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Developing Mongolia's Legal Framework: A Needs Analysis
The Legislative Framework
After the pro-democracy demonstrations of 1990, followed by the breakdown of the CMEA trade and assistance arrangements the following year, Mongolia instituted a programme of economic and political reform designed to effect the transition to a market economy. It has since made rapid strides from the centralised ownership and decision making of a command economy to a freer and less regulated regime. At least until recently, much effort and foreign technical assistance was concentrated on economic advice, and on the whole there was less emphasis on legal and structural reform. Yet the economic, social and political changes brought about by the passing of new laws must be supported by a proper legal and administrative infrastructure. To what extent the current laws serve the policy objectives of a market economy and how they are served in turn by the relevant institutions are two of the themes of this report. There are a number of basic requirements for the legal framework of a market economy to enable it to function properly. Some of these will be the subject of substantive law; others will be institutional. Obviously they can be grouped differently, but essentially they are: LegalProperty rights. It is axiomatic that there must be rights of ownership in a market economy, as well as rules for the transfer of those rights. These rights and rules need to be defined by law, and in a civil law jurisdiction such as Mongolia this will generally mean regulation by the civil code. Business entities. The law should provide for the formation, regulation and dissolution of business entities, and ideally should also define the rights of foreign-owned entities and foreign citizens to conduct business within a country's territory. Contract. This is probably the principal means of transfer of ownership in a market economy, as well as the means through which labour is provided. In a civil law jurisdiction, the basic law of contract is found in the civil code, which will contain the requirements for entering into a contract, and remedies for breach. There will also be laws governing specific and more complex types of transaction. Fair marketplace. In order to promote competition and to encourage new entities to enter the marketplace, the law needs to establish some control over monopolistic activities and unfair trading practices. Finding the correct balance for this is still problematic in most developed economies. Any regulation may also aim to minimise or eliminate the activities of state-owned enterprises which often are the legacy of a dirigist past and frequently still hold a monopoly on their market. In addition, but perhaps not so basic, there should be laws on: Labour. The law will normally regulate the formation and powers of trade unions, employment contracts and collective bargaining, the right to strike and dismissal and redundancy. Financial matters. The law will normally seek to regulate such areas as banking, securities and capital markets, currency exchange, taxation, insurance and general accounting practices. InstitutionalAdministration. The laws and any ancillary regulations should be implemented and supervised by an impartial administration. To encourage entrepreneurship and market activity, it is important that decisions of administrative and quasi-judicial bodies be made according to clear and publicised rules and guidelines, and that all parties be treated fairly and impartially. In particular, there should be no special favours for state-owned enterprises, or discrimination against non-governmental or foreign entities in the way licences are granted or requirements are imposed. Judiciary. If disputes arise, particularly between enterprises and the government, there needs to be a system for the interpretation and enforcement of the law that is independent of the executive and legislative branches of government. There may also be alternative methods of dispute resolution such as arbitration or mediation. Publication. The entire body of laws, including all subsidiary legislative or administrative regulations, should meet certain tests of transparency. In particular, they should be widely publicised at the time of promulgation and thereafter be freely accessible to lawyers and general public alike. Hand in hand with all these requirements, both legal and institutional, is the expectation that business entities will be able to operate in the market economy as freely as possible ž in other words, that they will have the right to contract with whomever they wish and however they wish, that they will be able to carry out whatever sort of trade or economic activity they wish, and that they will be able to move wherever they wish, subject only to such reasonable restrictions as may be laid down by law in order to ensure a just and democratic society and the free and fair operation of the market economy. Unlike other former socialist countries, Mongolia did not have a suitable body of pre-Soviet legislation to revive after the passing of the command economy. As a consequence, Mongolia's national parliament, the Ikh Khural, has embarked on an extensive legislative programme and almost all of Mongoliažs current laws date from the period between 1991 and the present.1 The legislative process itself is considered in the next chapter. How well the laws fit the requirements of a market economy and some of the practical issues regarding their implementation will be considered in the rest of this chapter.
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