Asian investment in the United States - Leveraging the U.S.-Singapore free trade agreement to protect U.S. investments

APAC investment in US

Foreign direct investment (FDI) into the U.S. was approximately $292 billion in 2024. U.S. firms have raised significant funds by targeting APAC investments in recent years, and the potential for future investment—both direct and portfolio investment—is expected to be strong in the future in large part due to the Trump Administration’s focus on attracting large-scale investments including in onshoring manufacturing. Asian companies significantly increased their U.S. presence in 2024. Along with Japan, South Korea, and other major U.S. trade and investment partners, Singapore continues to be one of the U.S.’s largest trading partners in Southeast Asia, and has become a leading investor in the United States.

Despite upward trends in APAC FDI, 2025 will continue to present certain challenges for those seeking to invest in the U.S. market, including trade barriers, uncertainty, and other complex regulatory requirements. Therefore, Asian investors in the United States should ensure adequate protections for their investments in the United States as detailed below.

There are few high-standard investment treaties or FTAs between the United States and major commercial centers

The United States has entered into a large number of Bilateral Investment Treaties and FTAs with Investment chapters that have high-standard protections for foreign investors in the United States. However, particularly following the termination of the North American Free Trade Agreement (NAFTA) and entry into force of the U.S.-Mexico-Canada Agreement (USMCA), which has much lower levels of investment protection, there are few high-standard investment agreements in force between the United States and major commercial centers.

Singapore is a prominent example of a major commercial hub with a favorable business climate that could serve as an ideal location for investment into the United States. Singapore and the United States have a high-standard trade and investment agreement, the U.S.-Singapore Free Trade Agreement (USSFTA), which provides for many benefits including guaranteeing Singaporean investors in the United States (and U.S. investors in Singapore) high levels of protection under international law.

US-Singapore FTA and investment climate

Last year marked the 20 year anniversary of the successful USSFTA. Since the FTA has been implemented, bilateral trade between the U.S and Singapore has increased by more than 62%. In 2023, the two-way goods trade reached $82 billion. Currently, there is more U.S. investment into Singapore than in China, Japan, and Korea combined, and Singapore has been a consistent and reliable economic partner.

The USSFTA is a broad-based, high-standard FTA that eliminated substantially all tariffs, opened trade across a range of services, provided increased intellectual property protection, increased opportunities for government procurement, included labor protections, promoted environmental protection, and, most importantly for the bases for this alert, includes a high-standard investment chapter akin to a bilateral investment treaty (BIT).

Singapore’s diversified economy supports open investment policies and attracts substantial levels of foreign investment in manufacturing and services. The government promotes Singapore as a center for research and development by offering tax incentives, research grants, and partnership opportunities. It is also a regional hub for thousands of multinational companies and a world leader in dispute resolution, financing, and project facilitation for local infrastructure development.

Singapore consistently ranks high on indices of ease of doing business, offering a straightforward company registration process, a highly-skilled workforce and competitive tax regime. This pro-business environment is supported by a judicial system, including international arbitration, mediation centers, and a commercial court, that is considered contract-friendly, transparent, and effective at enforcing decisions.

Structuring investments to ensure USSFTA investment protection

Given the various protections offered by the USSFTA, the strong economic ties between the U.S. and Singapore, Singapore’s relative ease to incorporate and structure companies doing international business, and Singapore’s favorable economic climate, there is a very strong case for APAC and other international investors into the United States to structure investments so as to take advantage of the USSFTA’s treaty-based protections.

Companies investing in the United States have the option to structure that investment through Singapore to take advantage of the protections of the USSFTA like the investor-state dispute settlement (ISDS) resolution mechanism. Companies can structure their investments by nationality planning, which consists of channelling investments into the U.S. through Singapore rather than the investor’s home state to ensure USSFTA investment protections. / Investors can structure their investments at the outset or potentially can restructure their investments at a later time and secure treaty protections.

