PRSENTATION ON TRANSIT TRANSPORTPRSENTATION ON TRANSIT TRANSPORTISSUES OF MONGOLIA ISSUES OF MONGOLIA

B. ALTANGEREL, DIRECTOR,THE TREATY AND LAW DEPARTMENT

MINISTRY OF FOREIGN AFFAIRSMONGOLIA

INTRODUCTION INTRODUCTION

With an area of 1,564,100 sq. kilometers, Mongolia is the 7th largest country in Asia and one of the largest landlocked countries in the world. Mongolia has a total borderline of 8,162 km, of which 3,485 km is shared with Russian Federation to the North and the remainder with China to the East, South and West. Adequate transport and communication facilities play a vital role in the country's economic development and efficient access to seaports or gateways is one of the key factors in increasing Mongolia's trade competitiveness.

SECTION I: 1. Overview of Mongolia land SECTION I: 1. Overview of Mongolia land transport infrastructure and transit regulationstransport infrastructure and transit regulations

Mongolia' s Government expenditure Mongolia' s Government expenditure related to transport and related to transport and communication has been estimated communication has been estimated for 2000 at US$ 8,650,000. Tables 1 for 2000 at US$ 8,650,000. Tables 1 shows the relative importance of the shows the relative importance of the respective transport modes for the respective transport modes for the latest available years.latest available years.

Table 1: Freight movement (in 1 000 tons)

10010,643.41009,533.51008,866.9Total

------Ship

0.022.90.022.720.033.5Air

------Pipeline

0.011.60.011.50.011.3Inland waterway

869,158.5868,199.385.87,615.1Railway

13.91,480.413.91,330141,247Road

%2000%1999%1998Transport

Source: Ministry of Infrastructure (2002)

2. Road Transportation2. Road Transportation

The total road network in Mongolia is The total road network in Mongolia is 43,384.83 km; of which 11,163 km 43,384.83 km; of which 11,163 km are state roads and 32,220 km are are state roads and 32,220 km are local roads. local roads.

Charter provides some basic road Charter provides some basic road development indicators for the latest development indicators for the latest available years. available years.

2. Road Transportation2. Road TransportationMongolian Road network (km)

43394.63

1537.57 93.67269.461937.771844.8

State road network(km)

1345.8

1439.87202.96

38.871261.57

6926.83

Surface treatment

Concrete

Asphalt

Gravel

Earth

Improved earth

Local road network(km)

36734.8

276 54.866.5497.9

499

2. Road Transportation2. Road Transportation

The relatively poor road network limits The relatively poor road network limits road transport within Mongolia. road transport within Mongolia.

This eastThis east--west arterial road and five west arterial road and five other vertical arterial roads are part of the other vertical arterial roads are part of the "Millennium Road Project" approved by the "Millennium Road Project" approved by the Mongolian Parliament on January 25, Mongolian Parliament on January 25, 2001. 2001.

The purpose of this project is to The purpose of this project is to improve road transport in Mongolia and improve road transport in Mongolia and the promotion of road links with the the promotion of road links with the Russian Federation and China.Russian Federation and China.

