Action Fiche. 1. IDENTIFICATION Title/Number Support for European business in South East Asian markets Indonesia component SEBSEAM-INDONESIA

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1 ANNEX 1 Action Fiche 1. IDENTIFICATION Title/Number Support for European business in South East Asian markets Indonesia component SEBSEAM-INDONESIA CRIS No: ICI-ASIE/2012/22525 Total cost Total Cost : 6,150,000 EU contribution: 5,000,000 Grant beneficiaries 1,150,000 Aid method / Method of implementation Project approach Centralised Direct Management Non ODA action Sector Trade and Investment 2. RATIONALE The overall objective of this project is to increase EU exports to and investment in to Indonesia as a stable gateway to the economies of the Association of South East Asian Nations (ASEAN), in particular by small and medium-size companies (SMEs). This objective is affected by a multitude of factors, and addressing them requires coordinated action between the business sector and government policy makers. The EU has long been Indonesia's biggest trading and investment partner. However, over the recent years the market share of EU has diminished, partly as a result of China's and ASEAN's stronger footholds in Indonesia, but also due to other countries moving forward with trade agreements and a reduced level of interest of European investors following regulatory uncertainties and a more protectionist policy stance by Indonesia. The reduced weight of the EU, reinforced by a lack of clear EU visibility, has reduced EU leverage towards Indonesian counterparts. The overall objective can be reached by facilitating better EU market access, providing accurate and timely information to EU businesses on conditions for trading and investing in Indonesia as a gateway to ASEAN and also by establishing a conducive environment for policy dialogue and business networking so that new opportunities for trade and investment can be created and taken. 2.1 Sector context Indonesia has with its stable macroeconomic conditions and a large domestic market arisen as one of the most dynamic markets in Asia. Despite the global economic crisis, the Indonesian economy still grew by 4.3% in 2009, reached 6.1% in 2010 and 6.5% during the first three quarters of This growth rate falls short of the minimum 7% level which would translate into net employment creation and expedite poverty reduction. The Government of Indonesia acknowledges that in order to be able to reach higher levels of economic growth, a

2 significantly higher amount of private investment is needed, primarily foreign. In fact, this is a pivotal element of the recent Master Plan for Acceleration and Expansion of Indonesian Economic Growth of May However, the overall trade and investment policy process is not conducive to increasing trade and foreign investment. Regulatory uncertainty, a restrictive investment policy and the absence of a bilateral agreement are some of the reasons why the EU has in recent years lost market share to China and ASEAN countries in its trade with Indonesia. The EU market share has dropped from over 10% (in 2006) to 7.5% (in 2010) of Indonesia's imports. Although the EU remains one of the major investors in Indonesia, on average only around 1.5% of EU investments in Asia are directed to Indonesia. Indonesia's trade and investment policy and climate The National Medium Term Development Plan identifies national development priorities, among them improving the investment and business climate. In line with this, government agencies have developed their own strategic plans for the period. The Strategic Plan of the Ministry of Trade contains strategic objectives including improving the trade and business climate. The Investment Coordinating Board (BKPM) is a key actor in the implementation of investment related priorities. BKPM's strategic goals for the period include increasing the contribution of investment towards the national economy to reach a total of US$ 20 billion a year, whereof at least US$ 15 billion from the private sector, notably foreign investment and facilitate the establishment of a conducive investment climate. BKPM's strategy for 2010 sets out to promote Indonesia as an attractive foreign direct investment (FDI) location. The Medium Term Development Plan projects that economic growth would reach 6.8% per year, but even before the economic crisis did not reach those levels. Investment, in particular foreign investment, is acknowledged to be the main factor which could add to the current economic growth rates, but its performance has been disappointing. New foreign direct investment inflows represented less than 2% of GDP in 2008, the second lowest figure in ASEAN. Although the Government has taken steps to reform the legislation, these efforts have so far not had sufficient effects on the ground as the business environment continues to be plagued with burdensome and lengthy procedures, legal uncertainty and a restrictive foreign investment regime. Poor coordination between government agencies, private sector and civil society in trade policy formulation and vested interests from strong lobbies play an important role in the limitations of the trade policy process. According to a 2010 United Nations Conference for Trade and Development (UNCTAD) survey in investment attractiveness Indonesia gets high scores in market growth, market size, natural resources and cheap labour but scores poorly in government effectiveness, stable business environment and infrastructure. This was also reflected in the 2010 World Economic Forum's Global Competitiveness Report, where Indonesia's gain of 10 notches was mostly thanks to its large domestic market and strong economic growth, whereas business climate indicators remained the same or worsened compared to EU-Indonesia trade and investment relations The overall trade and investment relationship that Indonesia and the EU enjoy is substantial. Overall, Indonesia offers large opportunities for European companies. A study from 2009 showed that the main reasons for interest among European companies are stable macroeconomic conditions, abundant natural resources, a young population and a large domestic market. Trade reached the 17 billion mark in 2008 ( 20 billion in 2010) and EU- Indonesia total trade grew over 25% between 2005 and Over the same period, the EU trade balance with Indonesia has recorded a deficit of 4 billion on average. The EU is

