Southeast Asia is moving toward regional integration with the ASEAN Economic Community set to take effect in December of 2015. With the free movement of labor and capital it will bring, China is among many nations which have chosen to invest in Southeast Asia. Chinese businessmen are investing in Asia’s emerging and frontier markets, from Myanmar to Malaysia, seeking natural resources and new markets for consumer goods.
However, American companies and investors have been absent by comparison and the ten member states of ASEAN as a whole represent a smaller portion of U.S. trade than either China or Japan. This is despite strong sentiment from U.S. business leaders. It is time for the United States and other western economies to take advantage of the huge growth in Southeast Asia.
Alex Feldman, president of the US-ASEAN Business Council which advocates for U.S. companies wanting to invest in Southeast Asia, sees the benefits. “ASEAN now represents more than 620 million people and a combined gross domestic product of US$2.2 trillion”, said Feldman. “Clearly, ASEAN matters to the United States more than ever, just as the United States most clearly matters to ASEAN.”
For American businesses to capitalize on Southeast Asia’s large population and increase in purchasing power, policies by the U.S. government and more effort from companies will have to be made. Much attention has been given to the Obama administration’s policy of a “pivot eastward”, but any substantive change in action remains to be seen.
U.S. Government Makes it Hard to Invest in Southeast Asia
Which changes would U.S. businesses benefit the most from? For one, a removal of rules and regulations hampering companies’ ability to do business internationally. One example is the recently enacted FATCA (Foreign Account Tax Compliance Act) law. It subjects both American citizens and U.S. majority held companies to stringent reporting requirements in an attempt to cut down on tax evasion. The law requires financial institutions, even those with no operations in the United States, to give private information about their clients to the IRS.
In addition, the United States is the only country in the world (besides Eritrea) which taxes based on citizenship. All others tax based on residency or source of income. This makes U.S. citizens liable to pay taxes under any circumstances and is passed on to companies owned by Americans. This removes some incentives from investing globally by giving companies more paperwork to file, as well as taxing them higher than their competitors.
But apart from structural changes which probably won’t come in the near future, it’s up to businesses themselves to venture abroad. Doing business in Asia is made even more complicated by the U.S. government’s restrictions, but the countless advantages are still worth it for companies to take the leap.
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