../../../175pxls.gif (78 bytes)
   ON THIS PAGE:    Press release    Secretariat summary    Government report
home > trade topics > trade policy reviews > list of reviews > trade policy reviews

Topics handled by WTO committees and agreements
Issues covered by the WTO’s committees and agreements

TRADE POLICY REVIEWS: FIRST PRESS RELEASE, SECRETARIAT AND GOVERNMENT SUMMARIES

PRESS RELEASE
PRESS/TPRB/164
30 May 2001
Brunei Darussalam: May 2001

Brunei Darussalam has one of Asia's highest per capita incomes but with the economy growing at a rather modest and stable rate of 2% per year during the past decade, GDP per capita has followed a downward trend until recently. As a consequence, estimated GDP per capita in 2000 was nearly 14% lower than in 1990, according to a WTO report on the trade policies and practices of Brunei.

175pxls.gif (835 bytes)

See also:

Second press release
Chairperson’s concluding remarks


Greater transparency would help Brunei's efforts to diversify the economy and accelerate growth  Back to top

The WTO Secretariat report, along with the policy statement by the Government of Brunei Darussalam, will serve as a basis for the first trade policy review of Brunei by the Trade Policy Review Body of the WTO on 28 and 30 of May 2001.

The country owes its economic prosperity mainly to its abundant petroleum and natural gas resources, whose share of GDP was 35% in 1999. In recent years, services have played an increasingly important role in the economy, growing from 38% of GDP in 1990 to 52% by 1999. The services sector is also an important source of employment, employing some 80% of the population. Brunei's main exports are petroleum and liquified natural gas (some 89% of merchandise exports in 1998), clothing, and machinery and transport equipment.

Petroleum's large share of GDP has become a cause for concern in recent years, the report says. This concern is mainly due to fluctuating international prices, which leaves Brunei a hostage to fortune, and the prospect of an eventual depletion of resources; Brunei's proven petroleum reserves are expected to last another 20-25 years at current rates of extraction. The Government has thus been encouraging economic diversification, into both manufacturing and services, especially financial services, tourism, and transport.

Brunei's current efforts to diversify its economy and accelerate growth could be enhanced, notes the report, by introducing greater transparency and predictability in government policies, by ensuring that its WTO obligations are reflected in national laws, and by improving its commitments in the WTO, including under the GATS, and lowering its bound tariff rates.

Brunei's applied MFN tariffs are low, averaging 3.1% in 2000, zero for agriculture, and 3.6% for non-agricultural products. There are, however, peaks of up to 200%, which affect motor vehicles. Brunei has bound nearly 95% of its tariff lines at the WTO. While the average applied tariff is low, the average bound rate is 24.8%, leaving a considerable gap between the applied and bound rates. The gap can cause uncertainty for economic agents because it provides the authorities with considerable scope for raising applied tariffs within the higher bound rates; Brunei, though, has not used this scope, including in the aftermath of the Asian economic crisis.

The WTO report also notes that Brunei has an active industrial policy, which has been used to develop certain priority sectors, especially in services. In addition to government provision of infrastructure, the measures include a five-year National Development Plan, which allocates resources to particular activities; investment promotion in particular targeted sectors through tax and non-tax incentives; and the use of government resources, through its holding company, Semaun Holdings, to invest directly in priority sectors. It appears that the Brunei Investment Agency (BIA) is also involved in industrial development.

Among the key tools to attract investment to Brunei are tax and other incentives. In the virtual absence of personal income, goods, and service taxes, the corporate tax has become one of the main instruments of industrial policy, offering tax exemptions of up to eight years for companies investing in a wide range of activities.

Petroleum and natural gas is the largest sector; production accounted for some 37% of GDP in 2000, and exports for 89% of total merchandise exports in 1998. Services accounted for around 50% of GDP in 2000. The sector includes social and personal services (53.7% of the services sector), wholesale and retail trade (15.9%), banking and insurance (13.2%) and transport and communications (9.8%). One of the key goals since the early 1990s has been to develop financial services, especially Islamic and commercial banking, although until recently progress on developing supervisory and prudential regulations was slow. Other services, notably communications and tourism, are being encouraged as part of plans to develop Brunei as a service hub for trade and tourism by 2003.

Under the General Agreement on Trade in Services (GATS) Brunei's commitments are limited to four out of 12 services: business services, communication services, financial services, and transport services. Construction and manufacturing accounted for around 11% of GDP in 2000. The construction subsector is highly dependent on public infrastructure spending and has suffered recently as a result of a decline in public expenditure and the collapse of Amedeo in 1998.

