THE GOVERNMENT OF MONGOLIA

NATIONAL PROGRAM TO ESTABLISH A SINGLE ELECTRONIC WINDOW

FOR FOREIGN TRADE FACILITATION

March 2007Ulaanbaatar, Mongolia

ABBREVIATION AND ACRONYMS

ADB Asian Development BankEPRC Economic Policy Reform Competitiveness projectGDNT General Department of National TaxationICT Information Communication Technology ICTA Information Communication Technology AgencyITPWG/TBG15 International Trade Procedures Working GroupISO International Organization for StandardizationMASM Mongolian Agency for Standards and MetrologyMCGA Mongolian Customs General AdministrationMoES Ministry of Education and ScienceMoF Ministry of FinanceMFA Ministry of Food and AgricultureMNCCI Mongolian National Chamber of Commerce and IndustryMoH Ministry of HealthMoIT Ministry of Industry and TradeMRTT Ministry of Roads, Transportation and TourismSSIA State Specialized Inspection AgencyUSAID United States Agency for International DevelopmentUN/CEFACT United Nations Center for Trade Facilitation and e-Business VAT Value Added TaxWTO World Trade Organization

TABLE OF CONTENTS

ABBREVIATION AND ACRONYMS.......................................................................................iTABLE OF CONTENTS...........................................................................................................iiiSUMMARY.................................................................................................................................vINTRODUCTION.....................................................................................................................viiSECTION I: CONCEPT OF A SINGLE WINDOW FOR TRADE FACILITATION................1

A. What is a single window for trade facilitation?..................................................................1B. Benefits of establishing a single window............................................................................3C. Models of implementation of the single window................................................................3D. Lead agency of a single window.........................................................................................4E. Success factors.....................................................................................................................5

SECTION II: RATIONALE OF THE NATIONAL PROGRAM................................................7A. Need for Mongolia to establish a foreign trade single window..........................................7B. Current situation of participating agencies..........................................................................8C. Favorable conditions for the program implementation.......................................................9D. Existing challenges............................................................................................................10

SECTION III: NATIONAL PROGRAM TO ESTABLISH A SINGLE ELECTRONIC WINDOW FOR TRADE FACILITATION...............................................................................11

A. Goal and objectives of the Program..................................................................................11B. Scope of the Program........................................................................................................11C. Principles of implementation.............................................................................................12D. Action plan to implement the Program.............................................................................12

D1. Phase One: Preparations for the establishment of a single window (2007)................13D2. Phase Two: Structuring the private-public partnership company (2008)...................13D3. Phase Three: Formal launch and operations of the PPP Company (July 2008)..........14

SECTION IV: RECOMMENDATIONS....................................................................................15

SUMMARY

This document has been prepared in response to the tasks given to the Working Group (WG) to draft a proposed National Program to implement a single electronic window for trade facilitation (SEWT).

Section I of the document presents the concept of a single electronic window for trade facilitation, its benefits, successful international experiences and best practices in its implementation, models of implementation and success factors.

Section II examines the rationale for the establishment of a single electronic window to facilitate international trade in Mongolia, the current summary status of agencies involved, favorable conditions for implementation and current challenges.

Section III presents the proposed goals and objectives of the National Program, its phases, principles of implementation and an action plan.

Based on international best practice research, section IV summarizes key recommendations of the WG to implement the National Program. These recommendations are:

Recommendation 1: Decision of the “business model” of entity to lead implementationAn early decision on the “business model,” i.e., what kind of entity will take the lead in implementation of the concept is a key milestone that needs to be decided as early as possible. Future alternative course of action or possibilities will derive from such decision. After examining successful international experiences, the WG recommends that a “Build, Operate and Transfer” (BOT) model can also be applicable to Mongolia. Under this model, a strategic partner and lead investor implements the system using existing technologies, makes the necessary investments, operates the system as a concession for a number of years, after which the system is turned over to the government, as negotiated in a contract. Advantages to the government are minimal load on the budget, access to cutting-edge technologies and know-how, and development of local human resources.

Recommendation 2: Establish a separate, joint-stock, commercially run companySuccessful international experiences show this to be a common factor to foster inter-government agency coordination and operate with relative independence from parochial agency concerns and political influences. Thus, the WG recommends that such a separate company be established.

Recommendation 3: Structure the new company as a private-public partnership (PPP)The state has a role to play as a shareholder in the company but not as a controller. The GoM also has the first real opportunity to use this experience as a pilot case for structuring commercially viable PPPs in other sectors. Structuring such a venture will not be easy as many issues in the legal and regulatory environment will need to be addressed. The experience and lessons learned gained in such structuring will be very valuable for future PPP transactions.

Recommendation 4: After Parliament ratification, re-negotiate project loan from The Asian Development Bank to modernize customs administration to allow partial use of the loan (i.e., equipment) to be valued as the GoM equity contribution in-kind to the new PPP companyAs a first step, ratification of the loan agreement as it currently stands should be pursued in Parliament as early in April as possible. Only after Parliament ratification, adoption of recommendations 1 through 3, and the initial technical and financial feasibility analyses outlined in the Action Plan (Exhibit III-1, Activity E1 and E2) are concluded, begin the process of identification of assets and their valuation as GoM shares in the PPP company. International precedent for this exist in the case of Ghana where the value of commodities

procured through a World Bank loan and supplied to the PPP company represented the equity contribution of the government to the new company. Proceeds from potential revenues of the company could then be used to pay back the loan and reduce the fiscal burden of debt service.

