Achieving the ASEAN Economic Community 2015: Challenges for Member Countries and Businesses

3. Achieving the AEC 2015: Challenges for Brunei Darussalam

3 Achieving the AEC 2015: Challenges for Brunei Darussalam Lim Jock Hoi Brunei Darussalam, being the smallest country in Southeast Asia in terms of its population,1 stands out amongst its ASEAN peers as being one of the most unique. Although it has one of the highest gross domestic product (GDP) per capita in the world,2 it remains an economy that is heavily reliant on its oil and gas exports. To maintain its relatively high standard of living and faced by the prospect of declining oil and gas reserves, the Government of Brunei Darussalam faces the challenge of setting out an ambitious economic diversification plan that will move Brunei’s economy away from its heavy reliance on oil and gas, in line with its National Vision for 2035, or Wawasan 2035. Given these considerations, Brunei Darussalam’s membership within ASEAN provides an opportunity for it to enhance its standing within the region, contribute to regional peace and prosperity efforts, and provides it with a platform for enhanced economic engagement, not only within ASEAN, but globally. 22 Lim Jock Hoi Brunei Darussalam became the sixth member of ASEAN on 7 January 1984, barely a week after being granted its independence. Since then, the former British protectorate has been part of all of ASEAN’s efforts, and remains committed to the realization of achieving an ASEAN Community by 2015, under all three pillars: the ASEAN Economic Community (AEC), the ASEAN Political-Security Community (APSC), as well as the ASEAN Socio-Cultural Community (ASCC). In order to realize the ASEAN Economic Community by 2015, Brunei Darussalam, with its ASEAN counterparts, has agreed to work towards achieving the AEC’s four key characteristics: (1) a single market and production base, (2) a highly competitive economic region, (3) a region of equitable economic development, and (4) a region that is fully integrated into the global economy. This chapter will set out to identify some of the challenges that Brunei Darussalam faces in realizing the ASEAN Economic Community by 2015, by focusing on the unique challenges presented to realize the four key characteristics of the AEC. A Single Market and Production Base In order to realize a single market and production base, ASEAN member states will seek to achieve the following: (1) free flow of goods, (2) free flow of services, (3) freer flow of investment, (4) free flow of capital, and (5) free flow of skilled labour. Additionally, a single market and production base includes two other important components: the priority integration sectors, and food, agriculture and forestry, which will not be discussed in this chapter. For Brunei Darussalam, each component brings its own challenges which need to be addressed. Free Flow of Goods Brunei Darussalam operates under a relatively free trade environment , compared with other ASEAN member states. As per its World Trade Organization (WTO) commitments, nearly 97.2 per cent of Brunei Darussalam’s tariffs lines are bound. Brunei Darussalam’s applied MFN (most favoured nation) tariff rates are low, averaging approximately 93 per cent in 2010. The average bound rate is 24.12 per cent, and applied rates averaged 4.42 per cent in 2010. With the exception of a few products — including coffee, tea, tobacco, Challenges for Brunei Darussalam in Achieving AEC 2015 23 and alcohol — tariffs on agricultural products are zero. Roughly 130 products, including alcoholic beverages, tobacco, coffee, tea, petroleum oils, and lubricants, are subject to specific rates of duty and higher rates of overall protection. Under its commitments to ASEAN, Brunei has continued to reduce its low tariffs, with the Common Effective Preferential Tariff (CEPT) scheme seeing a reduction of preferential tariff rates. As of 2011, Brunei Darussalam’s largest trading partners were Japan, Korea, Australia, India, and Malaysia. However, the recent onset of the global financial crisis, and the hikes in the prices of food and gas which were experienced in late 2008, have seen a change in direction by the Government of Brunei Darussalam, where it has sought to move away from its reliance on goods and services from outside the region, and instead, leverage on the progress made within ASEAN to develop its single market and production base. Intraregional trade between Brunei Darussalam and the rest of ASEAN has been rising progressively over the last few years. According to national figures, exports from Brunei Darussalam to other ASEAN countries rose 41.54 per cent between 2005 and 2008. At the same time...