3 Indonesia's fourth largest trading partner, representing more than 10% of its external trade and second partner in terms of its exports. Indonesia was EU's 35 th export partner in EU exports to Indonesia are particularly strong in transport equipment, chemicals, high-tech manufactured goods and processed food. The level of EU trade and investment in Indonesia has been proportionally lower than with other ASEAN countries relative to the size of the economy. This is primarily due to the relatively smaller role of FDI in the Indonesian economy, a more restrictive regime for foreign investment and a less attractive business climate. Although Indonesia is home to 45% of the ASEAN population, it barely receives 10% of the total FDI destined for ASEAN and a mere 1.5% of EU investments to Asia as a whole. Although the investment inflows from EU to Indonesia have increased over the last four years, from US$ 800 million to US$ 2 billion, according to BKPM data, opportunities for EU businesses including SMEs to further invest and trade clearly exist, if market access obstacles are addressed and opportunities in Indonesia brought better to the attention of EU businesses. The main market access obstacles that EU companies are facing when trading and investing with Indonesia are well documented. The information below inter alia has been obtained from technical studies commissioned by the EU Delegation, regular meetings (notably discussions with the Indonesian Government in Senior Officials Meetings, the three Working Groups on Trade and Investment conducted since March 2009), the Delegation's Market Access Teams, the sector working groups of the European Business Chamber of Commerce in Indonesia (EuroCham), its yearly position papers, discussions with Member States in the Commercial Counsellors' meetings, consultations and in-depth interviews with certain stakeholders (individual companies, business chambers and Member States embassies). Regulatory uncertainties, restrictions on foreign investment, corruption and burdensome import controls/procedures remain the main obstacles to trade and investment with Indonesia for EU companies Advocacy work at EU level to enhance market access is the most important task to deal with the above European businesses trading and investing in Indonesia needs to be better prepared for the challenging trade and investment climate, thus provision of business information, particularly in Europe, is needed Awareness raising and visibility for the EU would greatly help in communicating with the Indonesian authorities and the public, and would also contribute to raising the profile of EU industry trading and investing in Indonesia. Trade and investment relations are also included in the EU-Indonesia Partnership and Cooperation Agreement, which was recently ratified by Indonesia. EU trade policy with Indonesia In November 2010, Trade Commissioner De Gucht launched a new EU Trade Policy. It builds upon the Global Europe Strategy of The reinforced trade policy is aimed at reducing trade barriers and opening global markets. The trade policy emphasises that the EU should make good use of fast-growing regional trade and pursue strategic economic interests in the East Asia region, inter alia by linking into the rapidly growing network of free trade areas. The EU is also seeking to initiate bilateral negotiations with ASEAN countries. The European Commission, together with industry and EU Member States, formulated in 2010 a specific market access strategy for Indonesia. It focuses on a pragmatic approach and opportunities in the medium term to enhance chances of success by, among others, linking the different EU external policy tools, restricting advocacy to a number of focus areas and involving the business sector in the government-to-government (G2G) dialogue. The

4 objective of this strategy is to increase trade and investment by not only facilitating better EU market access, but also by establishing a conducive environment for discussion so that new opportunities for trade and investment can be created and taken. Current EU business support In Indonesia there operates EuroCham and four major bilateral EU Member States business chambers (BENELUX, Germany, France and the United Kingdom). Certain other EU Member States have smaller bilateral business associations, primarily functioning as networking platforms. A number of EU Member States have trade offices involved in trade promotion, matchmaking, provision of business services and organisation of events and business missions. In addition, some Member States are either establishing or planning to establish semi-government financed agencies providing business services. The EU business chambers entered in 2011 into a Memorandum of Understanding (MoU) to better coordinate and to avoid overlap. EuroCham's main purpose is to conduct lobbying and advocacy on priority market access issues, representing overall EU trade policy objectives. It was established in 2005 and has a membership of over 120 European companies based in Indonesia. 14 working groups deal with market access issues, ranging from infrastructure and logistics to intellectual property rights and overall investment climate. This gives EuroCham a core competence of the business chambers based in Indonesia. EuroCham's resources are insufficient to fulfil its objectives, primarily to ensure follow-up of market access work. The four major bilateral chambers have together a membership base of around 1,000 members and focus on providing business services to companies such as basic business information, legal services, organisation of trade exhibitions, business consulting services and matchmaking activities. Several of the bilateral chambers are subsidised by their respective governments. All bilateral chambers also have Indonesian companies as members. An EU-Indonesia Business Dialogue (EIBD) was organised for the first time in 2009 in Brussels and a second EIBD was held in Jakarta in November The EIBD was coorganised by the Indonesian Chamber of Commerce KADIN and the bilateral chambers of commerce in Indonesia coordinated by EuroCham. The EIBD addressed cross-cutting issues as well as sectors identified as offering particular opportunities. The 2010 EIBD provided a business-to-business (B2B) and business-to-government (B2G) dialogue, crucial for the Indonesian context. It issued key recommendations to the governments of respective sides with a view of facilitating increased trade and investment, which were presented to the EU- Indonesia Working Group on Trade and Investment and are to be followed up mutually by the EU and the Indonesian business chambers. The recommendations included a comprehensive partnership agreement, transparency in policy making, improved regulatory cooperation through improved dialogues, a consultation mechanism to be established between business and government and improved investment climate in Indonesia. It was identified that EIBD needs to be supported with a more permanent mechanism for continuous dialogue as well as possibly expanded into trade promotion. EuroCham and the bilateral chambers were also proactively involved in the first ever EU-ASEAN Business Summit in May 2011, a B2B and B2G dialogue including ASEAN economic ministers and the EU Trade Commissioner to share views on how to further pursue opportunities and promote prosperity in both regions. 2.2 Lessons learnt The design of the programme draws on the experience and lessons learnt of past and on-going trade policy work in Indonesia.

