Southeast Asia moved closer toward regional integration as the ASEAN Economic Community (AEC) took effect in December of 2015.
With the free movement of labor and capital the AEC will bring, China is among many nations wanting to invest in Southeast Asia.
Chinese businessmen are investing in Asia’s emerging and frontier markets, from Myanmar to Malaysia. The goal? Finding natural resources and new markets for consumer goods.
However, American firms are absent by comparison. ASEAN’s ten member states represent a smaller portion of U.S. trade than either China or Japan. This is despite strong sentiment from U.S. business leaders. It’s time for the United States and other western economies to benefit from Southeast Asia’s huge growth.
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 are required.
The Obama administration’s policy of a “pivot eastward” got tons of attention. But there hasn’t yet been any substantive change.
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.
The recently enacted FATCA (Foreign Account Tax Compliance Act) law is one example. It subjects both American citizens and U.S. majority held companies to stringent reporting requirements in an attempt to cut down on tax evasion.
Laws require 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.
American citizens aren’t as lucky. They must pay taxes under any circumstances, regardless of where they live. American-owned firms share this same burden too.
Because of the additional paperwork, U.S. businesses have less reason to invest globally. They’re also taxed higher than competitors from other countries which don’t have the same disadvantage of being American.
Apart from structural changes which probably won’t come in the near future, it’s up to businesses themselves to venture abroad though.
The U.S. government’s restrictions make it harder for Americans to do business in Asia. However, the countless advantages are still worth it for companies to take the leap.
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