Impacts of Mongolian FTAs with the Countries in Northeast Asia: CGE Analysis with the GTAP 8 Data Base

Having joined the WTO in 1997, Mongolia is a country with relatively liberal trade policies; but the country is not yet party to any regional or bilateral free trade agreements (FTAs). At the outset toward further robust economic development, Mongolia is keen to diversify its export markets. Recently, Mongolia began talks on concluding an EPA (Economic Partnership Agreement) with Japan. An analysis using the CGE model and employing the Global Trade Analysis Project (GTAP) 8 Data Base revealed that the macroeconomic impacts of Mongolia’s bilateral FTAs with the four Northeast Asian countries of Russia, the ROK, Japan and China—Mongolia’s major trading partners—would be almost negligible. This result was consistent with the fact that currently Mongolia’s import tariff rates are already relatively low and the partner countries exercise almost near zero-tariffs for Mongolia’s major export commodities, of mining and livestock origin. Raw materials or low value-added products of mining or livestock origin account for more than 90% of the country's total exports. However, some of Mongolia's manufacturing industries, such as textiles and apparel, leather and meat products can expect positive changes in their value-added along with increases of export sales. Also, these sectors would be the greatest potential sources of employment generation in Mongolia. Yet due to the relatively small shares of these products within Mongolia’s exports, their impacts on the country's GDP were very small. Therefore, Mongolia needs to promote high value-added, export-oriented industries if the economy aims to benefit from free trade agreements with its trading partners.