RESTRICTEDWORLD  TRADE
ORGANIZATIONWT/TPR/S/84
27 April 2001
(01-2005)
Trade Policy Review Body
TRADE POLICY REVIEW
BRUNEI DARUSSALAM
Report by the Secretariat
This report, prepared for the first Trade Policy Review of Brunei Darussalam,
has been drawn up by the WTO Secretariat on its own responsibility.  The
Secretariat has, as required by the Agreement establishing the Trade Policy
Review Mechanism (Annex 3 of the Marrakesh Agreement Establishing the
World Trade Organization), sought clarification from the Government of
Brunei Darussalam on its trade policies and practices.
Any technical questions arising from this report may be addressed to
Mr. M. Daly (Tel.  739 50 77) or Mr. C. Boonekamp (Tel.  739 52 26).
Document WT/TPR/G/84 contains the policy statement submitted by the
Government of Brunei Darussalam.
Note: This report is subject to restricted circulation and press embargo until the end of the meeting
of the Trade Policy Review Body on Brunei Darussalam.Brunei Darussalam WT/TPR/S/84
Page iii
CONTENTS
Page
SUMMARY OBSERVATIONS vii
(1) E CONOMIC ENVIRONMENT vii
(2) T RADE AND INVESTMENT POLICY FRAMEWORK vii
(3) T RADE AND TRADE -RELATED REFORMS viii
(4) O THER MEASURES AFFECTING TRADE ix
(5) S ECTORAL POLICIES xi
(6) T RADE POLICIES AND TRADING PARTNERS xii
(7) O UTLOOK xiii
I. ECONOMIC ENVIRONMENT 1
(1) R ECENT ECONOMIC DEVELOPMENTS 1
(2) M ACROECONOMIC INDICATORS 6
(i) Fiscal balance 6(ii) Exchange rate and balance of payments 9
(3) D
EVELOPMENTS IN TRADE 11
(i) Composition of trade 11(ii) Direction of trade 11
(4) D
EVELOPMENTS IN FOREIGN DIRECT INVESTMENT 14
(5) O UTLOOK 15
II. TRADE AND INVESTMENT POLICY REGIME 16
(1) G ENERAL CONSTITUTIONAL AND LEGAL FRAMEWORK 16
(i) Introduction 16(ii) The Executive 16(iii) Legislative process 16(iv) The Judiciary 17
(2) D
EVELOPMENT AND ADMINISTRATION OF TRADE POLICY 17
(i) Policy formulation and implementation 17
(ii) Main trade-related laws 19
(3) T RADE AND INVESTMENT POLICY OBJECTIVES 20
(4) T RADE AGREEMENTS AND ARRANGEMENTS 20
(i) Multilateral agreements 20(ii) Regional agreements 22
(iii) Bilateral agreements 26
(5) F
OREIGN INVESTMENT REGIME 26
(i) Overview 26(ii) Legislative framework and investment procedures 26(iii) Incentives 29
(iv) Bilateral investment treaties 29WT/TPR/S/84 Trade Policy Review
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III. TRADE POLICIES AND PRACTICES BY MEASURE 30
(1) O VERVIEW 30
(2) M EASURES DIRECTLY AFFECTING IMPORTS 32
(i) Customs procedures 32(ii) Preshipment inspection 32
(iii) Customs valuation and rules of origin 32
(iv) Applied tariff 33(v) Tariff bindings 39(vi) Import prohibitions, restrictions, and licensing 43(vii) Other charges affecting imports 47
(viii) Contingency measures 47
(ix) Standards and sanitary and phytosanitary measures 47(x) Government procurement 51(xi) Import-related operations of state enterprises 53(xii) Other measures 53
(3) M
EASURES DIRECTLY AFFECTING EXPORTS 53
(i) Procedures 53
(ii) Export prohibitions, restrictions, and licensing 53(iii) Export taxes, charges, and levies 54(iv) Duty and tax concessions 54(v) Export operations of state enterprises 55(vi) Other export assistance 55
(vii) Measures maintained by importing countries 55
(4) M
EASURES AFFECTING PRODUCTION AND TRADE 56
(i) Legal framework for businesses 56(ii) Incentives 56(iii) The public sector and private investment 61
(iv) Competition policy and regulatory issues 64
(v) Intellectual property rights 64
IV. TRADE POLICIES BY SECTOR 69
(1) I
NTRODUCTION 69
(2) A GRICULTURE , FORESTRY AND FISHING 70
(i) Agriculture 70
(ii) Policy framework 71
(iii) Forestry and fishing 72
(3) P ETROLEUM AND NATURAL GAS 72
(i) Overview 72(ii) Policy 75(iii) Petroleum refining and other downstream activities 75