MILLENNIUM ROAD

AH3

1009 kmAH3

AH32

2325kmAH32

AH4

758 kmAH4

3. Railway Transportation3. Railway TransportationThe majority of Mongolian imports and exports are The majority of Mongolian imports and exports are carried by rail, both within the country and in the carried by rail, both within the country and in the neighbouringneighbouring countries. countries. The main railway section of the Mongolian Railway The main railway section of the Mongolian Railway is a trunk line between is a trunk line between SukhbaatarSukhbaatar on the Russian on the Russian border through border through UlaanUlaan BaatarBaatar to to ZamiinZamiin UudUud on the on the Chinese border, a distance of around 1,400 km. Chinese border, a distance of around 1,400 km. It is in reasonably good condition and it is also a It is in reasonably good condition and it is also a transit route for cargo moving between China and transit route for cargo moving between China and the Russian Federation via Mongolia. The railway the Russian Federation via Mongolia. The railway also serves the three largest agglomerations, also serves the three largest agglomerations, namely namely UlaanUlaan BaatarBaatar, , DarkhanDarkhan and and ErdenetErdenet. Rail . Rail carries the bulk of Mongolian cargo tonnage, due to carries the bulk of Mongolian cargo tonnage, due to spur rail lines that connect to the major coalmines spur rail lines that connect to the major coalmines and the and the ErdenetErdenet copper mine. The rail system is copper mine. The rail system is run by a Mongolianrun by a Mongolian--Russian joint venture.Russian joint venture.

4. Air Transportation4. Air Transportation

Because of vast distances and poor roads, Because of vast distances and poor roads, the domestic and international air the domestic and international air transportation system of Mongolia is transportation system of Mongolia is relatively well developed. Traditionally, relatively well developed. Traditionally, airfreight did not play an important role in airfreight did not play an important role in Mongolia's transit traffic. Mongolia's transit traffic. Today, however, it is growing and has far Today, however, it is growing and has far greater potential for the near to intermediate greater potential for the near to intermediate future. Mongolia has direct flights to Moscow future. Mongolia has direct flights to Moscow (Russian Federation), Beijing (China), Berlin (Russian Federation), Beijing (China), Berlin and Frankfurt (Germany), Tokyo (Japan), and Frankfurt (Germany), Tokyo (Japan), Seoul (Korea), Seoul (Korea), lrkutsklrkutsk (Russian Federation) (Russian Federation) and Hot and Hot HotHot (China).(China).

SECTION II: 1. Analysis of selected Mongolian SECTION II: 1. Analysis of selected Mongolian

transit corridorstransit corridors

The transport costs in our case study The transport costs in our case study are based on offers that were are based on offers that were obtained by interviewing Mongolian obtained by interviewing Mongolian service providers, which operate in service providers, which operate in UlaanUlaan BaatarBaatar..Prices quoted concern the shipment Prices quoted concern the shipment of 1 TEU (Twenty Foot Equivalent of 1 TEU (Twenty Foot Equivalent Unit) on a Freight All Kind (FAK) Unit) on a Freight All Kind (FAK) basis. Depending on the quantity of basis. Depending on the quantity of goods transported, lower quotes may goods transported, lower quotes may be possible.be possible.

2. Mongolian transport corridors2. Mongolian transport corridors

The only Chinese seaport currently used for The only Chinese seaport currently used for Mongolian transit traffic is Mongolian transit traffic is TianjinTianjin port. This is a port. This is a large, welllarge, well--equipped and well run port with plans equipped and well run port with plans for phased expansion through 2010. for phased expansion through 2010. By contrast, Mongolia can use at least six Russian By contrast, Mongolia can use at least six Russian seaports: Vladivostok, seaports: Vladivostok, NahodkaNahodka, , VaninoVanino and and VostochnyVostochny, all on the Sea of Japan; , all on the Sea of Japan; St.PetersburgSt.Petersburgon the Baltic Sea and on the Baltic Sea and NovorossiskNovorossisk on the Black on the Black Sea. All these ports have adequate facilities and Sea. All these ports have adequate facilities and rail connections with the ports are also adequate. rail connections with the ports are also adequate. The main analysis of this presentation is focused The main analysis of this presentation is focused on the transit corridor via on the transit corridor via TianjinTianjin in China (all rail in China (all rail and roadand road--rail combination). rail combination).

