Enhancing SMEs Participation in Global Value Chains

Wayne Chen

        Under the theme of "Building Inclusive Economies, Building a better World", the Philippines, the host economy of APEC 2015, announced that Fostering SMEs' Participation in the Regional and Global Economy is centered as one priority areas for this year.

        SMEs have been recognized as a significant dual engine of employment and economic growth after the financial crisis. Similarly, in the APEC context, SMEs are highlighted for its contribution mainly for the Inclusive Growth, one of the five attributes of the APEC Growth Strategy announced in 2010. Inclusive Growth implies that APEC should pursue economic growth and meanwhile improve quality of industrial development and livelihood by a more integrated regional economy. In this light, SMEs is an indispensable pathway to ensure economic prosperity last longer and benefit people's livelihood in a more inclusive manner.

Reducing Barriers to SMEs Trading in the Region

        One remarkable move was initiated in 2011, where APEC Ministers Responsible for Trade and the APEC Ministers Responsible for Small and Medium Enterprises announced a joint statement to recognize SMEs' contribution to economic growth and job creation in the Asia-Pacific as well as consider SMEs as a source of innovative business models and new technologies.

        Consequently, Ministers identified top 9 barriers to SMEs trading in the region and urged collective actions of APEC economies addressing the 9 barriers, namely: 1) lack of access to financing; 2) lack of capacity to internationalize and difficulty in identifying foreign business opportunities; 3) need for open and transparent business environments; 4) high transportation and related costs; 5) Customs clearance delays caused by difficulties in navigating overly complex customs requirements and documentation; 6) problems navigating differing legal, regulatory, and technical requirements; 7) difficulty with intellectual property acquisition, protection, and enforcement; 8) inadequate policy and regulatory frameworks to support cross-border electronic commerce; 9) difficulty in taking advantage of preferential tariff rates and other aspects of trade agreements. Barriers 1-4 were investigated by SMEWG and barriers 5-9 were studied by CTI. Later in the year, the findings and policy recommendations were published as guidelines for APEC in fostering the development of SMEs.

Fostering SMEs' Participation in the Regional and Global Economy

        For the first time, SMEs are listed as annual priority area in APEC 2015. Continuing ongoing works and in an attempt to create new agenda for APEC SMEs, the Philippines announced three sub priorities, namely Removing Barriers to SMEs; Promoting Inclusive Growth through Sustainable and Resilient SMEs, and; Advancing Modernization and Standards Conformance among SMEs in the region. The sub themes reflect a firm belief of the Philippines that SMEs are the backbone of local economy and they are in need of stronger dynamism. Furthermore, as one of ASEAN countries suffering from natural disasters, the Philippines is associate SMEs work with strengthening resilience of communities against natural catastrophes, including earth quakes and typhoons common in places. Promoting SMEs' business continuity plans, therefore, is accented as a significant cross-cutting issue, between the SMEs priority and another priority of Building Sustainable and Resilient Communities, and deliverable for APEC leaders this year.

        Nevertheless, ongoing initiatives which were primarily promoted by SME working group may not seem adequate to support the SME priority as an annual pillar. Recognizing that creating new pages for the APEC SME agenda is necessary, the "Towards an APEC Action Plan to Foster SMEs' Participation in Regional and Global Markets" (Action Plan) was tabled at the 1st Senior Official Meeting in February. In short, the Action Plan proposed to establish an Overall Goal of improving SMEs' share of exports by 2020, and addition of 4 new priority actions for APEC economies' consideration, namely:

a.Increasing the de minimis threshold or waiver for the issuance of certificates of origin. Economies should consider waiving the certificate of origin requirement for shipments of US 2,000 or less. 

b.Providing trade and tariff information for SMEs. Timely and accurate information on tariffs, trade and business procedures are essential to support SMEs in getting their products and services abroad. 

c.Enhancing SME participation in authorized economic operator (AEO) and trusted trader programs. AEO and trusted trader programs should be designed in a way that SMEs can participate and be recognized as safe, secure and compliant business partners in international trade. d.Setting appropriate labeling requirements for SMEs. As rules and regulations vary widely between economies as well as between importers and distributors, information on appropriate labeling requirements will assist SMEs in the food sector with a view towards establishing a mechanism for recognizing labeling requirements across APEC economies.

        The Action Plan demonstrates the ambition to expand current boundary of APEC SME works which is more in the Economic and Technical Cooperation (ECOTECH) domain by merging more intensively and broadly with the pillar of Trade and Investment Liberalization and Facilitation (TILF), including custom procedures and food safety issues.

        However, the discussion was not smooth. The Action Plan did not receive enough deliberation as it should have for wining agreement on its proposals. Japan, one of few economies spoke up, suggested APEC economies to incorporate more SME related works, rather than limited to the 4 proposed, in the Action Plan. No comment was shown on the Overall Goal, and hardly could we conclude that a consensus was found among senior officials in this regard.

        At present, the Philippines is doing an APEC-wide stocktaking on SME plans, initiatives and projects implemented/conducted/planned since 2011. How the Action Plan can support the SME priority and consolidate concrete deliverables for APEC Leaders need further elaboration. Moreover, how APEC fora and sub fora should cooperate once the 4 new priority actions of the Action Plan endorsed can be another challenge to APEC and member economies.

References:

1.APEC, "APEC Leaders' Growth Strategy", 18th APEC Economic Leaders' Meeting, 2010/AELM/DEC/3, 2010/11.

2.APEC, "Enhancing SMEs Participation in Global Production Chains", 2011/ CSOM/026app10, 2011/11. 

3.APEC, "Joint Statement of APEC Ministers Responsible for Trade and Ministers Responsible for Small and Medium Enterprises", 2011/SMEMM/JMS, 2011/5 

4.APEC, "Towards an APEC Action Plan for Cooperation to Foster SMEs' Participation in Regional and Global Markets", 2015/SOM1/009, 2015/2.