Recommendation 5: Identification and negotiations with potential strategic partner and investorDuring the course of preparation of the proposed National Program, the WG identified successful international experiences, technologies and countries. Mongolia can benefit from these experiences and proven technologies to shorten the implementation cycle. Mongolia does not need to “reinvent the wheel” so to speak but seek access to these technologies and operators and negotiate the best possible terms for the country. Thus, the WG recommends that, after the decision to create an independent joint-stock, commercially-run PPP, the company enter into negotiations with operators and investors who can provide access to the technology, have the proven know-how, and the financial resources to make the implementation of the SEWT concept successful.

Recommendation 6: Identification and attraction of Mongolian private sector investors with complementary skillsThe WG also recommends that the PPP to be-established make every effort to attract Mongolian private sector investors who, besides capital, bring unique complementary skills to the company. The Mongolian National Chamber of Commerce and Industry (MNCCI) as the umbrella organization of businesses in Mongolia could be a representative shareholder of private businesses but additional Mongolian firms should be identified and given the opportunity to participate. This recommendation should be implemented after the first four or five initial recommendations have been effected.

Recommendation 7: Conduct of public education campaign and dialogue on the concept and experiences in implementation of single windowsThe WG recommends that a public education campaign using selected mass media (newspaper articles and briefings, TV and radio presentations, etc.) be initiated to educate decision makers and the general public on the issue and gain understanding and support for the concept. The campaign should be targeted to different constituencies or groups as identified in the proposed action plan to implement the National Program. Some elements of this public education and national dialogue campaign can be coordinated with those of the program on one-stop local licensing services pilot project currently being implemented with Swiss cooperation.

Recommendation 8: Identify changes in legal and regulatory environment to facilitate implementation of single electronic window conceptOnce decisions have been made on the business model and structuring of a joint-stock, commercially-run PPP company, a legal review of existing laws and regulations needs to be initiated as soon as possible. This legal review should focus, inter alia, on the following:

Review of the proposed existing draft law on customs to insure enabling of implementation of the single electronic window for trade

Review of existing draft on a concessions law initially developed to help finance physical infrastructure projects and provide an adequate legal and regulatory framework for BOT and BOO (“Build, Operate and Own”) among others

Expedite current review of existing laws and regulations on e-commerce and electronic transactions within the framework of current efforts to implement e-Government

Review of legal and regulatory mandate of participating agencies in order to simplify processes, avoid duplication, and overlapping responsibilities

General review of existing laws and regulations to enable adequate operations of electronic windows.

INTRODUCTION

While the scope of foreign trade in the world is expanding, the needs for simplification of trade-related regulations and procedures, reduction of processing steps, document harmonization and simplification, improvements in transparency and acceleration of information exchange are increasing.

Trade facilitation attracted major attention in the 1996 WTO meeting in Singapore and has become a center pillar of the WTO agenda since the 2003 meeting in Cancún, Mexico. Many countries have recognized the importance of trade facilitation as a means for integration into the world economy and have implemented new initiatives to achieve it. Among these initiatives, countries have selected “a single electronic window” to facilitate trade as one of the most effective means. Over 30 countries have implemented such measures.

A single window for trade facilitation can play a significant role for Mongolia, as it is a landlocked country with sparse population. Mongolia can significantly increase its competitiveness in regional and world markets by eliminating obstacles to trade in imports, exports and transit of goods.

Aware of the need to facilitate trade and improve country competitiveness, the Government of Mongolia issued Resolution No 251 of October 18, 2006 to establish a single electronic window to facilitate foreign trade. This document has been prepared as a National Program to implement such facility window, as agreed during the WG meeting of 18 December 2006.

The concept of a single electronic window for trade is relatively new in Mongolia. Thus, Section I of this document examines the concept, benefits, models, successful international experiences and requisites for success. This section borrows heavily from Recommendation No. 33 of the United Nations Centre for Trade Facilitation and Electronic Business on establishing a single window for trade facilitation.1

1 United Nations Centre for Trade Facilitation and Electronic Business. “Recommendation and Guidelines on establishing a Single Window to enhance the efficient exchange of information between trade and government, Recommendation No 33.” United Nations. 2005.

SECTION I: CONCEPT OF A SINGLE WINDOW FOR TRADE FACILITATION

A. What is a single window for trade facilitation?

In order to comply with all import, export and transit related requirements, companies involved in trade have to submit many different kinds of documents to several governmental authorities each of which has its own procedure, steps and electronic or paper forms to complete. These intensive requirements together with their associated compliance costs represent a heavy burden on the government and business community.

To reduce this burden, countries are increasingly turning to establishing a single electronic window to provide all parties involved in trade and transport to lodge standardized information and documents in electronic form with a single entry point. Exhibit I-1 shows the typical, complex, and inefficient procedures of the different agencies and parties involved in foreign trade.

The procedures involve physical exchange of paper information with one another. In contrast, as shown in Exhibit I-2, the single electronic window allows the exchange of information in electronic form through a single entry point.

Exhibit I-I: Typical complex and inefficient foreign trade procedures

Adapted from Chawewan Kongcharoenkitkul 2006 Presentation on ASEAN SW

Participating agencies will have an opportunity for direct information sharing, for single submission and synchronous processing of documents and for issuing of e-permit, e-license and e-certificate. In turn, this will facilitate a transition from paper-based to paperless cross-border trade, save time and effort to business, and increase government revenues.

At present over 30 countries, including South Korea, Singapore, Malaysia, Ghana, Finland, Mauritius, Germany, the USA and others are implementing single electronic windows for trade. The results in developed and developing countries are dramatic improvements in lower transaction costs associated with trade operations, more transparency in government-business relationships, increased customs revenues and an improved environment favorable to business development and increased investment flows.

