Vietnam-Brunei Committed to Increasing Two-Way Trade
On July 6, 2023, Prime Minister Pham Minh Chinh received the Ambassador of Brunei to discuss two-way trade between the two ASEAN members. Here’s how that trade is shaping up.
On July 6, 2023, a number of agreements were officially signed and exchanged between Vietnam and Brunei. Two of these were:
- An action plan to effectively execute the Vietnam-Brunei Comprehensive Partnership within a timeframe from 2023 to 2027; and
- A note of exchange regarding the Visa Waiver Agreement for individuals holding diplomatic and official passports.
Both parties demonstrated a mutual commitment to promoting trade between the two countries, particularly among governmental agencies and businesses. These collaborative efforts seek to open avenues of cooperation, with a specific focus on key sectors, such as energy, chemicals, trade, investment, Halal food, and tourism.
Trade relations between Brunei and Vietnam
Vietnam and Brunei officially established diplomatic relations in 1992, marking the commencement of a bilateral partnership that celebrated its 30th anniversary in 2022.
Notably, in 2019, both nations successfully upgraded their relationship to a Comprehensive Partnership, signifying a significant milestone that set the stage for deeper and more substantial collaboration.
Vietnam’s imports amounted to US$258 million in 2021, primarily consisting of chemical products, while exports totalled US$35 million, predominantly comprising aquatic products, iron and steel products, machinery and equipment, as well as tools and spare parts.
The trade cooperation between the two countries has witnessed significant advancements since then. In 2022, two-way trade amounted to US$725.8 million. This remarkable growth represents a staggering 134 percent surge when compared to the preceding year (US$293 million).
Trade agreement between Brunei and Vietnam
Vietnam and Brunei are members of multiple trade agreements, including the Regional Comprehensive Economic Partnership (RCEP), the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), as well as various ASEAN Free Trade Agreements. This provides a significant advantage for businesses from both nations in terms of accessing tax incentives for imports and exports.
Brunei has recently completed the ratification process for the CPTPP, making it the final nation among the original 11 signatories to do so. The official notification of Brunei’s ratification has been conveyed to New Zealand, the depositary for documents pertaining to the agreement.
By ratifying the CPTPP, Brunei becomes the 11th and final country to endorse this trade and investment agreement.
On the 12th of October, 2021, Brunei demonstrated its commitment to regional economic integration by officially ratifying the Regional Comprehensive Economic Partnership (RCEP). The RCEP is regarded as the largest free trade agreement in the world. Brunei was the sixth nation to ratify the agreement, following in the footsteps of Thailand, Singapore, China, Japan, and Cambodia.
Brunei’s active participation in this landmark trade agreement underscores its dedication to promoting regional cooperation and harnessing the potential benefits of enhanced economic integration among participating nations.
The ASEAN Free Trade Area Agreement was agreed upon by six ASEAN member countries and established in January 1992 with the aim of strengthening and further promoting economic cooperation between these countries. Specifically, the AFTA was established to eliminate tariff barriers between Southeast Asian countries with the view of integrating economies into a single production base and creating a single market.
The Common Effective Preferential Tariff (CEPT) Agreement serves as the fundamental pillar of AFTA, serving as the principal instrument for facilitating market liberalization and trade expansion. Initially, the CEPT agreement was signed by the first six ASEAN member countries: Brunei Darussalam, Indonesia, Malaysia, Philippines, Singapore, and Thailand.
Vietnam subsequently became a signatory to the CEPT Agreement on December 15, 1995. Notably, the scope of the CEPT Agreement was subsequently broadened to include agricultural products, thereby encompassing a wider range of traded goods.
FDI projects in the two countries
Brunei occupies the 27th position among 143 countries and territories engaged in investment activities within Vietnam. It has a notable presence of 157 active projects and a cumulative registered capital of US$971.07 million. The foreign direct investment (FDI) initiatives predominantly center around the processing, manufacturing, and construction industries, and the real estate sector.
In return, Vietnam itself has undertaken two investment ventures in Brunei as of December 2023, amounting to a total value of US$3.6 million. One notable undertaking is the construction of a BFI fertilizer plant in Brunei, which was designed and installed by LILAMA Vietnam Corporation. The plant commenced operations in October 2021.
Brunei exports to Vietnam in 2022
Source: General Department of Statistics
Brunei possesses significant reserves of natural gas and petroleum, which serve as raw materials for the production of various chemicals. As a result, Brunei has established a strong chemical industry, capable of producing a wide range of chemical products.
Vietnam’s industrial and manufacturing sectors have experienced substantial growth in recent years, resulting in an increased demand for chemicals as inputs in various industries. Chemicals are essential in multiple sectors, such as pharmaceuticals, plastics, rubber, textiles, and a number of manufacturing processes.
Furthermore, Brunei’s proximity to Vietnam and the establishment of bilateral trade agreements, such as the ASEAN Free Trade Area, have facilitated the trade flow between the two countries. Lower transportation costs and reduced trade barriers have made it more convenient and economically viable for Vietnamese businesses to import chemicals from Brunei.
Vietnam’s exports to Brunei
|Iron and steel products
|Machine, equipment, tools and instruments
Source: General Department of Customs
According to analysis conducted by Research And Markets, several factors have contributed to the increase in the price of Vietnamese rice and the stabilization of its rice exports from 2022 to 2031, as reported in state media.
Firstly, the Vietnamese Government has implemented a comprehensive agricultural restructuring scheme, which involves significant adjustments to the rice farming processes. This restructuring focuses on enhancing the quality of rice rather than solely increasing production volumes.
This shift is evidenced by the proportion of high-quality rice seeds in Vietnam’s total rice seed supply. In 2015, high-quality rice seeds accounted for only 35 to 40 percent of the total; however, by 2020, this figure had risen to 75 to 80 percent. In some regions, the utilization rate of high-quality seeds reached as high as 90 percent.
Thirdly, despite the global impact of the COVID-19 pandemic on various industries, the demand for food, including rice, has remained relatively stable. This resilience in food demand has provided a consistent market for Vietnamese rice exports.
Iron and steel
Brunei has limited iron and steel resources and relies heavily on imports to meet its domestic demand. Vietnam, on the other hand, has a well-developed steel industry and can produce iron and steel products at competitive prices.
In recent years, Brunei has been investing in infrastructure projects that require large amounts of steel. As a result, Vietnam’s iron and steel exports to Brunei are increasing.
Machines and electronics
Vietnam has a low cost of production compared to many other countries, which makes it an attractive location for manufacturing electronic devices. This helps to keep the prices competitive, which is important in the highly competitive market for machines, equipment, tools and instruments.
Apart from this, Vietnam has a skilled workforce in electronics manufacturing, which is crucial for producing high-quality products.
The future of trade between Vietnam and Brunei
The future of trade between Vietnam and Brunei is very promising for businesses and consumers in both countries.
Vietnam and Brunei Darussalam have recently signified the importance placed on strengthening the relationship between Vietnam and these two neighboring countries within ASEAN. The two countries aim to foster mutual respect and create new momentum for bilateral ties. There are also wishes to enhance political trust, promote trade and investment, and establish closer cooperation in regional and international matters of shared interest.
Overall, the future of trade between Vietnam and Brunei looks bright, with significant opportunities for foreign investors to tap into these dynamic and growing markets. As both countries continue to strengthen their economic ties, businesses can expect to see continued growth and success in the years to come.
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