VZCZCXRO1090
RR RUEHCHI RUEHDT RUEHHM
DE RUEHBD #0165/01 1620719
ZNR UUUUU ZZH
R 110719Z JUN 07
FM AMEMBASSY BANDAR SERI BEGAWAN
TO RUEHC/SECSTATE WASHDC 3837
INFO RUCPDOC/USDOC WASHDC
RUEATRS/TREASURY WASHDC
RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS

UNCLAS SECTION 01 OF 05 BANDAR SERI BEGAWAN 000165 
 
SIPDIS 
 
SIPDIS 
SENSITIVE 
 
DEPARTMENT FOR EAP/MTS 
DEPARTMENT PASS TO USTR FOR WEISEL AND KATZ 
SINGAPORE FOR FCS AND FAS:KONG 
KUALA LUMPUR FOR FAS:GRESSEL 
 
E.O. 12958: N/A 
TAGS: ETRD SENV PREL BX
SUBJECT: BRUNEI SEEKS U.S. CAPACITY BUILDING SUPPORT IN ECONOMIC 
DIVERSIFICATION DRIVE 
 
Ref: (A) Friedman-Forsyth e-mail 5/8 (B) STATE 57266 (C) 06 Bandar 
Seri Begawan 12 (D) Bandar Seri Begawan 50 
 
------- 
SUMMARY 
------- 
 
¶1. (SBU) Assistant U.S. Trade Representative Barbara Weisel and Lim 
Jock Hoi, Permanent Secretary at the Ministry of Foreign Affairs and 
Trade, led their respective delegations for the third meeting of the 
U.S.-Brunei Trade and Investment Council (TIC) under the U.S.-Brunei 
Trade and Investment Framework Agreement (TIFA) on May 7.  Brunei 
focused this third  TIC meeting on seeking U.S. support for its 
efforts to diversify its economy away from heavy dependence on oil 
and gas exports.  The GoB sought U.S. training and technical 
assistance on areas ranging from accounting for trade in services 
and investment flows, standards conformance and regulation drafting, 
Customs IPR enforcement, as well as assistance in attracting U.S. 
investment in Brunei.  To encourage bilateral investment, the GoB 
suggested launching talks toward a double taxation treaty. 
 
¶2. (SBU) AUSTR Weisel urged the GoB to strengthen IPR protections 
and make government decision-making more efficient and transparent 
as critical to attracting FDI as well as addressing international 
concerns from the WTO Trade Policy Review.  She urged the GoB to 
seek to harmonize halal food regulations with other producers to 
enhance trade in these products and offered technical assistance on 
managing Brunei's growing aquaculture sector to help exporters meet 
U.S. health regulations.  She also noted a number of trade capacity 
building programs under the U.S.-ASEAN TIFA which would start once 
ASEAN has completed its needs assessment and the two sides have 
agreed on next steps.  END SUMMARY. 
 
--------------------------- 
Strong but Imbalanced Trade 
--------------------------- 
 
¶3. (U) At the start of the third Trade and Investment Council (TIC) 
meeting, held May 7 in Bandar Seri Begawan, Brunei shared national 
statistical data on bilateral trade (ref A) broken down by sector 
over the last five years which showed total exports by Brunei to the 
U.S. at BD 815 million and total imports from the U.S. at BD 240 
million.  (Average exchange rate for 2006 was USD 1 = BD 1.55) 
AUSTR Barbara Weisel noted that U.S. statistics show a comparable 
level of imports from Brunei (USD 550m) but a significantly lower 
level of exports to Brunei (USD 48m).  Permanent Secretary for 
International Trade at the Ministry of Foreign Affairs and Trade Lim 
Jock Hoi attributed the larger Brunei figure for imports from the 
U.S. to Brunei statistical methodologies which count imports by 
country of origin.  Many U.S. products are shipped to Brunei via 
distributors in Singapore and Hong Kong.  These imports may not show 
in U.S. statistics by their final destination of Brunei. 
 
¶4. (SBU) Lim noted that ASEAN statistical capabilities in measuring 
intra-ASEAN trade in services and investment flows were weak and 
that ASEAN as a group sought assistance from its dialogue partners 
in building capacity.  As over fifty percent of Brunei's GDP is 
services, Lim stated that improving the government's capacity to 
measure these flows would help Brunei make a better case for 
attracting foreign direct investment in the service sector. 
 