(4) C
ONSTRUCTION AND MANUFACTURING 76
(i) Construction 76(ii) Manufacturing 77
(5) S
ERVICES 79
(i) Overview 79(ii) Commitments under the General Agreement on Trade in Services (GATS) 80
(iii) Financial services 81
(iv) Telecommunications 87Brunei Darussalam WT/TPR/S/84
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Page
(v) Transport 90
(vi) Tourism 93
REFERENCES 95
APPENDIX TABLES 99
CHARTS
I. ECONOMIC ENVIRONMENT
I.1 Fiscal position, 1995-2000 7
I.2 Balance of payments, 1995-2000 10
I.3 Product composition of merchandise trade, 1993 and 1998 12
I.4 Direction of merchandise trade, 1993 and 1998 13I.5 Net foreign investment, 1995-2000 14
III. TRADE POLICIES AND PRACTICES BY MEASURE
III.1 Distribution of MFN tariff rates, 2000 34
III.2 Tariff escalation by 2-digit ISIC industry, 2000 36
III.3 Simple average applied tariff rates, by HS section, 2000 37
III.4 CEPT simple average tariff rates, by HS section, 2000 and 2002 38III.5 Share of bound tariff lines by HS section, 2000 40III.6 Average tariff rates on agricultural products, by HS chapter 41III.7 Average tariff rates on manufactured products, by HS chapter 42III.8 Overview of standards and conformity assessment activities in
the Ministry of Development 48
IV. TRADE POLICIES BY SECTOR
IV.1 Sectoral distribution of GDP, 1999 69
IV.2 Exports of fuels, 1999 74IV.3 Manufacturing trade by product group, 1998 77
IV.4 Structure of services, 1999 79
TABLES
I. ECONOMIC ENVIRONMENT
I.1 Basic economic and social indicators, 1990-2000 1
I.2 Economic performance, 1990-2000 3
II. TRADE AND INVESTMENT POLICY REGIME
II.1 Ministerial/Departmental responsibility for trade-related issues 18
II.2 Main trade-related laws in Brunei 19II.3 Status of selected notification requirements to the WTO, 1995 to January 2001 21II.4 Preferred industries, associated activities, and products for investment 27WT/TPR/S/84 Trade Policy Review
Page vi
Page
III. TRADE POLICIES AND PRACTICES BY MEASURE
III.1 Structure of tariffs in Brunei Darussalam 34
III.2 Applied MFN tariff, 2000 35III.3 Prohibited imports, 2000 43III.4 Restricted imports, 2000 44
III.5 Imports subject to licensing 45
III.6 Brunei Darussalam standards, 1995-2000 49III.7 Prohibited and restricted exports, 2000 54III.8 Tax exemptions and concessions, 2000 57III.9 Pioneer status companies granted incentives under the Investment Incentives Act, July 2000 58
IV. TRADE POLICIES BY SECTOR
IV.1 Petroleum and natural gas production, 1995-2000 73
IV.2 The banking sector, 1995-2000 82IV.3 Main indicators in telecommunications, 1995-2000 87IV.4 Maritime services, 1995-1999 92
APPENDIX TABLES
I. ECONOMIC ENVIRONMENT
AI.1 Fiscal accounts, 1995-2000 101
AI.2 Balance of payments, 1995-2000 102AI.3 Exports by group of products, selected years 103AI.4 Imports by group of products, selected years 104AI.5 Exports by destination, selected years 105
AI.6 Imports by origin, selected years 106
III. TRADE POLICIES AND PRACTICES BY MEASURE
AIII.1 Specific tariffs, Brunei 2000 107
AIII.2 Tariff lines where MFN rate is lower than preferential (CEPT) rate 110AIII.3 Agricultural imports prohibited for phytosanitary reasons 111
IV. TRADE POLICIES BY SECTOR
AIV.1 Applied and bound tariffs and imports, by ISIC category, 1998 and 2000 113
AIV.2 Brunei's commitments under the GATS 116AIV.3 Summary of Article II (MFN) exemptions listed by Brunei 119Brunei Darussalam WT/TPR/S/84
Page vii
SUMMARY OBSERVATIONS
(1) ECONOMIC ENVIRONMENT
1. Located on the Island of Borneo,
Brunei Darussalam is a small, relatively open
economy with one of Asia's highest per capitaincomes.  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 in2000 was nearly 14% lower than in 1990.
