Mongolia became an Organization for Security and Cooperation in Europe (OSCE) participating State in 2012, the most recent country to freely undertake all OSCE commitments. Previously, Mongolia—like Australia, several countries in Asia, and a number of Mediterranean nations— had been an OSCE Partner for Cooperation, states in formal dialogue with the OSCE, though not taking on OSCE commitments. This transition—from partner to full-fledged participant—is the first time such a transition had been made, and marks the first ever enlargement of the OSCE region. It signaled the strong commitment of Mongolia to the values articulated in the Helsinki Final Act.

Recently, Helsinki Commission staff visited Mongolia to meet with interlocutors in government, civil society, and the private sector. The delegation found entrepreneurial partners committed to democratic values and fundamental freedoms. This was particularly impressive given that the country is located between Russia and China—large authoritarian powers known for their use of economic and other forms of coercion to achieve foreign policy goals.

However, Mongolia also faces emerging challenges regarding public corruption and the rule of law. While Mongolia remains the sole strong democracy in the region, recent developments and trends may threaten its democratic achievements and its potential to be a model for other nations in the region.

The OSCE is based on an idea of comprehensive security: the concept that military security, economic security, and human security must all be considered when engaging in international relations. Mongolia can be analyzed through a similar lens, with its military situation, economic situation and human rights situation all informing policy toward the country.

First Dimension: Political-Military Affairs

Mongolia is in the quintessential bad neighborhood. No two countries have acted as aggressively toward their neighbors Russia and China. Russia currently is in violation of all ten Helsinki principles as a result of its occupation of Crimea and continuing destabilization of Eastern Ukraine.

Luckily, neither of Mongolia’s neighbors has yet opted to invade the country. Historically, Russia has acted as guarantor of Mongolia’s sovereignty against China, the much more likely candidate of the two to pose an immediate security threat. However, recently Russia has increased its cooperation with China, as demonstrated by a recent Russia-China joint military exercise.

While Mongolia continues to purchase arms from Russia, this new trend of Russian-Chinese cooperation poses the most important threat to Mongolian security. Already, Mongolia has been pressured to join the Shanghai Cooperation Organization (SCO), a China-centric political alliance—to which Russia also belongs—based on authoritarianism and dedicated to the eradication of the so-called three evils of terrorism, extremism, and separatism.

However, there are also reasons to doubt the future of Russia-China cooperation. Mongolian national security experts seem certain that the scope of cooperation has a low ceiling and that much of the collaboration—like the recent military exercise—is just for show. These experts argue that Russia has no desire to subordinate itself to Chinese interests in the long-term, which it would be required to do to enhance cooperation; China is the much stronger partner.

Second Dimension: Economic & Environmental Issues

While a military invasion of Mongolia by China remains unlikely, China has found other ways to exert its influence in the country, largely through economic coercion. China’s economic weight and importance as a market for Mongolia—a commodity-based economy heavily reliant on its much larger neighbor—means that China can dictate terms on contracts and agreements. It can also leverage this economic power for political purposes as it famously did when it closed a key China-Mongolia border crossing for truckers after the Dalai Lama visited Ulaanbaatar.

As a result, Mongolian policymakers have begun to search for new markets, products, and opportunities that could diversify their economy. One key product is cashmere. Currently, most cashmere exports to the United States originate from China, which, thanks to its enormous market, largely determines the global price of cashmere. This enables China to purchase Mongolian cashmere cheaply and prevent it from posing a challenge to the Chinese cashmere industry.

The Mongolia Third Neighbor Trade Act (H.R. 2219 and S. 1188) currently being considered by the U.S. Congress would remove U.S. tariffs on Mongolian cashmere goods and increase the demand for raw cashmere within Mongolia, empowering domestic producers and eroding China’s quasi-monopolistic control of the market. In doing so, the Third Neighbor Trade Act would help to diversify Mongolia’s economy and make it more resilient against its large, aggressive neighbor to the south. It would also serve to empower women in the country, who are employed disproportionately to men in cashmere factories.