The agriculture forestry and fisheries sector is small, accounting for 3% of GDP in 2000. Nevertheless, Brunei has endeavoured to increase self-sufficiency in the production of agricultural products, especially rice, mainly through extensive subsidization of infrastructure and inputs; rice production is also subsidized through the end-product subsidy scheme, which ensures the purchase of locally grown paddy by the Government at an annual cost of B$200 million.

Brunei's abundant natural resources have ensured a high standard of living for its citizens. A combination of internal and external shocks during 1997 and 1998, however, led to a contraction of the economy in 1998. The factors included a sharp decline in international petroleum prices, the regional economic crisis, and the collapse of the Amedeo Corporation, which had interests in a number of sectors, including construction and telecommunications services.

The report concludes that despite the provision of investment incentives, the private sector in Brunei remains small and weak, a point noted by the Brunei Darussalam Economic Council. This is in part because the public sector is pervasive and provides attractive salaries with which very few private companies can compete. However, a related factor is the apparent lack of transparency in government policies and the manner in which they are administered. While Brunei has ratified the WTO Agreements, it has yet to implement legislation to bring local laws into conformity with its international obligations; foreign investment policies, while encouraging investment in all sectors, are unclear about limits on foreign equity holdings and the sectors in which investment is restricted, thereby providing scope for discretion in government decision-making; and the Government's efforts to corporatize and privatize public-sector companies have been slow. Moreover, the collapse of Amedeo and allegations of mismanagement at the BIA have served to highlight the general lack of public accountability and governance, and possibly undermined confidence in the economy. Brunei's efforts to diversify its economy and accelerate growth could be enhanced by introducing greater transparency and predictability in government policies, by ensuring that its WTO obligations are reflected in national laws, and by improving its commitments in the WTO, including under the GATS, and lowering its bound tariff rates.

  
  
Note to Editors

Trade Policy Reviews are an exercise, mandated in the WTO agreements, in which member countries’ trade and related policies are examined and evaluated at regular intervals. Significant developments which may have an impact on the global trading system are also monitored. For each review, two documents are prepared: a policy statement by the government of the member under review, and a detailed report written independently by the WTO Secretariat. These two documents are then discussed by the WTO’s full membership in the Trade Policy Review Body (TPRB). These documents and the proceedings of the TPRB’s meetings are published shortly afterwards. Since 1995, when the WTO came into force, services and trade-related aspects of intellectual property rights have also been covered.

For this review, the WTO’s Secretariat report, together with a policy statement prepared by the Government of Brunei Darussalam will be discussed by the Trade Policy Review Body on 28 and 30 of May 2001. The Secretariat report covers the development of all aspects of Brunei Darussalam trade policies, including domestic laws and regulations, the institutional framework, trade policies by measure and by sector.

Attached to this press release is a summary of the observations in the Secretariat report and parts of the government policy statement. The Secretariat report and the government's policy statement are available for the press in the newsroom of the WTO internet site (www.wto.org). These two documents and the minutes of the TPRB’s discussion and the Chairman’s summing up, will be published in hardback in due course and will be available from the Secretariat, Centre William Rappard, 154 rue de Lausanne, 1211 Geneva 21.

Since December 1989, the following reports have been completed: Argentina (1992 and 1999), Australia (1989, 1994 and 1998), Austria (1992), Bahrain (2000) Bangladesh (1992 and 2000), Benin (1997), Bolivia (1993 and 1999), Botswana (1998), Brazil (1992, 1996 and 2000), Brunei Darussalam (2001) Burkina Faso (1998), Cameroon (1995), Canada (1990, 1992, 1994, 1996, 1998 and 2000), Chile (1991 and 1997), Colombia (1990 and 1996), Costa Rica (1995 and 2001), Côte d’Ivoire (1995), Cyprus (1997), the Czech Republic (1996), the Dominican Republic (1996), Egypt (1992 and 1999), El Salvador (1996), the European Communities (1991, 1993, 1995, 1997 and 2000), Fiji (1997), Finland (1992), Ghana (1992 and 2001), Guinea (1999), Hong Kong (1990, 1994 and 1998), Hungary (1991 and 1998), Iceland (1994 and 2000), India (1993 and 1998), Indonesia (1991, 1994 and 1998), Israel (1994 and 1999), Jamaica (1998), Japan (1990, 1992, 1995,1998 and 2000), Kenya (1993 and 2000), Korea, Rep. of (1992, 1996 and 2000), Lesotho (1998), Macau (1994 and 2001), Madagascar (2001), Malaysia (1993 and 1997), Mali (1998), Mauritius (1995), Mexico (1993 and 1997), Morocco (1989 and 1996), Mozambique (2001), New Zealand (1990 and 1996), Namibia (1998), Nicaragua (1999), Nigeria (1991 and 1998), Norway (1991, 1996 and 2000), Pakistan (1995), Papua New Guinea (1999), Paraguay (1997), Peru (1994 and 2000), the Philippines (1993 and 1999), Poland (1993 and 2000), Romania (1992 and 1999), Senegal (1994), Singapore (1992, 1996 and 2000), Slovak Republic (1995), the Solomon Islands (1998), South Africa (1993 and 1998), Sri Lanka(1995), Swaziland (1998), Sweden (1990 and 1994), Switzerland (1991, 1996 and 2000 (jointly with Liechtenstein), Tanzania (2000), Thailand (1991, 1995 and 1999), Togo (1999), Trinidad and Tobago (1998), Tunisia (1994), Turkey (1994 and 1998), the United States (1989, 1992, 1994, 1996 and 1999), Uganda (1995), Uruguay (1992 and 1998), Venezuela (1996), Zambia (1996) and Zimbabwe (1994).

