Executive Summary
During the Korea-Mongolia summit on July 9, 2026, the two countries reached an agreement in principle on the Comprehensive Economic Partnership Agreement (CEPA), which is expected to eliminate tariffs on critical materials. The agreement would allow South Korea to secure new sources of critical minerals and reduce its dependence on China. While this partnership is a significant step towards reaffirming deeper industrial and trade cooperation between the two parties, the agreement’s effectiveness will depend on transport logistics. Mongolia is a landlocked country and, as most of its exports go through Chinese or Russian railways, the two great powers may interfere with exports of minerals to South Korea.
Key Points
- Mongolia exports approximately 90 percent of its minerals to China, and its mining sector is heavily dependent on Chinese investment and infrastructure.
- Mongolia is a landlocked country, and most of its mineral exports must pass through Chinese railways and ports before reaching world markets, leaving its supply chains vulnerable to political interference by Beijing.
- Any Mongolian relationship with third parties requires strategic calculation in maintaining diplomatic relationships with Russia and China.
Analysis
The announcement of the CEPA agreement, which aims to eliminate import tariffs of 2 to 5 percent that had been imposed on Mongolian copper, molybdenum and rare earth elements, signifies an important step for South Korea to find alternative sources of raw materials for its growing tech industry and diversify its supply chain away from China, especially as South Korea currently imports half of its rare earths from China. China plays a crucial role in global rare-earth mining and processing, controlling roughly 59 percent and 90 percent, respectively, of these procedures worldwide. Mongolia possesses the world’s second-largest rare-earth reserves after China at approximately 31 million tons—roughly 16 per cent of the global total.
However, transporting minerals from Mongolia to other countries, including South Korea, is not straightforward. Mongolia has no access to the sea, so its exports must go through China’s Tianjin port or Russian railways. This dependency leaves Mongolia’s exports vulnerable to China’s rising customs costs and interference. As South Korea-China trade relations have been under strain since the Chinese government threatened to impose export control measures on products containing rare earths in 2025, it is not unlikely that China’s economic coercion could delay shipments, which could have immediate consequences for South Korea’s manufacturing. To overcome this issue, South Korea is exploring both building processing facilities directly in Mongolia and flying the finished materials by air. The latter option was tested on June 27, when the first shipment of tungsten concentrate was flown from Mongolia into South Korea,, demonstrating that, from a logistical point of view, this transportation route is viable. Whether this is sufficient for the supply chain will be visible only in the long term.
Policy Implications
- The CEPA alone between Mongolia and South Korea is not enough to meaningfully change the trade relationship between the countries. Korea must invest in processing facilities inside Mongolia to reduce dependence on Chinese transit. Without local processing capacity, tariff elimination means little if minerals cannot physically reach Korea.
- Air travel between Mongolia and South Korea could be a significant way to overcome Chinese export controls. However, air freight is currently only viable for processed concentrates, not raw heavy ore. A sustainable air route requires significant investment in Mongolian processing infrastructure that does not yet exist at scale.
- With Wang Yi, Chinese Minister of Foreign Affairs, visit to Mongolia in June 2026 and Xi Jinping potential visit to the country for the first time in 12 years, Mongolia’s diplomatic balancing act between China, Russia and third parties such as South Korea will define the agreement’s long-term viability more than its text.
Bibliography
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