EU-Mongolia relations: Possible critical raw materials partnership

Summary:

Mongolia is a geographically remote and resource-rich country with a peculiar location in northeast Asia. An 'oasis of democracy', it is sandwiched between its two expansionist authoritarian neighbours, China and Russia. This has required it to walk a delicate geopolitical tightrope of non alignment and a 'third neighbour' foreign policy to preserve its sovereignty and independence. During the past 35 years of bilateral diplomatic relations Mongolia has not been particularly high on the EU's foreign policy agenda, with only a handful of EU Member States having an embassy there. Since the 1990s, Mongolia has nonetheless benefited from EU development cooperation programmes aimed at supporting its sustainable economic and democratic development and from EU disaster relief for the increasingly harsh socioeconomic implications of its exposure to climate change. Classified as a lower-middle income country, Mongolia has also been a beneficiary of unilateral preferential access to the EU market, first under the generalised scheme of preferences (GSP) and later under the GSP+ scheme, and has been able to draw on additional EU funding programmes to bolster the diversification of its trade towards non-mining products. Currently, an EU-Mongolia agreement on geographical indications is under negotiation with the same objective. The EU-Mongolia political and cooperation agreement (PCA), which entered into force in 2017, has significantly broadened the scope for bilateral, regional and international cooperation to policy areas that were previously not covered by the 1993 trade and economic cooperation agreement. Joint Committee meetings under the PCA have taken place regularly, with strands on political dialogue, human rights, trade and investment, and development cooperation.

EU reliance on resilient supply chains for critical raw materials (CRMs) to implement its green and digital transitions and Mongolian efforts to sustainably diversify its economic relations could draw the two partners closer. As the scramble for CRMs is in full swing and major CRM-importing countries have designed economic de-risking policies to find alternatives to China's current quasi export monopoly on processed CRMs such as rare earths, the EU and Mongolia could enter into a CRM partnership, despite the geographical and geopolitical constraints and concerns that may arise over the environment and the investment climate owing to increased sourcing of CRMs from Mongolia.

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