  
  
The Secretariat’s report: summary  Back to top

TRADE POLICY REVIEW BODY: BRUNEI-DARUSSALAM
Report by the Secretariat — Summary Observations

Located on the Island of Borneo, Brunei Darussalam is a small, relatively open economy with one of Asia's highest per capita incomes. But with the economy growing at a rather modest and stable rate of 2% per year during the past decade, GDP per capita has followed a downward trend until recently; as a consequence, estimated GDP per capita in 2000 was nearly 14% lower than in 1990.

The country owes its economic prosperity mainly to its abundant petroleum and natural gas resources, whose share of GDP was 35% in 1999. In recent years, services have played an increasingly important role in the economy, growing from 38% of GDP in 1990 to 52% by 1999. The services sector is also an important source of employment, employing some 80% of the population. Brunei's main exports are petroleum and liquified natural gas (some 89% of merchandise exports in 1998), clothing, and machinery and transport equipment; its main export markets are in east Asia. The value of exports as a share of GDP has grown from around 48% in 1994 to 55% in 1998; imports as a share of GDP declined from 43% to 37% during this period.

Petroleum's large share of GDP has become a cause for concern in recent years. This concern is mainly due to fluctuating international prices, which leaves Brunei a hostage to fortune, and the prospect of an eventual depletion of resources; Brunei's proven petroleum reserves are expected to last another 20-25 years at current rates of extraction. There is also concern about growing unemployment among Bruneians; official estimates put unemployment at some 4.6% in 1999. The "Bruneization" policy, which encourages companies to give preference to Bruneians in their employment policies, and which was put into place to reduce unemployment, has been successful mainly in the government and petroleum sectors. Nevertheless, the Brunei Darussalam Economic Council, formed in 1998 in the wake of the regional crisis and the collapse of the local Amedeo development corporation (Brunei's largest non-government employer), has suggested that economic growth must be faster in order for Brunei to absorb the growing labour force. The Government has thus been encouraging economic diversification, mainly into manufacturing and services, especially financial services, tourism, and transport. The private sector is being encouraged to participate, although government salaries and benefits have made it difficult for it to compete with the public sector despite a recent freeze in government salaries; it is estimated that around 94% of Bruneians in the labour force are employed by the public sector, including state-owned enterprises.

Petroleum also continues to form the main source of income for the Government; corporate taxes and royalties paid by petroleum and natural gas companies account for almost all government revenue. Moreover, Brunei has virtually no taxes on personal incomes or on goods and services. Tax revenue therefore fluctuates along with changing petroleum prices, which has led to a chronic budget deficit in recent years. In the short run, the shortfall in the budget has been met through transfers from the Brunei Investment Agency (BIA), which handles all the Government's investment, but whose resources and activities are not reported, suggesting, as in other areas of public policy, a lack of transparency and accountability. It would appear that in the medium to long run there would be a need for tax reform to broaden the revenue base, including through the possible introduction of sales taxes.

Trade and Investment Policy Framework

Under Brunei's Constitution, the Sultan is the Head of State and the Executive. The original 1984 Constitution also provided for five Councils to assist the Sultan. One of these, the Legislative Council, was temporarily suspended in 1984, following which all new legislation in Brunei has been promulgated by the Sultan as “Emergency Orders”, which carry the force of law. All international agreements, including the WTO Agreements, once ratified by the Sultan, must be adopted through national legislation to be enforceable in the country. To date, it appears that, other than legislation on intellectual property rights (including for copyright, trade marks and industrial designs), no changes relating to WTO provisions have been made to national laws. Instead, WTO provisions appear to be implemented in “good faith” or on a “best efforts” basis.