However, sustainability remains a problem. The goats from which cashmere is derived feed on grass in a destructive way, pulling out root and stem. This can lead to the desertification of the environment. As demand for cashmere increases and nomads enhance their herds with additional goats, one can expect this tragedy of the commons to become worse. Though producers of cashmere goods within Mongolia have attempted to build sustainability into their business models, the U.S. Congress may wish to consider this aspect of the business to prevent any unintended environmental consequences of increased demand for Mongolian cashmere.

Corruption

Mongolia is currently struggling to address an ongoing public corruption problem, in part through the Independent Agency Against Corruption, an independent investigative law enforcement agency designed to fight graft. Still, reporting shows that bribery and abuse of public office remain a problem in the country and one that should be of concern as an OSCE participating State.

Mongolia was recently added to the grey list kept by the Financial Action Taskforce (FATF). The FATF is the premier international governing, rulemaking, and peer evaluation body for financial conduct. Its most potent tool is the FATF black list, which identifies countries that do not comply with its list of international financial standards designed to prevent threat financing and money laundering. The price of landing on this black list is immense—banks will not do business with blacklisted countries, or entities located within them, leading to enormous losses in potential revenue. The grey list serves as the warning list prior to inclusion on the black list.

Though grand corruption may have gotten in the way of completing the necessary reforms to avoid a designation on the FATF grey list, in Mongolia’s case, it appears that the problem may be primarily one of capacity. Mongolia has never had to establish the anti-money laundering framework of a more developed country and lacks the training and expertise to bring itself in compliance. The U.S. Department of the Treasury is already providing assistance to Mongolia to build robust anti-money laundering systems that will get it off the grey list.

An OSCE field mission could also assist with these and other capacity problems; however, all participating States must agree to allow Mongolia to host such a mission. Russia continues to block this move.

Rule of Law

While lack of capacity explains many of Mongolia’s compliance problems, signs indicate that certain powerful political players are seeking to roll back rule of law safeguards in the country. Recently, a law was passed enabling the National Security Council of Mongolia—a small body consisting of the President, the Prime Minister, and the Speaker—to dismiss judges due to claims of corruption. While the council argues that reform necessary to take down corrupt judges who would otherwise be defended by the patrons they serve, it is not hard to imagine how this power could abused. At least 17 judges have been dismissed in this fashion.

The National Security Council claims that this power will no longer be necessary once they have completed reforms that should weed corruption out of the judiciary. This reform includes new bodies to both select and discipline judges.

Third Dimension: Human Rights and Humanitarian Issues

Media Consolidation

Media consolidation is a growing problem for journalism in Mongolia. The major media outlets of the country are owned by a handful of individuals who use this ownership to further their political agendas. As a result, journalists are at risk of self-censorship or even pushed to promote stories that further the political narratives of the media tycoons. Media consolidation breeds a problematic information environment in Mongolia and contributes to a lack of opinion diversity.

Closing Space for Civil Society

Mongolia also seems threatened by the potential for the ruling elite to close the space for the operation of civil society. A draft law proposes creating a public fund that would serve as the exclusive funding source for all civil society operations. This would mean that civil society would be forced to comply with the conditions put on this fund or cease to exist. While this approach is not yet law, interlocutors warned that the next election will be one to watch and could lead to the consolidation of power should certain elements be victorious.

Conclusion

Mongolia is a country with great potential to contribute to the Helsinki Process if it is empowered to do so. By joining the organization in 2012, it proved that the OSCE could grow. Now, it seeks to demonstrate its leadership once again by receiving an OSCE field mission at a time when many of its neighbors are trying to close theirs—like Kazakhstan—or have successfully closed theirs—like Azerbaijan. With the right combination of ambition and caution, Mongolia could lead the way to a future of democracy in the steppe.

However, there are warning signs that Mongolia could be heading in the wrong direction. The United States should do everything in its power to prevent this—both via diplomatic engagement and economic assistance. The clearest way for Congress to do this is through the passage of the Third Neighbor Trade Act.

The OSCE too should focus its efforts on Mongolia as a far-flung state with immense potential. Mongolians could take up leadership positions in its institutions, potentially even serving as a Chair-in-Office in the near future. By becoming more visible in the organization itself, Mongolia can build its profile as a leader and the OSCE can take advantage of its expertise in preserving democracy in a hard neighborhood.