1. APEC Ministers and their representatives responsible for SMEs from Australia; Brunei Darussalam; Canada; Chile; the People's Republic of China; Hong Kong, China; the Republic of Indonesia; Japan; the Republic of Korea; Malaysia; Mexico; New Zealand; Papua New Guinea; Peru; the Republic of the Philippines; Russian Federation; Singapore; Chinese Taipei; Thailand; the United States of America; and Viet Nam gathered during 1-2 September 2005 in Daegu, Republic of Korea for The Twelfth APEC Ministerial Meeting on Small and Medium Enterprises (SMEs).

2. The meeting was also attended by the Executive Director of the APEC Secretariat and the SOM Chair as well as by distinguished observers from the Pacific Economic Cooperation Council, the Pacific Islands Forum and business communities including the APEC Business Advisory Council (ABAC), the Women Leaders' Network (WLN) and the Business Forum.

3. The theme of the meeting was "Promoting Innovation of SMEs," in line with Korea's APEC 2005 theme of "Towards One Community: Meet the Challenge, Make the Change." Ministers aimed at identifying the best policy and entrepreneurial practices to promote the innovation of SMEs in the APEC community.

4. By supporting the APEC 2005 theme, Ministers agreed that it is important for APEC's SME activities to contribute to ongoing progress intended "to build one economic community in the Asia-Pacific region."

5. Prior to the formal plenary sessions, Ministers had a separate retreat session to share experiences and views on various aspects of the innovation of SMEs. There were practical discussions and meaningful exchanges of views by Ministers on the "Daegu Initiative on SME Innovation Action Plan" and current cross-cutting policy issues affecting SMEs within the Asia-Pacific region.

6. Ministers recognized that innovation is the main driving force that creates dynamic SMEs and sustains growth in the current globalized marketplace. Further, Ministers recognized that SMEs in developing as well as developed economies have the potential to play a vital role in advancing innovation given their flexibility and ability to respond more quickly to current conditions. Ministers emphasized the importance of APEC cooperation in developing appropriate economic and policy environments for the APEC SMEs to reach their full innovative potential.

7. Ministers discussed and agreed to adopt the "Daegu Initiative on SME Innovation Action Plan" which is published in a separate document, and directed that the initiative be implemented according to its specified modality.

8. The Daegu Initiative recognizes that, due to the diverse nature of APEC member economies, APEC can identify various challenges faced by SMEs and member economies, and allow them to share knowledge, and to establish cooperatively economic and policy environments which best foster innovation. The Daegu Initiative, while wide-ranging, places emphasis on seven areas where government actions could improve innovation amongst APEC SMEs. Ministers highlighted the vital importance of IPR protection to the success of the Daegu Initiative.

9. The Daegu Initiative provides a framework, including Innovation Action Plans for member economies to review and improve their economic and policy environments for SME innovation, both individually and collectively.

10. Ministers will submit the "Daegu Initiative on SME Innovation Action Plan" to the APEC Economic Leaders' meeting as well as APEC Annual Ministers meeting to be held in November in Busan, Korea, as a concrete outcome of the 12th APEC SME Ministerial Meeting. An endorsement by the APEC Ministers and Leaders will recognize the importance of the APEC process in developing and supporting the emergence and sustainable growth of SMEs in the Asia-Pacific region.

APEC SME Innovation Center

11. Ministers welcomed Korea's proposal for an APEC SME Innovation Center that would link SMEs with supporting organizations of member economies. The Innovation Center will also serve as the foundation for sharing policy experiences to effectively enhance the innovation capacity of APEC SMEs.

APEC Micro-Enterprise Action Plan

12. Ministers welcomed the progress made by the Micro-enterprise Sub Group (MESG) during the fifth meeting of the Sub Group in Daegu. Ministers reaffirmed their commitment to the MESG.

13. The theme of the Sub Group's Work Plan this year was "Innovative Micro-Enterprises for Sustainable and Balanced Growth." Ministers received the results of various seminars, workshops and projects, and reiterated the importance of micro enterprises in the regional economy. Ministers encouraged further effort to facilitate the activities of MEs by member economies.

14. Ministers recognized the work carried out by the MESG related to the UN designation of 2005 as the "Year of Micro Credit."

15. Ministers also received MESG's recommendations, and noted the discussions on MESG management issues.

APEC SME Coordination Framework

16. In recognition of the cross-cutting nature of the APEC SME process, Ministers reaffirmed the importance of coordinating APEC efforts and activities of SMEs across all fora as outlined in the "APEC SME Coordination Framework." The main objective is to direct related efforts and activities towards promoting the growth and competitiveness of APEC SMEs.

17. During the last year, the SMEWG Lead Shepherd sent letters to all APEC fora inviting them to improve the coordination of SME activities across APEC. The SMEWG Lead Shepherd and/or SMEWG members have attended the meetings of various other working groups deemed relevant to SME activities. Recognizing the importance of horizontal collaboration across APEC, most of the working groups contacted agreed to enhance communication with the SMEG. For example, the Telecommunication and information (TEL) working group and the Government Procurement Experts' Group (GPEG) will designate liaison officers to promote information sharing with SMEWG, and the Lead Shepherd of the TEL working group attended the 21st SMEWG meeting to inform the group of their activities.

18. Ministers were encouraged by the progress made to forward the goals of the APEC SME Coordination Framework, and applauded the efforts undertaken by the SMEWG in this regard. Ministers also noted the recommendation that the proposed work plan of the SMEWG for the following year be circulated to the other fora for notification of their contributions to the process, and agreed that it could be presented to the senior officials for approval at SOM I. Ministers encouraged the SMEWG to continue its outreach to other APEC groups and to consider highlighting other SME-related activities at the next SME Ministerial meeting.

