by Sebastien GOULARD
At the end of September 2023, Indonesia and the European Union concluded a major trade agreement aimed at intensifying exchanges between the two regions.
Meeting in Bali, European Trade Commissioner Maroš Šefčovič and Indonesian Trade Minister Airlangga Hartarto signed, on September 23, a long-negotiated Comprehensive Economic Partnership Agreement (CEPA).
Negotiations had in fact begun in 2016 but had stalled over several issues, particularly deforestation and palm oil production. However, the protectionist policies implemented by the United States have shifted global power dynamics and ultimately accelerated the negotiation process between the EU and Indonesia.
The New Free Trade Agreement
Under this new agreement, tariffs between the two regions are expected to be reduced by 98.5%. This will provide European companies—especially in the chemical, machinery, and pharmaceutical sectors—with easier access to a market of 280 million people, experiencing annual economic growth of over 4.8%. The agricultural sector would also be opened to European products, with the exception of sugar and rice.
Furthermore, the agreement will recognize several hundred European agri-food products with protected geographical indications—such as “Roquefort” cheese—in Indonesia, facilitating exports to a country with a growing middle class.
For Europe, the agreement will also create opportunities to invest in new sectors of the Indonesian economy, including finance, pharmaceuticals, electronics, and mining. Although the agreement does not directly address the dispute between the EU and Indonesia over the country’s 2023 ban on raw mineral exports (such as copper and nickel) aimed at boosting domestic industry, it does help to secure supply chains and reduce, to some extent, dependence on Chinese suppliers.
Indonesia also views this agreement as a means to support its textile sector, which has been in crisis since the COVID-19 pandemic and the weakening of the rupiah against the dollar. This crisis culminated in the early 2025 bankruptcy of Indonesian textile giant Sritex. The new agreement with the EU is expected to boost textile exports to Europe, making them more competitive with Chinese products. There is also a clear ambition to move upmarket by developing new textile sectors that comply with European environmental standards.
As with other free trade agreements, the deal between the EU and Indonesia must be ratified by Jakarta, the European Parliament, and all 27 EU Member States before it can enter into force. Environmental concerns, particularly regarding palm oil production, could resurface—fueled by European NGOs—and jeopardize the ratification process.
Long and Chaotic Negotiations
Negotiations for the agreement began in 2016. However, issues related to deforestation and palm oil production severely strained relations and delayed the deal.
Since 2019, the EU has imposed countervailing duties on Indonesian biofuels and has maintained its position despite a ruling by the World Trade Organization (WTO). The European Commission’s decision to appeal the WTO’s ruling in October 2025 is unlikely to ease the ratification process from the Indonesian side.
Another source of tension between Brussels and Jakarta is the EU’s Regulation on Deforestation-Free Products. In 2023, the EU adopted an ambitious policy banning both the production and import of products contributing to forest degradation or deforestation. Indonesia and Malaysia, the two largest exporters of palm oil to Europe, criticized the regulation, arguing that its implementation would impose a heavy burden on small and medium-sized producers.
The EU’s decision in September 2025 to delay the enforcement of its deforestation regulation by one year for SMEs has fostered renewed dialogue between European and Indonesian stakeholders. However, as James Guild has noted, the European tendency to impose its standards abroad is increasingly poorly received. Indonesia, now an emerging power, has the option to sell its palm oil to other markets in Asia or Africa. The EU and Indonesia should avoid letting the future trade agreement be derailed by a provision that may no longer be relevant.
The European Union and Southeast Asia
The EU has been multiplying trade agreements with Southeast Asian nations. While it has been unable to negotiate a comprehensive deal with the Association of Southeast Asian Nations (ASEAN)—mainly due to wide economic disparities among member countries and human rights issues in Myanmar—progress has been made on a bilateral basis.
The EU’s first free trade agreement with an ASEAN country was signed with Singapore in 2018. In 2023, the EU and Singapore strengthened their partnership by signing a Digital Trade Agreement to boost cooperation in semiconductors, cybersecurity, digital infrastructure, and financial services.
In 2019, the EU and Vietnam signed a free trade agreement that eliminated nearly 99% of tariffs between the two regions. This agreement was seen as one of the most socially advanced at the time, notably through the creation of a dedicated committee on trade and sustainable development.
The EU is also in negotiations with both the Philippines and Malaysia for free trade agreements. Talks with Malaysia began in 2010 but were interrupted several times. Negotiations resumed only in January 2025. As for the future agreement with the Philippines, the process has recently accelerated, with negotiations reopening in March 2024. Originally launched in 2015, they were put on hold in 2017 due to concerns in Brussels over President Duterte’s governance model.
Lastly, the EU and Thailand signed a Partnership and Cooperation Agreement in 2022, and in 2023, they announced the launch of negotiations for a free trade agreement. Once again, the political situation had previously prevented the EU from engaging with Thailand, despite the strong commercial interests between the two parties.
The Challenge of Diversification
Both Indonesia and the European Union are committed to diversifying their partnerships, which involves strengthening bilateral relations.
In July 2025, during Indonesian President Prabowo Subianto’s visit to Brussels, both parties announced the forthcoming trade agreement. European Commission President Ursula von der Leyen stressed the importance of the partnership in “an increasingly volatile world.”
Indonesia is expected to sign a trade agreement with the United States by the end of October, which is likely to confirm the application of 19% tariffs on Indonesian goods. The Indonesian Trade Minister remains hopeful that exports which cannot be produced on American soil—such as palm oil and rubber—will be exempt from these tariffs. Even if the deal with the U.S. goes through, Indonesia sees it as essential to foster new trade relationships with European countries across all sectors, including defense, to avoid being caught between the United States and China.
Currently, Indonesia is not the EU’s leading trading partner in Southeast Asia—Singapore, Thailand, Vietnam, and Malaysia come ahead. However, it is one of the countries with the greatest potential for European businesses, due to its economic weight and demographic size within ASEAN. European actors are increasingly aware of Indonesia’s potential and the opportunities it offers to diversify supply chains at a time when both the U.S. and China are turning more protectionist.
It is to be hoped that Europeans and Indonesians will overcome their differences over palm oil and deepen this strategic partnership.
