Brunei is the seventh country with which Japan has signed a free trade agreement, after Singapore, Mexico, Malaysia, the Philippines, Chile and Thailand. The Japan-Brunei partnership agreement is expected to take effect by late spring of next year. The agreement will eliminate tariffs on 99.9% of trade between the two countries over the next 10 years. Under the agreement, Brunei will also abolish a 20% tariff imposed on automobile parts from Japan within three years after the agreement takes effect. After five years, the 5 to 20% import tariffs on Japanese electronic equipment will be eliminated entirely.
"Japan is a leading export destination and an important investor for Brunei Darussalam, while Brunei Darussalam is an important supplier of oil and natural gas for Japan. We are convinced that there are still a lot of opportunities and potential to strengthen our bilateral relationship and renew our commitment to enhance our ties," said the Sultan at a press conference after the signing ceremony.
This is Brunei's first bilateral partnership agreement, which will open new market opportunities for Brunei as well as attracting more foreign direct investment into the country. Increased cooperation between the two countries will hopefully spur economic growth in various sectors, including energy, agriculture, tourism and ICT.
For example last year, Brunei's national petroleum company, PetroleumBrunei, formed partnerships with three Japanese companies for the construction of Brunei's first methanol plant at Sungai Liang Industrial Park.
Assessing the advantages of such partnerships, Awang Haji Mohd Jaafar, the chief executive officer of PetroleumBrunei, told OBG, "The benefit of diversifying this industry is to create more jobs, generate more revenue and develop a different kind of economy with different types of expertise. The methanol project could shift people's minds towards chemistry as an attractive career."
The bilateral deal is also seen as a new step by Japan to secure a stable energy supply from Brunei. Japan has made long-standing investment contracts in Brunei for importing approximately $2bn worth of Bruneian resouces, 99% of which being liquefied natural gas (LNG) and crude oil. Equally, Japan exported $93m worth of products to Brunei in 2005, with automotive parts accounting for 71% of the total.
Some 90% of Brunei's LNG produced is sold to Japan under a long-term agreement first signed in 1973 and renewed in 1993 for another 20 years.
Fred Smeenk, the managing director of Brunei LNG, told OBG, "The overwhelming opinion within the business community is that the industry will continue to be dominated by long-term contracts and relationships. From our point of view, after 2013, we are looking to pursue long-term contracts. Our buyers would like to compose such a deal well before 2013 so we have already started discussions regarding our contract extensions. We are looking to kick off negotiations next year."
"In terms of new partnerships, we have had 35 years of very good links with our foundation buyers in Japan. So they will be our first port of call, but of course we will keep our eyes open," he added.
The bilateral agreement includes an energy chapter, the first of its kind, stating that Brunei will warn Japan should an emergency arise that may restrict the import of LNG and crude oil to Japan. In such an event, discussions would be held and any existing contracts would have to be respected.