This has been the case in Singapore with its TradeNet system, its adaptation to Mauritius and Ghana, the Korean KTNET system and its latest movement towards a U-trade platform, the Malaysia e-Permit system, as well as other initiatives such as the pilot international single window project between Thailand and the Philippines. These experiences speak of the increased interest that countries have in promoting trade facilitation as a tool to accelerate economic growth and reduce poverty through single window mechanisms.

Given the increased level of inquires from many countries, the UN Centre for Trade Facilitation and Electronic Business in Geneva (UN/CEFACT) has developed a series of recommendations and guidelines aimed at providing practical guidelines and recommendations to countries for establishing foreign trade single window. Accordingly, a special Single Window Repository has been created to share best practices and present single window case

Adapted from Chawewan Kongcharoenkitkul 2006 Presentation on ASEAN SW

Exhibit I-2: Single electronic window: An organized network for the trading community

Working Group to establish a single electronic window for trade facilitation

studies to make lessons learned and international best practices easily available for adaptation to local conditions (http://www.unece.org/cefact/single_window/welcome.htm).

B. Benefits of establishing a single window

Benefits for the Government: Better harmonization of documentation and processes, elimination of duplication and

cutting of inefficient costs, time saving Improved risk assessment brought by enhanced information exchange Increased transparency, less corruption and bureaucracy Increased customs revenues and improved fiscal treasury function through more rapid

and accurate payment of required duties and other charges Reduction of any unintentional errors and increase of trader compliance through updated

information Enhanced border security by having more accurate information on cross-border cargos.

Benefits for business entrepreneurs: Savings in time and cost through one-time submission of documents and information

required for trade once through a single point Simplification of trade processes and elimination of duplications and overlapping

functions of agencies Reduction of errors with clearer information Reduced pressure with increased transparency and predictability Reduction of business risks through enhanced certainty Improved partnership trust, predictability, and intensified trade turnover through

reducing of delays Reduction in overall costs to business.

C. Models of implementation of the single window

UN/CEFACT International Trade Procedures Working Group (ITPWG/TBG15), in a review of models of implementation in establishing a single window, distinguishes three basic models currently in place or being developed:

The single authority model. In this example of implementation, one agency receives information, either on paper or electronically, disseminates this information to all relevant governmental authorities, and co-ordinates controls to prevent undue hindrance in the logistical chain. Sweden’s single window operates this way. Its customs performs selected tasks on behalf of some authorities (primarily for the National Tax Administration (import VAT), Statistics Sweden (trade statistics), the Swedish Board of Agriculture and the national Board of Trade (import licensing).

A single automated system for the collection and dissemination of information. Under this model a public or private entity integrates the electronic collection, use, dissemination and storage of data related to trade that crosses the border. For example, the United States has established a program that allows traders to submit standard data only once and the system processes and distributes the data to the agencies that have an interest in the transaction. This system can be an integrated system—data are processed through the system—an interfaced decentralized system—data are sent to the agency for processing—or a combination of these two systems.

An automated information transaction system. Under this model, a trader can submit electronic trade declarations to the various authorities for processing and approval in a single application. In this approach, approvals are transmitted electronically from governmental authorities to the

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Working Group to establish a single electronic window for trade facilitation

trader’s computer. Such a system is in use in Singapore and Mauritius. Moreover, in the Singaporean system, fees, taxes and duties are computed automatically and deducted from the traders' bank accounts. When establishing such a system, consideration should be given to the use of a master dataset, which consists of specific identities, which are pre-identified and pre-validated in advance for all relevant transactions.

However, before considering these models, it is important to point out that: Although many business and trade practices are common to all countries, each country

will also have its own unique requirements and conditions; A single window should represent a close cooperation between all involved

governmental authorities and agencies, and the trading community; A single window does not necessarily imply the implementation and use of high-tech

information and communication technology (ICT), although facilitation can often be greatly enhanced if Governments identify and adopt relevant ICT technologies for a single window.

D. Lead agency of a single window

The appropriate agency to lead the establishment and operation of a single window can vary from country to country depending on legal, political and organizational issues. The lead agency must be a very strong organization with the necessary vision, authority (legal), political backing, financial and human resources and interfaces to other key organizations. In some cases, because of their pivotal role, the information and documentation they receive, Customs or port authorities can be the agency best suited to lead a single window development and implementation.

However, the lead organization does not necessarily have to be a governmental organization; it can be a private entity such as a Chamber of Commerce or a semi-state organization such as a Board of Trade. However, private organizations sometimes lack the legal authority to issue and accept information and documents and the power to enforce rules. Therefore, in such a scenario, it may be necessary for the private organization to seek the explicit formal support of a governmental organization that has such power at its disposal.

One example of a public-private partnership that led to the establishment of a single window was the Mauritius Network Services Ltd, in Mauritius. This is a tripartite joint-venture company involving public and private sector representatives and a foreign technical partner. Ghana followed the Mauritius model and implemented it successfully as shown in the text box. The WG recommends that this model be structured in Mongolia: a private-public partnership (PPP) where the government equity can be negotiated as in-kind contributions of equipment procured through the customs modernization loan from The Asian Development Bank (ADB), MNCCI and private Mongolian investors (potentially banks, shipping companies, etc.) are

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GHANA PRIVATE-PUBLIC PARTNERSHIP MODEL FOR SINGLE ELECTRONIC WINDOW

Established in 1999 as the country’s first private-public partnership (PPP), its single electronic window is operated by GCNET with an initial capitalization of $5.3 million, its shareholders include:

Customs, 20% equity, in equipment, provided through a World Bank loan

Ghana Shippers Council, 10% Two local Ghanaian banks, 10% Societé Générale de Surveillance SA, 60%, per

government request.