--------------------------------------------- ----- 
Economic Diversification - Phasing Out of Textiles 
--------------------------------------------- ----- 
 
¶5. (SBU) Lim reported that Brunei exported BD 251m in textiles in 
2006, under half Brunei's peak year of 2004.  With the looming end 
to the China safeguard textile quotas, Brunei no longer encourages 
development of textile export capacity.  Existing producers that 
have not closed shops are welcome to continue to operate in Brunei, 
but the GoB is encouraging these producers to find niche 
opportunities instead of competing directly with lower cost 
factories in Vietnam or China.  The GoB expects that textile exports 
will be depressed further once the U.S. completes an FTA with 
Malaysia, and the industry may phase out completely in three years. 
 
------------------------------------- 
And Not Many Other Non-energy Options 
------------------------------------- 
 
¶6. (SBU) Representatives from the Brunei Economic Development Board 
(BEDB) and the Ministry of Industry and Primary Resources (MIPR) 
briefed on efforts by the GoB to diversify the economy away from oil 
and gas and attract FDI in new sectors.  Projects for downstream use 
 
BANDAR SER 00000165  002 OF 005 
 
 
of Brunei's natural gas are the furthest along.  The industrial park 
at Sungai Liang is now being cleared for development and a Japanese 
firm (Mitsubishi) has signed a series of agreements to develop a 
methanol plant reliant on Brunei's natural gas as feed stock. 
Construction is expected to start this year and the plant would be 
operational in 18 months.  An Australian firm is considering a deal 
to build a urea - ammonium nitrate plant, also using natural gas 
feed stock, at the Sungai Liang park.  A Malaysian firm is 
considering developing a biodiesel plant at the park to be fueled 
with palm oil imported from the region.  The GoB has created a 
special purpose investment authority to speed licensing of Sungai 
Liang projects, including hoped-for spin offs in manufacturing and 
services. 
 
¶7. (SBU) Alcoa has an exclusive agreement to build an aluminum 
smelter at the proposed Pulau Muara Besar island industrial park, 
but BEDB reps indicated this deal is further away from being 
realized.  The GoB plans to attract development on the companion 
mega-port and export processing zone project on the island by 
funding 70 percent of the development costs - dredging, land fill, 
link-bridge to the mainland - and grant foreign investors full 
control over operations of the port. 
 
----------------------------------- 
Islamic Banking, the Next Big Thing 
----------------------------------- 
 
¶8. (U) To complement the energy downstream diversification 
initiatives, the BEDB is also seeking to promote development of four 
key industrial clusters: Business services (including information 
technology), Financial services (with a focus on Islamic Banking), 
transportation and logistics, and tourism. 
 
¶9. (SBU) Lim commented that Islamic Banking and Asset Management 
were logical niches for Brunei to develop as a complement to 
Singapore as the region's banking hub.  The GoB was seeking to 
attract major investment banks to open operations and was currently 
in discussions with Merrill Lynch.  The GoB believes it has a good 
law in place and is consulting annually with the IMF and World Bank. 
 Weisel cautioned that Brunei was not the only country or first to 
seek to develop Islamic Banking.  She noted that the U.S. Treasury 
had worked with some other countries to address issues related to 
establishing Islamic financial services in the U.S. 
 
--------------------------------------------- - 
Limited Coordination on Industrial Development 
--------------------------------------------- - 
 
¶10. (SBU) Lim said that the Sungai Liang Authority was an attempt by 
the GoB to develop a 'single window' concept to facilitate foreign 
direct investment on the Bahrain model.  Eventually, permit 
applications would be taken and responded to on-line.  Electronic 
payment would also be developed, but slow progress on key 
e-government infrastructure efforts would delay implementation. 
However, in reviewing the multiple agencies that are supposed to 
encourage FDI - BEDB for big multinational projects and their 
spin-offs, MIPR for SMEs, agriculture, and tourism - GoB officials 
acknowledged that key issues such as site approvals and investment 
incentive authorizations are decided by duplicative committees. 
Notwithstanding the Sultan's instruction to his government to give 
"good and fast decisions" on investment projects, administrative 
approvals can easily get bogged down in a murky bureaucratic process 
for gaining an overall "Go - No Go" decision from the GoB.  Noting 
intense regional competition for investment, Weisel urged that the 
GoB work simultaneously on getting its house in order while also 
getting a coherent message out that Brunei was open for investment. 
 