Report on SMEWG Management Improvement

19. Ministers commended efforts by the SMEWG to improve its management. Ministers noted that the SMEWG made several salient points about the need for improvement in the management of the SMEWG, and Members made important contributions and recommendations on such improvement.

20. Ministers accepted the SMEWG's decision to wait for the results of the independent assessment so that the SMEWG can better make the suggested changes in SMEWG management. Ministers thanked the SMEWG and all parties concerned for their efforts in completing the report.

Co-operation and Collaboration with Related Organizations

21. Ministers encouraged the SMEWG to continue its cooperation with the OECD Working Party on SMEs and Entrepreneurship through sharing of information and research results, and to strengthen further collaborative efforts.

22. Ministers thanked participation by and contributions from related organizations and business societies such as the APEC Business Advisory Council (ABAC), Women Leaders' Network (WLN), and Pacific Economic Cooperation Council (PECC) and noted the importance of the private sector perspectives and contributions to advancing APEC's SME work. Members were asked to review ABAC recommendations and to give them due consideration in the development of policies and programs in their own economies.

23. Ministers agreed with ABAC's recommendations that a successful conclusion of the WTO Doha Development Agenda round of trade negotiations, effective measures against corruption and removing unnecessary regulatory burdens on business would contribute greatly to the development and growth of SMEs in the APEC region.

24. Ministers also received the results and recommendations from the APEC SME Business Forum and the APEC Informatization Forum for SMEs. Ministers commended the participants of both fora, and asked that their recommendations, including APEC Innovation Committee and SME Informatization Consortium Network, be given due consideration by the SMEWG. Ministers emphasized the importance of strengthening networks of SME-related organizations in the Asia-Pacific region.

25. Ministers agreed that collaboration between APEC Finance Ministers and APEC SME Ministers will help to improve the financing environment for SMEs and Micro-enterprises. SME Ministers encouraged collaboration between the APEC SMEWG and the APEC Finance Ministers' Technical Working Group to continue. Ministers noted the outcomes of the Second Annual Meeting of APEC Financial Institutions Dealing with SMEs and the APEC Conference on Better Environment for Financing, Stronger Development of SMEs, which was held on 21 and 22 July 2005, in Beijing, China, under the chairmanship of the China Development Bank. Ministers welcomed their on-going efforts to improve access to financing, and stronger development of SMEs and Micro-enterprises.

Gender Issues

26. Ministers welcomed the continued participation of the WLN in the MESG, SMEWG and Ministerial meetings and commended its commitment to the advancement of women and gender issues throughout APEC.

27. WLN submitted the results and recommendations of the 10th WLN meeting. The theme of the meeting was "Prosperity of Women Entrepreneurs through Innovation: New Vision for Women Entrepreneurs." The SMEWG was asked to review WLN recommendations, and give them due consideration.

Disaster and Emergency Preparedness

28. Ministers noted the importance of contributing to APEC's work on disaster preparedness. Ministers welcomed the USA report on the development of an SME emergency preparedness checklist and were encouraged by the outcome of the APEC Virtual Task Force on Emergency Preparedness held on 2-3 May in Bali, Indonesia. Ministers emphasized the importance of preparedness and mutual cooperation between member economies in reducing the costs arising from disasters. Ministers endorsed the APEC SME Disaster and Emergency Preparedness Checklist, which will be forwarded as part of the overall package of 2005 work across APEC for recognition by the Leaders in their November meeting in Busan.

29. In addition to natural disasters like the Asian tsunamis, Ministers also recognized the growing threat of a potential influenza pandemic, which would not only affect public health, but also disrupt a broad range of economic and business sectors on a regional and global scale, and emphasized the importance of preparing SMEs for those disruptions.

SME and Trade Facilitation

30. Ministers reaffirmed the importance of trade facilitation, noting that it is especially important for SME traders, since trade-related ancillary costs impose relatively greater burdens on SMEs and MEs.

31. Ministers welcomed the reports on progress in the APEC-OECD joint project, SME Impediments Monitoring System, and the results of Brunei's workshop for SME Managers on Reducing SME's Compliance Costs. Ministers encouraged development of further measures and projects to help SMEs reduce their trade-related costs.

Other Issues

32. Ministers emphasized the important role of mentoring services in securing financial access, improving management and business capability and financial viability and reducing loan default among SMEs. Ministers applauded Thailand for its effort in organizing the workshop on Best Practices on Mentoring Systems: Keys to Reducing APEC SME Loans Default, and agreed that APEC members should continue to share and exchange best practices on mentoring systems.

33. Ministers recognized that industrial clusters provide SMEs with opportunities to exchange resource and knowledge, thereby strengthening their capacity of innovation. Ministers commended the success of the APEC Symposium on Industrial Clustering for SMEs hosted by Chinese Taipei, and encouraged APEC economies to improve cluster development using the Best Practice Guidelines developed in the seminar.

APEC SME 2006 Theme and Sub-Themes

34. Ministers welcomed Vietnam's theme for 2006 "Overall Competitiveness Improvement for SME." There will be three sub-themes:

• enabling business environment for all enterprises;

• human resource development for SMEs;

• better access to basic resources for SMEs.

35. Ministers also took note that the next SME Ministerial and related meetings, such as the WLN and the Business Forum, will be held in Hanoi, the capital city of Vietnam, in late September or early October 2006.