Results: Customs revenues increased over 30 percent in

first year Customs review down to 15 minutes Bank payments take 10 minutes Operation is profitable and self sustaining;

additional capitalization of $2.3 million made in 2002 to upgrade and expand the system

Significant increase in trade activities Became model for PPPs.

Working Group to establish a single electronic window for trade facilitation

attracted as shareholders and a strategic foreign investor provides the bulk of the equity and acts as the operator through a Build, Operate and Transfer (BOT) concession model.

E. Success factors

Review of international experience in the implementation of a single electronic window for trade shows common factors that impact on success:

Political will. The existence of strong political will on the part of both government and business to implement a single window is the foundation stone upon which all the other success factors have to rest.

Strong lead agency. A strong, resourceful and empowered lead organization both to launch the project and see it through its various development stages is required. This organization must have the appropriate political support, legal authority, human and financial resources, and links with the business community. In addition, it is essential to have a strong individual within the organization who will be the project champion.

Partnership between government and trading community. A single window is a practical model for co-operation between agencies within government and also between government and the trading community. It presents a good opportunity for a public-private partnership in the establishment and operation of the system. Consequently, all participating agencies should be invited to cooperate in all stages of the project, from the initial development of project objectives, situational analysis, and project design through to implementation. The ultimate success of the single window will depend critically on the involvement, commitment and readiness of these parties, to ensure that the system becomes a regular feature of their business process.

User friendliness and accessibility. Comprehensive operating instructions and guidelines should be created for users. A Help Desk and user support services, including training, should be established, especially in the early implementation phase of the project. The Help Desk can be a useful means for collecting feedback information on areas of difficulty and bottlenecks in the system and this information can be a valuable tool in its further development. It is essential that the design of the system be attuned to the real ICT capacities of the country or region in which it will operate. Bearing in mind potential future technological developments, the system should aim for a maximum number of users to utilize the single window from the moment it is launched.

Legally-enabling environment. Establishment of the necessary legal environment is a pre-requisite for single window implementation. Related laws and legal restrictions must be identified and carefully analyzed. Changes in legislation can sometimes be required in order to facilitate electronic data submission/exchange and/ or an electronic signature system. Further, restrictions concerning the sharing of information among authorities and agencies, organizational arrangements for the operation of a single window as well as power and authority of a lead agency may need to be regulated.

International standards and recommendations. The implementation of a single window generally entails the harmonization and alignment of the relevant trade documents and data sets. In order to ensure compatibility with other international systems and applications, these documents and data models must be based on international standards and recommendations. This is true even if the single window is designed to operate without using electronic data communications. Whenever electronic data interchange is involved, the harmonization, simplification and standardization of all data used in international trade are an essential requirement for smooth automatic operation of the single window. The harmonization of data

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Working Group to establish a single electronic window for trade facilitation

used by different participants in their legacy system can be one of the biggest challenges for automated single window implementation.

Financial model. A decision on the financial model for the single window should be reached as early as possible in the project. This could range from a system totally financed by government (e.g. the Netherlands) to an entirely self-sustainable model (e.g. Mauritius and Ghana). Also, possibilities for public-private partnerships should be explored, if this is deemed a preferred approach. Clarity on this point can significantly influence decision-makers to support the implementation of the system.

Payment possibility. Some single windows (e.g. Thailand) include a system for payment of government fees, taxes, duties and other charges. This can be a very attractive feature for both government and trade, and is especially important when the system is required to generate revenue. However, it should be noted that adding payment features often requires a considerable amount of additional work with harmonization and especially the security of financial transactions.

Promotion and marketing. Promotion of the single window is important at all stages of its development. This will assist in improving knowledge of all participating agencies, attracting investors and will help potential users to plan their related operations and investments according to this schedule.

Communication strategy. Establishing a proper mechanism for keeping all stakeholders informed on project goals, objectives, targets, progress (and difficulties) creates trust and avoids the type of misunderstanding that can lead to the undoing of an otherwise good project. Within this context, it is extremely important to handle stakeholders’ expectations properly. Solving simple practical problems can generate significant goodwill to carry the project through difficult patches along the development path.

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SECTION II: RATIONALE OF THE NATIONAL PROGRAM

A. Need for Mongolia to establish a foreign trade single window

According to a World Bank survey in 2005 Mongolia was ranked 131st in exports and 150th in imports value among 180 countries. Although the country has a small share relative to world markets, Mongolia’s foreign trade is expanding rapidly and its importance in the national economy is growing. As of 2005 Mongolia had trade relationships with 98 countries and total trade turnover was $2.2 billion, equivalent to 153 percent of GDP. In 2005 in terms of destination markets, Mongolia exported products to 69 countries including Asian countries (56.7%), the American continent (25.9%) and European countries (16.1%). Mongolia imported goods originating from 91 countries including European countries (48.7%) and Asian countries (44.5%).

A total of 32,870 export customs clearances and 79,860 import customs clearances were processed in Mongolia in 2005. There are about 560 private enterprises actively engaged in foreign trade operations out of which 135 are active exporters and 327 are active importers. Additionally, there are more than 50 registered freight forwarders and the same number of accredited laboratories in Mongolia.

