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Cablegate: Visiting Canadian Trade Minister Advises Against State

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RR RUEHLMC RUEHVC RUEHVK
DE RUEHUM #0015/01 0110829
ZNR UUUUU ZZH
R 110829Z JAN 08
FM AMEMBASSY ULAANBAATAR
TO RUEHC/SECSTATE WASHDC 1799
INFO RUEHOT/AMEMBASSY OTTAWA 0559
RUEHUL/AMEMBASSY SEOUL 3128
RUEHMO/AMEMBASSY MOSCOW 2057
RUEHTA/AMEMBASSY ASTANA
RUEHAH/AMEMBASSY ASHGABAT 0037
RUEHEK/AMEMBASSY BISHKEK 0079
RUEHNT/AMEMBASSY TASHKENT 0038
RUEHDBU/AMEMBASSY DUSHANBE
RUEHBJ/AMEMBASSY BEIJING 5939
RUEHML/AMEMBASSY MANILA 1595
RUEHLO/AMEMBASSY LONDON 0251
RUEHKO/AMEMBASSY TOKYO 2823
RUEHBK/AMEMBASSY BANGKOK 1682
RUEHBY/AMEMBASSY CANBERRA 0218
RUEHSH/AMCONSUL SHENYANG 0430
RUEHVK/AMCONSUL VLADIVOSTOK 0214
RUEHOK/AMCONSUL OSAKA KOBE 0067
RUEHON/AMCONSUL TORONTO 0005
RUEHMT/AMCONSUL MONTREAL 0014
RUEHVC/AMCONSUL VANCOUVER 0096
RHMFIUU/DEPT OF ENERGY WASHINGTON DC
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RHEHNSC/NATIONAL SECURITY COUNCIL WASHINGTON DC
RUEKJCS/SECDEF WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RHMFIUU/HQ EPA WASHINGTON DC 0036

UNCLAS SECTION 01 OF 04 ULAANBAATAR 000015

SIPDIS

SENSITIVE

SIPDIS

STATE FOR EAP/CM, EB/ESC, AND EB/IFD/OIA
STATE PASS USTR, USGS, DOC/ITA, EXIM, OPIC, AND EPA
STATE PASS AID/ANE D. WINSTON
COMMERCE FOR ITA FOR ZHEN GONG CROSS
MILLENNIUM CHALLENGE CORP WASHDC FOR F.REID
TREASURY PASS USEDS TO IMF, WORLD BANK
MANILA AND LONDON FOR USEDS TO ADB, EBRD

E.O. 12958: N/A
TAGS: ENRG EMIN PREL SENV ELTN ETRD CA MG
SUBJECT: Visiting Canadian Trade Minister Advises Against State
Ownership of Natural Resources


SENSITIVE BUT UNCLASSIFIED - NOT FOR INTERNET DISTRIBUTION

1. (SBU) SUMMARY: Canadian International Trade Minister David
Emerson's 24 hour visit to Mongolia, the first by a Canadian
Minister in over 10 years, included meetings with President N.
Enkhbayar, Prime Minister S. Bayar, Foreign Minister Oyun, and his
counterpart at the Ministry of Industry and Trade Kh. Narankhuu.
Minister Emerson also spoke at a business breakfast largely attended
by Canadian mining firms active in Mongolia. At meetings with the
GOM and business representatives, Emerson made clear that the
Government of Canada (GOC) sought to discourage the Government of
Mongolia's (GOM) apparent insistence on owning and perhaps even
operating mines. However, he also signaled that Canada would engage
with Mongolia in the important mining sector, would support several
initiatives to improve mining administration and would begin
negotiations on a bilateral investment agreement with the GOM in
March. Emerson assured the business community that Canada intended
to support their positions before the GOM and that the GOC would
raise its profile in Mongolia. A local Canadian businessman was
made Canada's Honorary Consul, filling a position vacant these past
18 months. The Charge'and the British Ambassador respectively
explained U.S. and British approaches to moving investment forward.
END SUMMARY.

President Enkhbayar Bangs The Old Time Socialist Drum
--------------------------------------------- --------

2. (SBU) At the North American Mongolian Business Council's January
10 breakfast with business and diplomatic representatives, Minister
Emerson described the results of his meetings the previous day with
GOM senior officials. Emerson said he met with President Enkhbayar,
whom he characterized as extremely well informed, articulate, and
visionary. After this brief encomium, Emerson expressed concern
that Enkhbayar's approach to mining was too statist for Canadian
tastes, saying that Enkhbayar was behind many of the efforts to
re-nationalize Mongolia's natural resources, in spite of clear
evidence that this was not the best development path. Emerson
recounted for Enkhbayar that Canada, much to its regret, had already
tried nationalized resource businesses in mining and lumber, and
that those efforts had largely failed to produce sustainable,
efficient industries, forcing Canada to eventually privatize those
industries in the end. Canada's experience, and that of other
nations, demonstrated that a sound legal and administrative
framework could achieve the state's financial and social goals for
its environment and people more effectively than outright government
ownership and operation of assets.