2. 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 th e economy, growing from
38% of GDP in 1990 to 52% by 1999.  The
services sector is also an important source of
employment, employi ng some 80% of the
population.  Brunei's main exports are
petroleum and liquified natural gas (some89% 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 to55% in 1998;  imports as a share of GDP
declined from 43% to 37% during this period.
3. Petroleum's large share of GDP has
become a cause for concern in recent years.
This concern is mainly due to fluctuatinginternational 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 ofextraction.  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 toreduce unemployment, has been successful
mainly in the government and petroleum
sectors.  Nevertheless, the Brunei DarussalamEconomic 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 thegrowing 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 beingencouraged 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 Bruneiansin the labour force are employed by the public
sector, including state-owned enterprises.
4. 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 theshort 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 throughthe possible introduction of sales taxes.
(2) T
RADE AND INVESTMENT POLICY
FRAMEWORK
5. 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 ofthese, the Legislative Council, was temporarily
suspended in 1984, following which all new
legislation in Brunei has been promulgated byWT/TPR/S/84 Trade Policy Review
Page viii
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, otherthan 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 beimplemented in "good faith" or on a "best
efforts" basis.
6. Trade policy formulation is carried
out by the Ministry of Industry and Primary
Resources, which is also responsible forimplementing 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 presentan 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, thestock 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 effectiveevaluation of trade and trade-related policies
and measures.
7. Brunei sees foreign investment as
playing a key role in the country's economic
and technological development;  foreigninvestment 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 inagriculture, fisheries, and food processing;
however, there is no clear definition of the
sectors in which local participation is
required.  The process of approving foreigninvestment projects also appears to be
somewhat opaque and therefore susceptible to
the discretion of the authorities.
8. To encourage foreign investment,
Brunei provides tax incentives, particularly
under the pioneer status programme, whichexempts 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 asimports 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, itwould appear that most companies operating
in the non-oil sector are beneficiaries of such
programmes.
(3) T
RADE AND TRADE -RELATED
REFORMS
(i) Tariffs
9. 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 aresubject 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 toconceal 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 especiallypronounced 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 greaterprotection for raw and intermediate goods
than for finished products.Brunei Darussalam WT/TPR/S/84
Page ix
10. 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 agentsbecause 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.
11. 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 itspreferential 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 informationtechnology sector and MFN rates are applied
when they are lower than CEPT rates.
(ii) Non-tariff measures
12. While Brunei's tariff barriers are
relatively low, a number of imports andexports 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, forthe purpose of maintaining food supplies;  rice
appears to be subject to an import monopoly
and is bought mostly from Thailand, by theDepartment 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 dist inguish them from the
local product, apparently to stop the
smuggling of eggs that do not meet sanitaryrequirements 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 wasrecently 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 thelocal market.
13. Currently, there are no mandatory
standards (technical regulations) in Brunei,
only 27 voluntary standards that pertain to
construction.  Nor is there a national body forsetting 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.
