The Sultanate is a strong advocate of free trade and regional integration

As one of ASEAN’s richest but smallest member states, Brunei Darussalam gained enormously from its decision to join the organisation just a week after gaining independence in 1984. “Joining ASEAN was a way to solidify statehood,” said Bangkok-based regional political analyst Chayut Setboonsarng. “As a small country being part of a regional grouping increases its leverage, especially during its year as chair.” Brunei Darussalam chaired ASEAN most recently in 2013.

Moving Towards AEC

The 10-member grouping gave the Sultanate, with a population of slightly more than 400,000 people, an opportunity to boost trade and diversify its economy beyond the oil and gas that make up about 90% of its exports and contribute 60% of GDP. For Brunei Darussalam’s companies, mostly government-owned, ASEAN membership also offered access to a market that is now made up of more than 600m people. Brunei Darussalam also joined the Asia-Pacific Economic Cooperation, and has pursued the goals of the ASEAN Economic Community (AEC), which is due to come into effect, at least for the bloc’s richer members, on December 31, 2015. The AEC aims to create a single market and production base as well as a competitive, globally integrated regional economy. The poorer countries – Cambodia, Laos, Myanmar and Vietnam – have been given more time to reduce tariffs and liberalise markets to secure more equitable development.

Free Trade

With the Ministry of Foreign Affairs describing free trade as a “vital part” of its trade policy, Brunei Darussalam’s enthusiasm for the AEC is perhaps not surprising. As well as the free trade agreements (FTAs) it has signed as part of ASEAN, the Sultanate has also concluded an FTA with Japan in 2007 and was a founding member of P4, with Chile, Singapore and New Zealand. That agreement has been expanded to include the US and Japan as well as four ASEAN members, and is now known as the Trans-Pacific Partnership. Its terms are seen as considerably more demanding than any existing trade deal, including the Regional Comprehensive Economic Partnership, which includes the ASEAN 10 as well as the countries, such as China, with which they already have free trade deals.

Economy

Yet, for all its talk of economic diversification and the benefits of free trade, the Sultanate remains heavily dependent on oil and gas. The financial returns from the industry have helped fund a comfortable lifestyle for its people and turned the public sector into the country’s largest employer. As the third-largest oil producer in South-east Asia and the fourth-largest producer of liquefied natural gas, the Sultanate has had little incentive to expand its private sector and develop alternative sources of growth, even though it recognised the need to do so even before independence.

GDP growth has averaged about 1.7% a year over the past two decades, the lowest among ASEAN’s 10 members, according to Wee Chian Koh, an associate researcher at the Centre for Strategic and Policy Studies in Bandar Seri Begawan. In the 2013 ASEAN Business Advisory Council survey, the most recent available, Brunei Darussalam was ranked the least attractive destination for investment. Just 17% of respondents said they had plans to invest in the country in the three years up to 2015, compared with 45% for Singapore, at the top of the ranking, and 42% for Malaysia.

Barriers

In an analysis of trade between 2000 and 2011 published in The Southeast Asian Journal of Economic Development in December 2013, Koh noted the existence of what he described as significant “behind the border” inefficiencies deterring inward investment. Other commentators have voiced similar concerns, not only in Brunei Darussalam, but also throughout the ASEAN region. “With the virtual elimination of tariffs what is becoming a growing policy concern are the non-tariff measures [NTMs] since they have the potential to be measures for trade protection and thus become non-tariff barriers,” the Economic Research Institute for ASEAN and East Asia wrote in January 2014. “NTMs are much less transparent and more complex, covering a wide range of regulations that can have an impact on the volume or pricing of international trade in goods.”

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The Report: Brunei Darussalam 2014

Trade & Investment chapter from The Report: Brunei Darussalam 2014

Cover of The Report: Brunei Darussalam 2014

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