5 Persistent discussions and lobbying activities have proven to have some success. Input by EuroCham has been, for instance, perceived as useful for KADIN and for the Government of Indonesia, such as in the case of the National Logistics Blueprint and the working group between EuroCham and the Coordinating Ministry of Economic Affairs on the National Single Window for customs and the investment regime. Experience by the EU Delegation shows that advocacy work needs enhanced persistence and it is often necessary to underpin it with substantial technical research, which is insufficient today, i.e. these activities require to be scaled up to increase impact. In addition, contacts between regulators should be facilitated, thereby contributing to the sustainability of advocacy work. EU Member States also mention that equally important as ensuring market access is the provision of accurate information in Europe so that companies, in particular SMEs, are prepared for the complexities of doing business in the Indonesian market Complementary actions Promoting and supporting SMEs' economic activities outside the EU is an important part of the Union's overall competitiveness strategy outlined in the Europe 2020 flagship communication. This promotion and support for SMEs is clearly reflected in the Commission Communication to the Council and the Parliament Small Business, Big World a new partnership to help SMEs seize global opportunities 1, in the objectives and guiding principles (points 4.1 and ). Regarding similar EU business support initiatives in other ASEAN countries, the Indonesian activities would also function as a network and business information channel regarding the ASEAN market. In stakeholder discussions it has been highlighted that no "exclusivity" should exist regarding ASEAN market access by any single country. However, it is crucial that there is smooth communication and coordination. Therefore, the proposed programme will link with those EU-funded, European business support actions in Thailand and other ASEAN countries. The proposed programme will be closely linked to the results of and actions implemented under the EU-Indonesia Trade Cooperation Facility (TCF) starting in The TCF is intended to strengthen the Government of Indonesia's reform efforts and target areas that are critical for underpinning the improvement of trade and investment climate. The programme would advocate to related Government agencies the benefit of aligning rules and procedures with international best practices and the TCF would supply the support to help implementing the necessary reform in the sector identified. The programme could thus strengthen the identification of specific areas to support within a given government agency. The TCF is complemented by a civil society component (ACTIVE grant programme). This component addresses sustainable economic development in Indonesia, and its objectives are to strengthen the capacity of relevant civil society organisations (CSOs) to advocate to the government and other stakeholders in the pursuit of reform initiatives related to the trade and investment climate in Indonesia as well as to provide services to their members. While pursuing a general liberalisation agenda, this component is directed to Indonesia-based 1 "Small Business, Big World a new partnership to help SMEs seize global opportunities", COM(2011) 702 final, adopted on 09 November 2011