Trade policy formulation is carried out by the Ministry of Industry and Primary Resources, which is also responsible for implementing the policy, with the participation of other ministries, notably the Ministry of Finance, and appropriate agencies. Consultation with non-governmental agencies, including the private sector, appears to take place from time to time. Under Brunei's Constitution, the Auditor General may present an annual audit of the Government's financial statements to the Sultan, but there is no independent body to evaluate government policies. The lack of data in several key areas and activities (including national accounts, the stock of foreign assets managed by the BIA, government finance, balance-of-payments, the financial system and activities of government linked companies) constitutes an impediment to both the formulation and effective evaluation of trade and trade-related policies and measures.

Brunei sees foreign investment as playing a key role in the country's economic and technological development; foreign investment therefore appears to be permitted in most sectors, including up to 100% foreign equity investment in all sectors except those employing local resources and those relating to national food security, for which some local participation is required. A minimum 30% local participation appears to be required in agriculture, fisheries, and food processing; however, there is no clear definition of the sectors in which local participation is required. The process of approving foreign investment projects also appears to be somewhat opaque and therefore susceptible to the discretion of the authorities.

To encourage foreign investment, Brunei provides tax incentives, particularly under the pioneer status programme, which exempts companies from payment of corporate tax, normally 30% for non-petroleum companies, up to a maximum of eight years, and from payment of customs duty on plant, machinery, and equipment imports as well as imports of raw materials not available in Brunei but which are to be used by the company in its plants. Given that around 95% of corporate tax revenue in 1999 was raised from petroleum and natural gas companies, it would appear that most companies operating in the non-oil sector are beneficiaries of such programmes.

Trade and trade-related reforms

Brunei's applied MFN tariffs are low, averaging 3.1% in 2000, zero for agriculture, and 3.6% for non-agricultural products. There are, however, peaks of up to 200%, which affect motor vehicles; in addition, 87 tariff lines at the HS nine-digit level are subject to specific duties and are excluded from these tariff averages. The specific tariffs, which apply mainly to tobacco, alcohol, and petroleum products, are due to be converted to ad valorem rates in 2001. As they tend to conceal relatively high ad valorem equivalents, it is likely that the inclusion of these specific duties in the tariff average would raise Brunei's overall level of tariff protection. Tariff escalation is especially pronounced in wood and furniture, fabricated metal products and machinery, and chemicals, providing higher effective protection to these industries; by contrast, for wood and furniture, the tariff on unprocessed and semi-processed products is higher than for fully processed products suggesting greater protection for raw and intermediate goods than for finished products.

Brunei has bound nearly 95% of its tariff lines at the WTO. While the average applied tariff is low, the average bound rate is 24.8%, leaving a considerable gap between the applied and bound rates. The gap can cause uncertainty for economic agents because it provides the authorities with considerable scope for raising applied tariffs within the higher bound rates; Brunei has not used this scope, including in the aftermath of the Asian economic crisis.

As a member of the Association of South East Asian Nations (ASEAN) Common Effective Preferential Tariff (CEPT) scheme, which is the main instrument of the ASEAN Free-Trade Area, Brunei has been reducing its preferential tariff rates on products included under CEPT; tariff reductions within the 0-5% range on these products will be completed by 2002. In 2000, Brunei's average CEPT tariff was 1.9% and is due to decline to 1.6% by 2002. Products excluded from the CEPT reduction include tea, coffee, tobacco, and alcohol, which have specific rates of duty, and motor vehicles, the average rate for which will remain unchanged, at 21%, in 2002. It is not clear when tariffs for tea and coffee, currently on the sensitive list of exceptions, will be included. Brunei's CEPT rates on information technology products are higher than their MFN rates; it appears that MFN tariffs on these products were removed to encourage investment in the information technology sector and MFN rates are applied when they are lower than CEPT rates.

While Brunei's tariff barriers are relatively low, a number of imports and exports are subject to prohibitions, restrictions, and licensing requirements. Imports of opium, firecrackers, vaccines from Chinese Taipei, and arms and ammunition are prohibited for health, security, and moral reasons. Products subject to import restrictions include rice, sugar, and salt, for the purpose of maintaining food supplies; rice appears to be subject to an import monopoly and is bought mostly from Thailand, by the Department of Information Technology and State Stores in the Ministry of Finance, under a government-to-government contract. Other products subject to import restrictions include beef, poultry and alcoholic beverages (for religious reasons), plants and live animals, converted timber, and used vehicles five years and older (for safety reasons); imported eggs must be stamped to distinguish them from the local product, apparently to stop the smuggling of eggs that do not meet sanitary requirements and to ensure that all imported eggs meet sanitary requirements. There also appears to be a "temporary" ban on imports of cement, to protect local producers; a similar ban on imports of roofing material was recently lifted. Import licences appear to be required for, inter alia, telecommunications equipment, medical products, chemicals, and live plants and animals. Although Brunei maintains no import quotas, imports of meat and poultry are monitored and subject to an annual ceiling to avoid excess supply in the local market.

