EU And Indonesia Reach Zero Tariff Trade Agreement On Most Goods

On September 23, the European Union announced that it has reached a trade agreement with Indonesia, which will eliminate tariffs on the majority of goods, further deepening the partnership between the two sides.

Image source: European Union

It is reported that officials from the EU and Indonesia signed a document named the "Comprehensive Economic Partnership Agreement" in Bali, Indonesia, marking the end of nearly a decade of negotiations.

The European Commission stated in a declaration that Indonesia will eliminate import tariffs on 98.5% of tariff items from the EU and simplify the process for exporting EU goods to Indonesia. Meanwhile, the European Commission mentioned that the agreement will open up new opportunities for EU investment in Indonesia, particularly in strategic sectors such as electric vehicles, electronics, and pharmaceuticals, thereby promoting the integration of supply chains and value chains between the two parties. In another declaration, Indonesian officials stated that 80% of goods exported from Indonesia to the EU will enjoy zero-tariff treatment.

Officials revealed that within the next five years, tariffs on EU car exports to Indonesia will be reduced from 50% to zero; tariffs on machinery and electrical appliances will be lowered from 30% to zero in the short term; agricultural products and food will also benefit from trade liberalization.

European Union Trade and Economic Security Commissioner Maroš Šefčovič stated in an interview with Bloomberg before the signing ceremony that the agreement will also lift restrictions on the trade of critical raw materials. It is reported that the agreement will eliminate licenses and other related restrictions on the export of chemicals and other materials from the EU. Additionally, the EU will grant tariff concessions on Indonesian raw materials after primary processing when exported to the EU. However, the agreement will not change Indonesia's export ban on nickel to the EU—currently, both sides have an unresolved dispute in the World Trade Organization (WTO) regarding this ban.

Maroš Šefčovič added that thanks to this agreement, European exporters will save about 600 million euros (approximately 708 million dollars) in tariff costs each year. Maroš Šefčovič stated, "We are genuinely opening a brand new chapter of enormous scale, considering Indonesia as the largest economy in Southeast Asia, with an economic size larger than that of Vietnam, the Philippines, and Thailand combined. Our trade with Indonesia has previously not realized its full potential."

Indonesia's Coordinating Minister for Economic Affairs, Airlangga Hartarto, stated at the signing ceremony that Indonesia plans to fully implement the trade agreement by January 2027. However, before the agreement comes into effect, it must be approved by EU member states, the European Parliament, and Indonesia's legislative body.

Airlangga Hartarto added that Indonesia expects its exports to the EU to more than double within the first five years after the agreement is implemented. Growth areas include key commodities such as palm oil and coffee, as well as increased exports of other products like furniture and textiles. According to data from the Indonesian Ministry of Trade, the total bilateral trade between the EU and Indonesia exceeded 30 billion USD last year.

The signing of this agreement comes at a time when U.S. President Trump is trying to reshape global trade relations on American terms, and both the EU and Indonesia are accelerating their pace in reaching trade agreements with countries around the world.