6 organisations, which do not necessarily share the same trade objectives than the EU. The programme also specifically addresses environmental issues affecting trade and investment, which fall outside the direct scope of the proposed programme. The EU Delegation finances ad-hoc workshops, seminars, etc. from its press and information budget, which is not sufficient to achieve sustainable results. Individual EU Member States also hold technical dialogues and twinning arrangements with Indonesia in specific topics of mutual interest. The programme could reinforce and build synergies with such arrangements. At the same time, the action to be conducted in Indonesia, especially in relation with advocacy and EU-ASEAN business dialogue, would have a specific advantage and responsibility when it comes to interacting with the ASEAN Secretariat, acting on behalf of the ASEAN-wide network of European business support organisations. 2.4 Coordination with the EU Member States and the European business community The bilateral European chambers have a core competence on provision of business and market information as well as professional event organisation. But the 2010 MoU between the bilateral European Chambers and EuroCham in Indonesia shows encouraging momentum for more coordination and synergy at the European level, with a European-wide, European value added, approach. These existing organisations, and local Missions of Member States, have been closely consulted during the late early 2011 period to conduct a mapping of locally available European business support services and to seek views on the possible scope, or need for, an EU seed intervention to scale up and diversify such service and event activities for European wide benefit in a coordinated and synergetic way. The conclusions of those stakeholder consultations constitute the basis of this proposed action, while also bearing in mind any useful and relevant lesson already learnt from the action launched in Thailand in early 2011 to support European business. One should however recall that in Thailand a new, explicitly European structure was set up, which is not the case here. It is crucial that this programme ensures that existing structures and cooperation are strengthened, rather than creating any new business support structure. Also, in relation with trade promotion activities, EU financial support will not extend beyond non-core trade promotion activities. The implementation modalities set out below aim at launching an EUfunded action that is driven by European business. It will allow, in parallel, local representatives of EU Member States to have insight into, and offer guidance on, issues of subsidiarity, complementarity, European value added and impact-driven pooling of existing bilateral and European business-support activities. The Conclusions adopted by the Council of the European Union at its December 2011 Competitiveness Council meeting, taking into consideration the Commission Communication "Small Business, Big World a new partnership to help SMEs seize global opportunities" of , recognizes the need for a more coherent, integrated and costeffective approach to supporting SMEs in the internationalisation of their businesses. While recalling the subsidiarity principle in the provision of business support services, the Council considers that activities at EU level could add value in areas such as facilitating market access by providing vital information, effective resolution of market-entry barriers or protection of intellectual property rights. This action should serve to fill gaps in support services and reinforce existing support services in a European perspective in close compliance with the

7 essential principles of subsidiarity, complementarity with Member states' existing support frameworks, European value added and sustainability. Future efforts should focus on how existing service providers can collaborate more effectively, often across national boundaries, and how incentives can be provided to bring this about for the sake of greater combined effectiveness and impact, and efficiency in the use of limited resources. The EU Delegation conducts monthly meetings with the commercial counsellors of the EU Member States. In this forum, the formulation and implementation of trade policy and market access strategy for Indonesia are frequently discussed. This would be the most important forum for ensuring coordination between the actions foreseen under the proposed programme and complementary actions by EU Member States. The EU Delegation also coordinates its work under the Market Access Teams with the sector Working Groups of EuroCham and similarly for advocacy work with the Government of Indonesia. 3. DESCRIPTION 3.1. Objectives The overall objective of this project is to increase and diversify exports and investments of the European Union, in particular by SMEs, to Indonesia as well as to the wider ASEAN regional market. The project specific objectives are: to strengthen the EU business sector in facilitating market access in Indonesia by advocating and engaging primarily with the Indonesian Government, the Indonesian business sector and other stakeholders, and subsidiarily with the ASEAN Secretariat on ASEAN-level market access issues; to promote Indonesia as a high-potential trade and investment market to assure that EU companies, in particular SMEs, are able to better exploit the growing opportunities in Indonesia in accordance with their corporate core values on sustainable development and corporate social responsibility Expected results and main activities The following results are expected: - Expected Result 1: Enhanced analysis and advocacy for better market access for European companies and improved level playing field, bilaterally and at ASEAN level. - Expected Result 2: Improved provision of Business support services in particular for SMEs. - Expected Result 3: Improved knowledge of the potential of the Indonesian market among EU based companies with a focus on SMEs, and of the environmental and social challenges in the country. - Expected Result 4: Strengthened intra-regional links on advocacy and business support services. - Expected Result 5: Enhanced image and visibility of EU as a business and political partner of Indonesia.

8 The applicants will be requested to suggest a specific business plan and specific types activities to achieve those results. Based on the thorough stakeholder consultations and local service mapping that have taken place, the consortia that will be invited to submit a proposal to the EU Delegation might consider the following indicative activities: For result 1: European industry-led sectoral and horizontal working groups, position papers with European business recommendations, and conduct of representation and advocacy activities; Business contributions to local EU delegation-led Market Access Teams and to EUled negotiations in the trade and investment fields; supporting the process of a possible Comprehensive Economic Partnership Agreement between EU and Indonesia; Organisation of local European business-led seminars, dialogues on market access issues and local policy /regulatory measures with market access impact. For result 2: Setting up an interactive web-based portal operating as a single, cost-effective First-entry Information" European focal point with up-to-date information and insights on relevant aspects of local business environment, on market analysis and other conditions of relevance for European companies doing business with, or intending to do business with Indonesia; Provision of coordinating services with European value added such as European pavillons, European fairs, European business events, etc.; Help desk functions irw IPR and standards. For result 3: Structured interaction with EU-based business organisation networks to bring to European company managers strategic and operational information, tailored to the world of business, on the business potential of Indonesia and the ASEAN market as well as on the importance of environmental and social aspects and their impact on their corporate image; Involvement in targeted seminars and roadshows in Europe. For result 4: Support for an ASEAN perspective and dimension to European business advocacy on regional market access issues and market access-related ASEAN policy and regulatory developments; Coordination of European business input into high level economic EU-ASEAN dialogues and fora; Each ASEAN Member State being a gateway to the ASEAN regional market, support to regional exchange of general information on local business conditions and environment for better informed decision making by European companies on how to best tap the ASEAN regional economic potential. For result 5, the intended types of activities would be:

9 EU Delegation-led, economy and business-focused, outreach activities targeting local media, law and policy makers, government officials, business organisations and Indonesian companies; Undertake information and visibility activities in the domain of EU-Indonesia economic relations and partnership. During the inception phase, the implementing partner will establish an up-to-date and full inventory of services being offered by EuroCham, EU Member States chambers and other European service providers. It will define, in operational terms, initial activities that meet the key requirements of (1) complementarity with existing business support structures, (2) EU added value, including how to involve those existing structures in win-win cooperation and synergy, and (3) financial sustainability of the package of services of European-wide benefit being offered. Ideally, those existing structures would be partners in the winning consortium (a). Baseline mapping, which has already been conducted, will serve as a reference for the design of indicators and targets for all results. Activities to achieve results 1, 2 and 5 will take place in Indonesia; for result 3, in the EU and for result 4, in ASEAN Risks and assumptions Assumptions: Continued commitment of the Government of Indonesia towards reforming the trade and investment climate. The Government of Indonesia becomes more open to persuasion to align its trade policy and regulation with World Trade Organisation (WTO) rules. Present division of labour between policy advocacy/lobby (currently EuroCham) and promotion/business services (bilateral business chambers) persists. Close cooperation between the EU business community, EU Delegation and KADIN continues to strengthen. Businesses of EU Member States not represented by chambers can benefit fully from the activities. EuroCham maintains and expands its existing structure of independently collecting membership fees so that sustainability of the action is ensured. Risks and suggested mitigating actions: Risk: Advocacy does not have desired effect of solving market access irritants. Mitigation action: Reinforced by market access work of the EU Delegation. Risk: EuroCham and bilateral chambers fail to cooperate effectively. Mitigation action: close involvement of the EU Delegation in designing the actions to ensure strengthening of existing core competencies and ensuring that clear division of labour exists between current chambers, supported through the set-up of the programme. Risk: weak outreach strategy in Europe to European companies, SMEs in particular. Mitigation action: Inclusion in the consortium(a) of European or member state-based business intermediary organisations or networks that have the mandate and tested capacity for interacting with individual European companies, SMEs in particular, for the sake of effective and targeted outreach in the EU.

10 Crosscutting Issues The relatively high social and environmental standards of EU companies and their efforts to also respect minimum standards also outside the EU can potentially help strengthen such standards in Indonesia through a stronger EU business presence. This can also be related to governance (corruption), decent work agenda and gender issues. In addition, an improved trade and investment climate will further integrate Indonesia into the global trading system. Special attention will be given to Corporate Social Responsibility as a key element in any business or investment action in the region. Raising awareness among European companies, SMEs in particular, on the significant environmental and social issues ASEAN countries, Indonesia in particular, are facing, is crucial. Therefore, this dimension should be mainstreamed in activities such as outreach to European business or information on business opportunities Stakeholders The final beneficiaries of the action are European companies, in particular SMEs. Stakeholders include EuroCham, EU Member State commercial or trade promotion offices, local bilateral chambers of commerce and European chambers of commerce which are based in Indonesia, the economic and trade sections of EU embassies based in Indonesia, EU Market Access Teams, European business organisations and professional organisations. Cooperation with and involvement of local Indonesian business intermediaries (e.g. Indonesian Chamber of Commerce and Industry KADIN and sector associations) will be encouraged where supportive of the action s objectives. 4. IMPLEMENTATION ISSUES 4.1. Method of implementation The method of implementation is direct centralised management. Grants will be managed through the signature of grant contracts following a call-for-proposals. Taking into account the existing and agreed division of tasks among local European business support organisations, the EU will award two grants following a single Call for Proposals to establish the Indonesia component of SEBSEAM. Result 1 would be contracted out to one locallybased lead applicant. Results 2 to 4 would be contracted out to another locally-based lead applicant. An evaluation of the quality of the applications received, including the proposed budget and the capacity of the applicants and partners will be carried out in accordance with the standard evaluation criteria. The proposals will therefore, include a detailed description of the action with the activities and budget in compliance with the objectives and expected results of the project. The proposals shall also spell out how, in specific terms, the basic principles of European complementarity, value added and efficiency in the use of public funds, European business sector ownership and sustainability will be met. Following signature of the grant contracts, a global business plan and successive Annual Work Plans will be submitted by the beneficiaries of the grants and approved by the EU Delegation. Any change in the activities introduced by the successive AWPs cannot have the purpose or the effect of making changes to the contracts that would call into question the grant award