Route No.1: The Route No.1: The TianjinTianjin (China) to (China) to UlaanUlaan BaatarBaatarCorridor (All rail)Corridor (All rail)

The majority of Mongolian transit traffic is The majority of Mongolian transit traffic is carried by rail through this corridor . carried by rail through this corridor . TianjinTianjinport is the designated seaport for Mongolian port is the designated seaport for Mongolian transit goods in the 1991 transit agreement transit goods in the 1991 transit agreement between China and Mongolia.between China and Mongolia.The total distance from The total distance from UlaanUlaan BaatarBaatar to the to the port of port of TianjinTianjin is estimated at around 1,700 is estimated at around 1,700 krnkrn. This transit corridor has been in operation . This transit corridor has been in operation since September 11, 1989 and the mode of since September 11, 1989 and the mode of transport for this corridor is rail transport from transport for this corridor is rail transport from TianjinTianjin to to UlaanUlaan BaatarBaatar..

Table 3:Road development indicatorsTable 3:Road development indicators

1700Total

710Zamiin Uud to Ulaanbaatar

14Erenhot to Zamiin Uud

990Tianjin to Erenhot

Length in kmRoute

Table 4: Cost, time &Table 4: Cost, time & ReliabilityReliability for import to Ulaanbaatar via Tianjin (all rail)for import to Ulaanbaatar via Tianjin (all rail)

16-22 days7 days1,400Total

+3 days1 day230Return of empty container Erenhot -Tianjin

-1-5 days1 day117Border crossing (Zamiin Uud-Erenhot) charges

+3 days1 day70Return of empty container from Ulaanbaatar to Zamiin Uud

+1 day½ day20Road transport (warehouse-Ulaanbaatar)

+1 day½ day20Road transport (Ulaanbaatar-warehouse within 10 km radius)

+3 days1 day150Rail transport (Zamiin Uud-Ulaanbaatar)

-1-5 days1 day250Border crossing (Erenhot-ZamiinUud)

+--30Transit charges

---13Document charges

+3 days1 day500Rail transport (Tianjin-Erenhot)

+80Port charges in Tianjin

ReliabilityTime(maximum)

Cycle(minimum)

Cost per TEU(US$)

The import transit cost for one TEU has been quoted at The import transit cost for one TEU has been quoted at USD 1,400 from USD 1,400 from TianjinTianjin to to UlaanUlaan BaatarBaatar for a carrierfor a carrier--ownown--container (container (coccoc), If the container was a shipper), If the container was a shipper--ownown--container container (soc) then the price quoted would be around USD 1,100. (soc) then the price quoted would be around USD 1,100.

In the case of a FEU (soc) the quoted price is around USD In the case of a FEU (soc) the quoted price is around USD 1,600. These prices are just for one TEU only and can be 1,600. These prices are just for one TEU only and can be negotiated in the case of larger volume. The price quoted also negotiated in the case of larger volume. The price quoted also include the price of empty return to include the price of empty return to TianjinTianjin port. port.

The cost of empty return represents 31% of the total The cost of empty return represents 31% of the total transport costs of moving a container into Mongolia. This transport costs of moving a container into Mongolia. This would mean that if there was sufficient export volume, import would mean that if there was sufficient export volume, import transit cost could become more competitive. transit cost could become more competitive.

Border crossing charges are quite significant at Border crossing charges are quite significant at 30% of the total transport cost. These charges are 30% of the total transport cost. These charges are composed of physical border crossing charges, composed of physical border crossing charges, document and transit charges. document and transit charges.

In any transit system, the capacity or the In any transit system, the capacity or the reliability of the system will be a reflection of its reliability of the system will be a reflection of its weakest link. The reliability indicator, which is a weakest link. The reliability indicator, which is a perceptual tool, clearly demonstrates that there is a perceptual tool, clearly demonstrates that there is a positive level of confidence regarding the transport positive level of confidence regarding the transport system along this corridor except during border system along this corridor except during border crossing where this perception becomes negativecrossing where this perception becomes negative

Route No.2: The Route No.2: The TianjinTianjin (China) to (China) to UlaanUlaan BaatarBaatartransit Corridor (Road and rail)transit Corridor (Road and rail)

It is also possible to use road transport It is also possible to use road transport to carry goods into Mongolia from to carry goods into Mongolia from TianjinTianjin. . The The trucks stop at trucks stop at ZamiinZamiin UudUud where the where the goods are moved by rail transport up to goods are moved by rail transport up to Ulaanbaatar. Ulaanbaatar.

