SME Participation in ASEAN and East Asia Regional Integration Dionisius Narjoko Economic Institute for ASEAN and East Asia EABC RCEP Business Stakeholder Workshop Jakarta, 4-5 December 2016 Yangon, 27 November 2013

Introductory notes A collaboration research project between ERIA and ISEAS Status is ongoing, but at finalization. Results from several AMS are not yet finalized. Motivation of the study: The economies of ASEAN and East Asia have become increasingly integrated. But it remains unclear whether SMEs have really benefited from this. In addition, SMEs are known to be more resource-constrained (compared to large firms) to take advantage of the benefits from trade and investment liberalization. There is a lack of systematic and comprehensive research on these issues

Introductory notes Objective of the study to undertake a systematic and comparative analysis of SME participation in ASEAN and East Asian regional economic integration. Focus of this presentation, given limited time: Findings on awareness of AEC and some idea on how it affects local business in member states. Utilization of FTA, using a ‘mirroring’ data based on Japanese affiliates operating in AMS.

Awareness and Impact of AEC: Findings from perception survey

How has AEC affected/will affect your business? 1 3 2

What are the current/possible changes in your business due to AEC? 1 2 3

How has/will these FTAs affect your business? 1 3 2

Why are firms not using FTAs? 1 3 2

Awareness and Perception on the Impact of AEC 1 2 3

Firm Size and Perceptions on the Impact of AEC 1 3 2

FTA Utilization The exercise examine the extent of utilization of Japanese affiliates operating in ASEAN member states. Data used: JETRO Survey 2012 and 2013; Basic Survey of Japanese Business Structure and Activities (survey conducted by METI Japan). Key characteristics of the data: Identify at least 50% of Japanese affiliates in AMS by firm size; Affiliates is defined in terms of joint-venture with at least 10% of foreign (ie. Japan) ownership share. JETRO Survey includes data items on FTA use

Affiliate-level Shares of Sales and Procurements in Large Parents in 2013: Average 3% 13% 22% 3% 4% 6% Procurement: 41% Sales: 48% 8% 12% 31% 1% 1% 7% Notes: We follow the definition in Japan’s “Small and Medium-sized Enterprise Basic Law”. Specifically, “Large” is defined as the parent firm with 300 or more employees and whose paid-up capital or investment fund is over 30 million yen. The rest are categorized into SMEs. 2015/6/13 （C）　IDE-JETRO All rights reserved.

Affiliate-level Shares of Sales and Procurements in SME Parents in 2013: Average 3% 10% 28% 1% 2% 5% Procurement: 44% Sales: 51% 8% 8% 32% 1% 1% 7% Notes: We follow the definition in Japan’s “Small and Medium-sized Enterprise Basic Law”. Specifically, “Large” is defined as the parent firm with 300 or more employees and whose paid-up capital or investment fund is over 30 million yen. The rest are categorized into SMEs. 2015/6/13 （C）　IDE-JETRO All rights reserved.

Table 3. Export and ACFTA Use by Japanese Affiliates in ASEAN in 2013 Notes: We follow the definition in Japan’s “Small and Medium-sized Enterprise Basic Law”. Specifically, “Large” is defined as the parent firm with 300 or more employees and whose paid-up capital or investment fund is over 30 million yen. The rest are categorized into SMEs. 2015/6/13 （C）　IDE-JETRO All rights reserved.

Table 4. Problems When Japanese Affiliates in ASEAN Export under FTA Schemes Source: Survey of Japanese-Affiliated Firms in ASEAN, India, and Oceania in 2011 Notes: Multiple answers are allowed. The number of responding affiliates is 815. 2015/6/13 （C）　IDE-JETRO All rights reserved.

Significant Factors in Export and FTA Utilization Notes: This table reports the estimation results by the Heckman estimation technique. ***, **, and * represent significance at the 1%, 5%, and 10% statistical levels, respectively. In all specification, export country, industry, and year fixed effects are included. 2015/6/13 （C）　IDE-JETRO All rights reserved.

Key Points for Policy More substantial awareness programs on Potential benefit from AEC for SMEs; How SMEs could utilized all agreements or preferential treatment provided by AEC for their benefit. On FTA utilization more generally: It is suggested that exporters should not have issues with technical compliance to get Certificate of Origin (COO). The issue is more on procedure(s) for getting the certificate. Firms tend to utilize FTA as long as there is a *significant benefit from ‘paying’ all transaction costs borne by the procedures to get a COO. Having some sort of foreign ownership share proved useful for SMEs in utilizing FTA. All in all, government needs to invest more to make the procedure(s) for getting COO a lot cheaper for firms/SMEs.

Thank you