11 decision. Within this limit and if applicable, any modifications will be integrated in the contracts through a rider. The service contracts for result 5, audit and evaluation will be managed by the EU Delegation directly The Project Steering Committee shall be composed of both grant contractors, other members of the consortia, and the two executive directors recruited by the grant contractors for implementing the two grant contracts. The EU will participate as a member. The Project Steering Committee will exchange views on, and endorse, the annual work plans and the sustainability strategy, before the Commission's final approval. It will also oversee and assess their overall implementation and the results-based performance of the actions on the basis of the contractors regular reports to the EU Delegation. The Project Steering Committee shall meet at least once a year. It will be co-chaired by the two successful lead applicants. The Project Steering Committee co-chairs can call additional meetings. The Project Advisory Committee (PAC) will be composed of local representatives from EU Member States Embassies, and of the two successful lead applicants who will act as co-chairs. The EU Delegation and the two executive directors will be observers. The Advisory Committee shall offer advice in particular in relation to the key principles of subsidiarity, complementarity with EU Member States business support structures, and European value added. The EU Member States Embassies in Indonesia will decide on their representation bearing in mind the business-support nature of the project. The implementing consortia shall provide the secretarial support for the meetings of the Advisory Committee. It will meet at least once a year, before the annual Project Steering Committee meeting. The PAC co-chairs can call additional meetings. For the sake of coordination the same Project Steering Committee and PAC should oversee and advise both grant actions unless practical reasons necessitate separate Project Steering Committee /PAC per action. Visibility services will be implemented through the signature of service contracts, using e.g. the Visibility framework contract of the EU Delegation in Indonesia to ensure impact and coherence Procurement and grant award procedures 1) Contracts All contracts implementing the action must be awarded and implemented in accordance with the procedures and standard documents laid down and published by the Commission for the implementation of external operations, in force at the time of the launch of the procedure in question. Participation in the award of contracts for the present action shall be open to all natural and legal persons covered by Council Regulation (EC) No 1934/2006 establishing a financing instrument for cooperation with industrialised and other high-income countries and territories. 2) Specific rules for grants The essential selection and award criteria for the award of grants are laid down in the Practical Guide to contract procedures for EU external actions. They are established in

12 accordance with the principles set out in Title VI 'Grants' of the Financial Regulation applicable to the general budget. When derogations to these principles are applied, they shall be justified, in particular in the following cases: Financing in full (derogation to the principle of co-financing): the maximum possible rate of co-financing for grants is 80%. Full financing may only be applied in the cases provided for in Article 253 of the Commission Regulation (EC, Euratom) No 2342/2002 of 23 December 2002 laying down detailed rules for the implementation of the Financial Regulation applicable to the general budget of the European Communities. Derogation to the principle of non-retroactivity: a grant may be awarded for an action which has already begun only if the applicant can demonstrate the need to start the action before the grant is awarded, in accordance with Article 112 of the Financial Regulation applicable to the general budget Budget and calendar The total cost of the project is 6,150,000. The EU contribution is 5,000,000 and organisations selected will contribute 1,150,000. Category Breakdown EUContribution ( ) Other Contributio ns ( ) Total Cost ( ) Contracting authority / paying authority 1.Grants 4,600,000 1,150,000 5,750,000 EU 2.Services 400, , Visibility 400, ,000 EU TOTAL 5,000,000 1,150,000 6,150,000 The action is expected to generate income in the course of the EU intervention. Generation of income is called for on account of the financial sustainability strategy the EU is requiring from the outset in line with the provisions of Article c) of the Financial Regulation. Income generated may also contribute to meeting the grantees cash contribution. Any surplus of actual receipts over the actual costs of the action in relation with generated incomes when the request is made for payment of the balance may be kept by the body that actually implemented the EU-funded action, subject to conditions that ensure full compliance with the EU Financial Regulation and the General Conditions annexed to the grant contracts. Those conditions will be spelled out in the grant contracts and must contain at least the obligation to report on the use of the incomes at the latest 18 months after the end of implementation of the grant contract. If a grantee does not request such transfer, unspent generated income will be deducted from the EU s final payment to that grantee. The operational duration of the grant contracts is 60 months from the date of signature of the first grant contract. It is envisaged to obtain the Commission decision in September 2012, to launch the call for proposals and the call for tender thereupon, and to sign the contracts before end The action is expected to start at the beginning of 2013.