Currently, there are no mandatory standards (technical regulations) in Brunei, only 27 voluntary standards that pertain to construction. Nor is there a national body for setting standards in Brunei; the Construction Planning and Research Unit (CPRU), based in the Ministry of Development, is the focal point for standards and conformity assessment activities.

A few products are also subject to export restrictions: timber, oil palm, rice, and sugar; the restrictions are maintained mainly to ensure security of domestic supplies, although in the case of timber, the restrictions are also maintained apparently for environmental reasons.

Other measures affecting trade

Brunei has an active industrial policy, which has been used to develop certain priority sectors, especially in services. In addition to government provision of infrastructure, the measures include a five-year National Development Plan, which allocates resources to particular activities; investment promotion in particular targeted sectors through tax and non-tax incentives; and the use of government resources, through its holding company, Semaun Holdings, to invest directly in priority sectors. It appears that the BIA is also involved in industrial development.

One of the key tools to attract investment to Brunei is tax and other incentives. In the virtual absence of personal income, goods, and service taxes, the corporate tax has become one of the main instruments of industrial policy, offering tax exemptions of up to eight years for companies investing in a wide range of activities under the pioneer status programme. At the end of 1999 there were 21 companies under the programme. Financial assistance for small and medium-sized enterprises (SMEs) is also provided, most recently through a B$200 million working capital credit fund, launched in January 2001. The fund is targeted at SMEs active in areas such as construction, tourism, and information technology.

In addition to investment incentives, the Government's holding company, Semaun Holdings, which is answerable to the Minister of Industry and Primary Resources, invests directly in certain sectors. Semaun Holdings, which was established as a commercial company in 1994, appears to dominate the manufacturing sector through its joint ventures with foreign partners and subsidiary companies. Little information is available on Semaun's contribution to GDP or its annual accounts, reinforcing the notion of a certain lack of transparency and public accountability in government policies. The Government also holds equity in key companies, including in the petroleum and natural gas sector.

Apart from investing Brunei's petroleum and gas revenues, and ensuring that the earnings on the funds entrusted to it can, when necessary, meet any fiscal shortfall, the Brunei Investment Agency (BIA) seemingly plays an important role in Brunei's industrial development. This occurs notably through the companies it has taken over from the Amedeo Development Corporation (ADC) following the latter's collapse. The full extent of the BIA's role in the economy is far from clear, however, because the Agency's operations, including its management of the funds and holdings in various enterprises, are shrouded in secrecy; the BIA does not publish an annual report, for example. This lack of transparency raises the broad question of the Agency's accountability to the public.

In light of the chronic fiscal deficit, efforts to reduce the size of the Government have been ongoing since the early 1990s and include "corporatization" and privatization of some public sector companies. The measures taken thus far, however, have been slow and ad hoc; the Seventh National Development Plan suggested that privatization would be pursued only after careful consideration of any negative effects, including on employment and prices. The authorities state, nevertheless, that privatization will top the agenda in the Eighth National Development Plan.

As the Government is the largest operator in the economy, its policies on procurement and competition also have an impact on trade. Government procurement policies have recently reduced the threshold for tenders from B$25,000 to B$2,000. Procurement is open to foreign suppliers registered in Brunei although there is, theoretically, a 15% price preference margin for local suppliers, which may not be applied in practice. There is no system by which suppliers may appeal a decision made by the Tenders Board other than appealing to the Board itself. Nor does Brunei have a law to combat anti-competitive practices, be they in the private or public sector. To protect consumers, price controls are maintained on a number of products, including rice, sugar, bread, milk for infants, tea, coffee, motor vehicles, and cigarettes. The retail price of petrol has been frozen since 1978, with any difference in the price charged being subsidized by the Government. Distribution controls are also maintained for products imported by the Government, such as rice, which is distributed to local retailers under a quota system.