Rail transport is the sole effective link Rail transport is the sole effective link between between ZamiinZamiin UudUud to Ulaanbaatar but a to Ulaanbaatar but a number of infrastructure projects are number of infrastructure projects are currently being studied and implemented currently being studied and implemented in order to pave roads in Mongolia and in in order to pave roads in Mongolia and in particular on this route from particular on this route from ZamiinZamiin UudUudto Ulaanbaatar, which is on Asian Highway to Ulaanbaatar, which is on Asian Highway route No.AH3.route No.AH3.

Route No.2: The Route No.2: The TianjinTianjin (China) to (China) to UlaanUlaanBaatarBaatar transit Corridor (Road and rail)transit Corridor (Road and rail)

In the case of transit traffic from the In the case of transit traffic from the port of port of TianjinTianjin, only SINOTRANS is , only SINOTRANS is authorized to carry Mongolian cargo by authorized to carry Mongolian cargo by road from road from TianjinTianjin port up to port up to ZamiinZamiin UudUud. .

The crossing of the border is done with The crossing of the border is done with the help of a Mongolian truck driver that the help of a Mongolian truck driver that drives the Chinese truck from drives the Chinese truck from ErenhotErenhot to to ZamiinZamiin UudUud. .

Chinese trucks are allowed into Chinese trucks are allowed into Mongolia up to Mongolia up to ZamiinZamiin UudUud while while Mongolian trucks are forbidden to cross Mongolian trucks are forbidden to cross the the bor.derbor.der. This means that goods for . This means that goods for export are being transshipped in export are being transshipped in ZamiinZamiinUudUud onto Chinese trucks. onto Chinese trucks.

Table 5: Cost, Table 5: Cost, TTime &ime & ReliabilityReliability for import to Ulaanbaatar via Tianjin (Roadfor import to Ulaanbaatar via Tianjin (Road-- railrail))

14-22 days7 days1,712Total

-3 days1 day307Return of empty container Erenhot -Tianjin

-1-5 days1 day117Border crossing (Zamiin Uud-Erenhot) charges

+3 days1 day70Return of empty container from Ulaanbaatar to Zamiin Uud

+1 day½ day20Road transport (warehouse-Ulaanbaatar)

+1 day½ day20Road transport (Ulaanbaatar-warehouse within 10 km radius)

+3 days1 day150Rail transport (Zamiin Uud-Ulaanbaatar)

-1-5 days1 day250Border crossing (Erenhot-ZamiinUud)

+--30Transit charges

---13Document charges

+1.5 days1 day655Road transport (Tianjin-Erenhot)

+80Port charges in Tianjin

ReliabilityTime(maximum)

Cycle(minimum)

Cost per TEU(US$)

While the price quoted here are on the same level as While the price quoted here are on the same level as for rail transport, road transport is slightly more for rail transport, road transport is slightly more expansive than rail between expansive than rail between TianjinTianjin and and ErenhotErenhot. .

Road transport charges have been quoted at US$ Road transport charges have been quoted at US$ 655/TEU in contrast to US$ 500/TEU for rail 655/TEU in contrast to US$ 500/TEU for rail transport. This quote is only valid up to transport. This quote is only valid up to ErenhotErenhot on on the Chinese border. The price of transport per TEU the Chinese border. The price of transport per TEU per km for this leg is around US$0.66.per km for this leg is around US$0.66.

Transit time when combining road and rail from Transit time when combining road and rail from TianjinTianjin port is usually faster than the all rail route, port is usually faster than the all rail route, especially for inland transport within China. especially for inland transport within China.

