Republican Congress Could Shape Obama’s Legacy on U.S. Investment in China

November 13, 2014 Posted by China Briefing Reading Time: 4 minutes

Op-Ed Commentary: Andrew Salzman, Dezan Shira & Associates, North American Desk

With the Republican Party reclaiming a majority in the U.S. Senate, it is fair to ponder what this will mean for American businesses with an international presence, such as in China. With their Senate takeover, Republicans now have a majority in both houses of U.S. Congress. This could lead President Obama to place a greater emphasis on foreign policy during his last two years in office.

The U.S.’s well-publicized ‘pivot to Asia’ could receive a new shot in the arm as the President looks to define his legacy achievements. For example, the passage of the Trans Pacific Partnership (TPP) – a large free trade agreement that covers both sides of the Pacific, but notably excludes China – may receive an added impetus with the GOP in Congress.

Notably, the TPP fits in with traditional Republican goals of reducing tariffs and regulatory barriers. If passed, the pact could help to deepen ties between the U.S. and ASEAN and increase American investment in that region.

In fact, the Republicans may seek to go even further by introducing so-called ‘trade promotion authority legislation.’ Such a bill would permit the President to submit trade agreements to Congress, which would then be required to hold an up-or-down vote on the agreement without any amendments.

Considering how often legislation can get bogged down with amendments and potentially never even see the floor, this would open the door for President Obama to enter into many new trade agreements over the next two years.

President Obama’s first six years in office were marked by the passing of legislation such as FATCA, which has cracked down on the overseas holdings of American citizens. More recently, the Obama administration has sought to curb the growing practice of inversions: where a U.S. company merges with a foreign one and moves its headquarters out of the U.S., seeking also to escape from some U.S. tax liabilities.

While the issue had long been simmering in political debates, it seemed to explode after Burger King announced their merger with Canadian donut tycoon Tim Horton’s.

President Obama has criticized the practice and made efforts to close the tax rules that make it possible. For their part, Republicans have been hesitant to enact piecemeal reforms aimed solely at inversions, and have instead sought a fuller reform of the U.S. tax code, whose last major revision was in 1986.

While for the moment, tax inversions remain a viable corporate strategy, and the rules implemented in September do not extend ex post facto, it is uncertain how long this practice will be allowed to continue.

Thus, while his power in the domestic realm may have been blunted, there are still opportunities for President Obama to have a far-reaching effect on the international business community during the conclusion of his second term in office. The fates of the TPP, FATCA and the U.S. treatment of corporate inversions hang in the balance.

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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 china@dezshira.com or visit www.dezshira.com.

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