13 4.4. Performance monitoring Implementation of the project will be monitored on the basis of the description of the action, the log frame, the overall business plan and the successive annual work plans through succinct half-yearly Monitoring Reports. The Delegation will also hold regular meetings with the project implementers as well as participate, as appropriate, in the project events and activities. Examples of indicators which will measure the degree of accomplishments of results are: Business dialogues between the project and Indonesia's counterparts; Advocacy meetings between the project and relevant government departments and bodies; The view of government, business and other stakeholders as to the value of the dialogues performed under the project, as measured by surveys and other means; The view of government, business and other stakeholders as to the value of the advocacy performed under the project, as measured by surveys and other means; Amendments of drafts of, or actual policy, law or regulation that the project has been advocating for; The view of European business and other stakeholders as to the coverage and relevance of the information database established under the project and other business support services, as measured by surveys and other means. Examples of main indicators which will measure the degree of delivery of activities are: Number of officials/staff/members in target organisations (e.g. government, national business organisations, etc) reached through the project s activities, feedback and follow-up; Number of dissemination events carried out within the programme and the level and quality of audience reached; Number of sectors covered and stakeholders reached by business information database and outreach activities in Europe; perception of value added by the stakeholders; Number of policy papers, regulatory updates, research papers and analyses issued by relevant organisation; sales performance as a measure of relevance; Number of market research papers, legal advice reports and other market reports issued by relevant organisation; Number of questions posted on the project s interactive website by Europe based companies, their MS origin and their topical coverage The programme will also be subject to the European Commission's general Results Oriented Monitoring (ROM) system Evaluation and audit The grant amount will include expenditure verification costs. Auditors will be contracted, using EU procurement procedures, on the basis of the Annex VII (expenditure verification) to the Grant contract. External evaluations and audits will be organised by the EU and financed through Short Term Technical Assistance funds under ICI Communication and visibility 400,000 is allocated for communication and visibility. It is foreseen that these funds will be managed in the context of the Framework Contract signed at Delegation level to pool visibility funds for a more strategic approach to EU visibility in Indonesia.

14 The grant contracts will also provide for the design of a visibility action plan in accordance with visibility guidelines and coordinated with the EU Delegation s visibility actions for maximum impact. * * *

15 ANNEX 2 Action Fiche 1. IDENTIFICATION Title/Number Support to European Business in South East Asian Markets Malaysia Component (SEBSEAM-Malaysia) CRIS Number: ICI-ASIE/2011/ Total cost EU contribution: Co-financing: (20% of total grant contract amount) Total Cost: Aid method / Method of implementation Project approach Centralised Direct Non-ODA action Sector Trade & Investment 2. RATIONALE 2.1. Sector context EU-Malaysia Trade & Investment Relations Malaysia is the European Union (EU)'s most important trading partner in the region covered by the Association of South East Asian Nations (ASEAN) after Singapore. Despite having the sixth largest population of the region, it is ahead of larger countries like Indonesia, the Philippines or Vietnam. Total trade in goods between the EU and Malaysia in 2010 was 32 billion with a 9 billion trade surplus in favour of Malaysia. Malaysia s total trade to Gross Domestic Product (GDP) in recent years has been circa 200%, an indication of the country s dependence on international commerce and relatively open trade policy. Although in 2009 the EU was Malaysia's third source of merchandise imports after China and Japan, it accounted for only 12.2% of Malaysia's total imports 2. The EU's export growth potential to Malaysia, including as a gateway to the ASEAN, is significant. Exports value to Malaysia has fully recovered from the global financial and economic crisis of The year 2010 saw the highest ever trade between the EU and Malaysia. In 2010 foreign investments in approved projects in the manufacturing sector to Malaysia amounted to 6.9 billion 3, a 31.7% increase over The EU's investment in Malaysia in 2010 was over EUR 982 million 4. Between 2001 and 2007, the EU was consistently Malaysia's first source of foreign investment. However, the EU's importance in Foreign Direct Investment (FDI) has since waned in relation to Japan, USA, Singapore and Hong Kong. 2 Source: Eurostat 3 RM29.1 billion. Source: Malaysian Investment Development Authority (MIDA) 4 RM3.7 billion (DE, FR, NL, SU, UK). Source: idem. Consolidated figures for the EU are not provided. 15