Only the twiceOnly the twice--weekly block train express can weekly block train express can compete with the road and rail transit corridor in compete with the road and rail transit corridor in terms of transit time and reliability but there is less terms of transit time and reliability but there is less flexibility with respect to departure times. flexibility with respect to departure times.

Transit time to Transit time to ErenhotErenhot is on average within 24 hours is on average within 24 hours (with 2 drivers), which is slightly better than the (with 2 drivers), which is slightly better than the express block train service, with an average speed of express block train service, with an average speed of 40 km/h. The border crossing itself can be done 40 km/h. The border crossing itself can be done within a couple of hours.within a couple of hours.

SECTION III: Existing legal framework relating to SECTION III: Existing legal framework relating to Mongolian Transit transportMongolian Transit transport1. Bilateral Agreements1. Bilateral Agreements

1. 1. Transit agreement with the Russian Transit agreement with the Russian Federation (1991)Federation (1991)

2. 2. Transit agreement with China (1991)Transit agreement with China (1991)

3. 3. Road transport agreement with China Road transport agreement with China (June, 1991) (June, 1991) but in practice Mongolian but in practice Mongolian trucks are still prohibited from entering trucks are still prohibited from entering China, while Chinese trucks can enter into China, while Chinese trucks can enter into Mongolia (at least up to the border town) Mongolia (at least up to the border town)

4. 4. Road transport agreement with the Road transport agreement with the Russian Federation (February, 1996)Russian Federation (February, 1996), where , where Russian and Mongolian trucks can transport Russian and Mongolian trucks can transport goods into each other countries.goods into each other countries.

2. Related International Conventions2. Related International Conventions1. 1. The The 1965 1965 New York Transit Convention. New York Transit Convention. Mongolia is a party to the Convention on Mongolia is a party to the Convention on Transit Trade of LandTransit Trade of Land--locked States, New York locked States, New York 1965, relating to the transit trade of land1965, relating to the transit trade of land--locked states, signed on 8 July 1965 in New locked states, signed on 8 July 1965 in New York. York.

This Convention recognizes that the transit This Convention recognizes that the transit trade of landlocked countries, comprising one trade of landlocked countries, comprising one fifth of the nations of the world, is of the fifth of the nations of the world, is of the utmost importance to economic coutmost importance to economic co--operation operation and the expansion of international trade. and the expansion of international trade.

The difficulty for Mongolia is that China has The difficulty for Mongolia is that China has not acceded to this convention and is therefore not acceded to this convention and is therefore not bound by its principles.not bound by its principles.

22. . The TIR Convention.The TIR Convention.

Mongolia has acceded to the Convention on the International Mongolia has acceded to the Convention on the International Transport of Goods under Cover of TIR Carnets (TIR Transport of Goods under Cover of TIR Carnets (TIR Convention, 1975) on October 1, 2002. Convention, 1975) on October 1, 2002. The TIR Convention will enter into force for Mongolia on I Apri1The TIR Convention will enter into force for Mongolia on I Apri12003. The International Road Transport Union (IRU) is in the 2003. The International Road Transport Union (IRU) is in the process of authorizing the National Road Transport Association process of authorizing the National Road Transport Association in Mongolia (NARTAM) as an issuing association and the process in Mongolia (NARTAM) as an issuing association and the process of authorizing NARTAM as a guaranteeing association of authorizing NARTAM as a guaranteeing association visvis--aa--visvisthe Mongolian Customs authorities is underway as well according the Mongolian Customs authorities is underway as well according to information provided by IRU.to information provided by IRU.Subsequently, if the authorization process is not delayed, it cSubsequently, if the authorization process is not delayed, it can an be expected that the TIR procedure can be used in Mongolia as be expected that the TIR procedure can be used in Mongolia as from June 2003 according to IRU. from June 2003 according to IRU.