Sectoral Policies

Petroleum and natural gas is the largest sector; production accounted for some 37% of GDP in 2000, and exports for 89% of total merchandise exports in 1998. It is also an important source of tax revenue: while the rate of corporation tax is normally 30%, petroleum and natural gas companies are subject to taxes of 55% and 50%, respectively, and royalty rates from 8% to 12% of production. In addition, petroleum imports face specific tariffs ranging from B$0.11 to B$0.44 per decalitre. The main producer is Brunei Shell Petroleum (BSP), jointly owned by the Government of Brunei and the Asiatic Petroleum Company Ltd. (part of Royal Dutch Shell); a new field, operated by Elf Petroleum Asia, commenced natural gas production in 1999. An additional 12,000 square kilometres have recently been opened for oil and gas exploration, which is expected to begin in 2002. Brunei exports petroleum and liquified natural gas (LNG) mainly to the United States (28%), Japan (19%), and the Republic of Korea (15%). Domestic retail prices of petrol have been subject to restrictions under a Price Stabilization Agreement (PSA) signed between the Government and British Shell Marketing (BSM), the local distributor of petroleum products in Brunei (jointly owned by the Government and Royal Dutch Shell) since 1978; any difference between the price set by BSM and the retail price is subsidized by the Government. The prospect of resource depletion in the long run and fluctuations in international petroleum prices has led to efforts to reduce dependence on this sector, with mixed results.

Services accounted for around 50% of GDP in 2000. The sector includes social and personal services (53.7% of the services sector), wholesale and retail trade (15.9%), banking and insurance (13.2%) and transport and communications (9.8%). One of the key goals since the early 1990s has been to develop financial services, especially Islamic and commercial banking, although until recently progress on developing supervisory and prudential regulations was slow. The Financial Institutions Division (FID) of the Ministry of Finance is the regulator, and publishes guidelines on minimum paid-up capital, cash balances, and capital adequacy ratios. Off-site supervision and a requirement for banks to submit their audited statements to the FID on a regular basis were introduced recently to ensure the soundness and stability of banks. With the launching of the Brunei International Financial Centre (BIFC) in 2000, Brunei hopes to become a regional banking and business centre, and new laws have been enacted, including against money laundering; international accounting standards will also be made compulsory for all companies by 2002, thereby improving transparency and attracting companies to the BIFC.

Other services, notably communications and tourism, are being encouraged as part of plans to develop Brunei as a service hub for trade and tourism (ShuTT) by 2003. The Government intends to involve the private sector increasingly in these sectors, although there appears to have been little interest in such involvement. Telecommunications is dominated by the public sector, with the Government department Jabatan Telekom Brunei (JTB) providing all fixed line telecommunications services, and DSTCom, also currently owned by the Government, providing mobile services. JTB is also the regulator, although legislation to separate its regulatory functions from its operational activities is planned; in the meantime, all regulatory issues are handled by an interim body in the Ministry of Communications. Efforts are being made to develop an air cargo trans-shipment centre and a regional refuelling centre, as well as a regional trans-shipment port. Tourism is underdeveloped but Brunei hopes to develop activities such as eco-tourism, adventure and culture tourism, theme parks, and cruising.

Under the General Agreement on Trade in Services (GATS) Brunei's commitments are limited to four out of 12 services: business services, communication services, financial services, and transport services. Brunei's Article II (MFN) exemptions include limits on future foreign investment liberalization, which would be subject to the discretion of the authorities, and a preference for recruiting labour from traditional sources of supply as well as sector-specific exemptions. The commitments tend to reflect current policy in the sector, with little suggestion of further liberalization in the near future. In particular, it is curious that Brunei has not made commitments in sectors such as transport and tourism, which it is trying to develop further and in which policies appear to be relatively liberal.

Construction and manufacturing accounted for around 11% of GDP in 2000. The construction subsector is highly dependent on public infrastructure spending and has suffered recently as a result of a decline in public expenditure and the collapse of Amedeo in 1998. The Government has since attempted to rejuvenate the sector, on the recommendations of the Brunei Darussalam Economic Council, by contracting low-cost housing projects and by splitting large contracts so as to make them accessible to small-scale local construction companies. Manufacturing activities are mainly confined to clothing and food processing. Other industries, including plywood, furniture making, pottery, tiles, cement, and chemicals, are being targeted to diversify the production base. Free or subsidized infrastructure and inputs as well as tax incentives are provided for targeted industries. The Brunei Industrial Development Authority (BINA), in the Ministry of Industry and Primary Resources, assists investors in obtaining access to facilities and investment incentives. The Government also invests directly in targeted activities through its holding company.

