Lack of transparency to amend the law on investment

By R.Oyundelger and B.Myagmardorj

It has been greater than two years for the reason that Mongolian authorities established a working group to draft the renewal of the Mongolian Legislation on Funding. Nevertheless, the draft and its progress stay unknown to the public, as just a few factors from interviews in 2022 have briefly talked about about it.

In response to the Mongolian Legislation on Laws, a renewal of a regulation is thought-about to have taken place when the elemental idea of the regulation or greater than 50 % of the regulation is proposed to be modified. This implies that the evaluate may have a big affect on the funding sector in Mongolia. The frequent modifications in the authorized framework have contributed to the notion of Mongolia as an unstable funding vacation spot. The instability of the authorized surroundings for funding has been a longstanding concern in Mongolia. For instance, the 1993 Legislation on Overseas Funding was amended 10 instances, with a complete of 110 modifications made to 64 clauses of the regulation. Equally, the 2013 Legislation on Funding was amended 11 instances inside simply 10 years, with a complete of 40 modifications made to 27 clauses of the regulation. The frequent modifications within the authorized framework have contributed to the notion of Mongolia as an unstable funding vacation spot. It has additionally been reported that the instability of the authorized local weather, as properly as the federal government’s actions and insurance policies, have an effect on the international direct funding (FDI) influx.

Since Mongolia first established laws for international funding in 1993, the nation has seen a gradual improve in FDI influx, with a noticeable decline between 2013 and 2015. Many consider that it was not a coincidence that the nation renewed its funding laws by adopting the 2013 Funding Legislation. Then, since 2017, the FDI influx elevated till 2019, nonetheless, coinciding with the COVID-19 pandemic, there was the following main decline.

As FDI performs a vital function in Mongolia’s economic system, each the ruling events and the federal government have made guarantees to enhancing transparency and the authorized surroundings for funding. The present authorities’s long-term coverage doc, “Imaginative and prescient 2050”, and its motion plan for 2020–2024 each prioritize this problem, highlighting the significance of making a steady and predictable surroundings to draw funding and foster financial development.

Chapter 4 of “Imaginative and prescient 2050” outlines that Mongolia’s targets for enhancing public debt administration, decreasing debt burdens, and creating a good surroundings for FDI throughout stage I (2021-2030). The plan additionally goals to ascertain Mongolia as a aggressive funding hub in Northeast Asia throughout stage II (2031-2040). Moreover, Article 4.5.3 of the federal government’s motion plan for 2020-2024 highlights particular measures to assist international funding in precedence sectors comparable to infrastructure, mining, vitality, meals, agriculture, tourism, and mega initiatives. The federal government pledges to constantly safeguard the curiosity of international traders, and facilitate to concessional loans and grant help.

Nevertheless, the method of proposing or adopting new legal guidelines in Mongolia just isn’t all the time clear, as confirmed by the Mongolia Funding Local weather Assertion from the U.S. Embassy in Mongolia. Whereas the laws of associated legal guidelines align with the Transparency Settlement between Mongolia and the U.S., the federal government doesn’t constantly implement it. The Transparency Settlement requires every occasion to publish proposed measures prematurely and supply events with an inexpensive alternative to touch upon such measures. Likewise, articles 4.1.1 and 4.1.2 of the Legislation on Laws set the identical rules for the method of drafting and proposing new laws.

entatives, B.Solongoo (the present vice-minister of Justice and House Affairs (JHA), who was beforehand answerable for the duty, and Ch.Khurelbaatar, the present minister of Economic system and Growth, who’s presently answerable for the duty) attended conferences organized by the American Chamber of Commerce in Ulaanbaatar, Mongolia. This might be seen as an try to satisfy the federal government’s obligation underneath the mentioned Transparency Settlement as a formality. The explanation to consider so is that, in August 2022, B.Solongoo states that the federal government would publish the complete draft of the renewal in each English and Mongolian, and the proposal can be submitted to the speaker by December 2022. She and Kh.Nyambaatar, Minister of JHA, mentioned that the renewal draft has seven chapters and 30 sections, indicating that that they had already finalized the draft however had not made it public.

In February 2023, the spokeswoman of the Prime Minister introduced on Twitter that the Ministry of Economic system and Growth had withdrawn the draft of amended funding regulation, which was ready by the working group led by the vice-minister of JHA, B.Solongoo, and can submit it after reflecting their proposals on the draft. It seems that the draft was already submitted with out being made publicly out there. It has been reported that the representatives of the working group participated in investment-related conferences to introduce or to debate the draft. Nevertheless, as of now, the renewed funding regulation just isn’t included within the parliament’s spring session agenda.

Underneath article 4.1 of the Laws Legislation, the rules of transparency and public participation should be noticed. Nevertheless, evidently the present authorities and the parliament are regularly disregarding this precept. The latest and obtrusive instance was the brand new Legislation on Safety of Human Rights on Social Media, which was handed in January 2023 with the lightning velocity, simply in the future after changing into public data. Because of energetic criticism from residents and civil society organizations, President U.Khurelsukh vetoed the regulation in full, together with the amendments, and the Parliament accepted the president’s veto.

For the above-mentioned regulation, the Prime Minister exercised his energy to request a direct dialogue of the proposal underneath article 14.1.18 of the Act of Parliament and article 21.1 of the Legislation on Parliamentary Session, claiming that it was associated to making sure the financial dimensions of nationwide safety. Nevertheless, each of them failed to offer a transparent rationalization or proof that it was certainly associated to nationwide safety.

There’s a development the place the ruling occasion appears to be utilizing “rapid dialogue” regulation regularly. As an example, the renewal of the Legislation on Tourism was additionally submitted for a similar process however was not profitable, and the explanations weren’t publicly out there.

In response to B.Solongoo, the invoice that the working group led by her aimed to extend international funding by establishing a council to guard traders’ pursuits and guarantee their belief. The authorized framework will likely be improved to implement non-tax assist for traders, align tax assist with related tax legal guidelines, and make clear laws for dispute resolutions and enforcement of court docket judgments/arbitration awards.

In her interviews, B.Solongoo acknowledged that the proposed renewal of the funding regulation consists of the creation of two classes of funding sectors: financial precedence sectors and financial sectors supported inside a sure scope. At present, the regulation requires international traders to speculate at the least 100,000 USD, however the draft regulation proposes that the share capital of the authorized entity or firm ought to be at the least 100,000 USD. This transformation goals to remove the difficulties that almost all international traders face when establishing a three way partnership with home traders. Moreover, the proposed renewal consists of the institution of an company for Overseas Commerce and Funding underneath the Ministry of Economic system and Growth. The proposal additionally consists of laws aimed toward eliminating the tax obligation for traders who purchase firms with licenses. Lastly, the proposal seeks to make clear the definition of a foreign-invested firm.

Though the proposed modification of the funding regulation might have optimistic results on the economic system, it’s essential for the federal government to make sure that the rules of transparency and public participation are adopted all through implementation course of. Whereas the federal government representatives’ displays and introductions are appreciated, the precise content material of the draft is of utmost significance. Sadly, your complete course of lacks transparency and engagement with companions and stakeholders, which clearly raises considerations. To actually entice funding, enhance the authorized local weather for funding, and foster belief, the federal government ought to prioritize transparency and adjust to relevant bilateral agreements, treaties, and legal guidelines on laws. By doing so, it might create a good surroundings that encourages funding and promotes sustainable financial development.