Mongolia : Developing the Economic Cooperation Zone Project

Industry and trade / Industry and trade sector development - Small and medium enterprise development - Trade and services

Information and communication technology / ICT industries and ICT-enabled services

Transport / Road transport (non-urban)

International trade plays a critical economic role in Mongolia where the exports-to-GDP ratio stands at 62%. However, Mongolia's exports are constrained by the border delays, poor infrastructure, and weak regulatory environment that drive up its trade costs. This has been exacerbated by the unprecedented disruptions to the global economy due to the coronavirus disease (COVID-19) and the economic slowdown in the PRC. The pandemic has heightened Mongolia's need to facilitate international trade, which will be crucial to its post-pandemic economic recovery. An enabling environment is required for the private sector to maximize the impact of the government's emergency stimulus package and adapt to the rapidly evolving global economic and trade landscape. The development of an economic cooperation zone with project support is important to this effort. By providing the necessary infrastructure, facilities, and sustainable operations and management capacity in the zone, the project is expected to enable the private sector to build and improve production capacity and expand trade activities. In addition, the travel restrictions, border closures, and stricter border controls imposed worldwide to slow COVID-19's spread highlight the importance of strengthening the country's resilience to transboundary health risks. Greater use of technology and stronger systems will equip Mongolia's border agencies to better manage these risks, especially future pandemics, by enabling them to share information with one another and with their counterparts in neighboring countries. The port-of-entry system to be established under the project will support this interagency and cross-border interoperability and data sharing, particularly on customs, immigration, and inspection information. Improved traceability and coordinated risk management will result, making the cross-border movement of goods and people safer and more efficient.

Free zone development is one of Mongolia's economic diversification initiatives and will also strengthen Mongolia's participation in global and regional value chains. Industries established in the zones are expected to generate a variety of exports, ranging from agricultural and manufacturing products to trade-related services. Free zones can nurture the creation of industrial clusters within the country and with neighboring countries. The Zamyn-Uud free zone is 780 kilometers southeast of Ulaanbaatar and adjacent to the border crossing point at Zamyn-Uud. This is the largest and busiest border crossing point on CAREC corridor 4 and where road, rail, and air transport networks meet. It is also the border crossing closest to Tianjin, the gateway port in the PRC for Mongolia's shipments to Japan and the Republic of Korea. Under the framework of their 2011 comprehensive strategic partnership, Mongolia and the PRC signed an agreement in June 2019 to establish the economic cooperation zone to connect Mongolia's Zamyn-Uud free zone with the PRC's Erenhot zone located in the Inner Mongolia Autonomous Region. As Mongolia's largest trading partner, the PRC was the recipient of 93% of Mongolia's exports and the source of 34% of Mongolia's imports in 2018. A substantial portion of this trade goes through the Zamyn-Uud border crossing point. Developing the economic cooperation zone will reduce Mongolia's trade costs and support its economic diversification. It will also benefit the district's population of 18,930, of which about 6,000 are women who cross the border daily to engage in informal trade.

Economic diversification and trade linkages with global and regional value chains enhanced (CAREC Integrated Trade Agenda 2030, Pillar 2)

Economic activities and employment in Zamyn-Uud free zone generated

Zamyn-Uud free zone infrastructure and facilities constructed and operational

Sustainable operations and management of Zamyn-Uud free zone promoted

Zamyn-Uud free zone port of entry system established

The draft master plan for the Zamyn-Uud free zone was considered by the Ministerial Council of Ministry of Construction and Urban Development on 22 February 2022 and submitted to the Cabinet for approval. However, the approval of the master plan was put on hold pending ongoing discussions under the bilateral agreement on economic cooperation zone between Mongolia and the People's Republic of China. Underscoring the urgency of the approval of the master plan to avoid further delays in project implementation, and given that development priorities and available resources are constantly changing, flexibility is encouraged in the master plan so that it can easily be adapted to accommodate future free zone development.

The CS01 Detailed Engineering Design (DED) consulting firm package has been selected and commenced its work on 1 April 2022 working in parallel with the EA and IAs and the firm developing the master plan. Inception and progress reports have been submitted.

Submission 2 for the selection of CS02 Free-zone Management Advisory Firm package has been approved. Financial evaluation is expected to commence in October 2022.

The environment specialist; social and gender development specialist; trade facilitation, border management, ICT advisor; business and data analyst; and legal experts have all been engaged. The gender specialist visited the project site to meet with stakeholders to introduce the detailed plan of the GAP, exchange views on how to organize the gender activities effectively, and to collect necessary statistics of Zamyn-Uud soum.

On 29 March 2022, a public consultation was held with representatives of 81 business organizations. During the meeting, free-zone operation, project activity, ADB safeguards, and gender policy and action plans were introduced and discussed. It was attended by 51 participants. Further consultation meetings were held with a total of 173 people.

An ADB special loan review mission was conducted in August 2022 to assess the impact of Mongolia's New Recovery Policy; Amendment of the Law on Free Zones for Mongolia; and the ratification of the bilateral economic cooperation zone agreement between Mongolia and the PRC with project implementation.

All consultants will be recruited according to ADB''s Procurement Regulations and Procurement Policy, except recruitment of the core five PIU staff which will be recruited according to MOF Resolution No. 196 (as updated).

Consultants will be engaged using quality and cost-based selection with the standard ratio of 80:20, consultants' qualification selection, single source selection and individual consultant selection methods. The consultant recruitment will be closely monitored and supervised by ADB.

All advance contracting will be undertaken in conformity with the ADB Procurement Policy (2017, as amended from time to time).

All procurement of goods and works will be undertaken in accordance with ADB''s Procurement Regulations and Procurement Policy. Open competitive bidding will be applied to all goods and civil works contracts estimated to cost $100,001 and above. 'Request for Quotations will be used for contracts for works and goods valued up to $100,000 and below.

In accordance with ADB requirements, foreign bidders may participate in bidding for open competitive bidding national advertisement contracts. The executing and implementing agencies have been advised of the need to maintain transparency and accountability in procuring goods and services, as required under ADB''s Anticorruption Policy (1998, as amended from time to time). The relevant sections of ADB's Anticorruption Policy will be included in all bidding documents and contracts.