Mongolia holds an impressive position under the World Bank’s 2006 Doing Business Report; it is ranked 45th out of 175 countries rated in the overall ease of doing business indicator. This superior performance underscores the significant advances that the country has made over the last decade. Indeed, Mongolia has achieved strong marks vis-à-vis its regional neighbors in six of the ten categories measured in the World Bank’s Doing Business rankings (see Table No.1). A below average position was only observed for the Hiring and Firing, Paying Taxes, Trading Across Borders and Closing a Business indicators. But within these indicators, Mongolia’s performance is the worst within the region, and one of the worst in the world—at position 162nd from 175 countries—for the “trading across borders” indicator under the Doing Business Report.

Mongolia’s landlocked position, sparse population, small economy and underdeveloped infrastructure represent significant challenges to the development of a vibrant and competitive enterprise sector. To compensate at least partially for the natural barriers that Mongolian and foreign firms operating in the country are facing, there is a need for Mongolia to establish a sound trading environment aimed at facilitating trade, improving firms’ competitiveness, attracting foreign direct investment and leveraging transit trade for rapid economic development to increase economic opportunities for the population. Therefore, addressing the serious shortcomings in trading across borders indicator through trade facilitation reforms and the establishment of innovative mechanisms such as the single window for trade, represents an important step toward business development, economic growth and poverty reduction in Mongolia. To be successful, a concerted effort that includes both the public sector and the private sector in Mongolia will add to the sustainability and effectiveness of a sound trading environment in the country.

Table No.1Doing Business

Indicator

Mongolia’sGlobal Rating

Mongolia RegionalPosition**

Ease of Doing BusinessStarting a BusinessDealing w/ Licenses Hiring & FiringRegistering a PropertyGetting CreditProtecting InvestorsPaying Taxes Trading Across BordersEnforcing ContractsClosing a Business

45

5534611765195616241115

7

88143741223313

** Compared to 23 countries in the East Asia & Pacific region

In recent years the Mongolian government has been very active in the area of trade facilitation. One clear proof of this has been establishment of the legal framework for the operation of “one-stop-service” aiming at reducing the steps in the issuance of local permits, licenses and registration by passing the Government Resolution No. 35 of 2002 and Resolution No. 134 of 2004 accordingly. Based on these resolutions, with the purpose to support business and attract investment the MoIT and its affiliated agencies, GDNT, SSIA and other agencies have introduced one-stop service.

Moreover, in the Action Plan 2004-08, the Mongolian Government committed itself to supporting economic growth through active trade policy reform. A new Customs Law and Customs Tariff Law have been drafted and are undergoing discussion which will allow MCGA to align customs legal environment to the international best practices, identify tariff and non-tariff policies properly, implement customs clearance procedure for the economic benefits; apply modern technologies for customs inspection to ensure fast and efficient service. Additionally, Mongolian authorities have adopted an e-Government initiative aimed at enhancing national competitiveness and improving the quality of public services through the establishment of efficient, effective, systematic and productive government services.

Notwithstanding these efforts, traders in Mongolia yet have to deal with multiple and complex regulations and trade-related procedures carried out through a large number of entities.

B. Current situation of participating agencies

There are 460 private companies currently involved in foreign trade in Mongolia. Government is involved in foreign trade through six ministries, six government agencies and 240 local branches and departments engaged in some 63 types of activities, including permits and inspections. One non-government entity, the Mongolian National Chamber of Commerce and Industry (MNCCI) provides certificates of origin.

The legal environment of foreign trade activities are regulated by over 100 laws, regulations, procedures, inter-government treaties, international conventions and protocols including Laws on Customs (in process of being redrafted), Law on Customs Tariff, Law on Excise Tax, Law on Licensing, Law on Quarantine Inspection of Raw Materials and Products of Animal and Vegetable Origin Crossing the Borders, Law on Standardization and Conformity Assessment, Law on Chamber of Commerce and Industry, Law on Protection of the Environment, Law on State Inspection and Control, Law on Border, Law on Food, Law on Firearms, Law on Protection from Chemical Toxics and other regulations.

The MCGA, SSIA and MASM are in charge of inspection and control activities of exported and imported goods crossing Mongolian borders, the MoIT, MFA, MoE, MoH, SSIA and MNCCI provide appropriate licenses, permits and certificates for some goods. The MCGA is in charge of collection of customs duties.

Use of information technology varies widely. For example, MoF, MoIT, MRTT, MCGA, GDNT, MCGA and MNCCI are connected through fiber optical cable while SSIA, MoE and MASM are connected to the internet through the government communication network but their information technology infrastructure is inadequate.

Currently the MCGA uses GAMAS, an applications software developed locally. The system is connected with 11 border and inland customs offices through fiber optical cable and satellite. About 92% of total customs clearances are processed in those offices and account for 74% of total revenue. One-stop service has been implemented in 5 freight customs inspection places in Ulaanbaatar providing customs clearance, collection of duties and inspection processing at single entry point. Declarants can make e-customs clearance by using GAMAS system or

Working Group to establish a single electronic window for trade facilitation

through customs brokers. MCGA’s IT infrastructure is in need of modernization to improve assessments at border points. Similarly, the logistics management systems to facilitate transit of goods need substantial improvements.

Being connected to the MCGA through fibre optical cable it became possible for the MNCCI to issue e-certificate of origin and use customs e-training software. If the SSIA is connected to the MCGA network, it will be possible to connect it to the border ports by using the current existing infrastructure. The WG has been established by these organizations to resolve this issue.

The current weak cooperation among the border inspection organizations, inconsistency of procedures and regulations, and operational red tape are main challenges for the public and private sectors. Lack of necessary equipment and information for the specialized inspectors at the border, inadequate solution of their social problems are the major obstacles for efficient and sustainable operation.

