Indonesia and the European Union have concluded a free trade agreement after nine years of negotiations, aiming to expand exports, strengthen investment, and mitigate the impact of existing tariffs on global trade.
The deal will eliminate import duties on more than 90% of products, with most reductions taking effect immediately once the pact enters into force. Certain tariffs, such as Indonesia’s 50% duty on European cars, will be phased out over five years.
Bilateral trade in goods between the EU and Indonesia was valued at $30.1 billion in 2024, and Indonesian officials say they expect this figure to double within the first five years of the agreement.
Expanded Market Access
The EU projects its exporters will save approximately €600 million ($707.4 million) annually in reduced Indonesian tariffs, boosting sales of machinery, chemicals, automobiles, and food products such as milk powder and cheese.
Indonesia anticipates higher exports of palm oil, coffee, textiles, and clothing, with hopes that the agreement will be in effect by January 1, 2027. By that time, Indonesia is expected to transition into an upper-middle-income economy, which would end its eligibility for preferential tariff treatment granted by the EU to developing countries.
Next Steps
The agreement still requires legal review, translation into all EU official languages, and formal approval from both EU governments and the European Parliament.
Indonesian Coordinating Minister for Economic Affairs Airlangga Hartarto highlighted opportunities for deeper cooperation in critical minerals, renewable energy, and electric vehicle supply chains. Discussions with European automakers on partnerships in battery and EV production are already underway, he said.
EU Interests in Critical Minerals
EU Trade Commissioner Maros Sefcovic, speaking in Bali, emphasized that the agreement would enhance European investment in Indonesia and secure access to minerals essential for clean energy and steel industries, including nickel, copper, bauxite, and tin.
For Indonesia’s palm oil sector, the deal marks an important milestone. Eddy Martono, Chairman of the Indonesian Palm Oil Association (GAPKI), welcomed the removal of tariffs but pointed to continuing challenges from non-tariff measures such as the EU Deforestation Regulation (EUDR).
The regulation, expected to be delayed for another year, requires producers to prove shipments do not originate from land deforested after 2020. Martono noted that without resolving these issues, the effectiveness of the trade agreement could be limited.
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