Known as the “Lone Star State”, Texas is the second largest American state and the second most populous. The state also has the country’s second largest GSP (gross state product), amounting to US$1.6 trillion. If Texas were its own country, it would have the 12th largest economy in the world. Major industries in Texas include: agriculture, aeronautics, defense, computer technology, energy, tourism, entertainment, and healthcare.
The ten nations that make up the Association of Southeast Asian Nations (ASEAN) are becoming increasingly important trade partners for Texas. Below, we take an in-depth look at this blossoming trade relationship between Texas and ASEAN.
Texas-ASEAN Trade Growing
While Texas has export relationships with all of the ASEAN nations, the main destination for the state’s exports in ASEAN is Singapore, which is Texas’ eighth largest trade partner. In 2014, Singapore received US$5.77 billion worth of Texan exports. Trade between the two countries has grown every year since 2011 – a trend that is expected to continue. The chief Texan exports to Singapore were:
- Petroleum and coal products – 21.9 percent (US$1.26 billion)
- Machinery (except electrical) – 19.9 percent (US$1.14 billion)
- Chemicals – 19.2 percent (US$1.1 billion)
- Computer and electronic products – 10.5 percent (US$605 million)
It should be remembered that Singapore is a prime re-export destination for oil and related petroleum products and is a major refinery for other Asian markets. Singapore is also the world’s second busiest container port by traffic. An estimated 32.6 million containers were loaded and unloaded in Singapore in 2013, signifying that Texas exports to Singapore are often shipped elsewhere in Asia, and this would appear especially true within the petrochemical industry.
Texan export values for the remaining ASEAN nations in 2014 were as follows:
- Malaysia: US$1.7 billion
- Thailand: US$1.29 billion
- The Philippines: US$1.2 billion
- Indonesia: US$738 million
- Vietnam: US$573.96 million
- Brunei: US$35.2 million
- Myanmar: US$11.76 million
- Cambodia: US$10.2 million
- Laos: US$3.2 million
The main goods exported from Texas were: computer and electronics products, chemicals, machinery, petroleum and coal products, and transportation equipment. It is estimated that a total of around 108,843 jobs in Texas were supported by exports to ASEAN.
The majority of Texan imports from ASEAN in 2014 came from Malaysia (US$3.4 billion), Thailand (US$2.8 billion) and Vietnam (US$2.3 billion). Vietnam has seen its trade with Texas substantially grow over the past few years, with a 42.9 percent increase from 2013 to 2014, making the country the 22nd largest import partner for Texas; Malaysia was the 16th largest and Thailand was the 20th largest. Over the past few years, Texas has increased its imports with all of its ASEAN trading partners.
The Trans-Pacific Partnership (TPP) agreement, currently doing the rounds in Washington DC, could be a big deal for Texas-ASEAN trade. The TPP has the potential to increase Texan exports substantially due to the drastically reduced, or eliminated, trade tariffs in member countries such as Vietnam, which, for example, will reduce tariffs on man-made fibers (among other things). If passed, the TPP would also reduce Singapore’s tariff on chemical preparations from its current level of 20 percent. Additionally, in Malaysia, the TPP would reduce the 20 percent polyethylene tariff and the 28.2 percent tariff on men’s synthetic fiber pants.
There is something for every company in ASEAN – perhaps the most economically diverse regional grouping in the world. Singapore’s dynamic economy is a typical base for holding companies in ASEAN due to its strategic location and welcoming tax rates.
Like several ASEAN countries, computer and electronics products are a leading part of Texas’ exports, and the value of such products exported from the state has continued to increase. Malaysia’s electrical and electronics industry should thus be on the radar of Texas businesses. The Malaysian Investment Development Authority sees the semiconductor sector as spearheading growth. Exports of semiconductor devices in 2013 made up 47 percent of Malaysia’s total electrical and electronics exports. As a key part of the global supply chain, Malaysia is a location for Texas firms to consider in great depth.
ASEAN also presents an opportunity for Texas’ healthcare industry. As economic development leaves the food shortages of decades past as memories, the demographic landscape is set to be altered over coming years.
Tailoring your healthcare products and services to suit ASEAN’s diverse market is an absolute necessity. This is especially apparent when considering age demographics. According to the World Bank, life expectancy at birth in Singapore in 2013 was 82 years, equivalent to that of Australia. Looking at Myanmar in 2013, life expectancy was 65 years, equivalent to the USA in the early 1940’s. Myanmar’s development trajectory appears set to follow others in the region, led by labor-intensive industries.
Meanwhile, Vietnam is a prime market for investment. In particular, the Vietnamese market presents a rewarding opportunity for foreign businesses in retail; around 40 percent of the 700 supermarkets in the country were a part of a foreign group by the end of 2012. Now, as World Trade Organization obligations have required Vietnam to permit establishment of wholly foreign owned retail businesses since January 2015, retailers should take advantage of this rapidly growing market. For online retailers, businesses should be sure to take expert advice, as Vietnam’s e-commerce market presents unique challenges for both domestic and foreign retailers.
American companies can take advantage of ASEAN’s free trade agreements with both China and India. Signed off in 2010, these FTA have reduced tariffs on 97 percent of all traded products between ASEAN and China, and ASEAN and India, to zero. American companies, via establishing a subsidiary in ASEAN can have that local entity, purely by its geographical location, qualify as an ASEAN company and accordingly access these FTA benefits. Rules of Origin apply, and generally require 40 percent ASEAN components in the mix, allowing US parts to also be included prior to duty free export either across ASEAN or to China and India. Using ASEAN as a base to further penetrate Asian markets and reduce China manufacturing costs is now becoming a trend.
The United States also has a Free Trade Agreement with Singapore, which contains tariff reduction provisions for trade in goods and services, and the tax treatment of American nationals employed in Singapore. Additionally, the United States has signed Double Tax Treaties with Indonesia, Malaysia, Philippines, Singapore, Thailand and conveys Most Favored Nation status upon Vietnam. These can reduce profits tax burdens under certain circumstances in both trade and any ASEAN legal establishment. Please seek professional advice for specific ASEAN investment requirements.
ASEAN in Texas
Texas is home to a large population of Asian-Americans and Asian immigrants, currently numbering over one million. The biggest gathering of Asians in Texas can be found in Austin, the state capital. Those of Vietnamese descent make up one of the largest subsections of Asians; Filipinos are also found in relatively high numbers as well.
The Greater Austin Asian Chamber of Commerce is “the leading partner for driving local economic growth for businesses with ties to Asia and Asian Americans” and is a key resource to learn more about ASEAN businesses in Texas. The Asia Society Texas Center, located in Houston, is another key resource that is aimed at building partnerships between the US and Asia.
Further Support from Dezan Shira & Associates
Dezan Shira & Associates can service Texas-based companies that are looking to further develop their operation in ASEAN. The firm can help companies establish a direct office in the country and can guide them through the affiliated tax, legal and HR issues that come with doing so. To arrange a free consultation, please contact our U.S. office at email@example.com.
Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email firstname.lastname@example.org or visit www.dezshira.com.
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