MASM reports the existence of over 4,900 national standards in Mongolia, about 40 percent of which are in compliance with international standards and a very small percent of which is related to foreign trade. The agency needs to update its standards for commonly imported and exported goods and bring them into compliance with international norms. Re-engineering its internal processes for reviewing proposed standards and verification of export goods are high on the agenda of agency priorities.

C. Favorable conditions for the program implementation

On October 18, 2006 the Government of Mongolia passed Resolution No 251 on the establishment of a foreign trade single window and assigned the Minister for Finance to regulate this work. According to the Decree of the Minister for Finance a working group led by a chair of ICTA was established with the following members: Vice Minister for the MoIT, Vice Minister for the MoE, Director of MCGA, Vice Director of SSIA, Chairman of the MNCCI and Director of MASM. All members of the WG have recognized the urgent need to establish a single window and have expressed their support for its implementation.

Recently the Government of Mongolia has agreed together with the ADB to implement the customs reform project with $6.76 million funding and signed a new 3-year trade facilitation program. The project will be financed jointly by the ADB, e-Asia and Knowledge Partnership Fund and the Government of Mongolia and it will focus on identifying guidelines of the modernization of customs, ensuring trade security, facilitation of foreign trade, improvement of infrastructure at selected major customs houses and border posts, and institutional strengthening. The ADB Board has approved the project and it is currently pending Parliament ratification. The WG recommends that the Minister of Finance and Cabinet exercise their best efforts to have Parliament ratify the loan as early as possible in the spring session of Parliament. Once ratified, a preliminary technical and financial feasibility for the establishment of the single window is concluded and an assessment of equipment needs and valuation are performed under the customs project, the GoM should engage in negotiations with ADB to enable it to use the equipment as contributions in kind towards government equity as a shareholder in the PPP company that could be established to implement the single electronic window.

Additionally, the MNCCI has recently started a project to connect to customs through a two-kilometer fiber optic cable that will allow customs officials at the borders to confirm the validity of Certificates of Origin issued by the Chamber.

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These recent efforts pave the way towards the establishment of a foreign trade single window in the country. Nonetheless, effective trade facilitation will require a concerted effort involving all key government trade-related agencies and the private sector.

Accordingly, there is a need to promote open forums bringing together all government controlling agencies and the private sector stakeholders to discuss the government efforts in promoting trade facilitation and in aligning Mongolian trade-related practices and procedures to international best practices. To this end, the WG for the establishment of a single electronic window will take the necessary actions needed to implement the project. The USAID funded Economic Policy Reform and Competitiveness project (EPRC) has offered technical secretariat services for the WG. This assistance should provide additional technical resources for the successful implementation of the single window program.

D. Existing challenges

Challenges that need to be overcome in the process of establishing a single electronic window in Mongolia include:

Lack of knowledge among government officials and the general public on the concept and advantages of a single electronic window, particularly concerning time, financial and human resources, institutional framework, and legal environment

Resource constraints and weak capacity in some government agencies that will require significant financial resources, professional training, re-engineering of processes and harmonization of procedures

Lack of risk-based inspection guidelines as historical data are not used, resulting in an onerous drain of human resources, at the agencies and high transaction costs to the enterprise sector

As new products are traded in international markets, MASM is struggling to adopt appropriate quality and packaging standards as well as address slow and cumbersome procedures currently in force for their review and adoption

Most government agencies, including SSIA, MASM, MoE, and others lack the ICT capabilities to interconnect with the Customs’ network system, limiting their effective participation in the single electronic window; in effect, this requires that parallel efforts be made for these agencies to improve their internal operating procedures as the Customs moves forward with its modernization efforts

The ICTA of Mongolia has developed an e-Mongolia Initiative under which specialized IT core units are been established in each government agency but actual implementation depends on the agency’s ability to obtain donor support given the scarce resources of government

Concepts like e-Certificate, e-License and e-Signatures are comparatively new for Mongolia and there is a need to review the legal and regulatory framework, diffuse skills in these areas, and train professionals in these areas

Private sector exporters and importers feel relatively isolated from current government activities to facilitate trade and efforts need to be made to increase their active involvement.

Overall, however, the WG believes that a high level of political commitment, the creation of a PPP company controlled by private sector shareholders and run as BOT concession with a strategic foreign partner offers the best option. This model has been successful in international practices and can be adjusted to specific Mongolian conditions.

SECTION III: NATIONAL PROGRAM TO ESTABLISH A SINGLE ELECTRONIC WINDOW FOR TRADE FACILITATION

A. Goal and objectives of the Program

The goal of the National Program is to establish a single window for foreign trade facilitation where all import, export and transit-related documents and information are lodged with a single entry point which should create possibilities of single electronic submission and processing of documentation and issuing e-permit, e-license, e-certificate for trade-related government and private authorities, business community involved in trade, transport, storing and financial services.

The objectives of the program are to:

1. Facilitate cross-border trade by moving to a paperless trade environment and increasing Mongolia’s competitive participation in regional and world markets

2. Improve economic efficiency by reducing transaction costs, harmonizing agencies’ systems and procedures internally and in conformance with international standards

3. Enable Mongolia to link in the future with other countries and regional economic cooperation organizations in an electronic trade environment

4. Develop a modern logistics management system for transit goods to compensate for Mongolia’s landlocked status and take advantage of its geographic position

5. Improve transparency, fiscal revenues, controls, and reduce red-tape6. Based on international best practices, develop and implement the first commercially-run

and financially self-sustained public-private partnership in Mongolia operated as a BOT concession to serve as a model that can be replicated to finance infrastructure with private sector participation to reduce the fiscal burden on the state budget and improve efficiencies.