16 Malaysia Trade & Investment Policies and Climate In view of Malaysia's relatively developed and diversified economy, the EU's trade and investment interests lie in a wide range of manufacturing sectors from electronics to transport equipment to chemicals. In the services sector, the EU maintains significant commercial interest in Malaysia, with firms present in banking, energy and distribution, amongst others. However, in the services sector EU firms operate with greater restrictions than those operating in manufacturing. In sectors such as distribution or environment, where the Government of Malaysia has made no World Trade Organisation (WTO) commitments under General Agreement on Trade in Services (GATS), EU firms operate with low business certainty. Indeed EU trade with Malaysia is subject to a series of barriers which protect the domestic market from competition. Within the broader approach of a relatively open trade policy within the limits of the New Economic Policy, specific regulations have hindered fair competition and market access. Instances exist where non-tariff border measures are being used as instruments to restrict market access. In particular import licensing, most of which is nonautomatic, is used to regulate the flow of imports in order to shield particular industries. The lack of transparency and business continuity mean that Malaysia has occasionally disregarded commitments and principles enshrined in international agreements (such as under WTO, Codex Alimentarius, World Organisation for Animal Health). In the context of government procurement, a lack of transparency is compounded by the institutional preference to procure goods and services from locally owned businesses. This is a continuous challenge to EU firms operating in the country. Other barriers include foreign equity caps in locally incorporated companies in the services sector, a burdensome system of inspections of exporting establishments in the agri-food sector and a protected automotive industry. New regulations as well as burdensome and costly import-related requirements can also be introduced with little or no prior notice. Malaysia needs to address these trade barriers for its own longer term interest and in view of growing competition from countries such as China and India in its quest for FDI. Developing a knowledge-economy based on a world class services sector is seen as the key means to meet this challenge. But climbing up the economic value chain is a major challenge for the country. Malaysia's economic reform initiatives, such as the New Economic Model or the Economic Transformation Plan (ETP) aim to facilitate this transition. Under ETP, Malaysia seeks to transform the economy from being public-funded to being private sector-driven. It aims to mobilise approximately EUR 100 billion over 10 years in 12 National Key Economic Areas (NKEAS) 5. The efforts to reform Malaysia's economy towards more openness, transparency, competition and liberalisation will create market openings. New trading opportunities have been made possible by recent changes in the political landscape. These structural reforms will provide both domestic and foreign actors with the legal certainty and business opportunities that would help make Malaysia a hub for the ASEAN region. 5 NKEAs: Oil and Gas; Palm Oil and related products; Financial Services; Wholesale and retail; Tourism; Information and communications technology; Education; Electrical and electronics; Business services; Private healthcare; Agriculture; and Greater Kuala Lumpur. Over 130 Entry Point Projects for business have been identified under the NKEAS with the intention to increase Gross National Income from RM660 billion in 2009, to close to RM1.7 trillion in

17 EU Trade Policy with Malaysia EU and Malaysia are currently engaged in negotiations of a comprehensive Free Trade Agreement (FTA). This is significant in view of other numerous trade agreements Malaysia has recently signed or is currently negotiating. Malaysia has recently signed bilateral FTAs with India and New Zealand and under the ASEAN with Australia-New Zealand as well as China. It is also currently negotiating FTAs with Turkey and Australia as well as the Trans Pacific Partnership. It is therefore important that the EU-Malaysia FTA currently under negotiation and which both parties aim to complete in less than 24 months, resolve strategic market access issues if EU companies are not to lose market share or competitiveness in Malaysia. An EU-Malaysia FTA will enhance Malaysia's business appeal and through greater cooperation with EU business stakeholders, the EU can be in pole position to take advantage of greater trade and investment opportunities, not least brought about by Malaysia's economic reform initiatives in Malaysia, such as the New Economic Model (NEM) or the Economic Transformation Plan (ETP) 6. In the framework of the Global Europe Strategy 7, Trade Growth and World Affairs Policy 8 and more specifically through the European Union's Market Access Strategy 9, there is considerable scope for joint activities, exchanging information and best practices, organising joint seminars as well as improving advocacy work and expanding dialogues including on the basis of the EU's Market Access Team (MAT) in Malaysia 10 reports to facilitate, for EU companies, market access to Malaysia and the ASEAN region. The 2011 Communication by the European Commission Small Business, Big World a new partnership to help Small and Medium Enterprises (SMEs) seize global opportunities 11, provides a renewed strategy for future development of EU SME businesses in Malaysia. Current EU business support services There is a range of business support services being offered to EU companies, provided by EU Member States' Embassies, trade councils and national chambers of commerce. Collaboration among these diverse European business service providers is growing, but EU Member States' bilateral business support service providers are focused on their target national constituency and still largely work in isolation from each other. These services vary in scope and quality and eventually only a minority of EU Member States are providing those services. Certain basic services are duplicated many times over. 12 The EU-Malaysia Chamber of Commerce and Industry (EUMCCI) was set up in 2003 by the local EU Member States' chambers of commerce. It supports greater cooperation between 6 ETP seeks to transform the economy from being public-funded to being private sector-driven by mobilising approximately EUR 100 billion over 10 years in 12 National Key Economic Areas (Oil and Gas; Palm Oil and related products; Financial Services; Wholesale and retail; Tourism; Information and communications technology; Education; Electrical and electronics; Business services; Private healthcare; Agriculture; and Greater Kuala Lumpur) 7 Global Europe: Competing in the world, A Contribution to the EU's Growth and Jobs Strategy, COM (2006) 8 Trade, Growth and World Affairs: Trade Policy as a Core Component of the EU's 2020 Strategy, COM (2010). 9 European Union's Market Access Strategy, COM (2007) 10 For more specific details on trade barriers identified by the EU s MAT in Malaysia, please see Annex "List of Key Trade & Investment Barriers in Malaysia". 11 COM(2011) 702 final, 9/11/ See Annex "Overview of EU Business Support Services Offered in Malaysia" 17