The agriculture forestry and fisheries sector is small, accounting for 3% of GDP in 2000. Nevertheless, Brunei has endeavoured to increase self-sufficiency in the production of agricultural products, especially rice, mainly through extensive subsidization of infrastructure and inputs; rice production is also subsidized through the end-product subsidy scheme, which ensures the purchase of locally grown paddy by the Government at an annual cost of B$200 million. There also appears to be a government import monopoly for rice paddy. Foreign investment in the sector is seemingly encouraged, although it is subject to a 70% foreign equity limit. Despite the extensive subsidies, further investment in the sector does not appear to have been forthcoming, mainly because of better employment opportunities elsewhere, notably in the public sector, lack of marketing outlets, and unstable prices.

Trade policies and trading partners

Brunei is a founding Member of the WTO and had been a contracting party to the GATT since December 1993. Brunei's trade and investment policies are strongly linked with those of its regional trade and investment partners, principally members of the Association of South-East Asian Nations (ASEAN) and the Asia Pacific Economic Cooperation (APEC) forum; indeed, the Government appears to attach greater importance to ASEAN and APEC than to the WTO.

Brunei joined ASEAN in 1984 and will reduce tariffs included in its CEPT tariff to the 0-5% range by 2002; all intra-ASEAN tariff barriers will be removed by 2015. Products originating in other ASEAN countries also have preferential access to Brunei through the ASEAN preferential rules of origin, under which products must have at least 40% ASEAN content. Brunei is also an active participant in other ASEAN fora, including the ASEAN Industrial Cooperation Scheme (AICO), the ASEAN Investment Area (AIA), and the recently signed e-ASEAN Framework Agreement.

Since 1993, imports from other ASEAN countries have grown rapidly, from 30% to 48% of total merchandise imports in 1998. This suggests that the lowering of tariff and non-tariff barriers to trade within the ASEAN region as a result of the ASEAN Free-Trade Agreement may have led to significant trade diversion.

In the APEC forum, Brunei, as other developing country members, intends to implement free trade and investment by 2020, and was a participant in the early voluntary sectoral liberalization (EVSL) scheme. As chair of APEC in 2000, Brunei emphasized, inter alia, the importance of continued efforts to advance trade and investment liberalization in the region, the development of human resources and small and medium-sized enterprises, and strengthening information-technology-based sectors. The APEC meeting in November 2000 called for the launching of a new round of multilateral trade negotiations, albeit one that would be balanced and address the concerns of all WTO Members, especially the least developed and developing countries.

Brunei, along with other partners in the region, also participates in other regional agreements, such as the Asia-Europe Meeting (ASEM), which held its third meeting in Seoul, Korea, in October 2000. Brunei is a member of the Brunei Darussalam, Indonesia, Malaysia, Philippines–East ASEAN Economic Growth Area (BIMP–EAGA), which aims to pool complementary resources in the region to develop priority sectors, including air and maritime linkages, construction, fisheries, and tourism.

Outlook

Brunei's abundant natural resources have ensured a high standard of living for its citizens. A combination of internal and external shocks during 1997 and 1998, however, led to a contraction of the economy in 1998. The factors included a sharp decline

in international petroleum prices, the regional economic crisis, and the collapse of the Amedeo Corporation, which had interests in a number of sectors, including construction and telecommunications services. Although the shocks were cushioned by transfers from the BIA, fluctuations in international petroleum prices in particular have highlighted the need for fiscal reform and policies to encourage economic diversification and private-sector participation in the economy.

Despite the provision of investment incentives, the private sector in Brunei remains small and weak, a point noted by the Brunei Darussalam Economic Council. This is in part because the public sector is pervasive and provides attractive salaries with which very few private companies can compete. However, a related factor is the apparent lack of transparency in government policies and the manner in which they are administered. While Brunei has ratified the WTO Agreements, it has yet to implement legislation to bring local laws into conformity with its international obligations; foreign investment policies, while encouraging investment in all sectors, are unclear about limits on foreign equity holdings and the sectors in which investment is restricted, thereby providing scope for discretion in government decision-making; and the Government's efforts to corporatize and privatize public-sector companies have been slow. Moreover, the collapse of Amedeo and allegations of mismanagement at the BIA have served to highlight the general lack of public accountability and governance, and possibly undermined confidence in the economy. Brunei's efforts to accelerate economic growth and diversification could be enhanced by introducing greater accountability and predictability in government policies, by ensuring that its WTO obligations are reflected in national laws, and by improving its commitments in the WTO, including under the GATS, and lowering its tariff bindings.

  
  
Government report Back to top

TRADE POLICY REVIEW BODY: BRUNEI-DARUSSALAM
Report by the Government — Part III

Trade Policy Framework

Brunei Darussalam signed the Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations in April 1994 in Marrakesh. All the agreements embodied in this Act form part of Brunei’s written laws upon incorporation through enabling or implementing legislation.

