The libs module is for shared & standalone code that has no dependency on AppEngine but just a standard python library. However, it should also be AppEngine-compatible -- can be run on AppEngine. For example, the code must not write to the file system (using of os.path is OK though).
Create a symbolic link to libs under a directory PARENT_DIR, and ensure that PARENT_DIR is added to sys.path or PYTHONPATH.
The usage would look like: from libs import API_MODULE_NAME