14. 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 restrictionsare also maintained apparently for
environmental reasons.
(4) O
THER MEASURES AFFECTING
TRADE
15. Brunei has an active industrial policy,
which has been used to develop certain
priority sectors, especially in services.  Inaddition to government provision of
infrastructure, the measures include a five-WT/TPR/S/84 Trade Policy Review
Page x
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, toinvest directly in priority sectors.  It appears
that the BIA is also involved in industrial
development.
16. One of the key tools to attract
investment to Brunei is tax and otherincentives.  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 companiesinvesting 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.
17. 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 commercialcompany 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 annualaccounts, 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.
18. Apart from investing Brunei's
petroleum and gas revenues, and ensuring thatthe earnings on the funds entrusted to it can,
when necessary, meet any fiscal shortfall, the
Brunei Investment Agency (BIA) seeminglyplays 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 transparencyraises the broad question of the Agency's
accountability to the public.
19. In light of the chronic fiscal deficit,
efforts to reduce the size of the Government
have been ongoing since the early 1990s andinclude "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 employmentand prices.  The authorities state, nevertheless,
that privatization will top the agenda in the
Eighth National Development Plan.
20. As the Government is the largest
operator in the economy, its policies onprocurement 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 suppliersregistered 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 theTenders 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, motorvehicles, and cigarettes.  The retail price of
petrol has been frozen since 1978, with any
difference in the price charged being
subsidized by the Government.  DistributionBrunei Darussalam WT/TPR/S/84
Page xi
controls are also maintained for products
imported by the Government, such as rice,
which is distributed to local retailers under a
quota system.
(5) SECTORAL POLICIES
21. 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 toB$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 kilometreshave 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 ofKorea (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 petroleumproducts 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 resourcedepletion in the long run and fluctuations in
international petroleum prices has led to
efforts to reduce dependence on this sector,
with mixed results.
22. Services accounted for around 50% of
GDP in 2000.  The sector includes social and
personal services (53.7% of the servicessector), wholesale and retail trade (15.9%),
banking and insurance (13.2%) and transport
and communications (9.8%).  One of the keygoals 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 theMinistry 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 tothe 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 regionalbanking 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.
23. 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 involvethe 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 Governmentdepartment 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 legislationto 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 aregional trans-shipment port.  Tourism is
underdeveloped but Brunei hopes to develop
activities such as eco-tourism, adventure and
culture tourism, theme parks, and cruising.WT/TPR/S/84 Trade Policy Review
Page xii
24. 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 assector-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 sectorssuch as transport and tourism, which it is
trying to develop further and in which policies
appear to be relatively liberal.
25. Construction and manufacturing
accounted for around 11% of GDP in 2000.
The construction subsector is highly dependent
on public infrastructure spending and hassuffered 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 DarussalamEconomic 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 confinedto 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 andinputs 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 throughits holding company.
26. The agriculture forestry and fisheries
sector is small, accounting for 3% of GDP in
2000.  Nevertheless, Brunei has endeavouredto 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 oflocally 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 issubject 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, notablyin the public sector, lack of marketing outlets,
and unstable prices.
(6) T
RADE POLICIES AND TRADING
PARTNERS
27. Brunei is a founding Member of the
WTO and had been a contracting party to the
GATT since December 1993.  Brunei's tradeand 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 EconomicCooperation (APEC) forum;  indeed, the
Government appears to attach greater
importance to ASEAN and APEC than to the
WTO.
28. 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 theASEAN 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 FrameworkAgreement.Brunei Darussalam WT/TPR/S/84
Page xiii
29. 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.
30. 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 liberalizationin 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 addressthe concerns of all WTO Members, especially
the least developed and developing countries.
31. 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 topool complementary resources in the region to
develop priority sectors, including air and
maritime linkages, construction, fisheries, and
tourism.
(7) O
UTLOOK
32. 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 declinein 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 theBIA, 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.
33. 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 ispervasive 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 implementlegislation 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 thesectors 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 beenslow.  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 underthe GATS, and lowering its tariff bindings.