3. Trilateral Agreement3. Trilateral Agreement

Mongolia is currently negotiating a proposed Mongolia is currently negotiating a proposed draft transit framework agreement between draft transit framework agreement between China, Mongolia and the Russia Federation with China, Mongolia and the Russia Federation with UNCTAD acting as facilitator. UNCTAD acting as facilitator. The agreement will provide a legal framework The agreement will provide a legal framework for efficient transit systems to and through for efficient transit systems to and through Mongolia. In particular, it will guarantee Mongolia. In particular, it will guarantee freedom of transit by all modes of transport freedom of transit by all modes of transport and promote simplification, harmonization and and promote simplification, harmonization and standardization of customs, administrative standardization of customs, administrative procedures and documentations.procedures and documentations.

CONCLUSION:CONCLUSION:The geographical remoteness of Mongolia which The geographical remoteness of Mongolia which results in high costs of transport causes results in high costs of transport causes handicaps for our trade relations with the rest handicaps for our trade relations with the rest of the world to grow.of the world to grow.Moreover, Mongolia also need to comply with Moreover, Mongolia also need to comply with differing transit formalities for imports and differing transit formalities for imports and exports including additional controls and checks exports including additional controls and checks as well as excessive security measures applied as well as excessive security measures applied on goods in transit with the two neighboring on goods in transit with the two neighboring countriescountries--Russia and China. The traders are Russia and China. The traders are faced with unreasonably high transit charges in faced with unreasonably high transit charges in neighboring countries. Finally, lack of effective neighboring countries. Finally, lack of effective internal coordination among Mongolian internal coordination among Mongolian authorities makes it difficult to introduce more authorities makes it difficult to introduce more streamlined transit procedures.streamlined transit procedures.

We believe that solving these problems We believe that solving these problems and streamlining the transit procedures, and streamlining the transit procedures, would contribute to accelerate would contribute to accelerate MongoliaMongolia’’s economic development s economic development through the expansion of trade. through the expansion of trade.

To this end, we propose the introduction To this end, we propose the introduction of the following measures by making of the following measures by making proposals to the draft transit framework proposals to the draft transit framework agreement between China, Mongolia and agreement between China, Mongolia and the Russia Federation:the Russia Federation:

•• NonNon--discrimination between modes of transport, origin discrimination between modes of transport, origin and destination, carriers, routes and goods;and destination, carriers, routes and goods;

•• Officials in charge must exhibit the legal instrument by Officials in charge must exhibit the legal instrument by which these fees and charges are imposed, when which these fees and charges are imposed, when requested by a user;requested by a user;

•• To encourage a permanent review mechanism, such as To encourage a permanent review mechanism, such as a commission formed by representatives of the sectors;a commission formed by representatives of the sectors;

•• To meet periodically with the relevant authorities of the To meet periodically with the relevant authorities of the neighboring countries to discuss new fees and charges neighboring countries to discuss new fees and charges imposed in connection with transit as well as their imposed in connection with transit as well as their modification, prior to their entering into force;modification, prior to their entering into force;

•• Maintain reasonable transit formalities, with a Maintain reasonable transit formalities, with a view to minimizing unnecessary delays or view to minimizing unnecessary delays or restrictions on traffic in transit. Introduction of a restrictions on traffic in transit. Introduction of a simplified and preferential treatment for perishable simplified and preferential treatment for perishable goods to be transited;goods to be transited;

•• Maintain reasonable transit documentation Maintain reasonable transit documentation requirements. Coordination of documentation requirements. Coordination of documentation requirements among all the authorities involved in requirements among all the authorities involved in traffic in transit;traffic in transit;

•• Establishment of a cross border cooperation Establishment of a cross border cooperation scheme that would enable to consult and cooperate scheme that would enable to consult and cooperate on the issue of traffic in transit.on the issue of traffic in transit.

THANK YOU FORTHANK YOU FORYOUR ATTENTIONYOUR ATTENTION