Korea and Mongolia signed a Comprehensive Economic Partnership Agreement (CEPA) on the 9th. CEPA is similar to a free trade agreement (FTA). Previously, Mongolia concluded an Economic Partnership Agreement (EPA), similar to an FTA, with Japan in 2016. With this, Korea has become the second country to conclude an FTA-style pact with Mongolia. Experts said "Korea and Mongolia have a lot to offer each other."
◇ Mongolia aims for "export-market diversification," "moving away from mineral-centered exports"
There are two main reasons Mongolia has signed an EPA with Japan and, 10 years later, a CEPA with Korea. It aimed for "export-market diversification" and "moving away from mineral-centered exports."
China accounts for more than 90% of Mongolia's total exports. As a landlocked country with weak import-export infrastructure, Mongolia ships most of its export volume to neighboring China. Minerals also account for 90%–95% of Mongolia's total exports.
With the CEPA as a turning point, Mongolia is said to want to export consumer goods such as cashmere and food products to Korea. Cashmere is one of Mongolia's top three exports. Mongolia is the world's No. 2 producer of cashmere, accounting for more than 40% of global supply.
From Korea's standpoint, there are also areas that stand to benefit from the CEPA with Mongolia. Mongolia has the world's second-largest rare earth reserves. Through the CEPA, Korea can import Mongolian rare earths tariff-free. It could also help Korean exports. That is because tariffs will be removed on consumer goods exported to Mongolia such as used cars, construction heavy equipment, cargo trucks, cosmetics, pharmaceuticals, and instant noodles.
◇ Developing countries prefer CEPAs that include joint investment, technology transfer, and people-to-people exchanges
While concluding FTA-like accords with Japan and Korea, Mongolia chose the EPA and CEPA formats, respectively. Developing countries often find FTA formats focused on tariff elimination and market opening burdensome. EPAs and CEPAs include elements that aid domestic economic growth, such as joint investment, technology transfer, and people-to-people exchanges. Earlier, when India concluded an economic pact with Korea in 2009, it also chose the CEPA format to receive transfers of manufacturing know-how.
With this CEPA as a starting point, Korea will also pursue infrastructure and technology investment in Mongolia. Although Mongolia is rich in resources, it lacks exploration and smelting technology and is unable to fully utilize underground resources. A government official said "We will support Mongolia's industrial upgrading, including infrastructure construction, and expand the base for Korean corporations to enter the local market."
Meanwhile, after Mongolia signed the EPA with Japan, the trade gap widened. Last year, Japan's exports to Mongolia totaled 147.4 billion yen (about 1.3727 trillion won), while Mongolia's exports to Japan totaled 2 billion yen (about 186 billion won). Just before the EPA took effect in 2015, Japan's exports to Mongolia were 30.3 billion yen (about 282.1 billion won), and Mongolia's exports to Japan were 6.5 billion yen (about 605 billion won). The trade gap widened from 4 times to 74 times.