Problems for Land-Locked Countries

Mongolia is one of the 48 countries in the world that are land-locked. About one quarter of the world's 205 countries are land-locked and these countries tend to have lower human development statistics compared to the rest of the world. Being land-locked is regarded as a disadvantageous because it can severely limit a country's access to global markets and global trade.  In general, coastal regions tended to be wealthier and more heavily populated than inland ones. Paul Collier in his book The Bottom Billion wrote, "If you are coastal, you serve the world; if you are landlocked, you serve your neighbors." Mongolia is no exception to these difficulties. The country has only two neighbors in China and Russia, and both countries have a very strong influence over Mongolia's economy. China for instance, controls the price of Mongolia's copper and coal exports and competitive pricing is restricted by Mongolia's limited access to international ports. China's recent growth has spilled across the border and is the main driver in Mongolia's mining driven development. 

With regards to the cross-boarder transit, there are international regulations that have been established in order to protect the rights of land-locked countries' to access global markets. In 1965 there was a 'UN Convention on Transit Trade of Land-locked States,' which granted special protections to land-locked countries with regards to access to sea ports and world trade. In 1982, there was a United Nations Convention on the Laws of the Sea, which protects the freedom of transit for land-locked states. Unfortunately both conventions are subject to bilateral, sub-regional or regional agreements. In other words, the rights of transit must be agreed upon with the transit neighbor in a formal trade agreement. In practice the protections granted in the UN conventions are not always honored by the transit country. The rights of transit of land-locked developing countries (LLDCs) remains an unresolved issue in international economic policy. Mongolia held a conference for LLDCs to discuss these trade issues in 2007. 

Mongolia is currently looking for ways to gain access to Korea and Japanese markets to sell its coal exports. The most direct route to these markets is through China and the port city of Tianjin, which has a free trade area. There is also the possibility of going through Russia, through Vladivostok, but it is not certain that Russia's rail network can support the quantity of coal that Mongolia is expected to export from its Tavan Tolgoi mine. Also, going through Russia will have significantly higher transit costs given the distance that needs to be traveled. Vladivostok can be reached from Mongolia by either going directly north to Russia and then circling around Manchuria, or by going Northeast and cutting through Northern Manchuria. Either way the distance that needs to be traveled by rail is significantly higher than the route through China to Tianjin. 

Mongolia will need to negotiate with China or Russia to set up some kind of transit agreement. China has no incentive to grant free transit because it already enjoys control over Mongolia's  coal exports. However, if Russia is approached first, it might be possible to pressure China into a more favorable agreement (Plan A). If China does not budge then plan B would be to secure a deal with Russia and accept the higher transit fees. The UN conventions will most likely help Mongolia's case at the bargaining table, but once again they hold little clout because they are not often followed and have no history of enforcement. Mongolia might also be helped by the World Trade Organization, of which Russia, China and Mongolia are members. However, it would be important to isolate Russia and China in negotiations in order to reduce the chance that they might collaborate to restrict Mongolia's export markets. 

DBM is currently raising funds for a railroad project that will run directly from Tavan Tolgoi to a Chinese border station. A later phase in the National Rail Project will connect TT with to the Russian boarder station.