26 Sep 2025
Indonesia and the EU reach important trade deal

After almost a decade of negotiations, Indonesia and the EU have finally reached a substantive conclusion of the Comprehensive Economic Partnership Agreement (IEU-CEPA).

Negotiations took many years in part due to irreconcilable standpoints on inter alia public procurement and the role of state-owned enterprises. The EU’s “green deal” including the EU deforestation regulation was an irritant that caused further delay. However, recent geopolitical developments, particularly the imposition of US tariffs on both Indonesia and the EU, have created the political will on both sides of the aisle to move swiftly and get to a deal. In this regard, the conclusion of the negotiations is also an important signal and counternarrative to the world that Indonesia and the EU stand ready for enhanced free trade and investment.

The significance of the IEU-CEPA should not be underestimated. First, it unlocks two largely complementary markets of 284 million and 450 million people respectively. Further, it is indeed a comprehensive agreement, covering a myriad of trade and investment topics, not only benefitting the free flow of goods, including digital trade, but also services. Most measures, including a 0% tariff for more than 98% of goods and the abolition of non-tariff barriers (NTBs), will enter into force immediately upon ratification of the agreement. European companies stand to benefit from opportunities in Indonesia in agri-food, chemicals, pharmaceutical, machinery and automotive industries, as well as services providers in sectors such as financial services, postal services, telecom, maritime transport, manufacturing, mining and renewable energy, and Indonesian exporters will enjoy easier access to European palm oil, textile and footwear markets. The agreement also contains an investment protection mechanism, filling the gap that was left by Indonesia’s termination, over the past decade, of its biliteral investment treaties with several European countries.

The text of the agreement has not been published yet, but for a helpful summary of the key elements, please refer the European Commission’s publication here. It is expected that the draft text will become available to the public in the coming days.

The next step is for the lawyers from both sides to engage in “legal scrubbing”, which could lead to minor changes in the draft text, followed by translation of the text into the 24 official languages of the EU. After this, the ratification process can begin. This will require approval by the European Parliament and the EU member states, on the European side, and the Indonesian Parliament (DPR), on the Indonesian side. No issues are expected in this regard: it appears that there is great support for the deal in Brussels and the capitals of the EU member states as well as in Jakarta. The process is expected to be completed by the end of 2026, just before Indonesia will lose it status as a developing country under the EU General Scheme of Preferences, which in theory could lead to an increase of tariffs.

Once ratified, national legislation will need to be aligned with the IEU-CEPA. This process will take time, also because it may coincide with reforms that are necessary for Indonesia to become a member of the Organisation for Economic Co-operation and Development (OECD). Therefore, European businesses will only be able to fully benefit from Indonesia’s trade and investment commitments under the agreement in a few years’ time.

Indonesia is the third ASEAN member state (after Singapore and Vietnam) that concludes a free trade agreement with the EU. Other ASEAN member states, i.e., Thailand, the Philippines, and Malaysia, are expected to follow suit. The European Commission hopes to conclude negotiations by the end of 2026. Indeed, the conclusion of the IEU-CEPA has boosted confidence in Brussels, as well as in Manilla, Bangkok and Kuala Lumpur that these free trade agreements can be concluded soon. The longer term goal is to create a regional free trade agreement between the EU and ASEAN, which should greatly benefit European businesses that are active in several parts of the region.

ABNR Comments

It is no coincidence that the EU prioritizes the conclusion of a free trade agreement with Indonesia (after inter alia the EU–Mercosur and EU-Mexico free trade agreements) and other ASEAN member states. Southeast Asia, and particularly Indonesia, which has by far the largest economy, is the region of choice for growth and opportunity. However, with a total trade of approximately EUR 27 billion and foreign direct investment stuck at EUR 25 billion annually, the economic blocks have clearly been punching below their weight. It is expected that upon implementation of the IEU-CEPA, trade will increase by 2.5 times this amount and, in the process, attract foreign direct investment into Indonesia in the coming years.

Though the Indonesian legal landscape is at times challenging, there are great opportunities for European companies to do business in Indonesia. The IEU-CEPA will clearly boost available opportunities in the coming years.

Being the oldest and one of the largest independent corporate law firms in Indonesia, ABNR Counsellors at Law stands ready to assist both European and (foreign and local owned) Indonesian companies seeking to benefit from the opportunities created by the IEU-CEPA.

By foreign counsel Gustaaf Reerink (greerink@abnrlaw.com), partner Agus Ahadi Deradjat (aderadjat@abnrlaw.com), and senior foreign counsel Theodoor Bakker (tbakker@abnrlaw.com)

This ABNR News and its contents are intended solely to provide a general overview, for informational purposes, of selected recent developments in Indonesian law. They do not constitute legal advice and should not be relied upon as such. Accordingly, ABNR accepts no liability of any kind in respect of any statement, opinion, view, error, or omission that may be contained in this legal update. In all circumstances, you are strongly advised to consult a licensed Indonesian legal practitioner before taking any action that could adversely affect your rights and obligations under Indonesian law.