State by State – ASEAN and Pennsylvania Trade

By: Dezan Shira & Associates
Editor: Fernando Vidaurri

Pennsylvania is an important economic player within the US and the world. Once a manufacturing powerhouse, helping pave the way for the industrial development of the US, the state today has transitioned towards a high-tech manufacturing and service focused economy. In 2014 the state was the 10^th largest exporter in the nation, reaching US $41 billion in exports in goods and US $15 billion in services.  If the state was a country it would be the 27^th largest economy in the world.

One of the areas where trade has been growing the strongest is with countries that have concluded an FTA with the US – the state has seen a 109 per cent increase in exports to this category of countries since 2004. However, the state’s trade with countries outside of the US’s FTA network has picked up as well, and ASEAN has become an important economic partner for Pennsylvania. Moreover, ASEAN as a bloc is a trade partner with enormous scope for growth with the state over the coming decade.

Pennsylvania- Singapore Trade

Singapore has become the biggest AESAN export market for Pennsylvania; due in part to the FTA the country has with the US. Exports to the country reached US $ 721.86 million in 2014, a 22.7 percent increase over the previous year. This swift pace of growth is in keeping with the export growth over the past couple of years – from 2009-2014 export totals increased by 94 percent.

Pennsylvania has aimed to create stronger ties by conducting multiple trade missions to Singapore, the most recent in 2013, as well as by opening a trade mission office in the country. Some of the areas with the best prospects for trade in the country include pharmaceutical, biomedical technology, healthcare services, energy efficiency technology as well as high-tech manufacturing areas such as industrial automation.

Pennsylvania-Malaysia Trade

Malaysia has also seen strong growth on its export relationship with Pennsylvania, despite not having and FTA in place. Over the 2009-2014 period exports rose by 104 percent making the country the fastest growing trading partner for Pennsylvania in the ASEAN region. Keeping up with this trend exports, 2014 saw a 60.2 percent increase in trade to reach US $320 million.

The government of Malaysia is interested in attracting foreign direct investment (FDI) and encouraging foreign companies to set up operations in the country. The leading sectors for export and investment in the country include aircraft, oil and gas equipment, renewable energy, and healthcare.  Pennsylvania companies looking to set up offices must take into account how they want to enter the market. Investment in some areas may require the establishment of joint ventures with local companies or a local agent, but given professional guidance, Malaysia can be a strong growth country for Pennsylvanian firms.

 RELATED: Pre-Investment Services from Dezan Shira & Associates

Pennsylvania-Indonesia Trade

The trade between Indonesia and Pennsylvania has not been as strong as that with its neighbors, yet it has caught the attention of trade officials in the state given that it is the largest market in ASEAN and the fourth most populous nation in the world. In 2012 the state created a special project office in the country aimed at promoting trade. The office is only the second one in the region, the first one being in Singapore.  Additionally, Pennsylvania trade officials visited the country in 2013 as part of a trade mission that also included Singapore and Australia.

Pennsylvania’s trade office in Indonesia, the first in the country set up by any US state at the time of its inception, was designed to support state businesses looking to export to the country. Among the sectors that present opportunities for Pennsylvania companies are the mining, information technology and food processing sectors. Given the rising cost of doing business in China, and the need for large pools of inexpensive labor, Indonesia’s vast population makes it a key growth market for economic engagement with Pennsylvania over the next decade.

TTP Implications

The Trans-Pacific Partnership (TTP) presents different opportunities and challenges for companies in Pennsylvania. Manufacturing is one of the industries in which there are some reservations about the TTP due to the fear of low cost Asian imports crowding out local producers. In 2014, the industry accounted for 12 percent of the total output and hired 10 percent of the state workforce.

However, there are opportunities for this industry through the implementation of the treaty. Manufacturing helped drive the economy in 2014 with US $36.6 million, out of which US $18.5 million was done with free trade partners, highlighting the benefits accruing to the state from free trade.

Moreover, data from the National Association of Manufacturers also showed that as a whole the US had a surplus of US $55 billion in trade of manufactured goods with countries with which it had an FTA. This is in contrast to the US $579.2 billion trade deficit with countries with which the US does not have an FTA. Thus it seems likely that rather than denting Pennsylvania’s economic prospects, the TPP will act as a catalyst for increased trade with ASEAN.

 RELATED: State by State – ASEAN and Ohio Trade

Looking Ahead        

The implementation of the TTP will allow Pennsylvania to form stronger trade relations with established partners such as Singapore and Malaysia, as well as with countries like Vietnam and Brunei – nations with which trade is not as strong, and thereby present new opportunities. Furthermore, as the state has already done with some regional partners, engaging in trade missions and opening special project offices will increase cooperation between Pennsylvania and ASEAN.

In 2014, Pennsylvania’s largest export category was chemicals, followed by machinery, transportation equipment, computer and electronics, and primary metal manufacturers. The top industrial exports to the ASEAN countries that will join the TTP include minerals and fuels, metals and ores and chemicals. Once the treaty is implemented, it can open more ASEAN markets – some of which have tariffs of up to 35 percent – to Pennsylvania-based companies, bringing opportunities to operate in the sectors in which they are most effective.

Further Support from Dezan Shira & Associates

Dezan Shira & Associates can service Pennsylvania-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 usa@dezshira.com.

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