PM Bayar's Pragmatic Government More
Encouraging Than Presidential Visions
--------------------------------------

3. (SBU) Emerson collectively praised PM Bayar, Foreign Minister S.
Oyun, and MIT Minister Narankhuu for their pragmatic approach to

ULAANBAATA 00000015 002 OF 004


developing Mongolia's resources. While the three senior GOM
officials acknowledged the severe political pressures for
nationalization impinging on Mongolia's development process, each of
them also recognized and agreed with the GOC's view that the GOM
needed foreign investment to bring its mines on line, and they
agreed with GOC views that government ownership of assets was not
the best way to develop them. However, ministerial discussions
revealed that the GOM simply lacked the statutory and regulatory
apparatus needed to manage its resources effectively even as just a
regulator, much less than as an owner. In response, Emerson stated
that the GOC intended to provide technical assistance to help the
GOM improve its regulatory framework. (Comment: Local analysts say
it is this gulf between the GOM's fear that it won't get its fair
share of Mongolia's mineral wealth and its inability to regulate the
sector to that end that is, as much as anything, driving GOM
attempts to nationalize assets, based on a belief that if the GOM
owns a piece of the pie outright, then it will at least get
something from natural resource extraction. Given that at least 30%
of the GOM's budget is underwritten by the state-owned Erdenet
copper mine, Mongolia's insistence on state participation is
explainable. End Comment.)

4. (SBU) Emerson also formally announced that the GOC would enter
into negotiations with the GOM on an investment agreement, the
"Foreign Investment Promotion and Protection Agreement," the aim of
which is to boost Canada's trade ties with Mongolia. Canada is
Mongolia's second-largest investor, with about US$397 million worth
of assets in the country, and the prospective agreement would give
investors from either country legally binding rights in the other.
Emerson stated that "our desire to put in place an investment
agreement with Mongolia is a clear expression of Canada's commitment
to building a strong long-term partnership."

Interaction with Canadian Mining Business,
Diplomats, and NGO Representatives
-----------------------------------------

5. (SBU) During the January 10 breakfast, Minister Emerson and his
delegation also heard a range of viewpoints regarding the GOM's
approach to mining. Mining representatives delivered consistent
points to the Minister. Firms stated they are able and willing to
handle the commercial aspects of their respective businesses, but
they want and need foreign governments to project a united front to
the GOM to cover their political flank. In short, the mining
companies told Canada to join U.S., British, Japanese, Australian
and German efforts to encourage (cajole, harangue, etc.) the GOM
into staying out of the mining business while creating a
transparent, predictable, best practice-based, rule of law approach
to regulating and profiting from its resource base.

6. (SBU) The British Ambassador echoed these sentiments. He noted
that Mongolia had not really grasped the implications of its
"Third-Neighbor" policy. Her Majesty's government was reconsidering

ULAANBAATA 00000015 003 OF 004


its level of engagement with Mongolia because Britain had little of
substance on the ground. If Mongolia wanted the British relationship
to continue or increase, it had to do what was necessary to get
British investment. If Mongolia really wants to balance China and
Russia with investment and political support from Britain, the U.S.,
Canada, Japan, etc., then it must create and sustain an environment
conducive to investment.

7. (SBU) The Charge' agreed with the British position, noting the
USG had consistently and constantly encouraged the GOM to create and
sustain a solid market environment for all investors. He added that
attracting investment also depended on Mongolia giving full and
careful consideration as well as a timely decision to major
development project proposals such as the copper-gold mine at Oyu
Tolgoi.

Chances For A Canadian Embassy In Mongolia Seem Slim
--------------------------------------------- -------

8. (SBU) Minister Emerson went out of his way to assure his fellow
Canadians that Canada intended to represent their interests more
assiduously. He noted that this first ministerial visit in 10 years
clearly indicated Canada's growing interest in Mongolia. (Note:
Minister Emerson's Policy Advisor told Commoff that he had to "beg"
Minister Emerson to take a day in Mongolia. Apparently, the
Minister was concerned about the distance between Beijing and
Ulaanbaatar (two hours flight time). The Advisor also pointed out
that Canada had at least US$400 million invested in Mongolia with
the prospect of more in coal, uranium, services, etc., and that the
Minister should give some push to an emerging portfolio.) He pointed
out that Canada had just the previous day formally installed a new
Honorary Canadian Consul, Mr. Alain Fontaine, a very accomplished
French Canadian who serves as the CEO of one of Mongolia's largest
technology and infrastructure firms.

Comment
-------

9. (SBU) The visit by Canadian Trade Minister Emerson has provided a
temporary boost in attention here and perhaps in Canada, but it is
important to note that neither the Mongolians nor the Canadians
present seemed to be much moved by Canadian protestations of
interest. One prominent local businessman was extremely indifferent,
saying he used to get excited about Canadian promises to set up shop
in Mongolia, but he has been disappointed so many times that he no
longer believes GOC promises. After all, the Minister provided no
time tables for raising the profile on the ground. And it was only
after Canadian firms protested loudly to Ottawa in recent years that
their Beijing Embassy increased the frequency of its brief TDY
visits to UB from annual to quarterly to monthly levels, albeit not
always consistently nor with the right officer at the right level.
And even the Honorary Consul post was left vacant for 18 months.
Nonetheless, from post's perspective, it was useful for senior

ULAANBAATA 00000015 004 OF 004


Mongolian officials to hear messages similar to our own from a
senior Canadian minister representing their second largest investor,
and one which can speak from experience of the faults of state
ownership and participation in the mining sector. END COMMENT.

Goldbeck

1

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