JAPAN BIGGER WINNER IN TRADE DEAL WITH BRUNEI

C O N F I D E N T I A L SECTION 01 OF 02 BANDAR SERI BEGAWAN 000240

SIPDIS

SIPDIS

DEPARTMENT PLEASE PASS TO USTR
DEPARTMENT FOR EAP/MTS, EAP/EP, AND EAP/RSP

E.O. 12958: DECL: 08/07/2017
TAGS: ETRD PREL JA BX
SUBJECT: JAPAN BIGGER WINNER IN TRADE DEAL WITH BRUNEI

REF: BANDAR SERI BEGAWAN 165

Classified By: DCM Justin Friedman, reasons 1.4 (b) & (d)

--------------
SUMMARY
--------------


1. (C) Japan appears to be the bigger winner in the bilateral
Economic Partnership Agreement it signed with Brunei June 18.
Japan secured easing of tariffs on automobiles and other
manufactured goods, while Brunei gained a dispute settlement
dialogue should Japan seek to back out of long term energy
purchase agreements. However, both sides were able to notch
a public relations victory in support of freer bilateral
trade and, they hope, gain momentum to complete a Japan-ASEAN
FTA later this fall. At a briefing for the diplomatic
community by the Japanese Embassy, DCM urged other missions
to raise intellectual property protection in their trade
dialogue with Brunei. END SUMMARY.

--------------
JBEPA Eases Open Brunei Market for Japan
--------------


2. (C) Officials at the Embassy of Japan in Brunei have
briefed the diplomatic community on the Japan-Brunei Economic
Partnership Agreement (JBEPA) signed during the visit of
Sultan Hassanal Bolkiah to Tokyo June 18. Japanese DCM
Masahi Kono asked that while the text of the agreement was
available to the public (http://www.mofa.go.jp/region/
asia-paci/brunei/epa0706/index.html),the content of this
briefing be kept confidential.


3. (C) The key achievements of the JBEPA for Japan include a
three year phased reduction in Brunei's import tariffs on
cars and car parts from 20% down to zero. According to the
embassy, approximately 70% of Japan's exports to Brunei are
in this sector. Similarly, tariffs on machinery will be
phased out over five years and on electronics over 10 years.
The JBEPA also secures national treatment for foreign
investors in both countries and calls on the two governments
to "endeavor" to promote increased trade. The agreement
mandates a review in three years, at which time Japanese
Embassy officials hope that the scope of the agreement can be
expanded.

--------------
Brunei May See Longer Term Payoff
--------------


4. (C) According to the Japanese Embassy officers, Brunei's
major gain under the JBEPA was the creation of a dialogue
mechanism, as well as a commitment to consultations should
Japan seek to back out of long term energy purchase
agreements. They pointed out that ninety percent of Brunei's
exports are oil and liquified natural gas (LNG),and that
72.6% of Brunei's LNG and 22% of it's crude oil exports are
currently sold to Japan at zero tariff. Brunei originally
became a major LNG exporter due to the long term purchase
agreements it signed with Japanese firms in the 1970s, most
notably with Tokyo Electric. Its current 10 year agreement
for LNG exports to Japan expires in 2013 and negotiations on
renewal must begin in 2009. Japanese embassy officials
commented that the consultation mechanism under the JBEPA
gives Brunei some assurance that it won't precipitously lose
its key LNG market if prices should eventually fall from the
high levels expected to prevail at the time of the renewal
negotiations.


5. (C) Brunei also stands to benefit under the JBEPA if it is
successful in its own economic diversification efforts.
Tariffs on Brunei's exports to Japan of chemicals and gasoil
products will be phased out over 10 years. (Note: the
Japanese firm Mitsubishi is the major investor in Brunei's
LNG plant, as well as in the new gas-driven methanol plant
under development.) Some agricultural goods (primarily
tropical fruits, but excluding rice) will have tariffs
immediately eliminated, while other products will have
tariffs phased out (e.g. timber & fiberboard over 7 years,
citrus fruit juices over 15 years).

--------------
Slightly Better than WTO in Services
--------------


6. (C) While the JBEPA's investment provisions are built on a
negative list (forestry, mining, and fisheries were
excluded),trade in services was based on a positive list.

BANDAR SER 00000240 002 OF 002


Japanese Embassy officials argued that the JBEPA goes beyond
WTO standards on trade in maritime and air services, telecom,
and information technology. However, they conceded that the
agreement does not go beyond the WTO on either banking or
insurance. The agreement also calls for greater transparency
in government procurement.

--------------
IPR at Least on the Table
--------------


7. (C) Japanese officials said that they pushed for more on
IPR protection than they ultimately achieved in the JBEPA.
Brunei agreed to a dialogue and the GoJ will start with an
expert visit and seminar in the coming year. DCM used this
opening to push all the represented missions to make IPR
protection a central part of their economic dialogue with
Brunei as we do in our Trade and Investment Council meetings
(ref).

--------------
COMMENT: Momentum for Japan-ASEAN FTA?
--------------


8. (C) While this new bilateral agreement between Brunei and
Japan seems to achieve only limited market openings, both
sides needed this trade liberalization victory, however
small. Brunei Permanent Secretary for Trade Dato Lim Jock
Hoi told us on the margins of the US-Brunei TIC meeting (ref)
that the Japan-ASEAN FTA negotiations were moving slowly, and
Japanese DCM Kono echoed that the parties would conclude
negotiations in November of this year, but that the FTA would
not be ready for signature until later. The JBEPA is Japan's
fifth such bilateral agreement with an ASEAN member. In
signing this agreement, Japan strengthened its hand in its
ASEAN FTA negotiations and Brunei joined the club of the
ASEAN nations with a bilateral deal with Japan. Ultimately,
the optics of the deal and the momentum it conveys to both
sides in pursuing their own trade agendas may be of equal or
greater value than the bilateral market opening aspects of
this agreement.
SKODON