Brunei is pushing India to eliminate duties on oil imports from the sultanate, as part of a campaign to shore up its market share in the expanding Indian economy and build a platform for increased sales.
The call to cut the tariffs, currently set at 5% of the total sales cost of oil imports, is being pursued at two levels: through free trade agreement negotiations between the Association of South East Asian Nations (ASEAN), of which Brunei is a member; and in direct inter-governmental talks.
The question of eliminating duties on oil and gas imports is set to be raised during the visit of Sultan Hassanal Bolkiah to India between May 21 and 24.
On May 7, the Indian press quoted a government spokesman as saying a focus of the Sultan's visit would be expanding the energy partnership between the two countries, in particular cutting import tariffs.
"This issue will be discussed between the two sides," the official said.
Thanks to its oil exports, Brunei enjoys a healthy trade surplus with India, with $300m of the $500m bilateral trade in 2006 being shipped out of the sultanate, according to Riewad V Warjri, India's high commissioner to Brunei.
Warjri said his country was not opposed to Brunei's proposal to cut duties on oil and gas imports, though this step could be delayed due to other matters related to the FTA with ASEAN. The bloc is at odds with India over minimising tariffs on agricultural products, in particular palm oil, tea, coffee and pepper.
"We still have issues with other ASEAN countries with respect to the FTA," he told the local press. "India is already considering minimising such import duties. It was highlighted at the ASEAN-India summit held in Singapore last year."
Brunei, however, is more concerned with oil, sending approximately 2m tonnes per year to India, 80% of its exports to the country. While this represents just 1% of India's total oil imports, it is a significant contributor to the Brunei economy, with sales to India accounting for more than 20% of all oil exports.
However, with India looking to sign free trade agreements with the members of the Gulf Cooperation Council (GCC), Brunei officials consider it vital to protect their slice of the market, ensuring that should tariffs on Middle Eastern oil be dropped, the sultanate's own exports would not be priced out of contention.
With reserves estimated to last for another 30 years and increasing production capacity coming on line, Brunei is looking to India as a key market for the future and is hoping to boost exports in the years to come.
On May 13, the Indian press reported that officials were planning to authorise the lowering of duties on Brunei oil to 3% by July, with further reductions of 1% annually until all tariffs are eliminated.
If India does cut import duties on Brunei oil, it will come into line with the sultanate's other major customers, the US, South Korea and Japan, which impose minimal or no tariffs on energy exports from Brunei.
Last year, Indian officials were less enthusiastic about bringing down oil import tariffs for the sultanate, concerned it would set a precedent for other ASEAN exporters such as Malaysia and Vietnam.
However, skyrocketing international oil prices have strengthened Brunei's hand in trade talks. Recently, India's minister of petroleum and natural gas, Murli Deora, called for the lowering of import taxes on oil as a means to support loss-making state oil companies that have been forced to sell their products below cost.
While Brunei hopes to gain greater access to the Indian energy market, India is looking for a trade off, raising the expectation of signing a slow-moving memorandum of understanding on the information technology sector, which has been under discussion since 2006.
Warjri said plans by Brunei to implement an e-government programme opened the possibility of extensive cooperation with Indian technology firms.
"A memorandum of understanding has been ready for quite some time," he said. "The expectation for the cooperation in this area is enormous."
Though wider issues with ASEAN may slow down India's FTA with the bloc, Brunei looks set to get the inside running on tariff reductions and strengthen its ties with one of Asia's largest economies.