----------- 
Aquaculture 
----------- 
 
¶11. (U) MIPR Fisheries Department officials briefed on the progress 
made toward developing a shrimp aquaculture industry with the 
support of a U.S. consulting firm.  Under this three year program, 
Brunei aims to develop a premium large shrimp targeted for the U.S. 
market.  MIPR is also looking at developing off-shore, cage-based 
fish farms using U.S. technology.  USTR conveyed an offer to conduct 
a one-week seminar by US FDA officials for regulators and industry 
on how to manage aquaculture programs.  The GoB would need to bear 
the cost of this training program.  MIPR officials welcomed the 
offer as a logical follow up to previous assistance from USG 
officials and would respond following further internal 
consultations. 
 
 
BANDAR SER 00000165  003 OF 005 
 
 
------------------------- 
Cautious on Privatization 
------------------------- 
 
¶12. (SBU) Ministry of Development representatives said the GoB would 
look to the Singapore model and proceed deliberately on privatizing 
state-owned enterprises.  To date, only one firm had been 
corporatized - the telecom service provider TelBru - and operation 
of the Muara Container Port had been outsourced via concession.  The 
GoB is developing a master plan and no further action on 
privatizations would be taken until the plan was completed. 
 
----------------------------- 
Bilateral Tax Treaty Proposed 
----------------------------- 
 
¶13. (SBU) The GoB (led by Ministry of Finance) proposed exploring 
the options for a bilateral double taxation treaty and said Brunei 
had a model treaty to share.  Lim noted that Brunei saw such 
agreements as important to attracting FDI, and Brunei currently had 
treaties with China and some European countries and was negotiating 
with Japan.  Weisel said that this idea had not yet been discussed 
in Washington, but offered to provide a copy of the model agreement 
the Treasury Department uses. 
 
----------------- 
Agriculture Trade 
----------------- 
 
¶14. (SBU) USTR raised U.S. concerns that onerous certification 
requirements limited U.S. firms' access to both the halal food 
market and agricultural product markets more broadly in Brunei. 
Weisel urged that the GoB adopt science-based policies for ensuring 
food safety concerns are addressed efficiently and transparently. 
Officials from the Ministry of Religious Affairs (MRA) and Ministry 
of Industry and Primary Resources (MIPR) briefed on Brunei's halal 
and food safety standards, noting that safety inspection 
requirements were simpler than the USG's previous understandings. 
Once a manufacturer had certified an initial shipment, subsequent 
shipments could be certified without a formal inspection and product 
testing.  On fresh produce, if the exporting country gives a 
phytosanitary certificate, the Ministry of Agriculture only requires 
random sampling and not checks on every shipment. 
 
¶15. (SBU) On halal, the GoB was in the process of implementing new 
laws which would require stringent inspection of food products to 
receive the right to carry a Brunei Halal logo.  New requirements 
include testing of processed foods at Brunei's labs.  Noting that 
Brunei will lack sufficient lab capacity during an interim period, 
the GoB was concluding MoUs with organizations in Malaysia, 
Indonesia, and Singapore, to facilitate halal imports during the 
transition.  Any product with a country of origin halal 
certification can still be imported under the new rules, but 
importers bear the burden of proving the halal-ness of the content. 
MRA and MIPR officials said that Brunei's strict observance of halal 
has created an opportunity to develop a Brunei Premium Halal brand 
which they hope to launch formally in August at the International 
Halal Products Expo.  Brunei was working with Australia and Malaysia 
and would work with other interested nations, including the U.S., to 
certify products as Brunei Premium Halal.  Weisel urged that Brunei 
work with the U.S. and other halal food producing nations to develop 
a global halal certification.  MRA officials responded that no 
change was currently envisioned in the rules governing meat products 
that would allow non-Brunei organizations to certify a product was 
Brunei halal without the currently required presence of two MRA 
officers supervising the entire process from slaughter to butchering 
to final packaging and sealing in shipping containers. 
 