B. Scope of the Program

The following government and non-government agencies and private companies will participate in the implementation of the National Program:

Government agencies: Ministry of Finance Mongolian Customs General Administration and its affiliated branches Mongolian Agency for Standards and Metrology State Specialized Inspection Agency General Department of National Taxation Ministry of Roads, Transport and Tourism Ministry of Environment Ministry of Health Ministry of Food and Agriculture Ministry of Justice and Internal Affairs Laboratories

Non-government agency: Mongolian National Chamber of Commerce and Industry

Private companies: Exporters Importers Freight forwarders

Accredited private laboratories Transport carriers Customs brokers Logistics and others.

C. Principles of implementation

The WG has applied the following principles in the preparation of the proposed Action Plan to implement the National Program:

1. Create and maintain a strong level of political commitment by: a. Developing a communication strategy at the initial phase of the National

Program and implementing it carefully to raise awareness about the concept of the single electronic window among participating agencies, government decision makers, Parliament, and the general public

b. Organizing regular and frequent meetings for officers and technical staff of agencies involved to provide opportunities for exchanging information and solving common problems of implementation.

2. Awareness and application of current best international practice and technologies and careful adaptation to specific Mongolian conditions by:

a. Harmonizing documentation, procedures, and information in compliance with international standards and recommendations to meet the requirements of the international system and partner countries

b. Using proven, tested technologies and models to shorten Mongolia’s implementation cycle to establish the single electronic window for trade.

3. Minimize fiscal load of capital and recurrent operating costs and increase expected efficiencies in implementing the single window by leveraging Mongolian and foreign private investment through a PPP company.

4. Seek and negotiate with a strategic foreign partner to operate the PPP company on a BOT basis.

5. Strengthen the PPP and create opportunities for Mongolian investors by:a. Involving the private sector and potential investors from the beginningb. Enlisting the participation of strategic Mongolian investors with unique skills.

6. Review, develop and maintain a legal and regulatory environment conducive to the implementation of concessions and BOT to help finance needed infrastructure by mobilizing private investment.

D. Action plan to implement the Program

Based on these principles, Exhibits III-1 and III-2 present the action plan to implement the program. The action plan considers three phases of implementation:

1. Phase One: Preparations for the establishment of a single window (2007)2. Phase Two: Structuring the private-public partnership company (2008)3. Phase Three: Formal launch of the private-public partnership company (July 2008).

The definition of the phases is largely for conceptual purposes as some of the activities will overlap the phases. Similarly, the timing of phases two and three is largely dependent on the speed of implementation and completion of key milestones of prior phases and decisions on the business model to implement the single window. For example, assuming that the concept of a PPP is endorsed to operate on a BOT concession basis, the legal review and necessary

Working Group to establish a single electronic window for trade facilitation

package of specific amendments would have to be submitted for Parliament’s consideration in its fall session and Parliament would have to act on these. As discussion of the general budget proposal takes place in the fall session of Parliament, it is difficult to predict if these measures would be promulgated by then. As these are conditions precedent to structuring the company, phase two would be delayed.

D1. Phase One: Preparations for the establishment of a single window (2007)

As shown in Exhibit III-1, this phase has five major groups of activities:A. Elaboration and approval of National Program document B. Development and implementation of a public communications and education campaign C. Review and amendments to the legal environment and regulatory environment for trade

facilitation and single electronic window implementation D. Information technology infrastructure needs assessment for MASM and SSIA E. Conduct of preliminary technical and financial feasibility analyses to assess current

systems and procedures at participating agencies and resource requirements of the PPP company.

The objectives of this phase are to: Determine roles and responsibilities of government and non-government participating

agencies and establish a mechanism for regulating cooperation Assess technical capacity of government and non-government participating agencies and

determine technical requirements Perform initial review of trade documents currently in use and determine needs for

harmonization Conduct needs assessment and requirements to align MASM’s standards with

international norms Create a favorable legal environment required for establishment of the single window Select the most effective business model giving due consideration to the establishment of

a separate PPP company run commercially and on a concession basis Implement a wide campaign of public education during the process of establishing the

single window to involve stakeholders, decision makers, and the general public.

D2. Phase Two: Structuring the private-public partnership company (2008)

Assuming Parliament promulgates the package of legal and regulatory measures to enable better structuring and operations of concessions, BOT models, and electronic commerce in its fall session, phase two can be initiated.

Major groups of activities of Phase Two, as shown in Exhibit III-2, are:

A. Conduct of a second-stage financial and technical feasibility analysis to provide more detailed documentation of current systems and procedures at participating agencies and estimation of initial capitalization requirements of the PPP company based on business plan.

B. Legal structuring of the company including the formulation of legal options of incorporation and registration.

C. Enlist participation of selected Mongolian private investors who bring complementary skills and resources to the PPP company.

D. Continuation of the campaign of public communications, education, and national dialogue to keep decision makers and the general public informed and involved in a transparent way about progress in the implementation of the single window.

The objectives of this phase are to:

National program to establish a single electronic window for trade facilitation Page III– 13

Working Group to establish a single electronic window for trade facilitation

Get more detailed assessment of technical and financial requirements to prepare a business plan for the PPP company, assuming all prior stages yield favorable results.

Structure and register the PPP company with participation from Mongolian selected private investors, MNCCI, and government shareholding with equity provided by the in-kind contributions in equipment from the ADB loan.

Secure the participation of a strategic foreign investor and operator to operate the PPP company on a concession basis.

Continue to inform, educate and involve all stakeholders, decision makers and the general public in a transparent manner.

