Trade Breakthrough Ahead: Indonesia–EU CEPA

Nearly nine years since talks first began, Indonesia and the European Union are finally on the verge of concluding the Indonesia–EU Comprehensive Economic Partnership Agreement (IEU-CEPA). The free trade agreement, which has gone through 19 rounds of negotiations, is now in its final stage, with both parties expecting a formal conclusion by the end of June 2025.

For Indonesia, the deal represents a critical step in diversifying its trade partners, while for the EU, it offers a new foothold in one of Southeast Asia’s most important economies.

Timeline of negotiations: 2016 to 2025

Talks for the Indonesia–EU CEPA began in July 2016 after a joint scoping exercise identified shared priorities in trade and investment. Initial progress was slow due to differences on palm oil, investment protections, and local content rules. By 2020, negotiations had reached core technical chapters, including rules of origin and dispute settlement.

Following delays during the pandemic, momentum resumed in 2023, with significant breakthroughs in automotive access and critical mineral provisions. The 19th negotiation round in July 2024 addressed final issues on market access and public procurement. As of June 2025, both sides are in the finalization phase, with the agreement expected to be concluded by the end of the month before entering legal review and ratification.

A comprehensive agreement with strategic depth

The CEPA offers a broad framework for liberalizing trade in goods and services, improving investment protections, and enhancing regulatory cooperation. Approximately 80 percent of Indonesia’s exports to the EU, especially apparel, footwear, palm oil, fisheries, and automotive components, will receive immediate or phased zero-tariff treatment. The EU, in turn, gains improved access for its machinery, chemicals, and manufactured goods.

Under the agreement, Indonesia’s textile and footwear exports will see tariff eliminations on day one, while processed palm oil and EV battery components will be liberalized gradually over five years. These measures are expected to significantly lower costs for Indonesian exporters and increase EU access to affordable raw materials and consumer goods.

Expanding Indonesia’s export performance and industrial development

For Indonesia, the IEU-CEPA supports both short-term trade growth and long-term industrial advancement. With EU investors expected to scale up operations in electric vehicles, critical minerals, and digital infrastructure, the agreement will help Indonesia shift toward higher-value industrial development. Exporters will benefit from tariff eliminations and streamlined customs procedures, particularly in labor-intensive sectors like apparel and seafood.

Indonesia’s trade surplus with the EU increased from US$2.5 billion in 2023 to US$4.5 billion in 2024, and government projections suggest exports to the EU could rise by more than 50 percent within the first three to four years of implementation.

This aligns with the country’s strategy of boosting downstream processing in nickel and other mineral-based industries.

New opportunities for European companies in a strategic market

European businesses will benefit from preferential trade terms and stronger investment protections in Indonesia’s expanding economy. The CEPA opens access to key service sectors, including logistics, telecommunications, and financial services, with commitments to reduce equity restrictions and grant national treatment to EU firms. Investment protections are also strengthened through binding dispute resolution mechanisms, offering greater legal certainty for European investors.

In 2024, total FDI inflows into Indonesia reached US$55.3 billion — a 21 percent increase over the previous year. During the final quarter of 2024 alone, Indonesia attracted US$3.4 billion in base metals investment, US$2.1 billion in paper, and US$1.3 billion in mining. EU FDI stock in Indonesia totaled €25.1 billion by the end of 2023, with investors particularly active in high-value manufacturing and infrastructure development.

Major European firms such as BASF, Unilever, and TotalEnergies already operate in Indonesia and are expected to expand their presence under the improved legal environment. On the Indonesian side, textile manufacturers, seafood exporters, and companies in the nickel processing sector stand to gain faster, more predictable access to the EU market.

Policy gaps and regulatory risks remain

Despite the momentum, several structural concerns remain unresolved. Indonesia seeks to retain control over local content rules, import licensing systems, and resource management frameworks. At the same time, the EU continues to push for improved investment protection, regulatory clarity, and transparency.

The agreement includes commitments on licensing procedures and data transparency, but does not fully address EU concerns over localization requirements in areas such as EV batteries or cloud computing. Previous Indonesian restrictions on imports of horticultural and animal products had led to WTO disputes, and similar issues may reemerge if CEPA provisions are not properly implemented.

Legal certainty and dispute enforcement also remain sensitive areas. While CEPA offers investor–state dispute mechanisms, some EU stakeholders remain cautious about overlapping regulatory authorities and the unpredictability of Indonesia’s subnational governance environment.

A defining moment for ASEAN–EU trade relations

If concluded and ratified, the IEU-CEPA will become one of the EU’s most comprehensive trade agreements with an ASEAN country. It sets a high standard for regional engagement and opens early-mover advantages for businesses on both sides. The agreement also reflects a shifting global trade landscape — one where strategic bilateralism is reshaping regional integration.

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