Mongolia: Even Land Locked Countries have Maritime Interests

Issues Details: 
Vol 9 Issue 6 Jan - Feb 2015
Page No.: 
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Analysing Mongolia’s maritime interests and a dire need for access
Dr Vijay Sakhuja
Tuesday, January 20, 2015

In November 2014, the United Nations General Assembly adopted the Vienna Programme of Action for the sustainable development of landlocked developing countries (LLDCs) keeping in mind their geographical challenges and development needs. This 10-year action-plan identified six priorities areas for the LLDCs’ economies including infrastructure development and enhancing international trade, which in their case can take place through a maritime state. 

There are 32 LLDCs - 16 in Africa, 10 in Asia, 4 in Europe and 2 in Latin America- and, the United Nations has classified 17 of these as Least Developed Countries (LDC). In 2003, the Almaty Programme of Action addressed the needs and challenges faced by the LLDCs which was endorsed by the international community who supported their integration into the global economy through a number of initiatives including a favorable transit policy, infrastructure development and international trade facilitation.

It is a well-known fact that 80 per cent of global trade by volume and over 70 per cent by value moves over the seas. The coastal states lead the global maritime commerce based on their ability to harness the medium of sea for economic vitality and build power potential, measured through the concept of maritime power. At another level, in recent times, the idea of Blue Economy has found favour among a number of states who see the seas as a major source for their economic power. In essence, geography bestows coastal states a number of opportunities to participate and partake from the ongoing trends in globalization, which in the case of the LLDCs is possible only through a maritime neighbour to allow trade over the seas.

During a conference in Mongolia last year, it emerged that ‘high trading costs are a critical challenge for LLDCs striving to improve their participation in international trade. Compared to countries with access to sea, LLDCs pay more than double in transport costs and incur significant time delays in sending and receiving merchandise overseas’. For instance, on an average, it takes 47 days to import and 42 days to export goods for a landlocked developing country, which is twice the time taken by a coastal state. Further, the average cost of exporting a shipping container is US $3,204, which is nearly three times when compared with US $1,268 for coastal state; likewise, for imports, a container shipment would be about US $3,884 as compared with US $1,434 for a coastal state.

Mongolia’s Minister of Foreign Affairs Mr. Luvsanvandan Bold observed that the flow of foreign direct investment (FDI) to LLDCs is critical for economic development which can transform them to ‘grow from being land-locked into being land-linked’. The UNCTAD World Investment Report 2014 notes that the FDI inflows to 32 LLDCs fell by 11 per cent to US $29.7 billion in 2013, this being the second successive fall since 2012.

One of the major initiatives taken by the United Nations is including a chapter on the LLDCs in the UNCTAD’s Review of Maritime Transport 2013. It addresses the critical need of connecting landlocked countries to maritime shipping services. The document makes a critical observation that landlocked countries’ ‘trade through coastal territories to access shipping services is generally governed by a standard principle: goods in transit and their carriage are granted crossing free of fiscal duties and by the most convenient routes. In practice, however, the implementation of this basic norm suffers from numerous operational difficulties. These result in high transport costs and long travel times, which undermine trade competitiveness and ultimately the economic development of landlocked countries’. The geographical constraints and lack of access to the seas is one of the several reasons for the continued low-levels of development of the LLDCs and their share in world trade is little due to excessive transit costs. In essence, LLDCs require an efficient transit transport system which otherwise could adversely affects their development goals.

Among the LLDCs, Mongolia offers an interesting case study. Geographically, it is sandwiched between two major powers i.e. Russia and China, and has no access to the seas. Interestingly, in 2003, Mongolia started international shipping registry through the Flag of Convenience (FoC regime offers merchant ships better tax benefits and low registration fees) and offered at least 10 per cent charges below the other international registries. However, the fear of terrorist groups particularly the Al Qaeda and the LTTE, using FoC to engage in international commerce for clandestine activities including terrorism led to an international crack down on FoC and several shipping companies switched registries to recognized flag states. In 2010 there were 77 ships registered under Mongolian registry, which declined to 44 in 2012, and increased to 57 in January 2014. The Mongolian registry operates out of Singapore through a company called Sovereign Ventures and is quite popular in the shipping market.

Maintaining good relations with neighbours is also a national priority for the LLDCs due to fears of stoppage of access to the seas; in some cases, it could even be a case of national survival. For Mongolia, in Russia, the closest port is several thousand miles away and ports in China are the closest and offer an opportunity to engage in direct seaborne trade. The eastern Chinese port of Tianjin is about 600 miles from Mongolian border and there have been talks between Mongolia and China to allow use of ports for international commerce particularly to export natural resources such as iron ore, coal, copper and other minerals to international markets.

During Xi Jinping’s visit to Mongolia in August 2014, both sides signed a number of agreements on cooperation and among these the agreement to open six Chinese seaports including Dandong, Jinzhou, Qinhuangdao, Tianjin and Huanghua, are noteworthy. These can help Mongolia engage in international commerce with overseas markets through the Asian maritime shipping routes. These agreements would require ratification by the Mongolian Parliament. Earlier, in 2013, Mongolia rented 10 hectares of land at the Dunzian Port in Tianjin city to help it connect with global markets.

Interestingly, China is also land locked in some sense. For instance, Jilin province in China is landlocked and needs transit ports particularly for export of its grain through Rajin port in North Korea. In 2008, both sides signed an agreement to upgrade facilities and a 10-year lease for port access, but very little cargo volume moves though the port. China has now shown interest in Zarubino port in Russia, which will provide it with round the year ice free access to the seas and can potentially give“China’s northeast industrial heartland an additional gateway to the global market [through the Pacific], making it closer to North American markets,”

In the south, China has called for the K2K (Kunmin to Kolkata) initiative which involves a highway for “opening an effective land corridor for growth of mutual trade and people to people contact”. This initiative will help China access to Indian ports of Kolkata and Haldia in the Bay of Bengal. Similarly, the ‘Irrawaddy Corridor’ linking Kunming to ports in Myanmar can help China transport oil and gas to Yunan province in its Southeast. Likewise, China wants to develop a land-based maritime access into the Arabian Sea through the Karakoram Highway linking China and Pakistan through Xinjiang. Essentially these land access corridors help China set up maritime bridgeheads and overcome the tyranny of geography particularly for the hinterland areas that are far from the east coast of China and are unable to participate and contribute to China’s growing economic power. It is possible to link these initiatives to the recent calls for developing various ‘silk roads’ and ‘economic belts’.  

Another important international regime further reinforces Mongolia’s transit needs is the  Article 125 of the 1982 United Nations Law of the Sea Convention, to which China ( ratified on 7 June 1996)  and Mongolia (ratified on 13 August 1996) are signatories and the latter enjoys transit rights.

While Mongolia prepares an agreement for transit through China, it will be useful to study the 1971 Transit Treaty between India and Nepal, another LLDC which is dependent on only India for access to the sea (Chinese ports are over 5000 miles away) and engages in international commerce for its economic growth and energy requirements. Under the treaty, Nepal’s transit trade passes through 22 designated routes from India-Nepal border to the port of Kolkata/Haldia. Further, Nepal’s trade through Bangladesh also moves along the land routes in India. Transit has been a sensitive issue in their bilateral relations but it has weathered several decades now and other Indian port (Mumbai and Vishakhapatnam) are also under consideration for transit.