¶16. (U) USTR followed up on ref B demarche request encouraging the 
GoB to participate in the pilot tropical fruit irradiation program, 
noting that Brunei fresh fruit not covered by the initial pilot 
could potentially be added in the future.  GoB said it would study 
the proposal and reply.  (Note: DCM had delivered ref B demarche 
prior to the TIC meeting, but the GoB had not yet responded.) 
 
----------------------------- 
WTO Review - Transparency Key 
----------------------------- 
 
¶17. (SBU) In response to USTR questions about Brunei's preparations 
for the WTO review, Lim said that the GoB was working hard to update 
key laws governing foreign investment to make them more transparent 
and speed up decision-making in time for the February trade policy 
review (TPR).  He said the creation of the Sungai Liang Authority 
 
BANDAR SER 00000165  004 OF 005 
 
 
was an attempt in part to address both issues.  Lim added that 
Brunei wanted to get a World Bank review on the record to establish 
a reference point from which the GoB could compare itself to its 
competitors and focus efforts on problem areas.  Weisel urged that 
the GoB be proactive in communicating to other governments its 
efforts to address transparency issues in advance of the TPR. 
 
------------------------------ 
Request for Standards Training 
------------------------------ 
 
¶18. (SBU) Officials from MIPR and the Ministry of Development asked 
for U.S. capacity-building assistance in standards and conformance 
in technical regulations.  Areas proposed for bringing U.S. speakers 
or trainers included: 
 
- international construction codes, 
- risk assessment as part of good regulatory practices, 
- standard templates / formats for trade regulations, 
- market surveillance, 
- product liability, 
- participation in standards developing committees, 
- ISO 22000 - Food management systems, and 
- ISO 27001 - Information security management systems. 
 
USTR responded that some of the areas suggested are in the US-ASEAN 
TIFA scope of work and suggested that the GoB follow up with a list 
of specific areas of interest for USTR to work with other USG 
agencies to identify appropriate technical training opportunities. 
 
------------------- 
ASEAN Single Window 
------------------- 
 
¶19. (SBU) Brunei briefed on the plans to develop the National Single 
Window in line with the ASEAN Single Window initiative. ASEAN Single 
Window operates  on two tracks, with the ASEAN-6 aiming for 
completion in 2008 and CLMV joining by 2012.  The GoB welcomed U.S 
offers of assistance through the ASEAN-US Technical Assistance and 
Training Facility (TATF) based in the ASEAN Secretariat.  The GoB 
believes it has an advantage of not yet having a Single Window and 
is looking at Singapore and Malaysia for best practices to implement 
the ASW template.  USTR responded that we are waiting for ASEAN to 
complete its gap analysis to identify what is most needed, 
emphasizing that the Single Window is a top priority for creating a 
single market in ASEAN. 
 
----------------------------- 
IPR Enforcement Still Lagging 
----------------------------- 
 
¶20. (SBU) GoB Attorney General's Chambers and Police representatives 
briefed on efforts to strengthen IPR protections and enforcement 
capacity.  New legislation under development would give police 
customs-like warrant-less search "ex-officio" authority and stiffen 
IPR violation penalties.  Brunei Customs representatives welcomed 
past DHS-provided training and requested additional training in 
identifying counterfeit and IPR-infringing goods.  For the 
foreseeable future, however, Brunei's IPR enforcement will still be 
complaints-based.  Brunei police noted previous efforts to work with 
the U.S. MPA, but the MPA's failure to follow Brunei's specific 
procedural requirements were a primary reason for the failure of an 
attempted anti-piracy raid (ref C). 
 
¶21. (SBU) Weisel replied that IPR enforcement is one of the single 
most important issues to generating U.S. investment in Brunei.  She 
urged that Brunei develop a national plan to address legal gaps in 
improve enforcement, including giving police ex-officio seizure and 
arrest authority for IPR violations.  She said the U.S. has an 
officer assigned to the U.S. Embassy in Bangkok with regional IPR 
responsibilities who may be available to visit Brunei to look at 
Brunei's legal and capacity-building issues.  Lim responded that the 
GoB would likely seek Customs capacity building assistance. 
 
