Brunei Darussalam eyes Pacific trade benefits

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Foreign direct investment (FDI) and trade in Brunei Darussalam are expected to increase under the recently agreed Trans-Pacific Partnership (TPP) deal, dovetailing with the Sultanate’s efforts to diversify its economy.

Trade growth would be welcome news given the current economic climate. According to the latest figures from Brunei’s Department of Economic Planning and Development, total trade was down 26.6% year-to-date in July at BN7.9bn ($5.6bn), with exports down 35.2% year-on-year, while imports rose by 5.2%.

Trade talks

The TPP marks an expansion of the Trans-Pacific Strategic Economic Partnership Agreement, set up by Brunei, Chile, New Zealand and Singapore in 2006.

The proposed addition of Australia, Canada, Japan, Malaysia, Mexico, Peru, the US and Vietnam, first mooted in 2008, will change the bloc’s composition significantly, with the new group accounting for around 40% of the world’s GDP and roughly one-third of global trade.

Talks among the TPP’s 12 potential member states on a proposed trade agreement have, at times, been marked by wrangling, with negotiators working over a five-year period to reach consensus on a series of issues, ranging from the removal of tariffs to intellectual property (IP) rights.

Hopes of a breakthrough came in early October in the US city of Atlanta, when Shinzo Abe, the Japanese prime minister, announced that parties had finally reached “broad agreement” on a deal, which he described as a “major outcome not just for Japan but also for the future of the Asia-Pacific”.

The deal also represents a considerable success for Brunei, alongside other founding TPP members, bringing hopes of a welcome boost in trade activity.

Combined income gains for the participating members could be as high at $110bn per year, according to Joshua Meltzer, senior fellow in global economy and development at the Washington-based Brookings Institution, with global benefits reaching close to $300bn.

Moving forward

October’s meeting represented a key stage in the process, paving the way for individual member states to move towards ratifying the deal, although some members are likely to face domestic political headwinds, including Canada and the US.

While much is still to be known about the specifics of the agreement, as the majority of negotiations have taken place behind closed door and the text of the agreement has yet to be released, some general information is known on several key trade issues, such as the bloc’s plans to do away with tariffs on at least 18,000 products among member states.

The removal of these barriers is expected to pave the way for the eventual signatories to build on their competitive strengths and gain entry to what have previously been relatively restricted markets.

Mixed bag for Brunei

In Brunei’s case, food imports and manufactured goods from countries outside the scope of current free trade agreements (FTAs) could become less expensive and more available, while the Sultanate’s exporters are set to gain better access to non-ASEAN markets around the Pacific.

Broader in scope than a conventional FTA, the TPP also sets out commercial rules in areas that have traditionally been sticking points, such as resolving investor-state disputes and IP rights.

Additionally, the TPP reportedly addresses cross-border trade in services, as well as investment and non-tariff trade barriers – all of which could yield benefits for the Sultanate, according to local media coverage.

The agreement is also expected to provide impetus to improve Brunei’s regional and global competitiveness. Ease of doing business in Brunei has improved sharply since last year, according to the World Bank’s most recent “Doing Business” rankings. The Sultanate ranked 84th out of 189 countries this year, compared to 105th in the 2015 survey. The 21-place improvement was due in large part to a 107-rank jump in the starting a business category, to 74th place, with better online procedures and simplified registration requirements cited as key improvements.

Obtaining a share of an expanding Asia-Pacific FDI market is also likely to be high on the Sultanate’s agenda, and this stands to benefit from the TPP. According to the US Trade Representative’s summary of the investment provisions of the deal, investments made in other member states could receive protections, with national treatment and most-favoured-national treatment both explicitly mentioned. This could provide added protections for the Sultanate’s $30bn sovereign wealth fund, the Brunei Investment Agency, as well as inspire confidence in investors looking to expand into the Sultanate.

However, as with any trade deal, some elements of the agreement could be less positive for Brunei. Further specifications on the treatment of state-owned enterprises (SOEs), for example, could impact the Sultanate, particularly if limits were to be imposed on the sectors in which SOEs can operate or the market share they can enjoy.

With the TPP clearly aimed at encouraging private enterprise, Bruneian businesses will also have to contend with a much more competitive environment. As such, Brunei will have to strategically position itself in relation to other FDI magnets that are set to benefit from the TPP, including Vietnam and Malaysia, particularly given Vietnam’s recently agreed FTA with the EU, announced in early August.

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