However, some international tribunals have imposed some limitations on the types of permissible investment restructurings. For example, some tribunals have deemed it impermissible for investors to restructure their investments to gain treaty benefits when a dispute with the host state is reasonably foreseeable. / The Tribunal in Cervin Investissements & Rhone Investissements v. Costa Rica held that a restructuring could be impermissible if its sole purpose was to obtain a procedural advantage under an investment treaty. / Therefore, investors should seriously consider structuring investments at the outset, or at minimum before any harm is incurred or before a dispute is foreseeable, to maximize the opportunity to rely upon investment treaty protections in case of future harm.

So long as the investment is made in good faith, prior to any potential violation of the USSFTA, and in compliance with the terms of the USSFTA, this can be a basis for investors headquartered outside of Singapore to take advantage of the USSFTA by utilizing the investment-friendly jurisdiction in Singapore as their investment platform. We wrote in more detail about investment structuring for treaty-based protections here.

The USSFTA has strong substantive protections and investor-state dispute settlement

The investment chapter contained in Chapter 15 of the USSFTA outlines the treaty-based investment protections available to covered investments (U.S. party investments into Singapore and vice-versa) and investors of a Party (investors from the U.S. seeking to make investments in Singapore and vice-versa).

Specifically, Singapore and the United States (the Parties) are obligated to provide each other’s investors and their covered investments with several important substantive protections, including:

• Treatment no less than the minimum standard of protection under international law, including fair & equitable treatment and full protection and security;
• Except in limited circumstances, the Parties may not expropriate or nationalize covered investments either directly or indirectly without fair compensation;
• Non-discrimination, including National Treatment through “treatment no less favorable” than they provide to their own investors “with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments in its territory” and Most Favored Nation treatment through “treatment no less favorable” than they provide to “any non-Party with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments in its territory”;
• The Parties are obligated to permit all transfers relating to covered investments to be made freely and without delay in and out of their territories; and
• Other protections, including related to performance requirements, guarantees around appointments of senior officials and board members, and others.

USSFTA also has strong procedural protections including ISDS, which provides a neutral forum to resolve disputes between foreign investors and the United States. An arbitral tribunal can issue monetary damages awards to compensate foreign investors that are harmed by the host State in a manner that breaches the treaty.

Investors must comply with the “Denial of Benefits” clause to ensure USSFTA protections

One element of the USSFTA investment chapter, which is found in many U.S. investment agreements, is a so-called “denial of benefits” clause. The Parties may deny Chapter 15 investment benefits “to an investor of the other Party that is an enterprise of such other Party and to investments of that investor” if 1) investors of a non-Party own or control the enterprise and certain other conditions are met by the denying Party, and 2) the enterprise has “no substantial business activities in the territory of the other Party, and investors of a non-Party, or of the denying Party, own or control the enterprise.” The substantial business activity requirement is typical for “denial of benefits” sections of treaties as a way to address forum-shopping by non-signatory nations trying to obtain investment protection through ownership or control of holding, mailbox, or shell companies composed under the laws of signatory states.

Thus, it is essential that investors seeking to invest in the United States via Singapore establish and maintain “substantial business activities” in Singapore, as this will allow them take advantage of treaty-based protection and prevent denial of such benefits. In determining what is “substantial,” international arbitration tribunals have regularly looked to materiality as opposed to magnitude of the company’s activities. They have considered indicators of substantial business activities such as the payment of taxes, payment of salaries, leased office space, permanent personnel, local company board meetings, directors residing locally, local auditor, engagement with local customers, vendors, and providers, purchases of local good, local bank accounts, raising capital, and meetings with local investors and stockbrokers.

It is also always important to ensure that there are not other limitations or exceptions that would reduce or eliminate treaty protections and rights. For example, the USSFTA excludes certain non-conforming measures at Annexes 8A and 8B. Companies should carefully consider those limitations when structuring their foreign investments.

Conclusion

In sum, Singapore is a favorable platform for APAC (and non-APAC) companies to use to invest abroad, including in the United States. The USSFTA has strong protections for foreign investors that have legitimate business activities in Singapore that are investing in the United States. Investors in the United States would be wise to protect their investments under USSFTA or other treaties.

Authored by Michael Jacobson and Rob Palmer.

Special thanks to summer associate Emma Donahue for her contributions to this alert.