Robert D. Kaplan
Mongolian Prime Minister Sukhbaatar Batbold is concluding a six-day visit to Japan that marked the 40th anniversary of diplomatic ties between the two Asian nations. During the visit, Batbold and his Japanese counterpart, Yoshihiko Noda, agreed to launch delayed negotiations toward establishing the Economic Partnership Agreement (EPA), a wide-reaching free trade agreement (FTA) that includes intellectual property rights protection, liberalized investment rules and free movement of labor. Were it to materialize, the deal would mark the first ever FTA for Mongolia. But more important, the deal would transcend economic cooperation.
Mongolia sits between China and Russia, with no direct access to the sea or to any other country. Its history has been influenced by its two larger neighbors, and Moscow and Beijing have periodically dominated Ulaanbaatar politically. Since the 1990s, Mongolia has sought a more neutral foreign policy with its two neighbors; this strategy has evolved to include a search for a "third neighbor," a strategic partner that can provide balance and give Mongolia additional space when dealing with Russia and China. To that end, Mongolia has courted the United States -- but with limited success. More recently, it has been looking closer afield, at Japan in particular, given the size of the Japanese economy, its need for resources and its cautious relationship with Russia and China. But even with the EPA, geographic constraints will still limit the extent to which Mongolia will be able to consider Japan its third neighbor.
For Mongolia, the difficulty of reaching out to Japan is exactly the same reason for pursuing it -- geography. A third neighbor, in theory, would offer a reprieve from potential Chinese or Russian pressure. But such a policy could prove unproductive. For example, in the event Mongolia was in a crisis with either Russia or China, any country offering assistance to Mongolia would have to traverse one of its two neighbors and, in doing so, would violate Chinese or Russian territory. In other words, China or Russia would have to acquiesce to aid meant to counterbalance Chinese or Russian pressure. This is an extreme scenario, but in international relations, such scenarios can define how far a nation is willing to go in establishing and expanding relations and building alliances.
Japan is an island nation beset by a dearth of natural resources. Forced to import natural resources, Japan relies on long supply lines. As such, it views Russia and China cautiously. For Tokyo, tapping into Mongolian resources and positioning itself to keep a closer watch on the Chinese and the Russians is an attractive proposition. Tokyo does not consider itself a possible defensive partner for Mongolia (though the two countries have recently stepped up military relations), but rather as a cultural and economic partner.
Two resources in particular interest Tokyo -- coal and rare earth elements. Mongolia has large reserves of both coking coal and thermal coal. The Tavan Tolgoi coal mine, a project that has drawn intense interest from Russia, China, Japan, South Korea and the United States, contains an estimated 5 billion metric tons of high-quality coking coal, and is expected to produce at least 30 million tons of coal annually for the next 30 years. During the prime ministers' meeting, Batbold reassured Noda that Japan was still in the running for a stake in the Tavan Tolgoi project. Earlier reports had suggested both Japan and South Korea were knocked out of the bidding, but Ulaanbaatar has since appeared to reverse that position, noting only that it expected any bidders to also include infrastructure development in their proposals.
Getting Mongolian assurances on participation in the Tavan Tolgoi project comes at an important time for Japan. As Japan's nuclear energy sector is taken offline, Tokyo will reassess its supplies of industrial raw materials, and coal and natural gas consumption will increase. Such assurances may bode well for additional access to Mongolian rare earth elements. In addition, Japanese companies are looking to fund an oil refinery in Mongolia, which would service Japan's domestic oil needs, and are considering Mongolia as a potential centerpiece to a proposed regional energy grid.
Despite these potential advantages, the EPA remains in the planning stage. Discussions between Tokyo and Ulaanbaatar on greater economic cooperation began in 2007, with a proposal for the formation of an EPA emerging in 2009. The following year, the Japanese Cabinet agreed to pursue the EPA with Mongolia, but talks were delayed by the 2011 earthquake and tsunami in Japan. The resumption of talks may again be delayed by Mongolian elections in June or disruptions in Japan's political balance. But even if the EPA comes to fruition, the two countries will still be limited by their geographic obstacles.
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Japan and Mongolia: Geographic Challenges to Free Trade is republished with permission of STRATFOR.