The objective of Brunei’s trade and industrial policies is to develop non-traditional exports such as processed agricultural goods, resource-based manufactures and hi-tech manufactures (including ICT products), as well as service industries such as business and financial services and tourism.

Brunei’s tariff structure is liberal and transparent - four-fifths of tariff lines are duty-free and nearly 99% are ad valorem rates. Tariffs have been eliminated or progressively reduced over the years, with the result that the average MFN tariff is currently 3.1%, whilst customs duties accounted for 6.8% of tax revenue (1.2% of GDP) in 1999, declining from 13.3% (2.2% of GDP) in 1995. Efforts are also being made to convert some of the specific tariffs into ad valorem rates.

Peak tariffs apply to some categories of motor vehicles to reduce the already high car ownership rate and prevent the accompanying problems of traffic congestion and pollution. There is no domestic auto manufacturing industry.

Non-tariff measures are few and maintained only to discharge Brunei’s obligations under international commitments, or for public health and safety, environmental, religious, or national security considerations.

The Department of Information Technology and State Stores administers the importation and stockpiling of sugar and certain types of rice, to ensure security of supplies and price stability.

Brunei Darussalam does not maintain any WTO-inconsistent trade-related investment measures. A local equity requirement of not less than 30% applies to joint ventures in agriculture, fisheries and food processing, only if government facilities such as government-developed industrial sites are applied for.

The current Investment Incentive Act is in the process of revision to widen its scope beyond pioneer manufacturing industries, to include among other things pioneer services, all established and expanding enterprises, trade and investment promotions, foreign loans for capital, venture capital, export-import services and hi-tech industries. In addition, the Government is actively pursuing Bilateral Investment Treaties and Double Taxation Agreements with interested countries.

The existing Brunei Economic Development Board Act is being revised to strengthen its powers for the promotion of foreign direct investment, development of joint ventures in strategic sectors and the provision of efficient services to investors.

The Brunei Investment Agency is also active in promoting foreign direct investment. As part of its overall investment objective to diversify its investment activities, it has recently begun to explore investment opportunities in commercially viable companies within Brunei Darussalam.

Semaun Holdings is a private limited company wholly owned by His Majesty’s Government and placed under the jurisdiction of the Ministry of Industry and Primary Resources. Its mission is to spearhead industrial and commercial development through direct investment in key industrial sectors in the interest of Brunei Darussalam. Being incorporated under the Companies Act, it complies with all legal requirements, including annual accounts.

A new Industrial Coordination Order will facilitate better coordination, especially of licensing and industrial building approval. At the same time, the Government is also currently reviewing and revising restrictions on the ownership and development of industrial land and its use as collateral to raise financing.

The services sector is an area of focus in efforts to diversify the economy and the Government will thus be formulating a services sector policy.

Brunei Darussalam is party to the Convention Establishing the World Intellectual Property Organization (WIPO). All relevant laws for the protection of intellectual property rights have been enacted. With the exception of the Patent Order, the relevant intellectual property laws came into effect as of May 2000.

No national standards body exists in Brunei Darussalam. However, the Construction Planning and Research Unit (CPRU) at the Ministry of Development is the focal point for standards and conformity assessment activities. The Resource and Standards Centre of the Ministry of Industry and Primary Resources is mandated to act as a quality control and accreditation centre for local products as a guarantee to local acceptance and to meet international standards. It is strengthening its ability to fulfil this mandate by re-organising itself to create a Product Development and Standards Division that will develop, adopt or modify product and service standards and quality certification schemes in the primary resources, manufacturing and tourism and tourism-related industries. The Centre is now in the process of negotiating a Memorandum of Understanding with SIRIM Sdn Bhd Malaysia that will hasten the Centre’s organisational ability to act as a quality control and accreditation centre.

National standards are available only in the construction sector. It is the policy of Technical Committees for the development of standards to adopt international standards where relevant and there is an ongoing exercise to review the alignment of national standards with existing relevant international standards in line with ISO/IEC Guide 21:1999.

Brunei’s participation in the ASEAN Free Trade Area (AFTA) and the Brunei-Indonesia-Malaysia-Philippines East ASEAN Growth Area (BIMP-EAGA) is aimed at overcoming the constraints of a small domestic market, as well as capitalizing on resource complementarity and geographical proximity.

Brunei Darussalam is also a member of ASEM and APEC, which, among others, holds informal consultations on WTO matters, thus complementing and reinforcing efforts to strengthen the multilateral trading system. As host of APEC in 2000, Brunei Darussalam helped to steer the grouping in addressing a balanced agenda vis-à-vis Trade and Investment Liberalization and Facilitation (TILF), and Capacity Building, thereby reflecting the interests of all APEC members.