NEWS BRIEF
Indonesia and the European Union have concluded a comprehensive free trade agreement after nine years of negotiations, eliminating import duties on over 90% of goods and aiming to double bilateral trade within five years. The deal, accelerated by concerns over U.S. President Donald Trump’s tariff policies, will provide the EU with improved access to critical minerals like nickel and copper while boosting Indonesian exports of palm oil, textiles, and coffee.
WHAT HAPPENED
- The EU-Indonesia trade deal removes tariffs on over 90% of products, with some, like Indonesia’s 50% duty on EU cars—phased out over five years.
- The agreement is expected to save EU exporters €600 million in Indonesian duties and help double bilateral trade from its current $30.1 billion annually.
- Indonesia aims to leverage the pact to attract European investment in electric vehicle and battery production, capitalizing on its rich nickel reserves.
- The deal still faces legal reviews and must be ratified by EU governments and the European Parliament before taking effect by January 2027.
WHY IT MATTERS
- The agreement represents a strategic move by both sides to reduce economic reliance on China and mitigate the impact of U.S. tariffs under the Trump administration.
- It offers Indonesia a pathway to maintain trade benefits with the EU as it transitions to upper-middle-income status, avoiding the loss of preferential duties.
- The pact strengthens supply chains for critical minerals essential to the EU’s green transition, such as nickel, copper, and bauxite.
- Non-tariff barriers, particularly the EU’s deforestation regulation, remain a significant challenge for Indonesian palm oil exports.
IMPLICATIONS
- The deal reflects a broader trend of countries forming alliances to counter protectionist U.S. trade policies.
- Indonesian industries like palm oil, textiles, and EVs stand to gain significantly from improved EU market access.
- The EU’s deforestation rules could limit gains for Indonesian palm oil producers unless compliance issues are resolved.
- The agreement may encourage other Southeast Asian nations to pursue similar partnerships with the EU.
This briefing is based on information from Reuters.
