more value-added parts of the minerals and resource supply chain.

Beyond intraregional relations, another great obstacle to the emergence of Northeast Asia is surely North Korea. Here, Mongolia has also been unusually active through bilateral visits and some investments.

While Mongolia should not abandon the success of its politically popular third neighbour policy and replace this with a ‘three neighbours’ policy focused on China, Japan and South Korea, a shift to policies that are designed to strengthen economic relations, not only political friendships, is likely to cement Mongolia’s development as well as its world standing. A recent shifting of the trade portfolio between ministries is one indication of the debate about an economic foreign policy that is and should be coming to Ulaanbaatar.

Julian Dierkes is an Associate Professor at the University of British Columbia’s Institute of Asian Research. Learn more about Mongolia at the author’s blog or follow him @jdierkes

This article appeared in the most recent edition of the East Asia Forum Quarterly, On the Edge in Asia’.

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