D3. Phase Three: Formal launch and operations of the PPP Company (July 2008)

As shown in Exhibit III-2 and assuming all prior stages have been completed satisfactorily, the formal launch of the PPP company can be expected for early July 2008, before Parliament ends its spring session and before the Naadam holidays.

As shown in the action plan for this phase and if all goes according to plan, the company is expected to initiate operations in August or September 2008. At that time, the WG will have concluded its tasks, issue a final report and dissolve. Management and implementation of the single electronic window will be in the hands of the public-private partnership company, its shareholders, and directors.

Page III– 14 National program to establish a single electronic window for trade facilitation

SECTION IV: RECOMMENDATIONS

This document has been prepared in response to the tasks given to the Working Group (WG) to draft a proposed National Program to implement a single electronic window for trade facilitation (SEWT). Based on analyses of international best practices, successful examples of implementation of the SEWT in other countries and examination of Mongolia’s current conditions, the WG proposes key recommendations for action, as follows:

Recommendation 1: Decision of the “business model” of entity to lead implementationAn early decision on the “business model,” i.e., what kind of entity will take the lead in implementation of the concept is a key milestone that needs to be decided as early as possible. Future alternative course of action or possibilities will derive from such decision. After examining successful international experiences, the WG recommends that a “Build, Operate and Transfer” (BOT) model can also be applicable to Mongolia. Under this model, a strategic partner and lead investor implements the system using existing technologies, makes the necessary investments, operates the system as a concession for a number of years, after which the system is turned over to the government, as negotiated in a contract. Advantages to the government are minimal load on the budget, access to cutting-edge technologies and know-how, and development of local human resources.

Recommendation 2: Establish a separate, joint-stock, commercially run companySuccessful international experiences show this to be a common factor to foster inter-government agency coordination and operate with relative independence from parochial agency concerns and political influences. Thus, the WG recommends that such a separate company be established.

Recommendation 3: Structure the new company as a private-public partnership (PPP)The state has a role to play as a shareholder in the company but not as a controller. The GoM also has the first real opportunity to use this experience as a pilot case for structuring commercially viable PPPs in other sectors. Structuring such a venture will not be easy as many issues in the legal and regulatory environment will need to be addressed. The experience and lessons learned gained in such structuring will be very valuable for future PPP transactions.

Recommendation 4: After Parliament ratification, re-negotiate project loan from The Asian Development Bank to modernize customs administration to allow partial use of the loan (i.e., equipment) to be valued as the GoM equity contribution in-kind to the new PPP companyAs a first step, ratification of the loan agreement as it currently stands should be pursued in Parliament as early in April as possible. Only after Parliament ratification, adoption of recommendations 1 through 3, and the initial technical and financial feasibility analyses outlined in the Action Plan (Exhibit III-1, Activity E1 and E2) are concluded, begin the process of identification of assets and their valuation as GoM shares in the PPP company. International precedent for this exist in the case of Ghana where the value of commodities procured through a World Bank loan and supplied to the PPP company represented the equity contribution of the government to the new company. Proceeds from potential revenues of the company could then be used to pay back the loan and reduce the fiscal burden of debt service.

Recommendation 5: Identification and negotiations with potential strategic partner and investorDuring the course of preparation of the proposed National Program, the WG identified successful international experiences, technologies and countries. Mongolia can benefit from these experiences and proven technologies to shorten the implementation cycle. Mongolia does not need to “reinvent the wheel” so to speak but seek access to these technologies and

operators and negotiate the best possible terms for the country. Thus, the WG recommends that, after the decision to create an independent joint-stock, commercially-run PPP, the company enter into negotiations with operators and investors who can provide access to the technology, have the proven know-how, and the financial resources to make the implementation of the SEWT concept successful.

Recommendation 6: Identification and attraction of Mongolian private sector investors with complementary skillsThe WG also recommends that the PPP to be-established make every effort to attract Mongolian private sector investors who, besides capital, bring unique complementary skills to the company. The Mongolian National Chamber of Commerce and Industry (MNCCI) as the umbrella organization of businesses in Mongolia could be a representative shareholder of private businesses but additional Mongolian firms should be identified and given the opportunity to participate. This recommendation should be implemented after the first four or five initial recommendations have been effected.

Recommendation 7: Conduct of public education campaign and dialogue on the concept and experiences in implementation of single windowsThe WG recommends that a public education campaign using selected mass media (newspaper articles and briefings, TV and radio presentations, etc.) be initiated to educate decision makers and the general public on the issue and gain understanding and support for the concept. The campaign should be targeted to different constituencies or groups as identified in the proposed action plan to implement the National Program. Some elements of this public education and national dialogue campaign can be coordinated with those of the program on one-stop local licensing services pilot project currently being implemented with Swiss cooperation.

Recommendation 8: Identify changes in legal and regulatory environment to facilitate implementation of single electronic window conceptOnce decisions have been made on the business model and structuring of a joint-stock, commercially-run PPP company, a legal review of existing laws and regulations needs to be initiated as soon as possible. This legal review should focus, inter alia, on the following:

Review of the proposed existing draft law on customs to insure enabling of implementation of the single electronic window for trade

Review of existing draft on a concessions law initially developed to help finance physical infrastructure projects and provide an adequate legal and regulatory framework for BOT and BOO (“Build, Operate and Own”) among others

Expedite current review of existing laws and regulations on e-commerce and electronic transactions within the framework of current efforts to implement e-Government

Review of legal and regulatory mandate of participating agencies in order to simplify processes, avoid duplication, and overlapping responsibilities

General review of existing laws and regulations to enable adequate operations of electronic windows.