--------------- 
US TPA and FTAs 
--------------- 
 
¶22. (SBU) AUSTR Weisel briefed on efforts by the USG to gain a 
renewal of trade promotion authority (TPA) in Congress.  USTR's 
priority was to secure ratification of the four completed bilateral 
FTAs (Panama, Peru, Colombia, and Korea) and then work with Congress 
for renewed broad TPA for the Doha Round and other future FTAs, 
including with Malaysia.  Weisel commented that the Malaysia FTA 
 
BANDAR SER 00000165  005 OF 005 
 
 
negotiations were making good progress. 
 
------------------------ 
P4 as Template for FTAAP 
------------------------ 
 
¶23. (SBU) Lim briefed on Brunei's experience since joining the P-4 
Free Trade Agreement with Singapore, New Zealand and Chile (see also 
ref D), noting its suitability as a template for a Free Trade Area 
of the Asia-Pacific (FTAAP).  Although chapters on services and 
investment are not complete, negotiations will continue on the 
margins of the upcoming APEC meeting in Cairns, Australia.  Brunei 
wants to attract other members, with Canada, Malaysia, Hong Kong, 
Peru and Australia top prospects (discussions with Thailand are on 
hold) Were Canada and Hong Kong to join, Lim argued, it would aid 
the APEC FTAAP process giving the larger group a high quality 
agreement with an open accession process.  Lim noted that Peru's 
accession would be complicated by it's FTA with the U.S.  Weisel 
suggested that Cairns would be a good venue to have a further 
discussion on the P4 and FTAAP. 
 
¶24. (SBU) In other FTA negotiations, Lim said that Brunei would sign 
a comprehensive bilateral Economic Partnership Agreement with Japan 
in June which would cover services, investment, energy, and the 
business environment.  The ASEAN-Japan FTA was much less ambitious 
and would likely be completed by November but not be ready for 
signing.  ASEAN FTAs with Australia and New Zealand were progressing 
well, but would not be finished until next year.  Environmental 
issues were under discussion but not government procurement.  The 
ASEAN FTA talks with China were focused only on goods and investment 
issues were much more problematic, and as a result, this agreement 
was shaping up to be "not a high quality agreement." 
 
-------------------------------------- 
Welcome U.S. Environmental Initiatives 
-------------------------------------- 
 
¶25. (U) Lim welcomed U.S. environmental initiatives in the region, 
including the illegal timber trade initiative with Indonesia, noting 
that Singapore and Malaysia had just signed their own similar 
agreement.  Lim highlighted that demand for illegal timber must be 
cut off to get logging under control.  He added that Brunei saw the 
Heart of Borneo (HoB) initiative as a watershed effort to work with 
Malaysia and Indonesia on sustainable development and address the 
persistent problem of trans-boundary haze. 
 
¶26. (U) MIPR provided a current map of the boundaries under 
discussion for the 220,000 sq.km or 1/3 of the island of Borneo 
covered by the HoB initiative.  Brunei proposed working boundaries 
for the HOB include 58% of Brunei's territory, which is about 0.6% 
of the HoB. The HoB includes 53% of Malaysian Borneo and 57% 
Indonesian Borneo.  The GoB informed that the three countries are 
studying a proposal to create a National Heritage Park within the 
HoB, which could be announced during the upcoming BIMP-EAGA Summit. 
Brunei welcomed U.S. support to international agencies working with 
the three countries on the HoB.  Lim suggested that the U.S. look at 
supporting a biodiversity study center the GoB is developing in its 
Tutong District in the HoB area.  Ambassador Skodon noted that the 
State Department is considering sponsoring a visit by forestry 
officials from Brunei, Malaysia and Indonesia to the U.S. regarding 
forest conservation efforts across state lines.  The U.S suggested 
that this could be a possible deliverable for the ASEAN-U.S. Summit. 
 Lim also shared that National Geographic would be filming for a 
production on Brunei's unique rainforest assets and hoped that this 
focus would increase awareness of ecotourism opportunities in 
Brunei. 
 
¶27. (U) USTR cleared on this message. 
 
FRIEDMAN