Landmark IEU-CEPA Signed, Set to Eliminate Tariffs on Nearly All Goods
Indonesia and the European Union signed a landmark trade agreement, the Indonesia–European Union Comprehensive Economic Partnership Agreement (IEU-CEPA), on September 23, aiming to eliminate tariffs on nearly all goods and significantly deepen cooperation in services and investment, marking a crucial new chapter in economic relations between the two regions.
The IEU-CEPA is an extremely ambitious pact, covering more than 98 percent of all tariff lines, which represents nearly 99 percent of the total import value exchanged between the parties.
The deal is projected to substantially raise Indonesia’s national income by an estimated US$2.8 billion upon implementation.
Furthermore, it is explicitly designed to create millions of new jobs, reduce poverty levels, and strategically strengthen the role of key labor-intensive sectors in Indonesia’s economy.
These sectors include vital industries like palm oil, coffee, textiles, apparel, footwear, and furniture manufacturing.
Coordinating Minister for Economic Affairs, Airlangga Hartarto, underscored the social impact, stating, “This agreement will directly impact five million workers in labor-intensive sectors,” while highlighting that simplified customs procedures and trade facilitation measures will yield significant benefits for both Indonesian and European businesses.
He added a critical point for local enterprises: Indonesian micro, small, and medium enterprises (MSMEs), which are often burdened by the complex, stringent regulations of the European market, will receive crucial capacity-building support under the new deal, helping them access the vast EU consumer base.
Trade Diversification and Strategic Investment Opportunities
The new trade pact strategically opens doors for Indonesia’s economic diversification beyond traditional commodities, granting access for high-tech products while unlocking major investment opportunities in the rapidly growing electric vehicle (EV) sector, a key component of the global green transition.
Beyond traditional agricultural and manufactured exports, the IEU-CEPA provides unprecedented market access for Indonesia’s higher-value, high-tech products, such as sophisticated smartphones and advanced telecom equipment, thereby encouraging the country to diversify its export base away from simple commodities.
Crucially, the agreement also unlocks significant European investment opportunities in Indonesia’s rapidly growing electric vehicle (EV) sector.
The EU is strategically eyeing Indonesia’s rich mineral reserves— which are essential inputs like nickel—as strategic resources for fueling its own green industrial transition and battery production.
The sheer scale of the agreement is impressive, as the IEU-CEPA will connect 723 million people across both regions, representing a combined Gross Domestic Product (GDP) exceeding US$21 trillion.
Implementation is expected to begin on January 1, 2027, following necessary ratification by both the Indonesian and European parliaments.
Indonesia has set an ambitious target to achieve a 2.5-fold increase in its total exports to the EU within five years of the pact’s entry into force, placing a particular emphasis on gains within the labor-driven industries.
This historic agreement was formally signed in Bali by Minister Hartarto and European Commission Commissioner for Trade and Economic Security, Maros Sefcovic, finally concluding nearly a decade of complex negotiations that first began back in 2016.
Sustainability Compliance and Global Competitiveness
To realize the full benefits of the IEU-CEPA, Indonesia is actively reinforcing its compliance mechanisms to meet high-standard EU regulations, a move that is expected to boost the global competitiveness of key national industries.
The agreement aligns perfectly with Indonesia’s 2025 Economic Package Program, which is focused on spurring domestic job creation and accelerating industrial growth.
The EU is currently recognized as Indonesia’s fifth-largest trading partner, with bilateral trade reaching a robust US$30.1 billion in 2024.
Notably, Indonesia’s trade surplus with the EU has also expanded significantly, growing from US$2.5 billion in 2023 to US$4.5 billion this year, underscoring the current strength of Indonesian exports.
To ensure compatibility with the stringent EU standards and regulations, Indonesia has been proactive in reinforcing its internal compliance mechanisms.
Minister Hartarto cited the importance of the “mutual recognition agreement (MRA) covering product standards,” highlighting existing certifications for palm oil, such as the widely accepted Roundtable on Sustainable Palm Oil (RSPO) used in Europe, alongside Indonesia’s own Indonesian Sustainable Palm Oil (ISPO) system.
Other sectors, including timber and the automotive industry, also already meet key sustainability and legal compliance standards under Indonesia’s Timber Legality Verification System (SVLK).
The Indonesian Employers’ Association (Apindo) strongly welcomed the IEU-CEPA as a vital vehicle for boosting national competitiveness, attracting increased foreign direct investment, and creating new opportunities not just for large corporations but also for professionals and smaller businesses.
As Apindo Chairwoman Shinta W. Kamdani stated, “This isn’t just about trade— it’s a bridge to the future,” emphasizing the deal’s role in facilitating technology transfer and deeper cooperation in areas beyond the simple exchange of goods and services.
